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SECURITIES AND EXCHANGE BOARD OF INDIA Versus GAURAV VARSHNEY AND ANR.

2016 (7) TMI 642 - SUPREME COURT

Breach of provisions of the Collective Investment Regulations - whether respondent nos. 1 and 2 – Gaurav Varshney and Vinod Kumar Varshney, had violated Section 12(1B), by incorporating M/s. Gaurav Agrigenetics Ltd., under the provisions of the Companies Act, 1956, on 3.7.1995, in the capacity of its first directors and promoters - sole allegation levelled against the respondents was, that they were guilty of having breached the provisions of the Collective Investment Regulations, by failing to .....

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d 2, calls for no interference, for the simple reason, that they relate to an alleged breach by M/s. Gaurav Agrigenetics Ltd., of the Collective Investment Regulations, by treating them as existing collective investment undertaking. Those belonging to the proviso category, could only be proceeded against for having continued their activities relating to collective investment, without obtaining registration, after the notification of the Collective Investment Regulations (see paragraph 29 above). .....

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by the High Court, call for no interference. Ordered accordingly. - Criminal Appeal No(s). 827-830/2012, Crl.A. No. 832/2012 Crl.A. No. 833-836/2012 Crl.A. No. 252/2015 Crl.A. No. 251/2015 - Dated:- 15-7-2016 - JAGDISH SINGH KHEHAR AND C. NAGAPPAN, JJ. For Appellant(s) Mr. Sanjay Mann, Adv., Mr. R.K. Pillai, Adv., Ms. Rekha Pandey,AOR Mr. Ritesh Agrawal,AOR For Respondent(s): Mr. Jatin Zaveri,Adv., Mr. Neel Kamal Mishra, Adv. Mr. Sanjeev Anand,AOR JUDGMENT Jagdish Singh Khehar, J. Criminal Appea .....

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rtificate of registration from the Board in accordance with the regulations: Provided that any person sponsoring or cause to be sponsored, carrying or causing to be carried on any venture capital funds or collective investment scheme operating in the securities market immediately before the commencement of the Securities Laws (Amendment) Act, 1995 for which no certificate of registration was required prior to such commencement, may continue to operate till such time regulations are made under cl .....

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ndent nos. 1 and 2 - Gaurav Varshney and Vinod Kumar Varshney, had violated Section 12(1B), by incorporating M/s. Gaurav Agrigenetics Ltd., under the provisions of the Companies Act, 1956, on 3.7.1995, in the capacity of its first directors and promoters. This position emerges, because it is not a matter of dispute, that M/s. Gaurav Agrigenetics Ltd. commenced a collective investment scheme, immediately on its incorporation. 2. In order to highlight the implications of the amendment, made on 25. .....

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k associated with such schemes. In order to ensure that investors make investment decisions with the full knowledge of the risks involved in such schemes, Government has felt it necessary to put in place an appropriate regulatory framework for such schemes. Government after detailed consultation with the regulatory authorities concerned has decided to treat such schemes as Collective Investment Schemes coming under the provisions of the Section 11(2)(c) of the SEBI Act. In order to regulate such .....

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ollective Investment Schemes. Once these regulations come into force, it is expected that they will promote legitimate investment activity on plantation and other agriculture based business, while at the same time give investors an adequate degree of protection for their investments. For the same purpose, as stated above, the Securities and Exchange Board of India (hereinafter referred to as, the Board ) also issued a separate press release, dated 26.11.1997. The text of the above press release, .....

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ing regulations for such collective investment schemes. The provisions of section 12(1B) of the SEBI Act prohibit collective investment schemes including mutual funds from sponsoring any new scheme till the regulations are notified. While the regulations for mutual fund schemes have been notified by SEBI, regulations for collective investment schemes including plantations schemes require to be notified in view of the press release issued by the Central Government. These regulations are under pre .....

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the regulations are notified. Any collective investment scheme which is desirous of taking benefit of the proviso to section 12(1B) of the SEBI Act is directed to send to SEBI information within 21 days from today containing details such as:- Terms and conditions of the schemes launched - Funds raised through all the schemes - Promises or assurances or assured returns made in the scheme - Copies of offer document of the scheme - Names, details and background of promoters/sponsors All collective .....

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has by a press release dated 18.11.1997 decided that an appropriate regulatory framework for regulating entities which issued instruments such as agro bonds, plantation bonds, etc. has to be put in place. The Government has decided that schemes through which such instruments are issued would be treated as collective investment schemes coming under the provisions of the SEBI Act. In terms of the press release, SEBI has initiated action for drafting regulations for such collective investment schem .....

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hese regulations are under preparation and will be issued in due course, first in draft form for the public discussion and later in the final form. Till these regulations are notified, it is hereby brought to the notice of the public that as a result of the provisions of section 12(1B) of the SEBI Act, no person can sponsor or cause to be sponsored any new collective investment scheme and raise further funds. Further, the provisions of section 12(1B) provides that till regulations are notified a .....

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schemes, Promises or assurances or assured returns made in the scheme, Copies of offer document of the scheme and Names, details and background of promoters/sponsors. Note: The above information regarding existing collective investment schemes in northern, southern and eastern region maybe filed with the respective regional office of SEBI. In further exercise of the powers under section 11 read with section 11(B) all collective investment schemes which want to take benefit of the proviso of sec .....

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ange Board of India (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as, the Collective Investment Regulations). The Collective Investment Regulations, were to come into force, on the date of their publication in the official gazette. It is not a matter of dispute, that the same were brought into force, on 15.10.1999. 4. Respondent nos. 1 and 2 - Gaurav Varshney and Vinod Kumar Varshney, were aggrieved by the criminal proceedings initiated against them, on the basis of .....

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h Court), by filing Criminal Miscellaneous Case nos. 7468-7471 of 2006 and Criminal Miscellaneous no. 951 of 2007, for quashing Complaint Case no. 1241 of 2003, pending in the Court of the Chief Metropolitan Magistrate, Tis Hazari Courts, Delhi, titled as SEBI vs. Gaurav Agrigenetics Ltd. and others , as well as, the order dated 15.12.2003, by which the Chief Metropolitan Magistrate had summoned them (in the aforementioned complaint case). 5. The simple contention advanced at the hands of respon .....

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em, the main assertion advanced on behalf of respondent nos. 1 and 2 was, that respondent no. 1 - Gaurav Varshney had submitted Form-32 with the Registrar of Companies, communicating the factum of his resignation from the directorship of M/s. Gaurav Agrigenetics Ltd., on 10.5.1996. Since the aforesaid Form-32 had been submitted with the Registrar of Companies on 30.7.1998, it was contended on behalf of respondent no. 1, that he had no objection if it was assumed (for determination of the present .....

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f of respondent no. 2, that he had no objection to this Court assuming, that respondent no. 2 had severed his relationship with M/s. Gaurav Agrigenetics Ltd. on 23.12.1998, i.e. the date when Form-32 was submitted with the Registrar of Companies. 6. In the background of the fact situation noticed hereinabove, it was urged, that if the date of resignation of respondent no. 1 - Gaurav Varshney from the directorship of M/s. Gaurav Agrigenetics Ltd. is taken as 30.7.1998, and that of respondent no. .....

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Courts, Delhi), as well as, the order dated 15.12.2003 issued by the said Chief Metropolitan Magistrate, summoning respondent nos. 1 and 2 in the above noted complaint case. 7. Dissatisfied with the determination rendered by the High Court (vide the impugned order dated 13.5.2010), the Board approached this Court, through Criminal Appeal nos. 827-830 of 2012, to raise a challenge to the order passed by the High Court. 8. The primary contention advanced on behalf of the Board was, that the High C .....

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nt Regulations. And as such, any act of sponsoring or commencement of a collective investment venture, without obtaining a certificate of registration, on or after 25.1.1995, was absolutely forbidden. It was submitted on behalf of the appellant, that the proviso under Section 12(1B), made the position absolutely clear and unambiguous. It was pointed out, that the proviso authorized all persons who had sponsored or were carrying on a collective investment scheme … immediately before the co .....

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ent of the Securities Law (Amendment) Act, 1995 (i.e., prior to 25.1.1995). 9. In order to substantiate the afore-noted contention, and also, in order to demonstrate, that the action of the Board in not framing the Collective Investment Regulations, would have no bearing, to the bar created under Section 12(1B), learned counsel placed reliance on Orissa State (Prevention & Control of Pollution) Board vs. Orient Paper Mills, (2003) 10 SCC 421, and invited our attention to the following observ .....

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e. Section 22 provides as under: 22. Persons carrying on industry etc. not to allow emission of air pollutants in excess of the standards laid down by State Board.-No person operating any industrial plant in any air pollution control area shall discharge or cause or permit to be discharged the emission of any air pollutant in excess of the standards laid down by the State Board under clause (g) of sub-section (1) of Section 17. Section 19 empowers the State Government to declare an area as air p .....

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alter any air pollution control area whether by way of extension or reduction; (b) declare a new air pollution control area in which may be merged one or more existing air pollution control areas or any part or parts thereof. (3)-(5)*** *** *** *** 10. The question for consideration is, as to whether, as long the manner is not prescribed under the rules for declaration of an area as air pollution control area, a valid notification under Section 19(1) of the Act can be published in the Official .....

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escribed which part we put into bracket as follows: 19. Power to declare air pollution control areas.-(1) The State Government may, after consultation with the State Board, by notification in the Official Gazette, declare (in such manner as may be prescribed), any area or areas within the State as air pollution control area or areas for the purposes of this Act. (2)-(4)*** 12. Section 19 says … such manner as may be prescribed and not in the manner prescribed or … in the prescribed .....

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later in this judgment as may be prescribed has been held to mean if any . It is thus clear that such expression leaves the scope for some play for the workability of the provision under the law. The meaning of the word as takes colour in context with which it is used and the manner of its use as prefix or suffix etc. There is no rigidity about it and it may have the meaning of a situation of being in existence during a particular time or contingent, and so on and so forth. That is to say, some .....

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e in itself even without any manner being prescribed as indicated shortly before to read the provision omitting this part in such manner as may be prescribed . Merely by absence of rules, the State would not be divested of its powers to notify in the Official Gazette any area declaring it to be an air pollution control area. In case, however, the rules have been framed prescribing the manner, undoubtedly, the declaration must be in accordance with such rules. 14. On the proposition indicated abo .....

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edule was referred to, which empowered the District Council to make laws in respect of the appointment and succession of office of Chiefs Headmen. The High Court took the view that in absence of framing of such a law, there would be no power of appointment of a Chief or Seim nor for his removal either. This Court negated the view taken by the High Court observing that: (AIR p. 281, para 10) [I]t seems to us that the High Court has read far more into para 3(1)(g) than is justified by its language .....

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: (AIR p. 281, para 10) The Constitution could not have intended that all administration in the autonomous districts should come to a stop till the Governor made regulations under para 19(1)(b) or till District Council passed laws under para 3(1)(g). … Doubtless when regulations are made … the administrative authorities would be bound to follow the regulations so made or the laws so passed. 15. It is thus clear from the decision referred to in the preceding paragraph that the power .....

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are concerned with. Once the manner is prescribed under the rules undoubtedly, the declaration of the area has to be only in accordance with the manner prescribed but absence of rules will not render the Act inoperative. The power vested under Section 19 of the Act, would still be exercisable as provided under the provision i.e. by declaring an area as air pollution control area by publication of notification in the Official Gazette. Non-framing of rules does not curtail the power of the State G .....

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urt. It has been followed in a subsequent decision of this Court reported in Surinder Singh v.Central Govt., (1986) 4 SCC 667. The Central Government had not framed rules in respect of disposal of property forming part of the compensation pool as contemplated under the provisions of the relevant Act. It was claimed by one of the parties that the authority constituted under the Act had no jurisdiction to dispose of urban agricultural property by auction-sale in absence of rules. The contention wa .....

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n subject to the rules only means, in accordance with the rules, if any. If rules are framed, the powers so conferred on authority could be exercised in accordance with these rules. But if no rules are framed there is no void and the authority is not precluded from exercising the power conferred by the statute. A reference was also made to the decisions of this Court in the cases reported in B.N. Nagarajan v. State of Mysore, AIR 1966 SC 1942, and Mysore SRTC v. Gopinath Gundachar Char, AIR 1968 .....

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a notification published in the Official Gazette. No other manner is prescribed nor exists. The relevant notifications issued by the Government cannot be said to be contrary to any rules in existence as framed by the Government. The respondent had knowledge of the notification and had also applied for consent of the Board which was granted to the respondent. But it may be clarified that this is not the reason for taking the view that we have taken, it is mentioned only by way of an additional f .....

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emphasis was placed on the observations extracted hereunder:- 6. The material part of Section 46 of the Act reads thus: 46. (1) A tariff to be known as the Grid Tariff shall, in accordance with any regulations made in this behalf, be fixed from time to time by the Board in respect of each area for which a scheme is in force, and tariffs fixed under this section may, if the Board thinks fit, differ for different areas. (2) Without prejudice to the provisions of Section 47, the Grid Tariff shall a .....

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may make such additional charges as it considers appropriate. * * * 7. The first contention urged before us by the City Board is that in the absence of any regulations framed by the Electricity Board under Section 79 of the Act regarding the principles governing the fixing of Grid Tariffs, it was not open to the Electricity Board to issue the impugned notifications. This contention is based on sub-section (1) of Section 46 of the Act which provides that a tariff to be known as the Grid Tariff s .....

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bove plea and according to us, rightly. It is true that Section 79(h) of the Act authorises the Electricity Board to make regulations laying down the principles governing the fixing of Grid Tariffs. But Section 46(1) of the Act does not say that no Grid Tariff can be fixed until such regulations are made. It only provides that the Grid Tariff shall be in accordance with any regulations made in this behalf. That means that if there were any regulations, the Grid Tariff should be fixed in accordan .....

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vestment scheme before 25.1.1995), it was contended, could commence such activities (of sponsoring or carrying on of a collective investment scheme), only after obtaining a certificate of registration, from the Board . For an effective interpretation of Section 12(1B), learned counsel placed reliance on Union of India vs. A.K. Pandey, (2009) 10 SCC 552, and the Court s attention was drawn to the following observations recorded therein:- 8. Rule 34 of the Army Rules, 1954 with which we are concer .....

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is on active service less than twenty-four hours. (2) The officer at the time of so informing the accused shall give him a copy of the charge-sheet and shall, if necessary, read and explain to him the charges brought against him. If the accused desires to have it in a language which he understands, a translation thereof shall also be given to him. (3) The officer shall also deliver to the accused a list of the names, rank and corps (if any) of the officers who are to form the court, and where o .....

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nt time, we are not concerned with the later part of that rule which provides for interval of twenty-four hours for the accused in active service. 9. In his classic work, Principles of Statutory Interpretation (7th Edn.), Justice G.P. Singh has quoted a passage of Lord Campbell in Liverpool Borough Bank v. Turner, [(1860) 30 LJ Ch 379], that reads: No universal rule can be laid down as to whether mandatory enactments shall be considered directory only or obligatory whether implied nullification .....

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ts for finding out when a provision is mandatory or directory. The purpose for which the provision has been made, its nature, the intention of the legislature in making the provision, the general inconvenience or injustice which may result to the person from reading the provision one way or the other, the relation of the particular provision to other provisions dealing with the same subject and the language of the provision are all to be considered. Prohibition and negative words can rarely be d .....

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ons contained in Section 108 of the Act are directory because non-compliance with Section 108 of the Act is not declared an offence. The reason given by the High Court is that when the law does not prescribe the consequences or does not lay down penalty for non-compliance with the provision contained in Section 108 of the Act the provision is to be considered as directory. The High Court failed to consider the provision contained in Section 629(a) of the Act. Section 629(a) of the Act prescribes .....

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ed by a statute under a penalty, even without express declaration that the contract is void, because such a penalty implies a prohibition. The penalty may be imposed with intent merely to deter persons from entering into the contract or for the purposes of revenue or that the contract shall not be entered into so as to be valid at law. A distinction is sometimes made between contracts entered into with the object of committing an illegal act and contracts expressly or impliedly prohibited by sta .....

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ble. (See St. John Shipping Corpn. v. Joseph Rank Ltd. (1957) 1 QB 267) (See also Halsbury's Laws of England, 3rd Edn., Vol. 8, p. 141.) 20. It is well established that a contract which involves in its fulfilment the doing of an act prohibited by statute is void. The legal maxim a pactis privatorum publico juri non derogatur means that private agreements cannot alter the general law. Where a contract, express or implied, is expressly or by implication forbidden by statute, no court can lend .....

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atute would inflict a penalty for a lawful act. 22. Penalties are imposed by statute for two distinct purposes: (1) for the protection of the public against fraud, or for some other object of public policy; (2) for the purpose of securing certain sources of revenue either to the State or to certain public bodies. If it is clear that a penalty is imposed by statute for the purpose of preventing something from being done on some ground of public policy, the thing prohibited, if done, will be treat .....

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at may follow from non-observance thereof. If the context does not show nor demands otherwise, the text of a statutory provision couched in a negative form ordinarily has to be read in the form of command. When the word shall is followed by prohibitive or negative words, the legislative intention of making the provision absolute, peremptory and imperative becomes loud and clear and ordinarily has to be inferred as such. There being nothing in the context otherwise, in our judgment, there has to .....

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ttendance of his witnesses. He may even decide not to defend the charge(s) but before he decides his line of action, he must be given clear ninety-six hours. It was submitted, on the basis of the legal position declared by this Court in the above judgments, that the bar created through Section 12(1B), forbidding new entrepreneurs from commencing activities concerning collective investment, without obtaining a certificate of registration, was strict and mandatory. 11. Based on the assertions noti .....

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t respondent nos. 1 and 2 had even on their own showing, continued to be the promoter-directors of M/s. Gaurav Agrigenetics Ltd. upto 30.7.1998 (with reference to the respondent no. 1 - Gaurav Varshney), and 23.12.1998 (with reference to the respondent no. 2 - Vinod Kumar Varshney) respectively, they were obviously in breach of the bar, contemplated under Section 12(1B) of the SEBI Act. 12. Mr. Jatin Zaveri, learned counsel representing respondent nos. 1 and 2, seriously disputed the above inter .....

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l for the respondents, to contend that in the understanding of the Government of India, as also, the Board itself, there was no bar on sponsoring or commencing or carrying on a collective investment scheme, even after the insertion of Section 12(1B) into the SEBI Act. It was submitted, that the aforementioned press releases and public notice merely highlighted the requirement of obtaining a certificate of registration from the Board , consequent upon the framing of the Collective Investment Regu .....

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ing carried on activities concerning collective investment, without obtaining a certificate of registration from the Board , in accordance with the Collective Investment Regulations. But that, according to learned counsel, was possible, only after the said regulations were framed, and the respondents had continued their activity, in breach of the said regulations. Since the Collective Investment Regulations were admittedly brought into force with effect from 15.10.1999, according to learned coun .....

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her of the respondents could be accused of violating Section 12(1B) of the SEBI Act, or of not complying with the provisions of the Collective Investment Regulations. 13. In order to controvert the submissions advanced at the hands of learned counsel for the appellant, based on the judgments rendered by this Court, emphatic reliance was placed on the decision in Vasu Dev Singh vs. Union of India, (2006) 12 SCC 753, wherefrom, the following observations, were sought to be highlighted:- Conditiona .....

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determine the time and manner of carrying it into effect or at such time, as it decides or to understand the rule of legislation, it would be a conditional legislation. The legislature in such a case makes the law, which is complete in all respects but the same is not brought into operation immediately. The enforcement of the law would depend upon the fulfillment of a condition and what is delegated to the executive is the authority to determine by exercising its own judgment as to whether such .....

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d legislation is much wider. Such power to make rules or regulations, however, must be exercised within the four corners of the Act. Delegated legislation, thus, is a device which has been fashioned by the legislature to be exercised in the manner laid down in the legislation itself. By reason of Section 3 of the Act, the Administrator, however, has been empowered to issue a notification whereby and whereunder, an exemption is granted for application of the Act itself. 17. In Hamdard Dawakhana v .....

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down the broad principles of its policy in the legislation can then leave the details to be supplied by the administrative authority. In other words by delegated legislation the delegate completes the legislation by supplying details within the limits prescribed by the statute and in the case of conditional legislation the power of legislation is exercised by the legislature conditionally leaving to the discretion of an external authority the time and manner of carrying its legislation into eff .....

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ed to deal with the other issues canvassed by learned counsel. 15. In our considered view, an effective interpretation of Section 12(1B) can be rendered, only upon understanding the intent behind Section 12(1B), and the exception created through the proviso thereunder. On being so considered it is apparent, that on the insertion of Section 12(1B) in the SEBI Act on 25.1.1995, two classes of persons were created. The first class comprised of such person(s) who had commenced the activity of sponso .....

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d by the proviso category, referred to hereinabove, were permitted to continue their existing collective investment activities, till the framing of the Collective Investment Regulations. On the framing of the Collective Investment Regulations, the said persons covered by the proviso category, were required to obtain a certificate of registration, which would enable them to continue to operate their existing collective investment scheme(s). 17. Insofar as the non-proviso category is concerned, th .....

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25.1.1995, without obtaining a certificate of registration from the Board , under the Collective Investment Regulations. Stated differently, a new entrepreneur desirous of sponsoring or carrying on any activity in the nature of collective investment for the first time after 25.1.1995, could do so only after he/it had obtained a certificate of registration from the Board , in accordance with the Collective Investment Regulations. Therefore, till such time the Collective Investment Regulations we .....

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lective investment, only after obtaining a certificate of registration; and persons covered under the proviso category (-who were already carrying on such activities), were permitted to continue their activities (concerning collective investment), and after the concerned regulations were framed, they could continue the said activities only after obtaining a certificate of registration. 19. The Collective Investment Regulations came into force on 15.10.1999. A person falling in the proviso catego .....

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these regulations make an application to the Board for the grant of a certificate within a period of two months from such date. (2) An application under sub-regulation (1) shall contain such particulars as are specified in Form A and shall be treated as an application made in pursuance of regulation 4 and dealt with accordingly. An application under Regulation 5 could not have been made by an individual falling under the non-proviso category, for the simple reason, that an activity of sponsoring .....

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ot be described as an existing collective investment scheme, because the same was statutorily barred, and therefore, wholly impermissible in law. This has been the clear and unambiguous stance even of the learned counsel representing the Board . We may venture a different course, of reaching the same conclusion. What a statute bars, cannot be authorized through regulations. Any person/entity not falling in the proviso category (an existing operator, of a collective investment scheme) was barred .....

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obtaining a certificate of registration from the Board , have been enumerated in Regulations 68 to 72 of the Collective Investment Regulations (these regulations are not being extracted herein, for reason of brevity). 20. Insofar as persons falling in the non-proviso category (namely, those desirous of commencing activities concerning collective investment, after 25.1.1995) are concerned, such persons could commence an activity in the nature of collective investment, after seeking a certificate .....

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n 4 extracted above, leaves no room for any doubt, that the same is applicable to a person … proposing to carry any activity… in the nature of a collective investment. On the analogy of the interpretation placed by us on Section 12(1B), all persons who had not commenced to sponsor or carry on a collective investment scheme before 25.1.1995, would fall in this category. In the above view of the matter, we are satisfied, that persons who were desirous to sponsor or carry on the activ .....

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heme(s), which had come into existence prior to 25.1.1995. And therefore, it was impermissible for a person who had not commenced a collective investment scheme prior to 25.1.1995, to do so thereafter, till the Collective Investment Regulations were framed. Thereafter, such new entrepreneur, had to obtain a certificate of registration from the Board under Regulation 4 of the Collective Investment Regulations, before he could legally commence activities concerning collective investment operations .....

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2(1B) of the SEBI Act. 22. In our considered view, there can be no doubt, that the date when the Collective Investment Regulations came into force (-15.10.1999), has no relevance, insofar as the breach of Section 12(1B) of the SEBI Act, with reference to such new entrepreneurs, is concerned. The bar to sponsor or cause to be sponsored, or carry on or cause to be carried on any collective investment activity by a new entrepreneur (-who had not commenced the concerned activities, before 25.1.1995) .....

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rtificate of registration. Therefore, the period during which the concerned activities were barred (for the non-proviso category) under Section 12(1B) - commenced from the date of insertion of Section 12(1B) into the SEBI Act (-25.1.1995), and subsisted upto, the actual date when the new entrepreneur obtained a certificate of registration. We hold so accordingly. 23. In view of the above, we have no hesitation in accepting the contention advanced by learned counsel for the Board , that the bar c .....

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insertion of sub-Section (1B) in Section 12 of the SEBI Act, reveals that the same was brought in, on account of past experience of the Board , and the dire need to protect the interests of investors. Secondly because, the language of sub-Section (1B) of Section 12 of the SEBI Act is clear and unambiguous - it allowed existing collective investment scheme(s) entrepreneurs, to continue with the same by creating an exception in their favour, through the proviso under Section 12(1B). And it barred .....

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o those not already engaged in collective investment operations. And fifthly because, contravention of Section 12(1B) entails penal consequences, and therefore, cannot be construed as directory. We therefore hereby accept the submission advanced on behalf of learned counsel for the Board , and hold, that the bar created for new operators, of a collective investment initiative, was absolute and mandatory. The bar under Section 12(1B), restrained persons (who were not engaged in any collective inv .....

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eration was, whether the authority concerned could have acted in the manner provided under the concerned statute, before the regulations were framed. The issue considered was the jurisdiction of the concerned authority, and nothing more. No such question, arises in the present case. Herein, a bar has been created, preventing a new entrepreneur from commencing a defined activity. No question of jurisdiction (of the competent authority), arise in the present controversy. 25. In spite of the positi .....

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y accusation levelled at the respondents was, for a breach of the Collective Investment Regulations, framed under Section 12(1B). In order to substantiate his aforesaid contention, learned counsel for the respondents invited our attention to the complaint dated 15.12.2003. In order to appreciate the contention of learned counsel, an extract of the aforesaid complaint, including all the paragraphs relied upon by him, is reproduced below:- 7. The accused no. 1 is a company registered under the pro .....

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he general public. 9. The accused no. 1 company filed information/details with SEBI regarding its collective investment schemes pursuant to SEBI press release dated November 26, 1997, and/or public notice dated December 18, 1997. 10. In terms of Chapter IX of the said regulations, any person who had been operating a collective investment schemes at the time of commencement of the said regulations shall be deemed to be an existing collective investment scheme and shall comply with the provisions .....

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cting it to send an information memorandum to all the investors detailing the state of affairs of the schemes, the amount repayable to each investor and the manner in which such amount is determined. As per the aforesaid letters of SEBI, the information memorandum to the investors was required to be sent latest by February 28, 2000. 12. SEBI having regard to the interest of investors and request received from various persons operating collective investment schemes extended the last date of submi .....

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shall wind up the existing collective investment schemes and repay the amounts collected from the investors. Further, in terms of Regulation 74 of the said regulations, an existing collective investment scheme which is not desirous of obtaining provisional registration from SEBI shall formulate a scheme of repayment and make such repayment to the existing investors in the manner specified in Regulation 73. 15. However, the accused no. 1 neither applied for registration under the said regulation .....

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oney collected under the aforesaid collective investment schemes of the accused no. 1 to the persons who invested therein within a period of one month from the date of the said directions. 17. However, despite repeated directions by SEBI, the accused no. 1 did not comply with the said regulations and from this, it is clear that the accused no. 1 is intentionally and with dishonest intentions evading the repayment of the amounts collected by it from the investors. 18. The accused no. 1 raised a t .....

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ad with Regulations 68(1), 68(2), 73 and 74 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 which is punished under Section 24(1) of Securities and Exchange Board of India Act, 1992. 20. The accused nos. 2 to 11 are the Directors of the accused no. 1, and as such persons in charge of and responsible to the accused no. 1 for the conduct of its business and are liable for the violations of the accused no. 1, as provided under Section 27 of Securities .....

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rt to summon the accused and punish them in strictest terms as provided by law in the interest of justice. 26. Having given our thoughtful consideration to the accusations levelled by the Board against the respondents (in the complaint dated 15.12.2003), there is absolutely no room for any doubt, that the private respondents were being treated as operating, an existing collective investment scheme. They were accused inter alia, for having not complied with Regulation 5 of the Collective Investme .....

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g treated the respondents as persons who had commenced the activity of a collective investment, they were accused of not having made an application to the Board for the grant of registration in terms of Chapter IX (of the Collective Investment Regulations). 27. It would be relevant to mention that Chapter IX bears the heading Existing Collective Investment Schemes , whereunder Regulations 68 to 72 delineate procedural details, for obtaining a certification of registration. The connotation of the .....

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respondents, as operating an existing collective investment venture. It was pointed out, that the respondents were proceeded against, only for their failure to obtain a certificate of registration under Regulation 5 of the Collective Investment Regulations, read with Chapter IX of the said regulations, and more particularly, Regulations 68, 73 and 74 (refer to paragraphs 8, 10, 11, 13 to 15, 18 and 19 of the complaint). Therefore, according to learned counsel for the respondents, the appellant .....

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dering them as new entrepreneurs, who have commenced operating a collective investment scheme after 25.1.1995. 28. We express our complete agreement, with the stance adopted at the hands of learned counsel for the private respondents. The respondents were only accused of having not complied with, the provisions of the Collective Investment Regulations, pertaining to existing collective investment operators (those who had commenced the activity before 25.1.1995). Thus viewed, the fact that the re .....

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ct), and in continuing therewith, without obtaining a certificate of registration, cannot be the basis for proceeding against the respondents. For the simple reason, that the respondents had not been so accused, in the complaint filed by the Board . In this behalf, reference may be made to P.B. Desai vs. State of Maharashtra, (2013) 15 SCC 481, wherein this Court held as under:- 51. We would also like to make another aspect very explicit. The appellant was levelled a specific charge which was fr .....

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hat the respondents had actually commenced a collective investment undertaking after 25.1.1995, without obtaining a certificate of registration, in our considered view, is of no relevance whatsoever, with reference to the complaint filed by the Board against the respondents (dated 15.12.2003). 29. A significant question which arises for consideration is, whether the respondents against whom the above complaint dated 15.12.2003 was filed, could be punished for violating Section 12(1B) of the SEBI .....

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y describing the respondents as belonging to the non-proviso category, wherein persons not already engaged in an existing collective investment venture as on 25.1.1995, were precluded from activities concerning collective investment, till the time they obtain a certificate of registration from the Board in accordance with the Collective Investment Regulations. As already concluded above, this course could not be pursued against the respondents, because they were not so accused, in the complaint .....

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, to proceed against M/s. Gaurav Agrigenetics Ltd., for having violated the said provision. The issue which has emerged for consideration is, whether the complaint filed by the Board against the company under reference, as also, its directors, factually accused M/s. Gaurav Agrigenetics Ltd. and its directors, of having violated Section 12(1B) of the SEBI Act? Were the accused described as falling in the non-proviso category? Were the accused, proceeded against on the ground, that they had comme .....

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ther the accused were proceeded against, as belonging to the non-proviso category. 31. The contentions advanced at the hands of the Board comprise of four independent submissions. First of all it was urged, that a collective perusal of paragraphs 8 and 15 of the complaint dated 15.12.2003, would leave no room for any doubt, that the directors of the company concerned were pointedly accused of having violated Section 12(1B) of the SEBI Act. The said paragraphs 8 and 15 are reproduced herein below .....

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urities and Exchange Board of India Act, 1992 and Regulation 5(1) r/w Regulations 68(1), 68(2), 73 and 74 of the said regulations. 32. Having given our thoughtful consideration to the factual assertions contained in the complaint, it is not possible for us to agree with the learned senior counsel representing the Board , for the simple reason, that a perusal of the above factual assertions, reveal two accusations against the accused. Firstly, that the accused did not apply for registration under .....

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till the requisite certificate of registration was sought. The complaint did not include any direct or indirect insinuation, that the accused had unauthorisedly commenced operations of a collective investment scheme, after 25.1.1995. Even the date of commencement of the collective investment operations, by the accused, was not expressed in the complaint. It was imperative for the Board , to lay the above charge, through express assertions, for proceeding against the accused, for violation of th .....

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Collective Investment Regulations. In our considered view, reliance placed on the two paragraphs of the complaint is clearly insufficient, for the purpose canvassed by the learned senior counsel representing the Board . We are of the view, that the above assertions in the complaint, assumed that the respondents were existing operators (-prior to 25.1.1995). Because in our view, only existing operators, had to wind up, if they choose not to conform with the Collective Investment Regulations (afte .....

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against commencing to sponsor or carry on a collective investment scheme. In the absence of the above particulars of the offence, they could not have been tried or punished for the same. No amount of evidence can be looked into, for an accusation not levelled or made out, in a complaint. This is one of the basic tenets of the criminal jurisprudence. 35. We will now proceed to deal with the second submission, advanced at the hands of the learned senior counsel, for the Board . In support of his .....

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for any doubt, that … the particulars of the offence of which he is accused shall be stated to him… . The particulars for an offence postulated for the non-proviso category (-where the activity of a collective investment scheme, is commenced after 25.1.1995), under Section 12(1B) of the SEBI Act, would be the date on which the accused commenced sponsoring or carrying on a collective investment scheme. If such date fell within the period when the initiation of a new collective inve .....

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e 25.1.1995) and the non-proviso category (-those who commenced operations after 25.1.1995) are different. A perusal of the chargesheet reveals, that the respondents herein were being treated as belonging to the proviso category. But learned counsel for the Board desires us to treat them as belonging to the non-proviso category, and to proceed against them for having engaged themselves in activities concerning collective investment, on the basis of the material available on the record of the cas .....

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vanced on behalf of the Board , was based on the determination rendered by the trial Court, that the accused had violated Section 12(1B) of the SEBI Act. Learned senior counsel pointed out, that the date of incorporation of M/s. Gaurav Agrigenetics Ltd. (-3.7.1995), of which the respondents/accused were directors, was clearly brought out by way of concrete evidence, before the trial Court. M/s. Gaurav Agrigenetics was undisputedly incorporated after 25.1.1995. It was further urged, that neither .....

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the accused to canvass, that the particulars of the offence under Section 12 (1B) were not clearly disclosed, in the complaint filed by the Board . 37. We have given our thoughtful consideration to the contentions advanced at the hands of the learned senior counsel, in support of his third submission. We are, however, inclined to accept the submissions advanced at the hands of the accused. Neither the complaint nor the charge-sheet filed against the accused before the trial Court demonstrates, t .....

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), since an existing collective investment scheme, which came into existence prior to 25.1.1995, could legitimately continue its operations under the proviso to Section 12(1B), without a certificate of registration, till the framing of the Collective Investment Regulations. Therefore, merely the fact that the company under consideration was incorporated after 25.1.1995, in our view, would not be sufficient to demonstrate the culpability of the accused, insofar as, the restraint against fresh com .....

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ons hereinbefore contained, no finding, sentence or order passed by a Court of competent jurisdiction shall be reversed or altered by a Court of appeal, confirmation or revision on account of any error, omission or irregularity in the complaint, summons, warrant, proclamation, order, judgment or other proceedings before or during trial or in any inquiry or other proceedings under this Code, or any error, or irregularity in any sanction for the prosecution, unless in the opinion of that Court, a .....

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ting in recording an order of conviction, and also, the imposition of sentence, neither the findings nor the sentence were open to be revised or altered, merely … on account of any error, omission or irregularity in the complaint, summons, warrant, proclamation, order, judgment or other proceedings before or during trial or in any inquiry or other proceedings under this Code… . It was accordingly urged, that the mention of Section 12(1B) of the SEBI Act in the complaint, should be .....

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k, for interfering with such findings and sentence. It was submitted, that interference would only be permissible, in situations where the omission or irregularity would result in failure of justice . 39. It was submitted, that the entire factual scenario was clear and transparent, and known to one and all. The date of incorporation of the concerned company, wherein the accused were directors, is a matter of record, substantiated through cogent evidence produced before the trial Court. The fact .....

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casioned a failure of justice . 40. In order to support the above contention, the learned senior counsel for the Board , placed reliance on State of M.P. vs. Bhooraji, (2001) 7 SCC 679, wherefrom the Court s attention was drawn to the following observations:- 8. The real question is whether the High Court necessarily should have quashed the trial proceedings to be repeated again only on account of the declaration of the legal position made by the Supreme Court concerning the procedural aspect ab .....

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to take additional evidence by the appellate court itself or to direct such additional evidence to be collected by the trial court. But to replay the whole laborious exercise after erasing the bulky records relating to the earlier proceedings, by bringing down all the persons to the court once again for repeating the whole depositions would be a sheer waste of time, energy and costs unless there is miscarriage of justice otherwise. Hence the said course can be resorted to when it becomes unpreve .....

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law is more pedantic than pragmatic. Law is not an instrument to be used for inflicting sufferings on the people but for the process of justice dispensation. *** *** *** 12. Section 465 of the Code falls within Chapter XXXV under the caption Irregular Proceedings . The Chapter consists of seven sections starting with Section 460 containing a catalogue of irregularities which the legislature thought were not enough to axe down concluded proceedings in trials or enquiries. Section 461 of the Code .....

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ed . 13. It is useful to refer to Section 462 of the Code which says that even proceedings conducted in a wrong sessions division are not liable to be set at naught merely on that ground. However, an exception is provided in that section that if the court is satisfied that proceedings conducted erroneously in a wrong sessions division has in fact occasioned a failure of justice it is open to the higher court to interfere. While it is provided that all the instances enumerated in Section 461 woul .....

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sioned a failure of justice. 14. We have to examine Section 465(1) of the Code in the above context. It is extracted below: 465. (1) Subject to the provisions hereinbefore contained, no finding, sentence or order passed by a court of competent jurisdiction shall be reversed or altered by a court of appeal, confirmation or revision on account of any error, omission or irregularity in the complaint, summons, warrant, proclamation, order, judgment or other proceedings before or during trial or in a .....

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or to direct repetition of the whole proceedings afresh. Hence, the legislature imposed a prohibition that unless such error, omission or irregularity has occasioned a failure of justice the superior court shall not quash the proceedings merely on the ground of such error, omission or irregularity. 16. What is meant by a failure of justice occasioned on account of such error, omission or irregularity? This Court has observed in Shamnsaheb M. Multtani v. State of Karnataka, (2001) 2 SCC 577, thu .....

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the superior court should make a close examination to ascertain whether there was really a failure of justice or whether it is only a camouflage. *** *** *** 23. We conclude that the trial held by the Sessions Court reaching the judgment impugned before the High Court in appeal was conducted by a court of competent jurisdiction and the same cannot be erased merely on account of a procedural lapse, particularly when the same happened at a time when the law which held the field in the State of Ma .....

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ion to the last submission advanced at the hands of the learned senior counsel for the Board . It is, however, not possible for us to accept the same. We are of the considered view, which clearly emerges from the observations rendered in Bhooraji s case (supra), that Section 465 of the Cr.P.C. pertains to omissions or irregularities in matters of procedure. It is, therefore, that both the sub-Sections of Section 465, pointedly refer to proceedings under the Cr.P.C. Added to the above it is of so .....

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tanding of Section 465 of the Cr.P.C. 42. Having so interpreted Section 465 of the Cr.P.C., we may also indicate, that material facts constituting the offence, for which an accused is being charged, must mandatorily be put to the accused. Lack of material facts, which are vital to establish the ingredients of an offence, cannot be viewed as a procedural omission. The above requirement is not procedural, but substantive. Accordingly, it is not possible for us to accept that the lapse which the ap .....

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ot be interfered with. 43. The sole allegation levelled against the respondents was, that they were guilty of having breached the provisions of the Collective Investment Regulations, by failing to make any application to the Board for registration of the collective investment scheme(s) being operated by them, and by failing to wind up their existing collective investment scheme(s), and/or in repaying the amounts collected from the investors. That alone constituted the factual foundation of the c .....

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Ltd. with effect from 30.7.1998, and respondent no. 2 - Vinod Kumar Varshney can likewise be taken to have resigned from the directorship of the said company with effect from 23.12.1998. Both respondent nos. 1 and 2, according to learned counsel representing them, ceased to have any concern/relationship with M/s. Gaurav Agrigenetics Ltd., well before 15.10.1999 (when the Collective Investment Regulations were enforced). It was, therefore contended on behalf of the respondents, that this Court sh .....

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ged breach by M/s. Gaurav Agrigenetics Ltd., of the Collective Investment Regulations, by treating them as existing collective investment undertaking. Those belonging to the proviso category, could only be proceeded against for having continued their activities relating to collective investment, without obtaining registration, after the notification of the Collective Investment Regulations (see paragraph 29 above). The said regulations came into existence with effect from 15.10.1999. By the time .....

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t, the appeals stand dismissed. Criminal Appeal nos. 833-836 of 2012 46. It is not a matter of dispute, that the respondent herein - Mrs. Parvesh Varshney was one of the directors of M/s. Gaurav Agrigenetics Ltd., i.e. the same company involved in criminal appeal nos. 827-830 of 2012. We have, in our conclusions with reference to criminal appeal nos. 827-830 of 2012, upheld the order dated 13.5.2010 passed by the High Court in Criminal Miscellaneous Case nos. 7468-7471 of 2006 and Criminal Misce .....

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diction under Section 482 of the Cr.P.C.. The said proceedings against the co-directors were initiated on the basis of a complaint made by the Board in the Court of the Chief Metropolitan Magistrate, Tis Hazari Courts, Delhi against M/s. Gaurav Agrigenetics Ltd., and ten of its directors. In the above complaint, Gaurav Varshney was arrayed as accused no. 5 and Vinod Kumar Varshney was impleaded as accused no. 8. 47. Insofar as the instant criminal appeal is concerned, the same has been filed aga .....

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10, had quashed the complaint filed against the respondent herein, in exercise of its jurisdiction under Section 482 of the Cr.P.C. 48. The commonness of the factual position in the appeals adjudicated upon by us (Criminal Appeal nos. 827-830 of 2012), and the present criminal appeals is, that whilst Gaurav Varshney - accused no. 5, had tendered his resignation from the position of director of M/s. Gaurav Agrigenetics Ltd. on 30.7.1998, and Vinod Kumar Varshney - accused no. 8, had tendered his .....

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n and reasons as have weighed with us, for not accepting the pleas raised by the Board in Criminal Appeal nos. 827-830 of 2012 against the other co-accused in the same complaint dated 15.12.2003, we decline to interfere with the impugned order passed by the High Court, dated 12.8.2010, with reference to the respondent - Mrs. Parvesh Varshney - accused no. 6, as well. 49. In the result, the instant appeals are dismissed. Criminal Appeal no. 252 of 2015 50. Only a word of caution. In the connected .....

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arned counsel for the appellant was at pains to point out, that the appellant was inducted as director only in 1998. It was submitted, that the appellant s involvement in the functioning of M/s. Accord Plantation Ltd., was limited to tendering advice with reference to its agricultural activities, and that, the appellant - Major P.C. Thakur, was neither in charge of nor responsible to the company, for the conduct of its business activities. 52. In addition to the submissions noticed with referenc .....

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iness of the company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence. (2) Notwithstanding anything contained in sub-section (1), w .....

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pany" means any body corporate and includes a firm or other association of individuals; and (b) "director", in relation to a firm, means a partner in the firm. Based on Section 27 of the SEBI Act, it was contended, that besides a bald statement made by the Board , in the show-cause notice dated 12.5.2000, and the complaint dated 21.1.2003, there was no material on the record of the case to demonstrate, that the appellant was in any manner …in charge of, and was responsible .....

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er company and is extended to officers of the company. The normal rule in the cases involving criminal liability is against vicarious liability, that is, no one is to be held criminally liable for an act of another. This normal rule is, however, subject to exception on account of specific provision being made in the statutes extending liability to others. Section 141 of the Act is an instance of specific provision which in case an offence under Section 138 is committed by a company, extends crim .....

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ct and further that such a person should know what is attributed to him to make him liable. In other words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are the result of acts of others. Therefore, officers of a company who are responsible for acts done in the name of the company are sought to be made personally liable for acts which result in criminal action being taken against the company. It makes every pers .....

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operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are every person . These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words: Who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty .....

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who will be liable for criminal action. It follows from this that if a director of a company who was not in charge of and was not responsible for the conduct of the business of the company at the relevant time, will not be liable under the provision. The liability arises from being in charge of and responsible for the conduct of business of the company at the relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. Conversely, a pe .....

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or secretary in a company is liable …, etc. The legislature is aware that it is a case of criminal liability which means serious consequences so far as the person sought to be made liable is concerned. Therefore, only persons who can be said to be connected with the commission of a crime at the relevant time have been subjected to action. *** *** *** 12. The conclusion is inevitable that the liability arises on account of conduct, act or omission on the part of a person and not merely on .....

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1940. Section 34 contains a similar provision making every person in charge of and responsible to the company for the conduct of its business liable for offence committed by a company. It was held that a person liable for criminal action under that provision should be a person in overall control of the day-to-day affairs of the company or a firm. This was a case of a partner in a firm and it was held that a partner who was not in such overall control of the firm could not be held liable. In Muni .....

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he complaint does not disclose the essential ingredients of an offence which are arrived at against the accused. This emphasises the need for proper averments in a complaint before a person can be tried for the offence alleged in the complaint. 16. In State of Haryana v. Brij Lal Mittal, (1998) 5 SCC 343, it was held that vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time he was in charge of and was also respons .....

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awn to the following observations recorded therein:- 12. It is very clear from the above provision that what is required is that the persons who are sought to be made vicariously liable for a criminal offence under Section 141 should be, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. Only those persons who were in c .....

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e relevant time when the offence was committed and not on the basis of merely holding a designation or office in a company. 13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the business of the company without anything more as to the ro .....

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nce and the persons who are merely holding the post in a company and are not in charge of and responsible for the conduct of the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment as to the role of the Directors concerned should be specific. The description should be clear and there should be some unambiguous allegations as to how the Directors concerned were alleged to be in charge of and were responsible for the conduct and .....

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ar Poddar v. State (NCT of Delhi), (2007) 3 SCC 693, N.K. Wahi v. Shekhar Singh, (2007) 9 SCC 481, N. Rangachari v. BSNL, (2007) 5 SCC 108, Paresh P. Rajda v. State of Maharashtra, (2008) 7 SCC 442, K.K. Ahuja v. V.K. Vora, (2009) 10 SCC 48, and other relevant judgments, this Court laid down the following principles: (National Small Industries Corpn. Ltd. case (supra), SCC pp. 345-46, para 39) (i) The primary responsibility is on the complainant to make specific averments as are required under t .....

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pany registered or incorporated under the Companies Act, 1956 only if the requisite statements, which are required to be averred in the complaint/petition, are made so as to make the accused therein vicariously liable for offence committed by the company along with averments in the petition containing that accused were in charge of and responsible for the business of the company and by virtue of their position they are liable to be proceeded with. (iv) Vicarious liability on the part of a person .....

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nd responsible for the conduct of the business of the company at the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases. *** *** *** 28. We are concerned in this case with Directors who are not signatories to the cheques. So far as Directors who are not signatories to the cheques or who are not Managing Directors or Joint Managing Directors are concerned, it is clear from the conclusions drawn in the abovementioned cases that it is necessa .....

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SMS Pharma (1) (supra), observed that the question of requirement of averments in a complaint has to be considered on the basis of provisions contained in Sections 138 and 141 of the NI Act read in the light of the powers of a Magistrate referred to in Sections 200 to 204 of the Code which recognise the Magistrate's discretion to reject the complaint at the threshold if he finds that there is no sufficient ground for proceeding….. *** *** *** 34. We may summarise our conclusions as fo .....

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rall reading of the complaint, refuse to quash the complaint because the complaint contains the basic averment which is sufficient to make out a case against the Director. 34.3. In the facts of a given case, on an overall reading of the complaint, the High Court may, despite the presence of the basic averment, quash the complaint because of the absence of more particulars about the role of the Director in the complaint. It may do so having come across some unimpeachable, incontrovertible evidenc .....

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gned long before issuance of cheques. In such cases, if the High Court is convinced that prosecuting such a Director is merely an arm-twisting tactics, the High Court may quash the proceedings. It bears repetition to state that to establish such case unimpeachable, incontrovertible evidence which is beyond suspicion or doubt or some totally acceptable circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the possibility of such a case be .....

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tances of each case. The High Court at that stage does not conduct a mini trial or roving inquiry, but nothing prevents it from taking unimpeachable evidence or totally acceptable circumstances into account which may lead it to conclude that no trial is necessary qua a particular Director. It was pointed out, that even though the judgments relied upon and referred to hereinabove, were with reference to Section 138 of the Negotiable Instruments Act, yet Section 141 thereof is exactly similar to S .....

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r us to deal with the pointed issue at hand, on account of the clear findings recorded by the High Court in the impugned order dated 29.1.2014, depicting the role and involvement of the appellant in the activities of M/s. Accord Plantation Ltd. The conclusions drawn by the High Court in the impugned order, are extracted hereunder:- 18. … As would be evident from the balance sheet of the company, remuneration was being paid by it to Mr. P.C. Thakur. It has also come in the deposition of DW .....

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ng remuneration from the company and was also authorized to operate its bank accounts clearly shows that he was also a person incharge and responsible to the company for conduct of its business, during the period he was its director. In view of the fact, that the above factual position has not been disputed by learned counsel for the appellant, we are therefore satisfied in concluding, that the appellant - Major P.C. Thakur was in charge, and was responsible to the company, for the conduct of it .....

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BI Act. 54. Insofar as the present appeal is concerned, a show cause notice dated 12.5.2000 was issued by the SEBI to M/s. Accord Plantation Ltd. A few of the relevant paragraphs of the show cause notice dated 12.5.2000 are extracted hereunder:- As you are aware, SEBI (Collective Investment Scheme) Regulations, 1999 (hereinafter referred to as Regulations) came into force on October 15, 1999. As per regulation 5(1), any person who immediately prior to the commencement of these Regulations was op .....

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s Release and Public Notice. Thus, you as an existing Collective Investment Scheme entity, subject to the provisions of Chapter IX of these Regulations, were required to apply for registration by March 31, 2000. As per Regulation 73(1) an existing Collective Investment Scheme (CIS) which has failed to make an application for registration to SEBI, shall wind up the existing scheme and repay the investors. Further, as per Regulation 74, an existing CIS which is not desirous of obtaining provisiona .....

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ve Investment Schemes, including you, which were not desirous of obtaining provisional registration from SEBI or had failed to make an application for registration from SEBI were given individual intimation in terms of regulation 73(2) that casts an obligation on you to send an information memorandum to the investors detailing the sate of affairs of the scheme, the amount repayable to each investors and the manner in which such amount is determined. Accordingly you were required to send the info .....

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r Section 200 of the Cr.P.C. read with Sections 24(1) and 27 of the SEBI Act, the accusations levelled against M/s. Accord Plantation Ltd., as also, the appellant herein, were similar. Relevant paragraphs of the complaint dated 21.1.2003 are being extracted hereunder:- 7. The accused no. 1 company filed information/details with SEBI regarding the collective investment schemes pursuant to SEBI press release dated November 26, 1997 and/or public notice dated December 18, 1997. 8. In terms of Chapt .....

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n a period of two months from the date of notification of the said regulations. 9. SEBI having regard to the interest of investors and request received from various persons operating collective investment schemes extended the last date of submitting the application by existing entities upto March 31, 2000 and the same was declared by SEBI vide a press release and a public notice. 10. However, the accused no. 1 failed to make any application with SEBI for registration of the collective investment .....

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registration from SEBI shall formulate a scheme of repayment and make such repayment to the existing investors in the manner specified in regulation 73. 12. SEBI vide its letter dated December 10, 1999 and December 29, 1999 and also by way of a public notice dated December 10, 1999 gave intimation in terms of regulation 73(2) to the accused no. 1 which casts an obligation on the accused no. 1 to send an information memorandum to all the investors detailing the state of affairs of the schemes, th .....

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ration were required to compulsorily windup their existing schemes as per the provisions of regulation 73(1) of the said regulations. 13. However, the accused no. 1 neither applied for registration under the said regulations nor took any steps for winding up of the schemes and repayment to the investors as provided under the regulations and as such had violated the provisions of section 11B, 12(1B) of Securities and Exchange Board of India Act, 1992 and regulation 5(1) r/w regulations 68(1), 68( .....

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d the appellant for not having made an application under Regulation 5 of the Collective Investment Regulations, upto 31.3.2000. It was pointed out that Regulation 5, pertains to existing collective investment schemes. It was contended, that even though under the Collective Investment Regulations originally drawn, such an application had to be preferred by 15.12.1999 (i.e. within the period of two months from the date of commencement of the Collective Investment Regulations), the said date was su .....

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ndhar, who in his examination-in-chief, had acknowledged that in Form-32 (exhibited as DW6/1), Major P.C. Thakur was shown to have resigned from the directorship of M/s. Accord Plantation Ltd., with effect from 20.2.2000. Premised on the above factual position, it was submitted, that the appellant cannot be implicated for not having complied with the Collective Investment Regulations, because he had already resigned (-on 20.2.2000), before the cause of disobedience could have arisen (-on 31.3.20 .....

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ested, that the appellant - Major P.C. Thakur had resigned from M/s. Accord Plantation Ltd. on 20.2.2000. In this behalf, he placed reliance on the statement of DW6 - Vikram, Senior Dealing Assistant of the office of the Registrar of Companies, Jalandhar. Even though in his examination-in-chief, DW6 - Vikram had clearly affirmed, that in terms of Form-32 (exhibited as DW6/1), Major P.C. Thakur was shown to have resigned from the directorship of M/s. Accord Plantation Ltd. with effect from 20.2.2 .....

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n 159 is extracted below:- 159. Annual return to be made by company having a share capital.- (1) Every company having a share capital shall within sixty days from the day on which each of the annual general meetings referred to in section 166 is held, prepare and file with the Registrar a return containing the particulars specified in Part I of Schedule V, as they stood on that day, regarding - (a) its registered office, (b) the register of its members, (c) the register of its debenture-holders, .....

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such of the particulars as relate to persons ceasing to be or becoming members since that date and to shares transferred since that date or to changes as compared with that date in the number of shares held by a member. Explanation.- Any reference in this section or in section 160 or 161 or in any other section or in Schedule V to the day on which an annual general meeting is held or to the date of the annual general meeting shall, where the annual general meeting for any year has not been held .....

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ry requirement under Section 303 of the Companies Act, 1956, inter alia, pertaining to the details of the existing directors and/or any change among the directors, managing directors, managers or secretaries of a company. Insofar as the instant aspect of the matter is concerned, section 303(2) of the Companies Act, 1956, which was also relied upon, is extracted hereunder:- 303. Register of directors etc.- (1) *** *** *** (2) The company shall, within the periods respectively mentioned in this su .....

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shall be thirty days from the happening thereof; 59. It was contended, that while it cannot be disputed that the name of Major P.C. Thakur existed on Form-32 sent to the Registrar of Companies, and DW6 - Vikram in his statement duly brought out, that as per the record of the Registrar of Companies, Major P.C. Thakur had resigned from the directorship of the company with effect from 20.2.2000, yet an equally significant fact is, that in the annual return filed by M/s. Accord Plantation Ltd. on 3 .....

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, and highlighted the issue under consideration, by emphasizing on the following observations recorded therein:- 16. Every company is required to keep at its registered office a register of its Directors, Managing Director, manager and secretary containing the particulars with respect to each of them as set out in clauses (a) to (e) of sub-section (1) of Section 303 of the Companies Act, 1956. Sub-section (2) of Section 303 mandates every company to send to the Registrar a return in duplicate co .....

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been accepted by the company and that has been duly notified to the Registrar of Companies, cannot be made accountable and fastened with liability for anything done by the company after the acceptance of his resignation. The words every person who, at the time the offence was committed , occurring in Section 141(1) of the NI Act are not without significance and these words indicate that criminal liability of a Director must be determined on the date the offence is alleged to have been committed .....

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udgment rendered by this Court in the Harshendra Kumar D s case (supra), there can be no doubt, that the submissions advanced on behalf of the appellant have to be accepted, unless the same can be effectively repudiated. The mere mention of the name of Major P.C. Thakur in the annual return filed on 30.9.2002, in our considered view, cannot per se lead to the inference, that Major P.C. Thakur, was still on the Board of directors of M/s. Accord Plantation Ltd.. We say so because, Section 159(1)(g .....

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s of DW6/4 and DW6/5, (referred to in the statement of DW6 - Vikram). DW6/5 was a part of the annual return of the concerned company. Details were provided therein by the said company, in the format prescribed in Schedule V of the Companies Act, 1956. At S.No. IV of the format, information was to be provided pertaining to the past and present directors/manager/secretary. In the information so provided by the concerned company at S.No. IV, the names of Ajay Vohra, Tejinder Singh, PC Thakur, Rajan .....

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are therefore of the view, that in the present case, there is no material to contradict the factual position depicted in Form-32, namely, that the appellant - Major P.C. Thakur had resigned from the company on 20.2.2000. 62. In addition to above, it is also relevant to mention, that a copy of Form-32, relating to the resignation of Major P.C. Thakur from M/s. Accord Plantation Ltd. on 20.2.2000, was placed on the record of the case (as Annexure P-3). The same was produced by DW7 - Ajay Vohra, w .....

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akur, we also consider it appropriate to make a reference to Section 27 of the SEBI Act. The above provision has already been extracted above, and the debate with reference thereto, and its conclusion, have also been recorded by us. The reference which we wish to make to Section 27 at the instant juncture, is for a different purpose. Section 27 makes every person, who at the time when the offence was committed, was in charge of, and responsible for, the conduct of the company s business, guilty .....

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of omission or commission of the company, after the date on which the concerned director has resigned, would not affect him, insofar as, his culpability under Section 27 of the SEBI Act is concerned. Thus viewed, there can be no doubt, that Major P.C. Thakur ceased to be in a position, as would make him in charge of or responsible for the conduct of the business of the company, after 20.2.2000. 64. Based on the factual position noticed in the preceding paragraph, we are of the view, that for ex .....

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IX of the said regulations, and more particularly Regulations 68, 73 and 74 (see extracts of show cause notice dated 12.5.2000, and paragraph 13 of the complaint dated 21.1.2003). We are satisfied that the last date for moving an appropriate application under Regulation 5, having been extended from 15.12.1999 to 31.3.2000, the aforesaid regulations could be deemed to have been breached by M/s. Accord Plantation Ltd., as also, by the appellant herein, in case such an application had not been file .....

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tion of initiation of proceedings against M/s. Accord Plantation Ltd. or the appellant, on account of a breach of Regulation 5 and Regulations 68 to 72 under Chapter IX of the Collective Investment Regulations, did not arise at all. Insofar as the instant aspect of the matter is concerned, learned counsel invited our attention to a communication dated 7.2.2000, which was addressed by M/s. Accord Plantation Ltd. to SEBI. The aforesaid communication is extracted hereunder:- ACCORD PLANTATION LTD. .....

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e interested in operating this scheme due to stringent guidelines of SEBI. However, the company intends to pay all the deposits from sale of tree on due date for year wise detail of income and payment of maturities is enclosed. We are ready to provide any other information required at your end. Thanking you. Yours faithfully, Sd/- Managing Director Based on the aforesaid letter dated 7.2.2000, it was contended, that M/s. Accord Plantation Ltd. had decided to wind up its operations on account of .....

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seeking a certificate of registration, did not arise. 66. In the aforesaid context, learned counsel for the appellant also placed reliance on Regulations 73 and 74 to contend, that M/s. Accord Plantation Ltd. was required to repay to the investors the deposits made by them … within two months from the date of receipt of intimation from the respondent-Board, detailing the state of affairs of the scheme, the amount repayable to each investor and the manner in which such amount is determine .....

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lation (1) shall send an information memorandum to the investors who have subscribed to the schemes, within two months from the date of receipt of intimation from the Board, detailing the state of affairs of the scheme, the amount repayable to each investor and the manner in which such amount is determined. (3) The information memorandum referred to in sub-regulation (2) shall be dated and signed by all the directors of the scheme. (4) The Board may specify such other disclosures to be made in t .....

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eme at their risk and responsibility : Provided that if the positive consent to continue with the scheme, is received from only twenty-five per cent or less of the total number of existing investors, the scheme shall be wound up. (8) The payment to the investors, shall be made within three months of the date of the information memorandum. (9) On completion of the winding up, the existing collective investment scheme shall file with the Board such reports, as may be specified by the Board. Existi .....

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the appellant herein, and as such, no question of repayment of the deposits made by the investors arose, by the time the appellant relinquished his position as director of the company (with effect from 20.2.2000). 67. Since the respondent-Board had not denied the fact, that M/s. Accord Plantation Ltd. did address the letter dated 7.2.2000 (extracted above), to the respondent-Board, making its intentions clear, that it was not desirous of continuing its activities any further, because of the stri .....

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ll the expiry of two months from the date of receipt of intimation from the Board . 68. In view of the conclusions recorded hereinabove we are satisfied, that the proceedings initiated against the appellant were wholly misconceived, as it has not been established, that the appellant either violated Regulation 5 read with Regulations 68 to 72, or Regulations 73 and 74 of the Collective Investment Regulations. 69. The instant appeal is accordingly allowed. The conviction and sentence imposed on th .....

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ation Ltd., and five of its directors. Sunita Bhagat, wife of Vinodh Bhagat was arrayed as accused no. 4. The charges levelled against the appellant - Sunita Bhagat emerge from paragraphs 13, 15 and 18 of the complaint, which are extracted hereunder:- 13. However, the accused no. 1 neither applied for registration under the said regulations nor took any steps for winding up of the schemes and repayment to the investors as provided under the regulations and as such had violated the provisions of .....

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onth from the date of the said directions… *** *** *** 18. In view of the above, it is charged that the accused no. 1 has committed the violations of Section 11B, 12(1B) of Securities and Exchange Board of India Act, 1992 r/w Regulation 5(1) r/w Regulations 68(1), 68(2), 73 and 74 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 which is punishable under Section 24(1) of Securities and Exchange Board of India Act, 1992. The accused nos. 2 to .....

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ective investment business being carried on by M/s. Accord Plantation Ltd., by way of repayment to the investors, as provided under the Collective Investment Regulations. After the complaint was preferred before the Additional Chief Metropolitan Magistrate, Tis Hazari Court, Delhi, the concerned Magistrate summoned the appellant vide an order dated 21.1.2003. On her appearance, the accused was given a notice of the accusations, alongwith the complaint preferred by the Board . On 5.8.2005, the ac .....

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had floated a collective investment scheme, and mobilized funds from the general public, without obtaining a certificate of registration, as required under Section 12(1B) of the SEBI Act. The trial Court also concluded, that despite the notification of the Collective Investment Regulations on 15.10.1999, the accused-company had failed to apply for the registration of its collective investment scheme. Further, M/s. Accord Plantation Ltd. was found to have neither wound up its collective investme .....

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red to pay a fine of ₹ 10 lakhs each, and in default thereof, accused nos. 2 to 5 were required to undergo simple imprisonment for a further period of three months each. 73. Dissatisfied with the orders of conviction and sentence, dated 25.3.2010 and 26.3.2010 respectively, the present appellant - Sunita Bhagat filed Criminal Appeal no. 442 of 2010 before the High Court. The appeal preferred by the appellant - Sunita Bhagat alongwith the appeal preferred by Major P.C. Thakur (Criminal Appe .....

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said company. It was asserted that the appellant - Sunita Bhagat had resigned from the company on 31.8.1999 with immediate effect. It is not a matter of dispute, that Form-32, depicting the resignation of the appellant, was submitted and received in the office of the Registrar of Companies on 20.9.1999. The above factual position stands affirmed in the narration recorded by the High Court in the impugned judgment and order dated 29.1.2014. Paragraph 17 of the impugned judgment, is extracted her .....

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7, stating therein the main objects of the Company and giving information with respect to the funds mobilized from the investors and also enclosing returns, copies of offer documents and bio datas of Promoters was sent by her. She was also a Promoter of the Company and one of its first directors, as stated by DW6 Vikram besides being a Director in another company, Blue Peeks Floriculture Limited. A perusal of the balance sheet of the Company would show that she was also paid remuneration by the .....

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nita Bhagat from the company, our attention was invited to the statement of DW3 - Yashpal, JTA, Registrar of Companies, Jalandhar. The same is extracted hereunder:- I have brought the summoned records relating to the company Accord Plantation Ltd. The certified copy of Form 32 placed in the judicial record had been issued by our office. The same is Ex. DW3/A. The Form 32 reflects that as on 31.8.1999, the accused no. 4 Sunita Bhagat had resigned as Director of the Accord Plantation Ltd. The resi .....

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the modified list of directors would have been furnished by the company alongwith the annual returns filed by the company. As per the record, the directors of the company prior to the resignation of Smt. Sunita Bhagat were Sh. Ajay Vora, Sh. Tejender Singh, Sh. P.C. Thakur, Sh. Pradeep Dewan and Mrs. Sunita Bhagat as per annual return dated 28.9.99. The copy of the same is Ex. DW3/C (OSR). XXXX by counsel for accused no. 2. It is correct that fees have to be deposited by the person applying for .....

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or (-on 31.8.1999) just as Major P.C. Thakur had resigned (-on 20.2.2000). 76. Without going into the details of the matter, we have no hesitation in concluding, for exactly the same reasons as have been recorded by us in Criminal Appeal no. 252 of 2015 (Major P.C. Thakur vs. Securities and Exchange Board of India), that the proceedings initiated against the appellant - Sunita Bhagat, were wholly misconceived, as there was no occasion whatsoever for the appellant to have violated Regulation 5, r .....

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, was incompetent in law, in view of the period of limitation stipulated under the provisions of the Cr.P.C. In order to support his claim under Section 468 of the Cr.P.C., learned counsel, in the first instance, placed reliance on Section 32 of the SEBI Act, which is reproduced below:- 32. Application of other laws not barred.-The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force. Relying on Section 32 it was co .....

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ced below:- 468. Bar to taking cognizance after lapse of the period of limitation.- (1) Except as otherwise provided elsewhere in this Code, no Court, shall take cognizance of an offence of the category specified in sub-section (2), after the expiry of the period of limitation. (2) The period of limitation shall be - (a) six months, if the offence is punishable with fine only; (b) one year, if the offence is punishable with imprisonment for a term not exceeding one year; (c) three years, if the .....

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ompetence to taking cognizance, would lapse after a period of one year, on account of the bar created by Section 468(2)(b) of the Cr.P.C (extracted above). 80. Referring to the factual position in the present controversy, it was asserted, that the appellant had ceased to be a director of M/s. Accord Plantation Ltd., with effect from 20.9.1999, and as such, her liability for any alleged act of omission or commission, with reference to M/s. Accord Plantation Ltd., could not legally extended beyond .....

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it was asserted, that besides the other legal pleas raised at the hands of the appellant, the complaint filed by the Board against the appellant was barred by limitation. 81. We have, during the course of recording our consideration hereinabove, upheld the contention advanced on behalf of the appellant - Sunita Bhagat, that Section 468 of the Cr.P.C. could be relied upon, in criminal proceedings initiated under the provisions of the SEBI Act. Having so concluded we are of the view, that since th .....

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M/s. Accord Plantation Ltd., namely, with effect from 20.9.1999. Thus viewed, the bar of taking cognizance against the appellant - Sunita Bhagat, would operate with effect from 20.9.2000. Admittedly, the complaint in the present case was preferred by the Board before the Additional Chief Metropolitan Magistrate, Tis Hazari Courts, Delhi, on 21.1.2003. The trial Court could not have taken cognizance of the same, in view of the clear bar contemplated under Section 468 of the Cr.P.C. 82. For the r .....

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ellant in this matter and Raj Chawla, accused no. 10 before the trial Court, is the respondent. 84. The instant appeal has been preferred by the Board against the respondent - Raj Chawla, who had approached the High Court by filing Criminal Miscellaneous Case 3937 of 2009, under Section 482 of the Cr.P.C., seeking quashing of the complaint filed by the Board , dated 15.12.2003 in the Court of Chief Metropolitan Magistrate, Tis Hazari Court, Delhi, under Section 200 of the Cr.P.C. read with Secti .....

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nce to the respondent - Raj Chawla, it would be essential to notice that the respondent - Raj Chawla was a promoter-director of M/s. Fair Deal Forests Ltd.. M/s. Fair Deal Forests Ltd. was incorporated under the Companies Act, 1956, on 16.10.1996. The respondent - Raj Chawla resigned from the directorship of the said company on 30.3.1997. On his resignation, he submitted Form-32 with the Registrar of Companies. It was pointed out, that M/s. Fair Deal Forests Ltd. was operating a collective inves .....

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Forests Ltd. and 9 of its directors, wherein the respondent - Raj Chawla was arrayed as accused no. 10. A relevant extract of the complaint is reproduced below:- 7. The accused no. 1 is a company registered under the provisions of Companies Act and the accused nos. 2 to 11 are the Directors of the accused no. 1 company. The accused nos. 2 to 11 are the persons incharge and responsible for the day to day affairs of the company and all of them were actively connived with each other for the commiss .....

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ive investment schemes, extended the last date of submitting the application by existing entities upto March 31, 2000 and the same was declared by SEBI vide a press release and a public notice. 13. However, the accused no. 1 failed to make any application with SEBI for registration of the collective investment schemes being operated by it as per the said regulations. 14. It is submitted that in terms of Regulations 73(1) of the said regulations, an existing collective investment scheme which fai .....

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