Special court convicts 3 directors of Roofit Industries, lets them off only with fine

MUMBAI: A special SEBI court on Wednesday convicted three directors of Roofit Industries Ltd. The directors were found guilty of failing to fulfill the company’s commitment to distribute a 5% dividend on its equity to shareholders as promised in 2001. The court opted for leniency, imposing a fine of ₹5 lakh each on the directors instead of sentencing them to jail. This decision was influenced by the directors’ advanced age and frail health.
According to the prosecution, the complaint was lodged by A Chandra Sekhar Rao under the authority of the Securities and Exchange Board of India (SEBI) in accordance with Section 621 of the Companies Act, 1956. The complainant contended that SEBI, established as a body corporate under Section 3 of the SEBI Act, 1992, was mandated to safeguard investor interests in securities and regulate the Indian securities market.
The accused, Suresh Motwani, Kishor Motwani and Milind Tamhane were the directors of Roofit Industries Ltd., a public limited company listed on the Mumbai Stock Exchange and the National Stock Exchange. The complaint alleged that during the Annual General Meeting held on October 30, 2001, the company had declared a dividend of ₹0.50 per share, totalling ₹79,94,720, to be distributed to shareholders. However, due to unforeseen financial constraints, the declared dividend could not be distributed within the stipulated 30-day period, leading the company to seek SEBI’s approval to condone the delay.
SEBI, in response, issued a notice on July 26, 2002, to the managing director of RIL, questioning why criminal prosecution should not be initiated under Section 621 of the Companies Act, 1956. The notice, delivered on July 31, 2002, remained unanswered by the company. Consequently, SEBI filed the present complaint, asserting that the directors of RIL are liable for prosecution under Section 207 of the Companies Act, 1956, due to their failure to ensure timely payment of the declared dividend.
During cross-examination, Rao submitted that there were several challenges to his authority and the ROC record. He further disclosed key facts stating, “I did not investigate non-payment of dividends but identified accused directors and asserted their liability, omitting Roofit Company. At the relevant time, there were 12 directors of the company, but I was never informed that a director resigned and that two were independent directors.”
After hearing both sides, special judge AA Kulkarni said, “Based on documents available on record it is clear that the present accused were directors of the RIL company at relevant. Accused being directors of the RIL company knowingly failed to take any steps to pay dividend declared by the company.”