income tax
Published on 21 July 2025
Compliance Officers and Company Secretaries: Recent Legal Clarifications on Liability
Compliance Officers & Corporate Fraud: Where the Legal Line Is Now Drawn
In the world of corporate governance, it’s often said that compliance officers are the company’s conscience. But when fraud erupts, are they also expected to be its gatekeeper? A recent legal saga—culminating in a nuanced Securities Appellate Tribunal (SAT) decision, further weighed by the Supreme Court—has quietly redrawn the boundary between responsibility and overreach.
The case of V. Shankar vs SEBI, rooted in the Deccan Chronicle Holdings controversy, has become a reference point for professionals who often find themselves between a rock and a regulatory hard place. At the heart of it lies a deceptively simple question: When can a compliance officer be held personally liable for corporate fraud?
SAT’s Core Finding: Not All Signatures Are Endorsements
In a measured ruling, SAT underscored that compliance officers and company secretaries are not strategists—they are custodians of process. Their duties, the tribunal clarified, are largely ministerial rather than managerial. That is, they execute and attest—they don’t decide.
Take the signing of financial statements, for instance. SAT stressed that this act, in itself, does not translate into a personal guarantee of accuracy. Compliance officers are not expected to re-audit numbers that have already been vetted and approved by the board and external auditors.
Unless there is clear evidence of direct involvement or knowledge of wrongdoing, the tribunal concluded, compliance officers cannot be held accountable for the sins of others—however severe those sins may be.
Supreme Court’s Pushback: What About SEBI's Buyback Rules?
While SAT offered a shield, the Supreme Court called for a finer lens. It directed SAT to reassess its decision, particularly under SEBI’s Buyback Regulation 19(3) and Section 215 of the old Companies Act. Both provisions speak to compliance oversight during sensitive corporate actions like share buybacks.
The top court essentially asked: Can a compliance officer truly claim ignorance if buyback formalities are botched or misrepresented? The message was clear: the role is not limited to filing grievances or stamping papers—it carries regulatory responsibility in key processes.
Final SAT Take: Procedural, Not Penal—Unless You Cross the Line
After reconsideration, SAT stood its ground—but with sharper articulation. Compliance officers, the tribunal reaffirmed, cannot be made scapegoats simply for attesting board-approved documents. However, this protection hinges on one condition: they must not have had prior knowledge of irregularities or been complicit.
The ruling creates a much-needed hierarchy of accountability:
| Role | Duties | Liability Trigger |
|---|---|---|
| Compliance Officer | Record-keeping, regulatory filings, attestation | Only if directly involved or knowingly negligent |
| Board of Directors | Strategy, approval, disclosures | Primary responsibility for accuracy and compliance |
| Auditors/Finance Team | Preparation and certification of financials | Accountable for underlying data integrity |
Annual Secretarial Compliance Report (ASCR): The Other Safeguard
Beyond case law, Regulation 24A of SEBI’s LODR has built in a layer of third-party oversight: the Annual Secretarial Compliance Report (ASCR). Prepared by an independent, peer-reviewed company secretary, the ASCR functions as a governance thermometer.
It audits the year’s SEBI compliance, flags violations, and documents how management responded—helping ensure no one can plead ignorance, at least not credibly.
What This Means for Compliance Professionals
The legal consensus, for now, is a relief: compliance officers aren’t automatically liable for corporate frauds they neither orchestrated nor endorsed. But this safety net comes with strings attached.
If you're a compliance officer, here’s the cautionary checklist:
- Rely—but document reliance. You can trust auditor and board certifications, but maintain records of that reliance.
- Spot a red flag? Escalate. Silence or inaction when discrepancies emerge could break the legal shield.
- Know your filings. Especially in buybacks and other sensitive corporate events, understand what your attestation signifies under SEBI rules.
As judicial thinking evolves, the role of compliance officers is being treated less as a passive checkpoint and more as an informed witness. The expectation is not omniscience—but it is vigilance.
Closing Thought
The V. Shankar case has done more than clarify liability—it has subtly redefined trust. It says to compliance officers: We won’t hold you liable for everything—but you must be able to prove you weren’t asleep at the wheel.
In an era where regulatory scrutiny is tightening and investors are asking tougher questions, this distinction may make all the difference between professional survival and personal risk.
Sources Cited
- Securities Appellate Tribunal (SAT) ruling in V. Shankar vs SEBI
- Supreme Court remand order (V. Shankar case)
- SEBI Buyback Regulations, 2018
- Companies Act, 1956 – Section 215
- SEBI (LODR) Regulation 24A – Annual Secretarial Compliance Report
- Expert commentaries via LinkedIn and professional networks