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Must Hear Accused Before Taking of Offences:
In a significant ruling that reinforces procedural safeguards in securities law prosecutions, the has held that Special Courts constituted under the Act, 1992, cannot take of offences without first granting the accused an , as mandated by the .
Justice N. J. Jamadar, sitting in the Criminal Appellate Jurisdiction, quashed an order of the that had issued process against Neville Tuli, a director of , solely on the ground that the mandatory hearing under the , was not provided.
A Paradigm Shift in Criminal Procedure
The ruling marks a watershed moment in the application of the , to special statutes. The represents what the Court described as a "paradigm shift" from the well-ingrained rule of that an accused has no before is taken and process is issued.
Justice Jamadar observed:
"The law which prevailed before the introduction of the proviso to Section 223(1), by and large, did not recognize a
at a pre-
stage. The
marked a paradigm shift by enshrining the
at a pre-
stage."
The Osian's Art Fund Saga
The prosecution stemmed from allegations surrounding Osian's Art Fund, a private trust settled in with as settlor and as trustee. In , the Whole Time Member of determined that the fund constituted a collective investment scheme operated without registration, in violation of Section 12(1-B) of the Act and the (Collective Investment Schemes) Regulations, 1999.
subsequently directed the company to refund monies to investors with ten per cent interest. Despite the dismissal of appeals by the and the of India, the company allegedly failed to comply. With the initiation of the Corporate Insolvency Resolution Process against the company and the consequent moratorium under the , lodged a complaint against the directors under Section 24(2) of the Act before the at Mumbai.
The Core Legal Question
The petition posed a precise question that the Court framed as follows:
"Is it incumbent upon the
under the
Act, 1992, to give an opportunity of hearing to an accused under the
, 2023
, before taking the
of the offences punishable under
Act, 1992?"
Tuli, represented by , confined his challenge to the ground that the 's failure to provide a hearing rendered the order . The argument drew strength from recent pronouncements interpreting analogous provisions in the .
's Defence: The as Court of Session
, appearing for , mounted a robust defence. He contended that the Act is a special statute with its own mechanism for taking . , he argued, already interdicts except on a complaint made by the Board, following detailed enquiry proceedings. , he emphasised, deems the to be a Court of Session for the purposes of the , thereby excluding the application of , which falls under the Chapter dealing with complaints to Magistrates.
Mr. Pasbola placed heavy reliance on the 's decision in , which held that complaints under , do not require pre- notice to the accused. He also invoked and , arguing that Special Courts are empowered to take without complying with .
Distinguishing the Precedents
Justice Jamadar systematically dismantled these precedents, finding them inapposite to the Act framework. The Court noted that the — under which
Ajit Kumar Palit
and
Bejoy Kumar Bose
were decided — contained a
expressly overriding the
.
stated that
"notwithstanding anything contained in the
,"
specified offences would be triable only by Special Courts.
In contrast, the Court pointed out,
of the
Act employs only the
"Save as otherwise provided in this Act,"
without any non obstante provision overriding the general procedural law. The Court invoked the interpretive maxim
— the expression of one thing is the exclusion of another — noting that the Parliament had consciously used non obstante clauses in Sections 24-A and 26-B of the Act where it intended to override the , and its absence in was telling.
The Parallel
The decisive precedent came from the Prevention of Money Laundering Act jurisprudence. In , the held unequivocally that a complaint filed by the under is governed by (now ), and that the mandating hearing applies with full force.
Further strengthening this position, the in
held that the
is substantive in nature, conferring a right upon the accused that
"forms a part of the
enshrined under
."
The word "shall" in the proviso was construed as mandatory, rendering any
taken without compliance "
."
Justice Jamadar found no significant textual difference between the and Act provisions regarding the manner of taking , concluding that the precedents governed the field.
The Court's Verdict
The answered the question framed in the affirmative, holding:
"The
cannot take
of the offences punishable under the
Act, 1992, without compliance of the
of providing an opportunity of hearing to the accused, as provided under the
."
The impugned order taking and issuing process was quashed and set aside. The was directed to provide the petitioner an opportunity of hearing before passing a fresh order on in accordance with law. The petitioner was directed to appear before the on , with the Court clarifying that no separate notice need be issued.
The judgment expressly kept all contentions of the parties on the merits open for consideration by the , ensuring that the ruling remained confined to the procedural infirmity identified.
Implications for Securities Law Prosecutions
This ruling carries significant implications for the enforcement landscape under the Act. Going forward, every complaint filed by before a must be preceded by notice to the proposed accused, affording them an opportunity to be heard at the pre- stage itself. The decision aligns prosecutions with the broader procedural reform ushered in by the , which the Parliament designed to prevent indiscriminate resort to the and to protect accused persons from having to endure the ordeal of criminal prosecution without a preliminary hearing.
For market participants, directors, and compliance officers facing potential prosecution under the Act, the ruling provides a valuable procedural safeguard — a seat at the table before the gavel falls.
