[Aadya Narain is a B.A. LL.B. (Hons.) student at Jindal Global Law School]
On 5 May 2025, the Securities Appellate Tribunal (“SAT”) in V. Shankar v SEBI addressed a critical and controversial question: can a compliance officer be held personally liable for fraudulent disclosures and statutory violations committed by the board of directors of a listed company? The case arose from an order of the Securities and Exchange Board of India (“SEBI”) which held V. Shankar, the former Company Secretary and Compliance Officer of Deccan Chronicle Holdings Ltd. (“DCHL”), responsible for misleading investors by signing a public buyback announcement allegedly based on manipulated financials. The SAT accepted that the buy-back offer was fraudulently designed by inflating the price 234% over the ruling market price, without requisite free reserves, but disagreed on the extent of liability V. Shankar owed. The counsel for V. Shankar argued that the duties of a compliance officer does not extend to verifying the authenticity and correctness of the accounts of a listed company. Rather, it is the directors who are responsible for the information contained in the public announcement and other documents. The counsel for SEBI, conversely, argued that the officer’s reliance on the unaudited results without any verification is violative of the core functions he is required to discharge. The Tribunal disagreed with SEBI’s findings and quashed the penalty, holding that Shankar’s role was ministerial in nature and that SEBI had failed to establish a clear statutory basis for the liability imposed.
Background to the Case
The dispute arose during SEBI’s investigation into DCHL, which conducted a buyback of equity shares in 2011 valued at ₹270 crore. The regulator alleged that the company had deliberately understated its outstanding loans and interest expenses by temporarily shifting liabilities to an associate entity, Deccan Chronicle Marketeers (“DCM”), at the end of each financial year between 2008 and 2011. These liabilities were then brought back onto the books at the start of the subsequent financial year. SEBI concluded that the company overstated its free reserves and financial strength, thereby misleading investors.
While the primary allegations were directed at the company’s promoters and directors, V. Shankar was implicated for signing the public announcement dated 6 May 2011 in his capacity as Company Secretary and Compliance Officer. The adjudicating authority held that Shankar failed to act diligently by authenticating financial statements and announcements without verifying their accuracy. On this basis, a penalty of ₹10 lakh was imposed on him under section 15HA of the SEBI Act for violating sections 12A(a)-(c) of the SEBI Act, read with regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (“PFUTP Regulations”), and sections 68 and 77A of the Companies Act, 1956. The relevant provision under which the liability was pinned upon the Compliance Officer was regulation 19(3) of the SEBI (Buyback of Securities) Regulations 1998 (“Buyback Regulations”), which is as follows:
19(3): The company shall nominate a compliance officer and investors service centre for compliance with the buy-back regulations and to redress the grievances of the investors.
On appeal, the SAT initially set aside the order, but the Supreme Court remanded the case for fresh consideration. While remanding the case, the Supreme Court reiterated that under regulation 19(3) of the Buyback Regulations, a compliance officer is not limited to redressing investor grievances but is also tasked with ensuring compliance. It held that the Tribunal had made a “patent error” in interpreting the role of the compliance officer under these regulations.
The crux of the controversy, thus, lay in the interpretation of the compliance officer’s responsibility under regulation 19(3) of the Buyback Regulations and section 215 of the Companies Act, 1956. SEBI’s case relied heavily on the assumption that these provisions imposed a duty on the compliance officer to act as a gatekeeper against fraud. The SAT rejected this reading, holding that neither provision required the compliance officer to re-evaluate or second-guess the judgments of auditors or the board. This conflict highlights the jurisprudential disagreement between SEBI and the SAT on the extent of liability to be undertaken by a compliance officer in the performance of their duties.
SEBI’s Expansive Liability Stance
The SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the “LODR Regulations”) were amended on April 1, 2025 to require that the compliance officer is now also required to be a key managerial personnel (“KMP”) in the whole-time employment of the listed entity, holding a position that is not more than one level below the board of the listed entity. While the LODR Regulations requires the company secretary “to report” to the board of directors regarding compliance with all the laws and regulations applicable to the listed entity, the compliance officer bears the greater and additional burden of ensuring that the listed entity “complies” with all the applicable laws and regulations. The implications of this amendment were uncertain – was the compliance officer expected to undertake compliance actions under all laws applicable to the listed entity, or responsible for the acts of the company in ensuring this compliance?
SEBI’s informal guidance dated February 3, 2017 issued to Kirloskar Chillers Private Limited stated that regulation 2(1)(c) read with Schedule B of the Prohibition of Insider Trading Regulations 2003 (“PIT Regulations”) obligates the compliance officer to ensure the effectiveness of the code of conduct and adherence to all SEBI regulations. It rejected the notion that compliance officers act merely in a ministerial capacity under the board’s supervision. Similarly, the SEBI order in Satyam Computer Services Limited, concerning the SEBI Regulation on PIT Regulations, placed the burden of proactive steps to ensure adherence to relevant regulations upon the compliance officer.
SAT’s Limited Liability Stance
Despite the Supreme Court’s remanding the matter back to the SAT, the Tribunal maintained its decision and consistency with its earlier orders. In Prakash Kanungo v SEBI, also dealing with the liability of the compliance officer under the PIT Regulations, the SAT clarified that when a managing director makes a disclosure to the company, the compliance officer is not required “to go into the correctness of the transaction and verify as to whether the transactions had actually been done or not” before disclosing it to the stock exchange. Here too, the SAT set aside the penalty upon the compliance officer by SEBI. In New Delhi Television Ltd v SEBI, the Tribunal emphasised that the compliance officer is an employee of the company, and cannot be made singularly liable for faulty disclosures made by the board of directors.
The Tribunal also distinguished its own holding in Bhuwneshwar Mishra v. SEBI (Appeal no. 7 of 2014 – Date of decision – July 31, 2014), where the officer had a direct obligation to ensure timely and accurate disclosure of shareholding patterns—a function that fell squarely within the compliance officer’s domain. By contrast, Shankar’s role in authenticating board-approved documents was confined to a statutory formality, not a substantive assessment of financial accuracy.
The SAT pointed out a fundamental contradiction in the adjudicating authority’s reasoning in V Shankar. The order acknowledged that section 215 of the Companies Act, 1956 merely requires the company secretary to authenticate the balance sheet and profit and loss account on behalf of the board. However, it simultaneously held that the compliance officer was expected to go beyond attestation and verify whether the audited accounts included all relevant assets, liabilities, and other material facts. This, the SAT noted, effectively imposed a duty to re-audit the financial statements, which is a responsibility not supported by any legal provision.
Conclusion
The SAT judgment in V. Shankar highlights the doctrinal rift with SEBI’s attempts to impose strict or absolute liability on compliance officers. While SEBI treats compliance officers as gatekeepers with quasi-managerial obligations, the SAT reasserts a boundary: ministerial acts do not automatically translate into liability, and compliance personnel cannot be presumed to function as auditors or directors. It has repeatedly emphasised that compliance officers and company secretaries should not be held liable for disclosure lapses or misstatements unless there is concrete evidence of participation or knowledge, beyond mere non-verification. Particularly in instances like the present, the mandate to verify detailed financial records of companies exceeds what can reasonably be expected of compliance officers, and is untenable. However, what is interesting to note is that the stance of the Supreme Court aligns more closely with the expansive liability view taken by SEBI. It remains to be seen what the final jurisprudential word on this question from the apex court will be.
– Aadya Narain