9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2025 (5) TMI 1150 - HC - SEBICollective Investment Scheme ( CIS ) without obtaining registration from the respondent complainant Board - as alleged that the accused persons illegally mobilised funds from the public under CIS in violation of the relevant provisions of the SEBI Act and concerned regulations whereunder such a practice has been declared as fraudulent and unfair trade practice - limited ground agitated by the petitioner is that the complaint is bereft of necessary averments in relation to his role in the accused company and that the learned Trial Court has erroneously framed charges against him without considering that there is no strong suspicion. No arguments have been made in relation to whether the schemes run by the accused company were in the nature of CIS. HELD THAT - The complaint ought not to be quashed before the parties have been allowed to lead evidence if the same contains necessary averments unless such unimpeachable material is brought by the accused to show that interference of the Court is required and trial should not be allowed to continue against the accused. Necessary averments have been made in the complaint and a prima facie case is made out against the petitioner considering the orders of the Whole Time Director who found that the schemes run by the accused company are in the nature of CIS. No unimpeachable material has been put forth by the petitioner to show that he was not involved or in charge of the regular affairs of the accused company. On the other hand it is argued on behalf of SEBI that there is cogent material to show the involvement of the petitioner including his presence in board meetings as well as him being one of the first Directors and promoter of the accused company. It is relevant to note that the allegations in the present case relate to the very nature of operations of the accused company. While the role of the petitioner would be seen during the course of the trial at this stage it cannot be held that merely because the specific role of the petitioner is not spelt out in the complaint the same is sufficient to exonerate him. Insofar as the challenge to the order on charge is concerned it is argued on behalf of the petitioner that strong suspicion is also required for framing of charges despite which the charges have been framed by seeing the existence of prima facie case against the petitioner. As argued that the charges have been mechanically framed by the learned Trial Court. It is apposite to succinctly discuss the statutory law with respect to framing of charge and discharge as provided under Sections 227 and 228 of the Code of Criminal Procedure 1973 ( CrPC ). Trial Court while framing charges is not required to conduct a mini-trial and has to merely weigh the material on record to ascertain whether the ingredients constituting the alleged offence are prima facie made out against the accused persons. This Court at the stage of framing of charges is not required to evaluate the evidence or hold a mini trial. As specifically noted in the case of State of Gujarat v. Dilipsinh Kishorsinh Rao 2023 (10) TMI 1346 - SUPREME COURT the Court is not required to venture into the probability of conviction at this stage and is only required to look into the prima facie case without delving into the probative value of the material on record. It is correct that grave suspicion is required for framing charges against an accused however it cannot be said that no strong suspicion exists against the petitioner merely because the complaint only contains the necessary averments against the petitioner. As noted above to quash the proceedings by petition filed under Section 482 of CrPC the petitioner is to place some unimpeachable and uncontroverted evidence which is beyond suspicion or doubt. Thus any defence in relation to the petitioner being an inactive Director cannot be probed at this stage in the absence of any direct and unimpeachable material to show the same. In such circumstances at this stage in the absence of such evidence the question as to whether the accused person was responsible for the affairs of the accused company at the relevant time becomes a factual dispute which is to be seen during trial. Clear unambiguous averment in relation to the petitioner has been made in the complaint and from the totality of facts at this stage it cannot be said that the petitioner was not in charge of and was responsible to the company for the conduct of the business of the accused company at the time of commission of offence. Exercising the inherent jurisdiction at this juncture to quash the proceedings before the respondent has had an opportunity to lead its evidence will be an abuse of the process of law. This Court finds no reason to interfere with the order on charge passed by the learned Trial Court or to quash the complaint.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Court include: (a) Whether the complaint filed under Section 24(1) read with Section 27 of the SEBI Act against the petitioner and other accused persons discloses a prima facie case warranting framing of charges. (b) Whether the petitioner, as a Director of the accused company, can be held vicariously liable for the alleged offence of running a Collective Investment Scheme (CIS) without registration, under Section 27 of the SEBI Act. (c) Whether the complaint and the order framing charges against the petitioner suffer from lack of specific averments or material implicating him in the day-to-day affairs of the accused company, thus warranting quashing under Section 482 of the Code of Criminal Procedure (CrPC). (d) The scope and parameters of the Court's inherent jurisdiction under Section 482 CrPC to quash criminal proceedings at the pre-trial stage, particularly in cases involving corporate offences under the SEBI Act. (e) The standard and threshold for framing charges under Sections 227 and 228 CrPC, including the extent of judicial scrutiny required at the charge-framing stage. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a) & (b): Prima facie case and vicarious liability of Directors under SEBI Act The legal framework revolves around Sections 24(1) and 27 of the SEBI Act. Section 24(1) prohibits running a CIS without registration, and Section 27 provides that where a contravention is committed by a company, every person in charge of and responsible for the conduct of the business at the time of the offence shall be deemed guilty, subject to proof of due diligence or lack of knowledge. The Court drew parallels with Section 141 of the Negotiable Instruments Act, 1881 (NI Act), which similarly imposes vicarious liability on directors or persons in charge of the company's affairs for offences committed by the company. Precedents such as S.P. Mani & Mohan Dairy v. Snehalatha Elangovan and H.R. Kapoor v. SEBI were cited to elucidate that mere designation as a Director is not sufficient for liability; however, the complaint must aver that the accused was in charge of and responsible for the company's affairs at the time of the offence. The burden then shifts to the accused to prove absence of knowledge or due diligence. In the present case, the complaint specifically alleged that the petitioner was a Director from incorporation until 28.03.2014 and was responsible for the day-to-day affairs of the company during the period when the CIS was run without registration. The order on charge noted that the accused company was mobilizing funds under a scheme promising monetary returns rather than sale of tangible plots, thereby constituting a CIS under Section 11AA(2) of the SEBI Act. The petitioner's attendance at Board Meetings and signing of documents further supported prima facie involvement. The Court emphasized that at this stage, the factual dispute regarding the petitioner's role in the company's operations is to be adjudicated during trial, not on a quashing petition. The absence of unimpeachable evidence disproving the petitioner's involvement militated against quashing. Issue (c): Sufficiency of averments in the complaint against the petitioner The petitioner contended that the complaint contained only bald and vague allegations without particulars of his role or responsibility, thus failing to establish even a strong suspicion necessary for framing charges or quashing the complaint. The Court referred to settled principles that at the pre-trial stage, the complaint need not detail every ingredient of the offence or the accused's precise role, but must contain the necessary factual foundation to prima facie make out the offence. The Court cited the judgment in Gunmala Sales (P) Ltd. v. Anu Mehta which held that a complaint containing basic averments that a Director was in charge of and responsible for the company's affairs is sufficient to proceed unless the Director can produce unimpeachable evidence to the contrary. Further, the Court noted that it is the accused's burden to establish that they were not in charge or responsible at the relevant time, which cannot be done at the stage of quashing without evidence. Accordingly, the Court found that the complaint contained clear and unambiguous averments against the petitioner and was not bereft of necessary allegations to justify framing of charges. Issue (d): Scope of inherent jurisdiction under Section 482 CrPC to quash proceedings The Court extensively discussed the scope of Section 482 CrPC, emphasizing that the power to quash criminal proceedings is to be exercised sparingly and only in exceptional cases. Reliance was placed on authoritative precedents including Indian Oil Corporation v. NEPC India Ltd. and Rathish Babu Unnikrishnan v. State (NCT of Delhi). The principles reiterated include:
Applying these principles, the Court found no justification to quash the complaint or the charges against the petitioner, given the prima facie case and absence of unimpeachable evidence negating his involvement. Issue (e): Parameters for framing charges under Sections 227 and 228 CrPC The Court referred to the settled legal position that framing of charges requires the Court to apply its judicial mind to the material on record to ascertain whether a prima facie case exists. The Court is not to conduct a mini-trial or weigh evidence in detail but must be satisfied that the facts, taken at face value, disclose the ingredients of the offence and that the accused might have committed it. Precedents such as Sajjan Kumar v. CBI and State of Gujarat v. Dilipsinh Kishorsinh Rao were cited to highlight that the Court must find grave suspicion, not mere suspicion, to frame charges, but the probative value of evidence is not to be examined at this stage. In the present case, the Trial Court's order on charge was upheld as it correctly identified a prima facie case against the petitioner based on the material including the company's operations, the petitioner's tenure as Director, and his participation in Board meetings and company affairs. 3. SIGNIFICANT HOLDINGS The Court's key legal reasoning and holdings include the following verbatim excerpts and principles: "The perusal of the brochures, leaflets and the registration letters available on record suggest that the accused company was in fact indulged in CIS without any valid registration. The company was admittedly mobilizing funds and the predominant objective of the scheme was not to sell any plot of land or any other tangible product. The quid pro quo for the investments made by the investors was in fact the promised profit in terms of money and not any product." "As per Section 27 of the SEBI Act when an offence is being committed by a company, every person, who at the time of the offence was in charge of or was responsible for the conduct of the business of the company shall be deemed to be guilty of the offence and shall be liable to be prosecuted along with the company." "The power to quash shall not, however, be used to stifle or scuttle a legitimate prosecution. The power should be used sparingly and with abundant caution." "The Court should be slow to grant the relief of quashing a complaint at a pre-trial stage, when the factual controversy is in the realm of possibility particularly because of the legal presumption." "If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must ... furnish some sterling incontrovertible material or acceptable circumstances to substantiate his contention." "The learned Trial Court while framing charges is not required to conduct a mini-trial and has to merely weigh the material on record to ascertain whether the ingredients constituting the alleged offence are prima facie made out against the accused persons." "If on the basis of the material on record, the court could form an opinion that the accused might have committed offence, it can frame the charge, though for conviction the conclusion is required to be proved beyond reasonable doubt." "Exercising the inherent jurisdiction at this juncture to quash the proceedings, before the respondent has had an opportunity to lead its evidence, will be an abuse of the process of law." Core principles established are:
Final determinations:
|
