The main legal point established in the judgment is that SEBI's consent is necessary for compounding the offense under Section 24A of the SEBI Act, and the court must obtain the views of SEBI for guidance in its ultimate decision.

JUDGMENT :

Rule.

2. Rule made returnable forthwith. Heard, finally with the consent of the parties.

3. Although, this application under Section 482 of the Code of Criminal Procedure, 1973 seeks to quash proceedings in SEBI Special Case No. 51/2014, essentially it challenges the order dated 28th August, 2019 in the said SEBI case, whereby, application under Section 24A of Securities and Exchange Board of India Act, seeking compounding of offence was rejected by the SEBI Special Court.

4. Facts Essential for decision of this application, are as follows :—

Applicant Nos. 1 to 4 were Directors of a Company named Avani Plantation Ltd., incorporated on 14th January, 1997. Applicant No.4 resigned from the Board in the year 1999. Applicant Nos. 5 to 7 were nominal share holders of Avani Plantation Ltd. (Company for short). Respondent No.1 is Securities and Exchange Board of India; Respondent No.2 is Union of India and Respondent No.3 is State of Maharashtra.

5. The first Respondent filed Criminal Complaint No.47/S/2004 against the Applicants before the Additional Chief Metropolitan Magistrate, Mumbai, for alleged violation provisions of Sections 11(B), 12(1B) of SEBI Act, 1992 and Regulation 71 read with Regulations 9, 73 and 74 of SEBI (Collective Investment Schemes) Regulation 1999, which is punishable under Section 24(1) of Securities and Exchange Board of India Act, 1992.

6. Complainant case in brief is that, to protect the interest of investors and to regulate the securities market through appropriate measures a person, who immediately prior to the commencement of the said Regulation of 1999 (Regulation for short), operating a Collective Investment Scheme was required to make an application to SEBI for grant of registration within a period of two months from the date of notification. As per Regulation 73, Collective Investment Schemes that failed to make an application for registration with SEBI was required to wind-up its scheme(s) and repay its investors in the manner specified therein. Regulation 74 states that an existing Collective Investment Scheme, which is not desirous of obtaining provisional registration from SEBI was required to formulate the scheme of repayment and make the repayment to the existing investors in the manner specified under Regulation 73.

7. The said Company applied for provisional registration and it was granted on 1st April, 2001, on the condition more particularly, stated in Regulation 71. For non-compliance of regulation, the SEBI vide show cause notice dated 7th January, 2003 called upon the said Company, as to why the provisional registration granted to them should not be revoked, Company was heard. Whereafter, the SEBI advised the Company to comply with Regulation by 25th April, 2003 or wind-up the existing scheme and make payments to the investors. Thereafter on 27th November, 2003, SEBI directed the said Company to refund the monies collected under the scheme within one month from the date of order, failing which, action would follow. The Company allegedly failed to comply with the directions contained in the order dated 27th November, 2003 and therefore the SEBI initiated prosecution under Section 24 of SEBI Act.

8. Complaint was filed on 15th April, 2014. Cognizance under Section 26 was taken on 14th September, 2006. It was numbered as Special Case No. 51/2014. Pending case, vide application below Exhibit 11, Applicants moved an application under Section 24-A of the SEBI for seeking composition of the offence and submitted that the accused/Company has wound up and refunded the entire amount collected under scheme to all their share holders/creditors.

9. The application was opposed by the SEBI contending that composition application moved by the accused/Company was placed before the High-powered Advisory Committee (HPAC), which recommended that the matter may not be compounded and the said recommendation was approved by the Panel of Whole Time Members of SEBI. On these grounds, the SEBI sought rejectio