COGNIZANCE OF OFFENCE UNDER SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992

[Mr. M. GOVINDARAJAN]

Securities and Exchange Board of India Act, 1992 (‘Act’ for short)  provides penalties for various offences committed in the field under section 24 of the Act.  Section 26(1)  of the Act provides that no court shall take cognizance of any offence punishable under this Act or any rules or regulations made there under, save on a complaint made by the Board with the previous sanction of the Government.  The SEBI (Amendment) Act,1995 omitted the phrases ‘with the previous sanction of the Government’ in section 26(1) of the Act, with effect from 25.01.1995.  Therefore any complaint can be filed against the offence committed under this Act without the prior permission of the Central Government with effect from 25.01.1995.

Section 26(2) provides that no court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try any offence punishable under this Act.

Vide SEBI (Amendment) Act, 2002, section 26(2) was amended and the newly substituted section 26(2) provides that no court inferior to that of a Court of Session shall try any offence punishable under this Act.  As such all pending matters before Metropolitan Magistrates or Judicial Magistrates of the first class were committed to the concerned Court of Session.  This was done under the assumption that the amendment brought out in SEBI (Amendment) act, 2002 has the effect of retrospectively altering the forum for trial.

The SEBI Act was again amended by Securities Law (Amendment) Act, 2014 which came into force from 18.07.2013.  This amendment Act inserted new sections 26A to 26E.    According these sections the cognizance of offences under SEBI Act is to be tried by only special courts established for this purpose.

Section 26A of the Act provides that the Central Government may, for the purpose of providing speedy trial of offences under the SEBI Act, by notification, establish or designate as many special courts as may be necessary.  A special court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the Judge to be appointed is working.  A person shall not be qualified for appointment as a judge of a Special Court, unless he is, immediately before such appointment, holding the office of a Sessions Judge or an Additional Sessions Judge, as the case may be.

Section 26B of the Act provides that notwithstanding anything contained in the Code of Criminal Procedure, 1973, all offences under this Act committed prior to the date of commencement of Securities Laws (Amendment) Act, 2014 or on or after the date of such commencement, shall be taken cognizance of and tried by the Special Court established for the area by such one of them as may be specified in this behalf by the High Court concerned.

Section 26C of the Act provides that the High Court may exercise, so far as may be applicable all the powers conferred by Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 on a High Court, as if a Special Court with the local limits of the jurisdiction of the High Court were a Court of Session trying the cases within the local limits of the jurisdiction of the High Court.

Section 26D of the Act provides that save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Sessions and the person conducting prosecution before a Special Court shall be deemed to be a Public Prosecutor within the meaning of clause (u) of section 2 of the Code of Criminal Procedure, 1973.  The person conducting prosecution should have been in practice as an advocate for not less than seven years or should have held a post, for a period of not less than seven years, under the Union or a State requiring a special knowledge of law.

Section 26E of the Act provides that any offence committed under this Act which is trial by a Special Court shall, until a Special Court is established be taken cognizance of and tried by a Court of Session exercising jurisdiction over the area notwithstanding anything contained in the Code of Criminal Procedure, 1973.  Nothing contained in this section shall affect the powers of a High Court under section 407 of the Code of Criminal Procedure, 1973 transfer any case or class of cases taken cognizance by a Court of Session under this Section.

In ‘Securities and Exchange Board of India V. Classic Credit Limited’ – 2017 (8) TMI 869 - SUPREME COURT OF INDIA, certain complaints were filed against the private parties for offences punishable under the Act.  The complaint period is before the SEBI (Amendment) Act, 2002.  At that time the concerned accused were to be tried by a Metropolitan Magistrate or a Judicial Magistrate of the First Class.  After the 2002 amendment act, all pending matters were transferred to the Sessions Court concerned.  The above change of Court for trying offences due to the amendment of 2002 amendment act was challenged by some of the private parties before the Sessions Court where the matters were committed.  The Sessions Court upheld the action taken in this regard.  The parties aggrieved by this order filed an appeal before the jurisdictional High Court at Bombay.

The SEBI, before the High Court supported the view taken by the Sessions Court.  SEBI relied on a case law ‘Panther Fincap and Management Services Limited V. Securities and Exchange Board of India, decided on 05.09.2006 in which the High Court of New Delhi held that the amendment of section 26 of the Act was only procedural.  An amendment of procedural being impliedly retrospective and therefore the transfer of cases tried at Metropolitan Magistrates to the concerned Sessions Court were justified in law.  The Divisional Bench set aside the judgment rendered by the Court of Session by taking a different view from the one recorded by the Delhi High Court.

SEBI, being aggrieved against the order of the Divisional Bench of Bombay, filed appeal before the Supreme Court.   Before the Supreme Court, the private parties contended that the trial was to be conducted by the concerned Metropolitan Magistrate or a Judicial Magistrate of the First Class and not by other Courts.   The amended provisions under the 2002 amendment act had no expression or implied retrospective effect and therefore the amendment carried out would not have any impart, particularly on the forum for the trial.  The trial in all these matters with reference to the offences committed prior to 29.12.2002 whether or not put to trial, could only be conducted by the Metropolitan Magistrate.    While the case was pending the amendment was brought to this section in the year 2014 changing the Forum to Special Court.

The Supreme Court held that section 26, as amended through the 2002 amendment act leaves no room for any doubt, that the erstwhile ‘forum ‘would case to be the adjudicatory authority and the newly created forum, i.e., Court of Session would deal with all pending matters as well.  The phrase ‘No Court inferior to that of a Court of Session shall try any offence punishable under this Act’ leaves no room for any doubt, that the erstwhile ‘forum, the Court of Metropolitan Magistrate was denuded of the jurisdiction. The Court having jurisdiction earlier, being a court inferior to the Court of Session ceased to have the jurisdiction to adjudicate matters punishable under the Act after the 2002 amendment.

The newly substituted section 26B of the Act gives the power to the Special Court to try the offences under the Act from the Court of Session.  The Supreme Court held that there is absolutely no ambiguity, that after 2014 amendment act, proceedings in respect of offences committed prior thereto, could only be tried by a Special Court.

The Supreme Court further held that by virtue of 2002 amendment act, the trials even in respect of offences allegedly committed before 29.10.2002, the date with effect from which the 2002 amendment act became operational, whether in respect whereof trial had or had not been initiated, would stand jurisdictionally vested in a Court of Session.  Likewise trials of offences under SEBI Act, consequent upon the 2014 amendment act, which became operation with effect from 18.07.2013 would stand jurisdictionally transferred for trial to a Special Court, irrespective of whether the offence under the SEBI Act was committed before 29.120.2002 and/or before 18.07.2013 and retrospective of the fact whether trial had or had not been initiated.  The Supreme Court set aside the judgment of the High Court.