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2008 Supreme(Del) 171
IN THE HIGH COURT OF DELHI AT NEW DELHI
S. MURALIDHAR J.
H.R.KAPOOR ..... Petitioner
Versus
SECURITIES AND EXCHANGE BOARD OF INDIA .... Respondents
CRL.M.C. 2747/2006 and CRL.MA 4442/2006
CRL.M.C. 4915/2006 and CRL.MA 8280/2006
CRL.M.C. 4954/2006 and CRL.MA 8358/2006
Decided on : 12th February 2008
Mr. Varun Agarwal, Advocate.
Mr. Neeraj Malhotra, Advocate for R-1.
The legal principle established in the judgment emphasizes the liability of persons in charge of a company for the conduct of its business under Section 27 of the SEBI Act, and the sufficiency of averments in complaints to attract the offence under the Act.
Headnote:
SEBI - Criminal Complaints - SEBI Act, 1992, Sections 11-B, 12(1-B), 24, Regulations 5(1), 68(1), 68(2), 73, 74 - The court discussed the violations of the SEBI Act and the CIS Regulations by the plantation companies and their directors. It highlighted the legal provisions of Section 27 of the SEBI Act and its similarity to Section 141 of the Negotiable Instruments Act 1881. The court emphasized that the complaints contained sufficient averments to attract the offence under the SEBI Act, and dismissed the petitions under Section 482 CrPC.
Fact of the Case:
The petitions sought the quashing of criminal complaints filed against plantation companies by SEBI for offences under the SEBI Act. The complaints alleged violations of SEBI regulations by the companies and their directors.
Finding of the Court:
The court found that the complaints contained sufficient averments to attract the offence under the SEBI Act. It dismissed the petitions under Section 482 CrPC, emphasizing that the observations in the order would not influence the verdict reached by the trial court.
Issues: The issues included the compliance with SEBI regulations by the plantation companies, the liability of the directors for the company's conduct, and the legality of the procedure followed in transferring the case to the Court of the Additional Sessions Judge.
Ratio Decidendi: The court emphasized the legal provisions of Section 27 of the SEBI Act and its similarity to Section 141 of the Negotiable Instruments Act 1881. It held that the complaints contained sufficient averments to attract the offence under the SEBI Act.
Final Decision: The petitions and applications were dismissed, and there were no orders as to costs. The court highlighted that its observations would not influence the verdict reached by the trial court in each of the cases upon an independent assessment of the evidence on record.
Dr. S. Muralidhar, J. (open court)
1. These petitions under Section 482 of the Code of Criminal Procedure, 1973 (`CrPC) seek the quashing of criminal complaints filed against the plantation companies by the Securities and Exchange Board of India (SEBI) for offences under Sections 11-B, 12 (1-B) read with Section 24 of the Securities and Exchange Board of India Act, 1992 (`SEBI Act) read with Regulations 5(1), 68(1), 68(2), 73 and 74 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 (`CIS Regulations). These petitions raise common questions of law and are, therefore, being disposed of by this common judgment.
2. In the early 1990s, a large number of plantation companies came to be incorporated. Each of them promised attractive returns to persons prepared to invest their monies in what were known as collective investment schemes. When it transpired that many of these schemes were in fact non-starters, and the investors were not getting back their monies, the SEBI stepped in to formulate certain regulations. The corrective action received impetus from orders passed by this Court in writ petitions that were filed by the investors seeking redress. Among the directions issued by a Division Bench of this Court were those contained in an order passed on 22nd January 2002 in C.W. No.3352 of 1998 (S.D.Bhattacharya v. SEBI and Ors.), the relevant portion of which reads as follows: Having regard to the affidavit of the SEBI affirming that the aforesaid companies have not complied with the orders, and for securing the interests of the investors we are of the view that their bank accounts ought to be frozen. We are also of the opinion that not only the bank accounts of the aforesaid companies should be frozen but the bank accounts of their Directors and Promoters should also be frozen with immediate effect. We order accordingly. The concerned banks shall freeze the accounts and carry out the directions forthwith. The bank shall route the compliance reports through the R.B.I. The SEBI shall publish the order in Indian Express, Hindustan Times, Hindu and Business Standard. A copy of this order be given to the counsel for the Reserve Bank of India so that this order should be circulated to the various banks for compliance. In case any of the affected companies claim that they are complying with the directions of this court, it will be open to them to approach SEBI with necessary proof of compliance of the orders of this court and also with the Rules and Regulations of the SEBI. The SEBI on being convinced that the company is complying with the directions of this Court and the rules and regulations, shall file an appropriate application for modification of the order.
3. The SEBI thereafter swung into action and filed a large number of criminal complaints in various courts. The present petitions under Section 482 CrPC arise out of the complaints filed against the Petitioners here in the courts of the Additional Chief Metropolitan Magistrate (ACMM), Delhi for the offences under the SEBI Act as indicated in the first paragraph of this judgment.
4. The averments in most of the complaints are more or less similar. There is a narrative of the background to the framing of the SEBI (Collective Investment Schemes) Regulations 1999 which was preceded by press releases issued by SBI requiring compliance with directives issued for furnishing information to SEBI by the plantation companies about the collective investment schemes floated by them.
5. The complaints, inter alia, narrate how the companies floating collective investment schemes, were required to make an application with the SEBI for registration of the scheme under Regulation 73 (1) and also furnish information to all the investors detailing the state of affairs of the scheme, the amount repayable to each investor, and the manner in which such amount determined. Time for furnishing the information kept getting extended by SEBI from time to ti
