2025 (5) TMI 1151 - HC - SEBI

Sentence awarded for offences u/s 12(1B) of the SEBI Act 1992 and various provisions of the CIS Regulation 1999 - seeking leniency in sentence awarded to Respondent Vijay Laxmi and has sought enhancement of the sentence - As submitted that the learned Trial Court has erred in relying upon the alleged medical record of the Respondent which were produced before the learned Trial Court at the time of Arguments on Sentence which indicated that she was suffering from Organic Bipolar Disorder HELD THAT - At the stage of Order on Sentence medical documents of the year 2020-2021 2022-2023 and 2023-2024 had been filed in support of her medical condition. The medical condition was also held to be apparent from her appearance as she was not responding well to the questions put to her. Considering her medical condition it was not considered necessary to get her examined by the Medical Board since it was not a case of Mental unsoundness of mind. However considering the long trial and her medical condition she was sentenced to imprisonment of till rising of the Court and to pay fine of Rs. 5, 00, 000/- with further directions that if the fine amount is not paid the same shall be recovered from her Estate. The aforesaid observation made by the learned Additional Session Judge in the Order on Sentence clearly reflects application of mind and consideration of all the attending circumstances. Essentially the Respondent may have been held guilty of the offences under Section 12 (1B) of SEBI Act 1992 and Regulation 5 (1) 68 (1) 68 (2) 73 and 74 of the CIS Regulation 1999 but the sentence is always tailored to the specific role of the convict as well as attending circumstances. It has been clearly noted that the trial took place for a period of twenty years the travails of which were faced by the Respondent. Her medical condition over a period of time had deteriorated and she suffers from Schizophrenia and delusions hallucination which is a part of Organic Bipolar Disorder . Suffering from a mental condition does not imply that she is mentally unsound or that the trial/ sentence was required to be suspended till she recovers fully. Considering Respondent s age and her medical condition as was reflected in the medical record she has been awarded sentence of till rising of the Court and to pay fine of Rs. 5, 00, 000/- which cannot be stated to inappropriate or inadequate in the given circumstances. There is no ground to justify that the sentence awarded is inadequate. There is no merit in the present Petition.

Summary

Issues Presented and Considered

The core legal questions considered by the Court in this matter are:

• Whether the sentence awarded to the Respondent for offences under Section 12(1B) of the SEBI Act, 1992 and various provisions of the CIS Regulation, 1999, punishable under Section 24 read with Section 27 of the SEBI Act, 1992, is appropriate or requires enhancement;
• Whether the Trial Court erred in imposing a lenient sentence of imprisonment only till the rising of the Court and a fine of Rs. 5,00,000/- without sufficient reasons;
• Whether the Trial Court properly considered the Respondent's medical condition, specifically the claim of suffering from 'Organic Bipolar Disorder' and related mental health issues, in determining the sentence;
• Whether the Respondent's mental condition warranted suspension of trial or a different sentencing approach under the criminal procedural law;
• Whether the Respondent's role and culpability as a Director of the accused company, which had mobilized Rs. 2.66 crores from the public and failed to repay investors, was adequately considered in sentencing;
• Whether the absence of medical documentation or formal application under Section 328 Cr.P.C. to seek a medical board examination affected the Court's assessment of mental health claims;
• Whether the Trial Court's reliance on medical records submitted only at the sentencing stage was justified.

Issue-wise Detailed Analysis

1. Appropriateness and Adequacy of Sentence Awarded

Legal Framework and Precedents: Section 24 of the SEBI Act, 1992 prescribes punishment for contravention of its provisions, including imprisonment for a term which may extend to one year, or fine, or both. Sentencing discretion lies with the Court, which must consider the nature and gravity of the offence, the role of the accused, and mitigating or aggravating factors.

Court's Interpretation and Reasoning: The Court noted that the Trial Court convicted the Respondent for offences under SEBI Act and CIS Regulations, but awarded a sentence limited to imprisonment till the rising of the Court and a fine of Rs. 5,00,000/-. The Petitioner-SEBI challenged this as inadequate and sought enhancement, arguing that the accused company had mobilized Rs. 2.66 crores from the public and defaulted on repayments without justification.

Key Evidence and Findings: The Trial Court's order reflected consideration of the Respondent's age (60 years), prolonged trial period (over two decades), and medical condition. The Court found that the sentence was tailored to the Respondent's specific role and circumstances rather than a generic imposition of maximum penalty.

Application of Law to Facts: The Court held that sentencing must be individualized, and the Trial Court's leniency was not without reason. The Respondent's role as a Director and signatory to audited balance sheets was acknowledged, but the Court balanced this against mitigating factors.

Treatment of Competing Arguments: The Petitioner's submission that the maximum sentence should be imposed due to the economic offence's seriousness was weighed against the Respondent's age, health, and trial duration. The Court found no ground to interfere with the sentence.

Conclusion: The sentence awarded was appropriate under the circumstances and did not warrant enhancement.

2. Consideration of Respondent's Medical Condition and Mental Health Claims

Legal Framework and Precedents: Under criminal procedure, claims of mental illness affecting trial or sentencing require appropriate medical examination and evidence. Section 328 Cr.P.C. allows for appointment of a Medical Board to assess mental fitness.

Court's Interpretation and Reasoning: The Trial Court noted that although the Respondent claimed to suffer from 'Organic Bipolar Disorder' and related psychosis, no medical documents were produced at trial or during earlier stages. Medical records were submitted only at the sentencing stage, covering years 2020-2024. The Court observed that the Respondent had appeared sound minded in earlier proceedings and that no formal application under Section 328 Cr.P.C. was filed to seek a medical board evaluation.

Key Evidence and Findings: The Trial Court relied on medical documents indicating the Respondent's mental condition deteriorated over time, including delusions and hallucinations. However, it was not considered a case of mental unsoundness warranting suspension of trial or different legal treatment.

Application of Law to Facts: The Court held that suffering from a mental condition does not equate to being mentally unsound or incapable of standing trial. The absence of formal medical examination or evidence at trial limited the weight of the mental health claims.

Treatment of Competing Arguments: The Petitioner argued that the Trial Court erred in accepting the medical claims without proper evidence. The Court found that the Trial Court applied mind and considered all circumstances, including the Respondent's conduct and medical records.

Conclusion: The Trial Court's approach to the Respondent's mental health was justified, and no error was found in sentencing on this basis.

3. Role and Responsibility of the Respondent as Director in the Economic Offence

Legal Framework and Precedents: Directors of companies involved in economic offences bear responsibility for the company's conduct, especially where public funds are mobilized under CIS Regulations. Liability under SEBI Act provisions is strict and includes punishment for failure to comply with regulatory norms.

Court's Interpretation and Reasoning: The Court acknowledged the Respondent's role as Director and signatory to audited financial statements for multiple years, and that the company had mobilized Rs. 2.66 crores from the public without repayment. However, sentencing must consider the individual's role, age, health, and trial circumstances.

Key Evidence and Findings: The Respondent's involvement was established, but the Court noted the prolonged trial and Respondent's health deterioration as mitigating factors.

Application of Law to Facts: The Court found that the Trial Court did not overlook the Respondent's culpability but balanced it against other factors in sentencing.

Treatment of Competing Arguments: The Petitioner's demand for maximum sentence was balanced against the Respondent's mitigating circumstances.

Conclusion: The sentence was proportionate to the Respondent's role and circumstances.

4. Procedural and Evidentiary Issues Regarding Medical Claims

Legal Framework and Precedents: Proper procedure requires that claims of mental illness affecting trial or sentencing be supported by medical evidence and applications for medical examination under Cr.P.C.

Court's Interpretation and Reasoning: The Court noted that the Respondent did not file any application under Section 328 Cr.P.C. for medical examination, and medical evidence was produced belatedly at sentencing stage. Earlier assessments found the Respondent mentally sound.

Key Evidence and Findings: The Court relied on the absence of medical evidence during trial and the lack of formal procedural steps to assess mental fitness.

Application of Law to Facts: The Court found no procedural impropriety in the Trial Court's approach and no obligation to suspend trial or alter sentence based on unsubstantiated claims.

Treatment of Competing Arguments: The Petitioner challenged the reliance on late medical evidence; the Court found the Trial Court's approach reasonable.

Conclusion: No procedural error in handling medical claims was found.

Significant Holdings

"The sentence is always tailored to the specific role of the convict as well as attending circumstances."

"Suffering from a mental condition does not imply that she is mentally unsound or that the trial/sentence was required to be suspended till she recovers fully."

"Considering Respondent's age and her medical condition, as was reflected in the medical record, she has been awarded sentence of 'till rising of the Court' and to pay fine of Rs. 5,00,000/-, which cannot be stated to be inappropriate or inadequate in the given circumstances."

"The aforesaid observation made by the learned Additional Session Judge in the Order on Sentence clearly reflects application of mind and consideration of all the attending circumstances."

The Court affirmed that the sentencing discretion includes consideration of the offender's health, age, trial duration, and specific role in the offence, and that leniency in sentence is justifiable where these factors apply.

The Court dismissed the petition for enhancement of sentence, holding there was no error or inadequacy in the Trial Court's order.