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TMI Blog2025 (5) TMI 1150X X X X Extracts X X X X X X X X Extracts X X X X ..... e case for commission of offence under Section 24 (1) read with Section 27 of the SEBI Act is made out against all the other accused persons, including the petitioner. Consequently, charges were framed for the offence against the accused persons. 3. The brief facts of the case are as follows: 3.1 The subject complaint was filed by the respondent against accused company and its Directors, including the petitioner. It is alleged that the accused persons were responsible for sponsoring, causing to sponsor and for floating/ launching the Collective Investment Scheme ('CIS') without obtaining registration from the respondent complainant Board. It is alleged that the accused persons illegally mobilised funds from the public under CIS in violation of the relevant provisions of the SEBI Act and concerned regulations, whereunder such a practice has been declared as fraudulent and unfair trade practice. 3.2 It is alleged that the complainant Board had received a complaint vide email dated 26.11.2013, inter alia, alleging that the accused company had launched a CIS without obtaining a certificate of registration from the complainant Board. An enquiry was started and information was sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "9. The perusal of the brochures, leaflets and the registration letters available on record suggest that the accused company was infact indulged in CIS without any valid registration. The company was admittedly mobilizing funds and the predominant objective of the scheme was not to sell any plot of land or any other tangible product. The quid pro quo for the investments made by the investors was infact the promised profit in terms of money and not any product. It is rightly pointed out by the Ld. Counsel for the complainant that neither any sale deed was executed by the accused company in favour of the investors nor any of the allotment letters infact revealed any plot number or other identifiable character with respect to any plot of land. The estimated realizable cost at the end of term was infact quantified in terms of money and not in terms of the value of the land. Some of the leaflets infact suggested that apart from the promised returns free land ownership and accidental insurance, in addition to the promised returns were also offered. However, the predominant object of the transaction was returns in terms of money and it was not a sale purchase of land transaction. Evident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anslated into evidence. 7. He submitted that language of Section 138 of the Negotiable Instruments Act, 1881 ('NI Act') is pari materia to Section 27 of the SEBI Act and law in that regard is well settled that a Director cannot be made liable merely because they hold a designation or office in the accused company. 8. Per contra, the learned counsel for the respondent submitted that there is clear evidence against the petitioner as he was one of the first Directors of the company and promoter of the accused company. He submitted that the order dated 30.11.2015 has attained finality where it was found that the accused company is running a CIS and any defence to the contrary will be established during the course of the trial. 9. He submitted that the entire business of the accused company was to collect money from the public in violation of the SEBI Act and relevant regulations, whereby, the present case is not like one under NI Act, where only a particular transaction at a particular point of time is in question. 10. He submitted that the petitioner had attended Board Meetings and there are various documents that show that he had signed various documents on behalf of the accused ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a meticulous analysis of the material nor an assessment of the reliability or genuineness of the allegations in the complaint, is warranted while examining prayer for quashing of a complaint. (ii) A complaint may also be quashed where it is a clear abuse of the process of the court, as when the criminal proceeding is found to have been initiated with mala fides/malice for wreaking vengeance or to cause harm, or where the allegations are absurd and inherently improbable. (iii) The power to quash shall not, however, be used to stifle or scuttle a legitimate prosecution. The power should be used sparingly and with abundant caution. (iv) The complaint is not required to verbatim reproduce the legal ingredients of the offence alleged. If the necessary factual foundation is laid in the complaint, merely on the ground that a few ingredients have not been stated in detail, the proceedings should not be quashed. Quashing of the complaint is warranted only where the complaint is so bereft of even the basic facts which are absolutely necessary for making out the offence. (v) A given set of facts may make out: (a) purely a civil wrong; or (b) purely a criminal offence; or (c) a civil w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of evaluating the truthfulness or otherwise of the allegations levelled by the prosecution/complainant against the accused. Likewise, it is not a stage for determining how weighty the defences raised on behalf of the accused are. Even if the accused is successful in showing some suspicion or doubt, in the allegations levelled by the prosecution/complainant, it would be impermissible to discharge the accused before trial. This is so because it would result in giving finality to the accusations levelled by the prosecution/complainant, without allowing the prosecution or the complainant to adduce evidence to substantiate the same.' 16. The proposition of law as set out above makes it abundantly clear that the Court should be slow to grant the relief of quashing a complaint at a pre-trial stage, when the factual controversy is in the realm of possibility particularly because of the legal presumption, as in this matter. What is also of note is that the factual defence without having to adduce any evidence need to be of an unimpeachable quality, so as to altogether disprove the allegations made in the complaint. 17. The consequences of scuttling the criminal process at a pre-trial s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ravention and shall be liable to be proceeded against and punished accordingly." 16. The Hon'ble Court in the case of S.P. Mani & Mohan Dairy v. Snehalatha Elangovan : (2023) 10 SCC 685 had summarised the law in reference to Section 141 of the NI Act as under: "57. When in view of the basic averment process is issued the complaint must proceed against the Directors or partners as the case may be. But, if any Director or Partner wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he is really not concerned with the issuance of the cheque, he must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his contention. He must make out a case that making him stand the trial would be an abuse of process of Court. He cannot get the complaint quashed merely on the ground that apart from the basic averment no particulars are given in the complaint about his role, because ordinarily the basic averment would be sufficient to send him to trial and it could be argued that his further role ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ty is attracted only on those, who at the time of commission of the offence, were in charge of and were responsible for the conduct of the business of the firm. But vicarious criminal liability can be inferred against the partners of a firm when it is specifically averred in the complaint about the status of the partners "qua" the firm. This would make them liable to face the prosecution but it does not lead to automatic conviction. Hence, they are not adversely prejudiced if they are eventually found to be not guilty, as a necessary consequence thereof would be acquittal. 58.4. If any Director wants the process to be quashed by filing a petition under Section 482 of the Code on the ground that only a bald averment is made in the complaint and that he/she is really not concerned with the issuance of the cheque, he/she must in order to persuade the High Court to quash the process either furnish some sterling incontrovertible material or acceptable circumstances to substantiate his/her contention. He/she must make out a case that making him/her stand the trial would be an abuse of process of Court." (emphasis supplied) 17. The factual issues that serve as defences in the case ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e court. There are no fixed formulae to be followed by the High Court in this regard and the exercise of this power depends upon the facts and circumstances 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." (emphasis supplied) 18. In the case of H.R. Kapoor v. Securities and Exchange Board of India : 2008 SCC OnLine Del 194, a Coordinate Bench of this Court, while dealing with a similar issue, had held that Section 27 of the SEBI Act is similar to Section 141 of the Negotiable Instruments Act, 1881, and while dismissing the petition for quashing of the concerned complaint, held as under: "13. The above provision is more or less similar to Section 141 of the Negotiable Instruments Act, 1881 ('NI Act') which stipulates that where the offence has been committed by a company, every person in charge of the affairs of the company and responsible to it for the conduct of its business "at the time of offence was committed" would be deemed to be guilty of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Senior Counsel for the appellant. 19. We think that, in the circumstances, the High Court has rightly come to the conclusion that it is not a fit case for exercise of jurisdiction under Section 482 of the Code of Criminal Procedure for quashing the complaint. In fact, an advertence to Sections 138 and 141 of the Negotiable Instruments Act shows that on the other elements of an offence under Section 138 being satisfied, the burden is on the Board of Directors or the Officers incharge of the affairs of the company to show that they are not liable to be convicted. Any restriction on their power or existence of any special circumstance that makes them not liable is something that is peculiarly within their knowledge and it is for them to establish at the trial such a restriction or to show that at the relevant time they were not incharge of the affairs of the company. Reading the complaint as a whole, we are satisfied that it is a case where the contentions sought to be raised by the appellant can only be dealt with after the conclusion of the trial.' 16. Relying on N. Rangachari, this Court in Sushila Devi declined to quash the complaint holding that the complaint contained s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rong suspicion is also required for framing of charges, despite which, the charges have been framed by seeing the existence of prima facie case against the petitioner. It is also argued that the charges have been mechanically framed by the learned Trial Court. It is apposite to succinctly discuss the statutory law with respect to framing of charge and discharge as provided under Sections 227 and 228 of the Code of Criminal Procedure, 1973 ('CrPC'). 22. It is trite law that the learned Trial Court while framing charges is not required to conduct a mini-trial and has to merely weigh the material on record to ascertain whether the ingredients constituting the alleged offence are prima facie made out against the accused persons. The Hon'ble Apex Court, in the case of Sajjan Kumar v. CBI : (2010) 9 SCC 368, has culled out the following principles in regards to the scope of Sections 227 and 228 of the CrPC: "21. On consideration of the authorities about the scope of Sections 227 and 228 of the Code, the following principles emerge: (i) The Judge while considering the question of framing the charges under Section 227 CrPC has the undoubted power to sift and weigh the evidence for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harge/discharge, as under: "7. It is trite law that application of judicial mind being necessary to determine whether a case has been made out by the prosecution for proceeding with trial and it would not be necessary to dwell into the pros and cons of the matter by examining the defence of the accused when an application for discharge is filed. At that stage, the trial judge has to merely examine the evidence placed by the prosecution in order to determine whether or not the grounds are sufficient to proceed against the accused on basis of charge sheet material. The nature of the evidence recorded or collected by the investigating agency or the documents produced in which prima facie it reveals that there are suspicious circumstances against the accused, so as to frame a charge would suffice and such material would be taken into account for the purposes of framing the charge. If there is no sufficient ground for proceeding against the accused necessarily, the accused would be discharged, but if the court is of the opinion, after such consideration of the material there are grounds for presuming that accused has committed the offence which is triable, then necessarily charge has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... were not in the nature of CIS. In view of the same, at this stage, prima facie, it is improbable that the petitioner was unaware of the very nature of operations of the accused company if he was actively partaking in Board Meetings and grave suspicion exists against him. 26. As noted above, to quash the proceedings by petition filed under Section 482 of CrPC, the petitioner is to place some unimpeachable and uncontroverted evidence which is beyond suspicion or doubt. Thus, any defence in relation to the petitioner being an inactive Director cannot be probed at this stage in the absence of any direct and unimpeachable material to show the same. In such circumstances, at this stage, in the absence of such evidence, the question as to whether the accused person was responsible for the affairs of the accused company at the relevant time becomes a factual dispute, which is to be seen during trial. 27. Clear unambiguous averment in relation to the petitioner has been made in the complaint and from the totality of facts, at this stage, it cannot be said that the petitioner was not in charge of, and was responsible to, the company for the conduct of the business of the accused company a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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