Compliance Officers Not Liable for Board-Approved Financial Misstatements Absent Clear Evidence

In a significant ruling, the Securities Appellate Tribunal (SAT) in the case of V. Shankar v. Securities and Exchange Board of India, (Appeal No. 283 of 2022), dated May 5, 2025, set aside the penalty imposed on the appellant, Mr. V Shankar, holding that a company secretary is not liable for the misstatements in audited financial statements approved by the board of directors (BOD) and certified by statutory auditors, and that the role of a compliance officer under the SEBI (Buyback of Securities) Regulations, 2018, does not extend to re-auditing or verifying the financial accounts.

The appeal was filed under Section 15T of the SEBI Act, 1992, to challenge the order passed by the Adjudicating Officer (AO) of the Securities and Exchange Board of India (SEBI) dated March 22, 2022, whereby a penalty of ₹10,00,000 was imposed on the appellant under Section 15HA of the SEBI Act, 1992, for alleged violations of the Companies Act, 1956 and of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. The appellant, who served as the company secretary of Deccan Chronicle Holdings Limited (DCHL) from 2009 to 2011, had previously succeeded before the Tribunal in setting aside the SEBI order. However, upon an appeal by SEBI, the Hon’ble Supreme Court of India, vide order Securities and Exchange Board of India vs V. Shankar, [(2023) 7 SCC 356], dated February 8, 2023, set aside the earlier order of the Tribunal and remanded the matter for fresh adjudication, clarifying the scope of the compliance officer’s responsibilities under Regulation 19(3) of the Buyback Regulations.

Upon remand by the Supreme Court for fresh consideration in light of the correct interpretation of Regulation 19(3) of the SEBI (Buyback of Securities) Regulations, the Tribunal re-examined the findings of the AO and the statutory framework governing the roles of a company secretary and compliance officer. It noted that the public announcement dated May 6, 2011, expressly stated that the BOD accepted responsibility for its contents. Although signed by the appellant, among others, responsibility was clearly attributed to the BOD, and no individual liability could be inferred from the appellant’s signature alone.

The Tribunal clarified that neither Section 215 of the Companies Act, 1956, nor Regulation 19(3) of the SEBI (Buyback of Securities) Regulations, 1998, imposes a duty on a company secretary or compliance officer to audit or independently verify financial statements. Their role is limited to authenticating accounts on behalf of the Board and ensuring regulatory compliance—not reassessing financials already prepared by the finance team, certified by auditors, and approved by the Board. The expectation that the appellant should second-guess audited accounts was found to be legally unfounded. The Tribunal further noted that the AO’s findings failed to establish any specific provision that had been violated by the appellant in his role as compliance officer.

SEBI’s findings in the order of March 2022, attributed the concealment of liabilities to the company and its directors, with no evidence that the appellant had knowledge of or contributed to the misstatements. The Tribunal found no specific or legally sustainable charge against the appellant and held that in the absence of a clear violation of statutory duty, penalties under Section 15HA of the SEBI Act could not be upheld. The Tribunal reaffirmed the principle that a delinquent must be confronted with specific and legally sustainable charges, and that penal consequences cannot follow from presumptions or vague inferences unsupported by statutory duties.

Accordingly, the Tribunal allowed the appeal, set aside the order of the AO dated March 22, 2022.

The decision underscored that penalties must be based on concrete statutory breaches, not presumptions or misplaced expectations.