2025 (6) TMI 1099 - HC - SEBI

Conviction and order of sentence in Special SEBI Case against person in-charge - two accused guilty u/s 24(2) r/w Section 27 SEBI Act and thus sentenced to suffer SI for one year each and to pay fine of Rs. 10 lakhs each ID to suffer SI for another three months each. HELD THAT - As it appears to this Court that before the learned Trial Court the complainant has led no evidence at all with regard to the alleged role of the present two appellants in the accused no.1 company at the relevant time. No documentary evidence has also been produced before the learned Trial Court to substantiate that the present two appellants were the directors and/or in-charge of the company. From Exhibit 4 being the certified copy of the order of the adjudicating officer dated 8th May 2009 the alleged role of the present two appellants is found to be not much prominent. Considering the entire circumstances this Court is of the considered view that the judgment of conviction and order of sentence as passed by the learned Trial Court cannot be sustained. The instant appeal is thus allowed. Consequently the judgment of conviction and order of sentence dated 30th July 2019 as passed by the learned Judge-in- Charge Fifth Special Court Calcutta in Special SEBI Case is set aside.

Summary

The core legal questions considered in this judgment revolve around the applicability and proof of offences under Sections 24(2) and 27 of the Securities and Exchange Board of India Act, 1992 ("the SEBI Act"). Specifically, the issues include whether the appellants were in charge of and responsible for the conduct of the business of the accused company at the relevant time; whether the prosecution proved beyond reasonable doubt the appellants' involvement in contravention of the SEBI Act; and whether the examination of the accused under Section 313 of the Criminal Procedure Code (Cr.P.C.) was conducted in accordance with settled legal principles.

Regarding the first issue, the relevant legal framework comprises Sections 24 and 27 of the SEBI Act. Section 24(2) penalizes failure to pay penalty imposed by an adjudicating officer or failure to comply with directions or orders, punishable with imprisonment and/or fine. Section 27(1) and (2) provide that where a contravention is committed by a company, persons in charge and responsible for the conduct of the business, including directors and officers, are deemed guilty unless they prove lack of knowledge or due diligence. The Court examined whether the appellants were such persons responsible at the material time.

The Court observed that the prosecution's evidence consisted solely of the testimony of one witness (P.W.1) and five documents. P.W.1 was the complainant who filed the complaint against the company and its directors. However, P.W.1 did not provide any testimony or documentary evidence establishing the appellants' roles as directors or persons in charge responsible for the company's affairs at the relevant time. The adjudicating officer's order dated May 8, 2009, imposing a penalty of Rs. 25 lakhs on the accused company, did not prominently feature the appellants' involvement. Thus, the prosecution failed to establish the appellants' culpability under Section 27.

On the second issue, the Court scrutinized the trial court's compliance with Section 313 Cr.P.C., which mandates that the accused be examined on the evidence against them to enable explanation. The Court referred to the Supreme Court precedent emphasizing the dual purpose of Section 313: to put every material piece of evidence to the accused clearly and to afford them a fair opportunity to explain. The Court found that the trial court conducted the examination in a mechanical and casual manner, failing to put any incriminating material to the appellants. This procedural lapse was held to cause a serious miscarriage of justice.

In addressing the competing arguments, the appellants contended that the prosecution failed to prove their involvement and that the Section 313 examination was inadequate. The respondent argued that the appellants were responsible persons and the trial court properly examined them. The Court, however, sided with the appellants, noting the absence of evidence linking them to the company's contravention and the improper Section 313 examination.

The Court applied the law to the facts by emphasizing the necessity of proof beyond reasonable doubt of the appellants' responsibility for the company's conduct at the relevant time. The lack of such proof, combined with procedural irregularity in examining the accused, led the Court to conclude that the conviction could not be sustained.

The significant holdings include the following verbatim excerpt from the Supreme Court's decision cited by the Court: "It is a settled principles of Law that dual purpose is sought to achieve when the Courts comply with the mandatory requirement of recording the statement of an accused under this provision. Firstly:- Every material piece of evidence which the prosecution proposes to use against the accused should be put to him in clear terms. Secondly:- the accused should have a fair chance to give his explanation in relation to that evidences as well as his own versions with regard to the alleged involvement in that crime."

The Court established the principle that failure to properly examine the accused under Section 313 Cr.P.C. constitutes a serious procedural defect warranting reversal of conviction. Furthermore, the Court underscored the necessity for the prosecution to prove the accused's role as persons in charge and responsible for the company's conduct under Section 27 of the SEBI Act.

In conclusion, the Court set aside the conviction and sentence imposed under Sections 24(2) and 27 of the SEBI Act on the grounds of insufficient evidence and procedural irregularity. The appellants were found not guilty and discharged from their bail bonds. The Court directed the trial court records to be sent down along with a copy of the judgment and ordered release of the appellants if not wanted in any other case.