SAT’s Landmark Ruling on Compliance Officers’ Liability in Corporate Fraud Cases: A Crucial Precedent for Governance Professionals

(Reference: V. Shankar v/s SEBI Appeal No.283 of 2022 | Order dated: May 5 , 2025)

On May 5, 2025, the Securities Appellate Tribunal (SAT) delivered a significant judgment in the case of V. Shankar vs. Securities and Exchange Board of India (SEBI) (Appeal No. 283 of 2022), a decision that will resonate across boardrooms, legal departments, and compliance offices of listed entities.

1. Background of the case:

The case involved V. Shankar, the former Company Secretary and Compliance Officer of Deccan Chronicle Holdings Ltd (DCHL), who was penalized by SEBI with a ₹10 lakh fine.

The allegation?

By signing a public buyback announcement in 2011 — at a time when the company lacked adequate free reserves (due to understated liabilities in its financial statements) - he misled investors and failed to exercise due diligence. SEBI's Adjudicating Officer (AO) held Shankar responsible, stating he should have verified the accuracy of the audited accounts before authenticating the public announcement."

2. What SAT Held?

In a comprehensive ruling, SAT decisively overturned the SEBI order, setting aside the penalty and clarifying several crucial principles:

• Ministerial vs. Managerial Role:
  SAT reiterated that the role of a Compliance Officer is ministerial in nature — ensuring procedural compliance and coordinating filings — not managerial, and certainly not one that involves re-auditing board-approved, certified financial statements.

• Liability for Financial Misstatements:
  It is neither the duty nor within the legal scope of a Company Secretary/Compliance Officer to second-guess or re-examine financial statements audited by qualified auditors and approved by the Board of Directors.

• Signatory Responsibility:
  Being a signatory to a document such as a public announcement, where responsibility for its content is expressly assumed by the Board, does not automatically transfer liability to the Compliance Officer for any misstatements in the underlying data.

• Charge Clarity:
  SAT emphasized that liability cannot be imposed based on ambiguous or generalized allegations. Specific, clear, and legally sound charges are essential before holding an officer responsible.

3. Why This Ruling Matters?

This order is a major relief for compliance professionals and governance officers across corporate India. It safeguards officers from being penalized for acts of omission or commission attributable to promoters, directors, or auditors — as long as the officer has acted within the scope of their legal and professional responsibilities. It also underscores the importance of clearly defining the scope and expectations of each key managerial and compliance role in listed companies, especially when it comes to statutory responsibilities. It firmly reinforces the distinction between managerial and ministerial responsibilities for compliance officers and company secretaries — providing much-needed clarity on their liability in cases of corporate fraud and financial misstatements.

4. Key Takeaway:

The SAT’s _V. Shankar vs. SEBI_ judgment is a timely reminder that while governance professionals must exercise diligence, their role is procedural, not supervisory over the Board or financial auditors. Regulatory authorities and corporates alike must respect these role distinctions, ensuring that accountability is appropriately placed without diluting professional responsibilities.

(Disclaimer: The content provided in this article is intended solely for information and academic purposes only based on research. It does not constitute legal advice, nor should it be interpreted as a solicitation or advertisement for legal services.)