Supreme Court of India
SECURITIES AND EXCHANGE BOARD OF INDIAversusGAURAV VARSHNEY & ANR.
- Citation
- 2016 INSC 535
- Decided
- 15 July 2016
- Disposal
- Disposed off
- Bench
- S KHEHAR
Holding
Section 12(1B) imposes a mandatory, absolute bar on new collective‑investment operators until a registration certificate is obtained, and the complaint’s failure to specify the offence particulars defeats the prosecution.
Summary
The Supreme Court examined whether the directors of Gaurav Agrigenetics Ltd. violated Section 12(1B) of the SEBI Act by operating a collective investment scheme without a registration certificate. It held that Section 12(1B) creates an absolute, mandatory bar for new operators from 25‑Jan‑1995 until they obtain a certificate, irrespective of when the regulations are framed. The Court emphasized that a complaint must state the specific particulars of the offence, which the SEBI complaint failed to do. Consequently, the High Court's order quashing the criminal proceedings against the directors was upheld. Similar reasoning was applied in related appeals, leading to dismissal of all appeals and affirmation of the quashing of the complaints.
Issues considered
- The interpretation of Section 12(1B) of the SEBI Act – whether it is mandatory or directory.
- Whether the bar under Section 12(1B) applies only after the Collective Investment Regulations are framed.
- Whether the complaint under Section 200 Cr.P.C. disclosed the necessary particulars of the offence under Section 12(1B).
- Whether procedural omissions under Section 465 Cr.P.C. can invalidate the proceedings.
- Whether the limitation period under Section 468 Cr.P.C. bars the complaint.
Legislation cited
- Code of Criminal Procedure, 1973s. 200, s. 251, s. 465, s. 468
- Companies Act, 1956s. 159, s. 303
- Securities and Exchange Board of India Act, 1992s. 118, s. 12(1B), s. 200, s. 24(1), s. 27, s. 32
- Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999s. 4, s. 5, s. 68, s. 69, s. 70, s. 71, s. 72, s. 73, s. 74
Subjects
SEBI ActSection 12(1B)Collective Investment SchemeMandatory provisionRegulatory registrationCriminal procedureSection 251 Cr.P.C.Section 465 Cr.P.C.Limitation periodVicarious liability
Judgment
[2016] 7 S.C.R. I
SECURITIES AND EXCHANGE BOARD OF INDIA A
v.
GAURAV VARSHNEY & ANR.
(Criminal Appeal Nos. 827-830 of2012)
JULY 15,2016 B
(JAGDIGH SINGH KHEHAR AND C. NAGAPPAN, JJ.]
Securities and Exchange Board Act, 1992:
s.12(1 B) - Interpretation of - Held: Persons governed by
substantive provision of s.12(JB) (Non-proviso category), that is, c
those who had not commenced the activity of sponsoring or carrying
on a collective investment scheme prior to 25.01.1995 are permitted
to commence activities only after obtaining a certificate of
registration - While, persons covered under the proviso category,
that is, those who were already carrying on such activities were D
permitted to continue their activities and after the framing of
concerned regulations, they could continue the said activities only
after obtaining a certificate of registration - In other words, 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 E
from 'the Board', in accordance with the Collective Investment
Regulations - Therefore, till such time the Regulations were framed
by 'the Board' uls.12(1 B), and a certificate of registration was
obtained, no fresh entry could be made in the field of collective
investment, by a per.>onlentity not already carrying on such activity -
F
Securities and Exchange .Board of India (Collective Investment
Schemes) Regulations, 1999.
s. 12(1 B) - Bar under - Held: Any person/entity not falling in
the proviso category (an "existing" operator, of a collective
investment scheme) was barred from coi11111e11cing to sponsor or carry
on any collective investment activity, after the insertion of s.12(1 B) G
into the SEBI Act, till such time as he/it had obtained a certificate of
registration from 'the Board', in accordance with the Collective
Investment Regulations - The said bar would, therefore, undoubtedly
extend till the framing of the regulations - The bar, would further
extend, even beyond the framing of the above regulations, till the H
I
2 SUPREME COURT REPORTS [2016] 7.S.C.R.
A concerned new entrepreneur was successful in obtaining a certificate
of registration - Therefore, the period during which the concerned
activities were barred (for the non-proviso category) u/s.12(1 B)
co111111enced fro111 the date of insertion of s.12(1 B) into the SEBI Act
(25.1.1995), and subsisted upto, the actual date when the new
entrepreneur obtained a certificate of registration.
B
s.12(1B) - Mandatory or directory provision - Held: Use of
negative words in conjunction with the word "shall" makes the
legislative intent absolutely clear, and also mandatory with reference
to those not already engaged in collective investment operations -
Further, contravention of s.12(1 B) entails penal consequences, and
c therefore, cannot be construed as directory - The bar created for
new operators, of a collective investment initiative, was, therefore,
absolute and manda_tory.
Securities and Exchange Board of India (Collective Investment
Sche111es) Regulations, 1999: Regn. 5 - "existing collective
invest111ent scheme" - Connotation of - Held: An existing collective
investment scheme, at the time of notification of the regulations,
could only be one which had com111enced its activities prior to
25.1.1995 - A collective investment scheme, which commenced after
25.1.1995, could not be described as an "existing" collective
E investment scheme, because the same was statutorily barred, and
wholly impermissible in law.
Criminal jurisprudence: Held: There can be no doubt
whatsoever, that the particulars of the offeni;e, of which an accused
is charged, have to be clearly stated to him - No amount of evidence
F can be looked into, for an accusation not levelled or m,vfe out, in a
complaint - This is one of the basic tenets of the criminal
;urisprudence.
Code of Criminal Procedure, 1973:
s.251 - Scope of- Where implications of various proviso to a
G section are different, mere mention of section in complaint would
not amount to disclosing to the accused, the particulars of the offence
of which they were accused - In the instant case, in the complaint,
director of the company was accused of violating s.12(1 B) of SEBI
Act - s.12(1 BJ has two categories for two class of persons -
Implications for proviso category and the non-proviso category are
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 3
GAURAVVARSHNEY & ANR.
different -A perusal of the charge-sheet reveals, that the respondents A
were being treated as belonging to the proviso category - But 'the
Board' treated them as belonging to the non-proviso category -
This is clearly impermissible - s.251 will not remedy the above defect
and deficiency in the complaint - Securities and Exchange Board
Act, 1992.
B
s.465 - Omissions or irregularities in matters of procedure -
Held: There can be no doubt that omissions and/or irregularities in
matters of procedure can be overlooked, subject to the condition,
that such an omission or irregularity does not occasion "failure of
iustice" - Lack of material facts, which are vital to establish the
ingredients of an offence, cannot be viewed as a procedural c
omission - The above requirement is not procedural, but
substantive - irregularity and omission in the present case, in not
disclosinR to the accused, the particulars of the offence for which
they were being proceeded against, would occasion "failure of
;ustice" - Practice and Procedure - Procedural irregularities. D
Disposing of the appeals, the Court
HELD: Criminal Appeal Nos. 827-830 of 2012
1. On the insertion of Section 12(1B) in the SEBI Act on
25.1.1995, two classes of persons were created. The first class E
comprised of such person(s) who had commenced the activity of
sponsoring or carrying on a collective investment scheme prior
to 25.1.1995 (this category is referred as the proviso category).
This category would be governed by the proviso under Section
12(1B). The second category created by Section 12(1B) was
constituted of persons who had not commenced the activity of F
sponsoring or carrying on a collective investment scheme prior
to 25.1.1995 (this category is referred as the non-proviso
category). The persons covered by the proviso category were
permitted to continue their existing collective investment
activities, till the framing of the Collective Investment G
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). Insofar as the non"proviso category is
concerned, the same was barred from sponsoring or carrying on H
4 SUPREME COURT REPORTS [2016] 7 S.C.R.
A a collective investment initiative, without first obtaining a
certificate of registration from 'the Board', in accordance with
the Collective Investment Regulations. [Paras 15, 16, 17) [31-
G-H; 32-A-D]
2. The Collective Investment Regulations came into force
B on 15.10.1999. A person falling in the proviso category, namely,
an individual who had commenced the activity of sponsoring or
carrying on a collective investment initiative prior to 25.1.1995,
was liable to move an application for registration under Regulation
5 of the Regulations. An application under Regulation 5 could
not have been made by an individual falling under the non-proviso
c category, for the simple reason, that an activity of sponsoring or
carrying on a collective investment scheme by the said individual
could not be termed as an "existing" collective investment
scheme. An "existing" collective investment scheme (- as the
heading of Regulation 5, suggests) within the meaning of Section
D 12(1B) read with the Regulations, could only be one which had
commenced prior to 25.1.1995, i.e. prior to the insertion of Section
12(1B) in the SEBI Act. A collective investment scheme, which
commenced after 25.1.1995, could not be described as an
"existing" collective investment scheme, because the same was
statutorily barred, and therefore, wholly impermissible in law. What
E a statute bars, cannot be authorized through regulations. (Para
19) [33-B-C, E-H]
3. ln.sofar as persons falling in the non-proviso category
(namely, those desirous of commencing activities concerning
collective investment, after 25.1.1995) are concerned, such
F persons could commence an activity in the nature of collective
investment, after seeking a certificate of registration under the
Regulations. For which purpose, they were required to apply
under Regulation 4 of the Regulations. A perusal of Regulation
4 leaves no room for any doubt, that the same is applicable to a
G person" ... proposing to carry any activity ... " in the nature of a
collective investment. 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, persons who were desirous to sponsor or carry on the
activity in the nature of collective investment after 25.1.1995,
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 5
GAURAVVARSHNEY & ANR.
were clearly an!l unambiguously barred from doing so, unless A
they were possessed of a certificate of registration, issued by
'the Board' under the Regulations. [Para 20) (34-C-H]
4. There can be no doubt, that the date when the Investment
Regulations came into force (-15.10.1999), has no relevance,
insofar as the breach of Section 12(1B) of the SEBI Act, with B
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) under Section 12(1B) of the SEBI Act, was not
dependent on the framing of the regulations. The above bar was c
absolute and unconditional, till the new entrepreneur (described
above) obtained a certificate of registration, in accordance with
the regulations. [Para 22) (35-E-F]
5. The salient features of Section 12(1B) are: (i) The
Statement of Objects and Reasons of the Securities Laws D
(Amendment) Act, 1995, which resulted in the insertion of sub-
Section (IB) 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. (ii) The
language of sub-section (lB) of Section 12 of the SEBI Act is E
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 new operators from commencing collective
investment scheme(s), till after they had obtained a certificate of
registration. (iii) The use of negative words in sub-Section (IB) - F
"No person shall ... ", denotes mandatory intent, with reference
to those not already engaged in collective investment operations.
(iv) The use of negative words in conjunction with the word
"shall", further makes the legislative intent absolutely clear, and
also, mandatory, with reference to those not already engaged in a
collective investment operations. (v) The contravention of Section
12(1B) entails penal consequences, and therefore, cannot be
construed as directory. The bar created for new operators, of a
collective investment initiative, was, therefore, absolute and
mandatory. [Para 23) [36-B-F]
H
6 SUPREME COURT REPORTS [2016] 7 S.C.R.
A Orissa State (Prevention & Control of Pollution) Board
vs. Orient Paper Mills 2003 (2) SCR 741 : (2003) 10
SCC 421; U.P. State Electricity Board, Lucknow vs. City
Board, Mussoorie 1985 (2) SCR 815 : (1985) 2 SCC
16; Union of India vs. A.K. Pandey 2009 (14) SCR
528 : (2009) 10 sec 552 - held inapplicable.
B
6.1.1. In the complaint dated 15.12.2003, the private
respondents were being treated as operating, an "existing"
collective investment scheme. They were accused i11ter alia, for
having not complied with Regulation 5 of the Regulations. The
first assertion of the Board is that the directors of the company
c concerned were pointedly accused of having violated Section
12(1B) of the SEBI Act. A perusal of the complaint, reveal two
accusations against the accused. Firstly, that the accused did not
apply for registration under the Regulations. And secondly, the
accused did not take any steps for winding up of the collective
D investment scheme(s) being operated by them, refunding deposits
made by the investors, as per the provisions of the Regulations.
The basis of the accusations levelled against the accused was
not, that they had no right to commence a collective investment
venture, during the period between 25.1.1995 when Section
12(1B) of the SEBI Act came to be inserted, till the requisite
E 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
F expressed in the complaint. [Paras 26, 31, 32] [40-B-C; 43-C-D,
G-H; 44-A-C]
6.1.2. There can be no doubt whatsoever, that the
particulars of the offence, of which an accused is charged, have
to be clearly stated to him. In cas.e the accused in the present
G _case were to be charged for having violated Section 12(1B) as
new operators under the non-proviso category, it was imperative
to inform them of all the relevant particulars, namely, that they
had unauthorisedly commenced a collective investment scheme,
during the period when there was a complete bar, against
commencing to sponsor or carry on a collective investment
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 7
GAURAVVARSHNEY & ANR.
scheme. In the absence of the above particulars of the offence, A
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. [Para 34) [44-F-H]
6.2. The Board relied on Section 251 Cr.P.C. in support of B
second submission. A perusal of Section 251 Cr.P.C. leaves no
room 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) would be the date on which the c
accused commenced sponsoring or carrying on a collective
investment scheme. If such date fell within the period when the
initiation of a new collecthe investment endeavour stood barred
under Section 12(1B), the accused had to be accosted of the same.
And only thereupon, the accused would have understood, what D
charge was being levelled against him. Merely mention of the
statutory provision, namely, Section 12(1B) would not amount to
disclosing to the accused, the particulars of the offence of which
they were accused. One cannot lose sight of the fact, that
implications for the proviso category (-those who commenced
operations before 25.1.1995) and the non-proviso category E
(-those who commenced operations after 25.1.1995) are different.
A perusal of the chargesheet reveals, that the respondents were
being treated as belonging to the proviso category. But 'the
Board' treated them as belonging to the non-proviso category,
and to proceed against them for having engaged themselves in F
activities concerning collective investment, on the basis of the
material available on the record of the case. This is clearly
impermissible. Section 251 of the Cr.P.C. will not remedy the
above defect and deficiency in the complaint. [Para 35] (45-A, C-
G]
G
6.3. The third submission advanced on behalf of 'the Board',
was based on violation of Section 12(1B) of the SEBI Act. Neither
the complaint nor the charge-sheet filed against the accused
demonstrates that the company in question commenced its
collective investment activities on its own for the first time after
H
8 SUPREME COURT REPORTS (2016] 7 S.C.R.
A 25.1.1995. It could well be, that an existing collective investment
scheme covered by the proviso category under Section 12(1B),
came to be purchased or taken over by the concerned company,
after its incorporation. There is no bar against a newly incorporated
company, restraining it from taking over an existing business.
Merely the fact that the company under consideration was
B
incorporated after 25.1.1995, would not be sufficient to
demonstrate the culpability of the accused, insofar as, the restraint
against fresh commencement of collective investment activities
under Section 12(1B) of the SEBI Act is concerned. [Paras 36,
37) [46-A, E-H)
c State of MP. vs. Bhooraji, 2001 (2) Suppl. SCR 128 :
(2001) 7 sec 679 - relied on.
6.4. The last submission advanced on behalf of 'the Board',
was based on Section 465 Cr.P.C. Section 465 Cr.P.C. pertains
to omissions or irregularities in matters of procedure. Chapter
D XXXV of the Cr.P.C. include Sections 460 to 466. The heading of
the instant Chapter is "Irregular Proceedings". The material
facts constituting the offence, for which an accused is being
charged, must mandatorily be put to the accused. Irregularity
and omission in the present case, in not disclosing to the accused,
E the particulars of the offence for which they were being proceeded
against, would occasion "failure of justice". Accordingly, the lapse
which the appellant desires this Court to overlook and exempt,
cannot be overlooked under Section 465. [Paras 41, 42) (51-C,
E, G)
F 7. The quashing of the proceedings initiated by 'the Board',
against respondent nos. 1 and 2, calls for no interference, for the
simple reason, that they relate to an alleged breach by M/s.
Gaurav Agrigenetics Ltd., of the Regulations, by treating them
as existing collective investment undertaking. Those belonging
to the proviso category, could only be proceeded against for having.
G continued their activities relating to collective investment, without
obtaining registration, after the notification of the Regulations.
By the time the Regulations were notified, respondent nos. 1
and 2 had already. severed their relationship with M/s. Gaurav
Agrigenetics Ltd. [Para 44) [52-G-H; 53-A-B]
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 9
GAURAVVARSHNEY & ANR .
. Criminal Appeal Nos. 833-836 of 2012 A
8. Accused no. 6, had tendered her resignation from the
position of director of M/s. Gaurav Agrigenetics Ltd. with effect
from 6.4.1998. The resignation of the respondent had taken
effect before the Regulations were notified - on 15.10.1999. The
said regulations, therefore, could not have been breached, by B
the respondent. [Para 48) [54-C-D]
Criminal Appeal No. 252 of 2015
9.1. The appellant was in charge, and was responsible to
the company, for the conduct of its business. It is not possible to
accept, that the appellant's activities concerning M/s. Accord c
Plantation Ltd., were confined to tendering advice with reference
to its agricultural activities alone. In the above view of the matter,
the appellant was liable to shoulder the responsibilities of the
company relatablc to its business activities, and therefore, was
justifiably proceeded against, under Section 27 of the SEBI Act. D
Since it has been effectively established, that the appellant ceased
to be a director on 20.2.2000, and culpability, if at all, would arise
only on 31.3.2000, the proceedings initiated against the appellant
were not sustainable, and would be liable to be quashed. [Paras
53, 56) [64-B-C; 68-A-BJ
E
9.2. The appellant was not accused of having violated the
substantive provision of Section 12(1B) of the SEBI Act, by
commencing a collective investment undertaking as a new
operator belonging to the non-proviso category (-who had not
commenced the above activity before 25.1.1995). The appellant
was only accused of having breached Regulation 5 of the F
Regulations, read with Chapter IX of the said regulations, and
more particularly Regulations 68, 73 and 74). The last date for
moving an appropriate application unde1· Regulation 5, having
been extended from 15.12.1999 to 31.3.2000, the said regulations
could be deemed to have been breached by Mis. Accord Plantation G
Ltd., as also, by the appellant, in case such an application had not
been filed under Regulation 5 on or before 31.3.2000. The instant
conclusion is sufficient to exculpate the appellant, who had
severed his relationship, with M/s. Accord Plantation Ltd. with
effect from 20.2.2000. [Para 64) 172-G; 73-A-C)
H
10 SUPREME COURT REPORTS [2G i 6) 7 S.C.R.
A Criminal Appeal No. 251 of 2015
10. The proceedings initiated against the appellant were
wholly misconceived, as there was no occasion whatsoever for
the appellant to have violated Regulation 5, read with Regulations
68 to 72, or in the alternative, Regulations 73 and 74 of the
B Collective Investment Regulations. [Para 76) (80-G-H]
Criminal Appeal No. 832 of 2012
11. The respondent had resigned from the position of
director of M/s. Fair Deal Forests Ltd., on 30.3.1997. The
complaint in the present case was filed against the respondent
c on 15.12.2003 i.e., well after the period of one year, calculated
from the date of the respondent's resignation. [Para 87) [85-E-F]
Vasu Dev Singh vs. Union of India 2006 (8) Suppl. SCR
535 : (2006) 12 SCC 753; P.B. Desai vs. State of
Maharashtra 2013 (11) SCR 863 : (2013) 15 SCC 481;
D Harshendra Kumar D. vs. Rebatilata Kaley 2011 (2)
SCR 670 : (2011) 3 SCC 351; S.MS. Pharmaceuticals
Ltd. vs. Neeta Bhalla (2005) 8 SCC 89; National Small
Industries Corporation Ltd. vs. Harmeet Singh Paintal
2010 (2) SCR 805 : (2010) 3 SCC 330; Gunma/a Sales
E Private Limited vs. Anu Mehta, 2014 (10) SCR 1117 :
(2015) 1 sec 103 - referred to.
Case Law Reference
2003 (~) SCR 741 held inapplicable Para9
1985 (~) SCR 815. held inapplicable Para9
F 2099 (14) SCR 528 held inapplicable Para 10
2006 (8) Suppl. SCR 535 referred to Para 13
2013 (11 ) SCR 863 referred to Para 28
2001 (2 ) Suppl. SCR 128 relied on Para 40
G (2005) s sec 89 referred to Para 52
2010 (~) SCR 805 referred to Para 52
2014 (10) SCR 1117 referred to Para 52
2911 (2) SCR 670 referred to Para 60
CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
H Nos. 827-830 of20 I 2.
SECURITIES AND EXCHANGE BOARD OF INDIA v. 11
GAURAVVARSHNEY & ANR.
From the Judgment and Order dated 13.05.2010 of the High Court A
of Delhi at New Delhi in Cr. M. C. No. 7468-71 of 2006.
WITH
Crl. A. Nos. 832, 833-836of2012
Crl. A. Nos. 251, 252 of2015.
Ms. Indu Malhotra, Sr. Adv., Sanjay Mann, Vinay K. Dagar, (For B
Ms. Rekha Pandey, Ritesh Agrawal, Jatin Zaveri, Neel Kamal Mishra,
Yakesh Anand, Nimit Mathur (For Sanjeev Anand), Advs. for the
appearing parties.
The Judgment of the Court was delivered by
JAGDISH SINGH KHEHAR, J. c
Criminal Appeal nos. 827-830 of 2012
1. Sub-Section (I B) was inserted into Section 12 of the Securities
and Exchange Board of India Act, 1992 (hereinafter referred to as, the
SEBI Act), on 25.1.1995. Section 12( I B) is extracted hereunder:- D
"12. Registration of stock-brokers, sub-brokers, share transfer
agents, etc. -
(1 B) No person shall sponsor or cause to be sponsored or carry
on or cause to be carried on any venture capital funds or collective
investment scheme including mutual funds, unless he obtains a
certificate of registration from the Board in accordance with the E
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 F
(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 clause (d) of sub-section
(2) of section 30.
Explanation.- For the removal of doubts, it is hereby declared
that, forthe purposes of this section, a collective investment scheme G
or mutual fund shall not include any unit linked insurance policy or
scrips or any such instrument or unit, by whatever name called,
which provides a component of investment besides the component
of insurance issued by an insurer."
H
12 SUPREME COURT REPORTS (201 :;] 7 S.C.R.
A The question that arises for consideration in the present criminal appeals
is, whether respondent nos. I and 2-Gaurav Varshney and Vinod Kumar
Varshney, had violated Section 12(1 B), by incorporating M/s. Gaurav
Agrigenetics Ltd., under the provisions of the Companies Act, 1956, on
3. 7.1995, in the capacity ofits first directors and promoters. This position
emerges, because it is not a matter of dispute, that Mis. Gaurav
B
Agrigenetics Ltd. commenced a collective investment scheme,
immediately on its incorporation.
2. In order to highlight the implications of the amendment, made
on 25.1.1995, the Government of India issued a press release dated
18.11.1997. The text of the same is extracted hereunder:-
c
"The matter relating to regulating entities which issue instruments
such as agro bonds, plantation bonds etc. has been receiving
Government's attention. While the instruments may be funding
agro based investment activity, it is observed that they often offer
very high rates of return not consistent with normal returns in
D such activities. There is, therefore, a high element of risk
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
E
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
Collective Investment Schemes, both from the aspect of investor
protection as well as allowing legitimate investment activity to
F take place, SEBI would first formulate draft regulations for this
purpose. These draft regulations would be made available for
public discussion. The investors who have invested in such
schemes as well as entities running such schemes will be requested
to give their comments on pertinent matters to SEBI for enabling
SEBI to formulate appropriate regulations for such Collective
G
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."
I-I
SECURITIES AND EXCHANGE BOARD OF INDIA v. 13
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
For the same purpose, as stated above, the Securities and Exchange A
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, is reproduced below:-
"The Central Government has by a press release dated 18.11.1997
decided that an appropriate regulatory framework for regulating B
entities which issued instruments such as agro bonds, plantation
bontls, 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 c
investment schemes.
The provisions of section 12(1 B) 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 D
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 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
E
notified, as a result of the provisions of section 12(1 B) of the
SEBI Act, no person can sponsor or cause to be sponsored any
new collective investment scheme and raise further funds.
The provisions of section 12(1 B) provides that till regulations are
notified all collective investment schemes which are operating
can continue with their activities till the regulations are notified. F
Any collective investment scheme which is desirous of taking
benefit of the proviso to section 12( 1B) of the SEB I Act is directed
to send to SEBI information within 21 days from today containing
details such as:-
- Ternis and conditions of the schemes launched G
- 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 H
14 SUPREME COURT REPORTS [2016] 7 S.C.R.
A All collective investment schemes which want to take benefit of
the proviso of Section 12(18) are also directed to make an
advertisement only in accordance with the advertisement code
already prescribed by SEBI under the Disclosure and investors
protection guidelines."
B In addition to the above, 'the Board' also issued a public notice, on
18.12.1997. The instant public notice also related to, the implications of
Section 12(1 B). The contents of the public notice, are reproduced below:-
"The Central Government has by a press release dated 18.11.1997
decided that an appropriate regulatory framework for regulating
c 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
D investment schemes. A committee under the chairmanship of Dr.
S.A. Dave has already been constituted.
The provisions of section 12(1 B) of the SEBI Act prohibit collective
investment schemes including mutual funds from sponsoring any
new scheme till the regulations are notified. While the regulations
E 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 preparation and
will be issued in due course, first in draft form for the public
F 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(18) of the SEBI Act. no·
person can sponsor or cause to be sponsored any new collective
investment scheme and raise further funds.
G Further, the provisions of section 12( I B) provides that till
regulations are notified all collective investment schemes which
are in existence can continue with their operations ti II the regulations
are notified. It is hereby brought to the notice of the public that
existing collective investment schemes which are desirous of taking
benefit of the proviso to section 12( 18) of the SEBI Act and
H continue their operations are directed to send to SEBI. by 15!!!
SECURITIES AND EXCHANGE BOARD OF INDIA v. 15
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
January 1998 information containing details such as: Terms and A
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 and Names,
details and background of promoters/sponsors.
Note: The above information regarding existing collective 8
investment schemes in northern, southern and eastern region
mayb<' ti led 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 section 12(1 B) are also directed to make an c
advertisement only in accordance with the advertisement code
already pre.scribed by SEBI under the Disclosure and investors
protection guidelines."
3. In order to appreciate the stance adopted on behalf of
respondent nos. I and 2, it is essential to point out, that in consonance D
with Section 12(1B) of the SEBI Act, and in furtherance of the power
vested with 'the Board', under Section 30 of the SEBI Act, 'the Board'
framed regulations - the Securities and Exchange 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 E
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 Vi nod Kumar
Varshney, were aggrieved by the criminal proceedings initiated against
them, on the basis of a complaint filed by 'the Board', under Section 200 F
of the Code of Criminal Procedure, 1973 (hereinafter referred to as, the
Cr.P.C.), read with Sections 24(1) and 27 of the SEBI Act, alleging, that
they had breached the bar created by Section 12( 1B), which had forbidden
the sponsoring or carrying on of a collective investment initiative, without
obtaining a certificate ofregistration from 'the Board'. Respondent nos. G
I and 2 approached the High Court of Delhi (hereinafter referred to, as
the High Court), by tiling 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 H
16 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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 respondent
nos. l and 2 was, that the bar against sponsoring or carrying on a
collective investment scheme, without obtaining a certificate of
B registration from 'the Board' under the Collective Investment
Regulations, could arise only after the Collective Investment Regulations
were brought into existence. In this behalf it was pointed out, that the
Collective Investment Regulations were admittedly brought into force
from 15.10.1999. To exculpate their involvement in the proceedings
initiated against them, the main assertion advanced on behalf of
c 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 Mis. Gaurav
Agrigenetics Ltd., on I0.5.1996. Since the aforesaid Form-32 had been
submitted with the Registrar of Companies on 30.7.1998, it was contended
D on behalfofrespondent no. I, that he had no objection ifit was assumed
(for determination of the present controversy), that respondent no. I
had resigned from the directorship of the concerned company on
30. 7.1998. Likewise, it was pointed out, that respondent no. 2 - Vinod
Kumar Varshney, had submitted Form-32 with the Registrar of
Companies, communicating the factum of his resignation from the
E directorship of the company, on 15.9.1998. It was however
acknowledged, that Form-32 with respect to his resignation, was submitted
with the Registrar of Companies, on 23.12.1998. It was contended on
behalfofrespondent no. 2, that he had no objection to this Court assuming,
that respondent no, 2 had severed his relationship with Mis. Gaurav
F 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. I - Gaurav
Varshney from the directorship of Mis. Gaurav Agrigenetics Ltd. is taken
G as 30.7.1998, and that of respondent no. 2- Vinod Kumar Varshney, is
taken as 23.12.1998, both of them had admittedly resigned from the
directorship of Mis. Gaurav Agrigenetics Ltd., prior to the coming into
existence of the Collective Investment Regulations (with effect from
15. l 0.1999). The High Court, by its impugned order dated 13.5.2010,
had agreed with the proposition canvassed on behalf of respondent nos.
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 17
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
1 and 2, and had quashed Complaint Case no. 1241 of2003 (pending in A
the Court of Chief Metropolitan Magistrate, Tis Hazari Courts, Delhi),
as well as, the order dated 15.12.2003 issued by the said Chief
Metropolitan Magistrate, summoning respondent nos. I and 2 in the above
noted complaint case.
7. Dissatisfied with the determination rendered by the High Court B
(vi de the impugned order dated 13.5.20 I 0), 'the Board' approached this
Court, through Criminal Appeal nos. 827-830of2012, 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 Court misunderstood and misconstrued the bar created by c
Section 12(1B) of the SEBI Act. It was submitted on behalf of the
appellant, that the bar contemplated under Section I 2( I B), came into
effect on the very date Section 12( 18) was inserted into the SEBI Act
(i.e. from 25.1.1995). It was asserted, that the said bar restrained
everyone, from sponsoring or carrying on any collective investment
activity, without obtaining a certificate ofregistration from 'the Board', D
under the Collective Investment Regulations. And as_ such, any act of
sponsoring or commencement of a collective investment venture, without
obtaining a certificate ofregistration, 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 E
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 commencement of the Securities Law
(Amendment) Act, 1995, for which no certificate of registration was
required prior to such commencement...", to continue to operate, till
regulations were framed under clause (d) of sub-Section (2) of Section F
30. Therefore, relying on the proviso under Section 12(1B), it was
submitted, that actions of sponsoring or carrying on an enterprise of
collective investment, were permitted to only such persons, who had
commenced such activities prior to the commencement of the Securities
Law (Amendment) Act, 1995 (i.e., prior to 25.1.1995). G
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( I B), learned counsel pla.:ed reliance on Orissa
State (Prevention & Control of Pollution) Board vs. Orient Paper Mills, H
18 SUPREME COURT REPORTS [2016] 7 S.C.R.
A (2003) 10 SCC 421, and invited our attention to the following observations
recorded therein:-
5. We may at this stage peruse the relevant provisions of the law.
Section 21 of the Act provides that subject to the provisions of the
said section no person shall establish or operate any industrial
B plant in an air pollution control area without previous consent of
the State Government. An industry which is functioning since
before the declaration of the area as air pollution control area
shall apply to the Board for consent within the period prescribed
for the purpose. Section 22 provides as under:
c "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
D sub-section(!) of Section 17."
Section 19 empowers the State Government to declare an area
as air pollution control area. The relevant part of Section 19 reads
as follows:
E "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.
F (2) The State Government may. after consultation with the State
Board, by notification in the Official Gazette,-
(a) alter any air pollution control area whether by way of
extension or reduction;
(b) declare a new air pollution control area in which may
G be merged one or more existing air pollution control areas
or any part or parts thereof.
(3)-(5)***"
*** *** ***
H 10. The question for consideration is, as to whether, as long the
SECURITIES AND EXCHANGE BOARD OF INDIA v. 19
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
manner is not prescribed under the rules for declaration of an A
area as air pollution control area, a valid notification under Section
19( I) of the Act can be published in the Official Gazette or not.
11. So far as the statutory provision is concerned, the Act under
Section 19 vests the State Government with power to notify any
area, in an Official Gazette, as air pollution control area, but to B
say that exercise of such power is solely dependent upon framing
of the ;·des prescribing the manner in which an area may be
declared as air pollution control area, does not seem to be correct.
Section 19 of the Act would read as follows by omitting the words
"in such manner as may be prescribed" which part we put into
bracket as follows: c
"19. Power to declare air pollution control areas.-{ I) The
State Government may, after consultation with the State Board,
hv 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. D
(2)-(4)***"
12. Section 19 says " ... such manner as may be prescribed''
and not "in the manner prescribed" or " ... in the prescribed
manner". The expression used leaves some lever or play in the E
working of the provision. We would like to lay emphasis on the
use of the word "as" which is significant. The manner is dependent
upon "as" may be prescribed, if it is not prescribed, there is no
manner available such as to be followed. The meaning of the
word "as" has been indicated in Concise Oxford English Dictionary,
I 0th Edn., 2002 amongst others to mean as follows: F
*** *** ***
In one of the cases decided by this Court, to be referred 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
G
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, something to happen in a manner, H
20 SUPREME COURT REPORTS [2016] 7 S.C.R.
A if such a manner is in being or exists, if it does not, it may not
happen in that manner. Therefore, the reading of the provision
under consideration makes it clear that manner of declaration is
to be followed "as may be prescribed" i.e. "if any" prescribed.
13. Thus, in case manner is not prescribed under the rules. there
B is no obligation or requirement to follow any. except whatever the
provision itself provides viz. Section 19 in the instant case which
is also complete 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
c Official Gazette any area declaring it to be an air pollution control
area. In case. however, the ru Jes have been framed prescribing
the manner, undoubtedly, the declaration must be in accordance
with such rules.
14. On the proposition indicated above, a decision reported in T.
D Cajee v. U. Jormanik Siem, AIR 1961 SC 276, would be relevant.
The matter pertained to removal of Seim from the office, namely,
the Chief Headman of the area in the District Council governed
by Schedule VI of the Constitution. The High Court took the view
that the District Council could act only by making a law with the
E assent of the Governor. So far as the appointment and removal
from the office of a Seim is concerned, provision contained in
para 3( 1)(g) of the Schedule 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
F would be no power of appointment of a Chief or Sei111 nor for his
removal either. This Court negated the view taken by the High
Court observing that: (AIR p. 281, para 10)
"[l]t seems to us that the High Court has read far more into
para 3( l)(g) than is justified by its language. Para 3( I) is in
G fact something like a legislative list and enumerates the subjects
on which the District Council is competent to make laws ....
But it does not follow from this that the appointment or removal
of a Chief is a legislative act or that no appointment or removal_
can be made without there being first a law to that effect."
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 21
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
This Court found that para 2(4) relating to administration of an A
autonomous district, vested in the District Council such powers
and further observed as under: (AIR p. 281, para I 0)
"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 ti 11 District B
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 c
paragraph that the power which vests in an authority would not
cease to exist simply for the reason that the rules have not been
framed or the manner_ of exercise of the power has not been
prescribed. So far as Section 54 of the Act is concerned, it only
enumerates the subjects on which the State Government is entitled
to frame rules. D
*** *** ***
20. We feel that so far as the point relating to the meaning of the
word "may" used under Section I 9 of the Act is concerned, it is
not relevant for resolving the controversy we are concerned with. E
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 F
in the Official Gazette. Non-framing of rules does not curtail the
power of the State Government to declare any area as air pollution
control area by means of a notification published in the Official
Gazette. The part of the provision "in such manner as may be
prescribed" would spring into operation only after such manner is G
prescribed by framing the rules under Section 54(2)(k) of the Act.
This view as indicated earlier, is amply supported by the decision
of this Court referred to above in the case ofT. Cajee, AIR 1961
SC 276, which is a decision by a Constitution Bench of this Court.
It has been followed in a subsequent decision of this Court reported
H
22 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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 ofurban agricultural property by auction-sale in absence
B
of rules. The contention was repelled with the following
observations: (SCC p. 673, para 6)
"Where a statute confers powers on an authority to do certain
acts or exercise power in respect of certain matters, subject to
rules, the exercise of power conferred by the statute does not
c depend on the existence of rules unless the statute expressly
provides for the same. In other words framing of the rules is
not condition precedent to the exercise of the power expressly
and unconditionally conferred by the statute. The expression
'subject to the rules' only means, in accordance with the rules,
D ifany. lfrules 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
E cases reported in B.N. Nagarajan v. State of Mysore, AIR 1966
SC 1942, and Mysore SRTC v. Gopinath Gundachar Char, AIR
1968 SC 464. Reliance was also placed on U.P.SEB v. City Board,
Mussoorie, (1985) 2 SCC 16.
21. In view of the discussion held above, in our view it would not
F be correct to say that simply because the rules have not been
framed prescribing the manner it wou Id render the Act inoperative.
The area was notified as air pollution control area by the State
Government as authorized and provided by virtue of the powers
conferred under Section 19 of the Act. The declaration is provided
to be made by means of a notification pub Iished in the Official
G Gazette. No other manner is prescribed nor exists. The relevant
notifications issued by the Government cannot be said to be contrarv
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.
H But it may be clarified that this is not the reason for taking the
SECURITIES AND EXCHANGE BOARD OF INDIA v. 23
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
view that we have taken, it is mentioned only by way of an A
additional fact and nothing more. The whole working and
functioning ofthe Act which is meant for controlling the air pollution
cannot be withheld and rendered nugatory only for the reason of
absence of the rules prescribing the manner declaring an air
pollution control area which otherwise is provided to be notified
B
by publication in an Official Gazette which has been done in this
case."
Reliance was also placed on U.P. State Electricity Board, Lucknow vs.
City Board, Mussoorie, (1985) 2 SCC 16, wherefrom, emphasis was
placed on the observations extracted hereunder:-
c
6. The material part of Section 46 of the Act reads thus:
"46. (I) 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 D
may, ifthe Board thinks fit. differ for different areas.
(2) Without prejudice to the provisions of Section 4 7, the
Grid Tariff shall apply to sales of electricity by the Board to
licensees were so required under any of the First, Second and
Third Schedules, and shall, subject as hereinafter provided, also E
be applicable to sales of electricity by the Board to licensees in
other cases:
Provided that if in any such other case it appears to the Board
that, having regard to the extent of the supply required, the
transmission expenses involved in affording the supply are higher F
than those allowed in fixing the Grid Tariff, the Board may make
such additional charges as it considers appropriate.
"' "' "'"
7. The first contention urged before us by the Citv Board is that in
the absence of any regulations framed by the Electricity Board G
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 (I) of Section 46 of the Act which provides that a tariff to
be known as the Grid Tariff shall in accordance with any
H
24 SUPREME COURT REPORTS [2016] 7 S.C.R.
A regulations made in this behalf, be fixed from time to time by the
Electricity Board. It is urged that in the absence of any regulations
laying down the principles for fixing the tariff, the impugned
notifications were void as they had been issued without any
guidelines and were, therefore, arbitrary. It is admitted that no
such regulations had been made by the Electricitv Board by the
B
time the impugned notifications were issued. The Division Bench
has negatived the above 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
c 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 accordance
with such regulations and nothing more. We are of the view that
the framing ofregulations under Section 70 (h) of the Act cannot
D
be a condition precedent for fixing the Grid Tariff.... "
I 0. It was also the contention of learned counsel for 'the Board',
that the bar created by Section 12(1 B), forbidding everyone not already
engaged in the activity of collective investment (before 25.1.1995), to so
engage himself, was absolutely mandatory. Such person (not already
E engaged in a collective investment 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( IB), learned counsel placed reliance on Union of India vs.
F A.K. Pandey, (2009) I 0 SCC 552, and the Court's attention was drawn
to the fol lowing observations recorded therein:-
8. Rule 34 of the Army Rules, 1954 with which we are concerned
reads as follows:
"34. Warning of accused for trial.-( I) The accused before
G he is arraigned shal I be informed by an officer of every charge
for which he is to be tried and also that, on his giving the names
of witnesses whom he desires to cal I in his defence, reasonable
steps will be taken for procuring their attendance, and those
steps shall be taken accordingly. The interval between his being
H so informed and his arraignment shall not be less than ninety-
SECURITIES AND EXCHANGE BOARD OF INDIA v. 25
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
six hours or where the accused 1:1erson is on active service A
less tlian 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, B
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 (ifany) of the officers who are to form
the court, and where officers in waiting are named, also of
those officers in court-ma11ial other than summary cou11- c
martial.
(4) If it appears to the court that the accused is liable to be
prejudiced at his trial by any non-compliance with this Rule,
the court shall take steps and, if necessary, adjourn to avoid
the accused being so prejudiced." D
The key words used in Rule 34 from which the intendment is to
be found are "shall not be less than ninety-six hours". As the
respondent was not in active service at the relevant 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. E
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 3 79], that
reads:
"No universal rule can be laid down as to whether mandatory F
enactments shall be considered directory only or obligato1y
whether implied nullification for disobedience. It is the duty of
courts of justice to try to get atthe real intention of the legislature
by carefully attending to the whole scope of the statute to bi<
considered."
G
*** *** ***
14. In Mannalal Khetan v. Kedar Nath Khetan, (1977) 2 SCC
424, while dealing with Section I 08 of the Companies Act, 1956 a
three-Judge Bench of this Court held: (SCC pp. 429-31, paras 17-
n) H
26 SUPREME COURT REPORTS [2016] 7 S.C.R.
A "17. In Raza Buland Sugar Co. Ltd. v. Municipal Board,
Rampur, AIR 1965 SC 895, this Court referred to various tests
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
B
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 directory. It has
been aptly stated that there is one way to obey the command and
c that is completely to refrain from doing the forbidden act.
Therefore, negative, prohibitory and exclusive words are indicative
of the legislative intent when the statute is mandatory.
(See Maxwell on Interpretation of Statutes, 11th Edn., pp. 362 et
seq.; Crawford: Statutory Construction, Interpretation of Laws,
p. 523 and Bhikraj Jaipuria v. Union oflndia, AIR 1962 SC 113.
D
18. The High Court said that the provisions contained in_ Section
I 08 of the Act are directory because non-compliance with Section
I 08 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 Jay down penalty for non-compliance
E with the provision contained in Section I 08 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 the penalty where no specific penalty is
provided elsewhere in the Act. It is a question of construction in
F each case whether the legislature intended to prohibit the doing of
the act altogether, or merely to make the person who did it liable
to pay the penalty.
19. Where a contract. express or implied. is expressly or by
implication forbidden by statute. no court will lend its assistance
G to give it effect. (See Melliss v. Shirley Local Board, [( 1885) 16
QBD 446]. A contract is void if prohibited 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
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 27
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
shall not be entered into so as to be valid at law. A distinction is A
sometimes made between contracts entered into with the object
of committing an illegal act and contracts expressly or impliedly
prohibited by statute. The distinction is that in the former class
one has only to look and see what acts the statute prohibits; it
does not matter whether or not it prohibits a contract: ifa contract
B
is made to do a prohibited act, that contract will be unenforceable.
In the latter class, one has to consider not what act the statute
prohibits, but what contracts it prohibits. One is not concerned at
all with the intent of the parties, ifthe parties enter into a prohibited
contract, that contract is unenforceable. (See St. John Shipping
Corpn. v. Joseph Rank Ltd. (1957) I QB 267) (See also Halsbury's c
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 D
contract, express or implied, is expressly or by implication forbidden
by statute, no court can lend its assistance to give it effect.
(See Melliss v. Shirley Local Board, (1885) 16 QBD 446). What
is done in contravention of the provisions of an Act of the
legislature cannot be made the subject of an action.
E
21. ff anything is against law though it is not prohibited in the
statute but only a penalty is annexed the agreement is void. In
every case where a statute inflicts a penalty for doing an act,
though the act be not prohibited, yet the thing is unlawful, because
it is not intended that a statute would inflict a penalty for a lawful
act. F
22. Penalties are imposed by statute for two distinct purposes:
(I) 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 G
either to the State or to certain pub Iic 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 treated as void, even though
the penalty if imposed is not enforceable.
H
28 SUPREME COURT REPORTS · [2016] 7 S.C.R.
A 23. The provisions contained in Section I 08 of the Act are for the
reasons indicated earlier mandatory. The High Court erred in
holding that the provisions are directory."
l 5. The principle seems to be fairly well settled that prohibitive or
negative words are ordinarily indicative of mandatory nature of
B the provision; although not conclusive. The Court has to examine
carefully the purpose of such provision and the consequences
that 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
c 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 be clear ninety-
six hours' interval between the accused being charged for which
D he is to be tried and his arraignment and interval time in Rule 34
must be read as absolute. There is a purpose behind this provision:
that purpose is that before the accused is called upon for trial, he
must be given adequate time to give a cool thought to the charge
or charges :or which he is to be tried, decide about his defence
and ask the authorities, if necessary, to take reasonable steps in
E procuring the attendance 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( l B),
F forbidding new entrepreneurs from commencing activities concerning
collective investment, without obtaining a certificate of registration, was
strict and mandatory.
11. Based on the asse11ions noticed above, as also, the legal
position declared by this Court, it was sought to be canvassed, that by
G incorporating Mis. Gaurav Agrigenetics Ltd. on 3.7. l 995, and immediately
on its incorporation, by sponsoring or carrying on a collective investment
enterprise, without obtaining a certificate ofregistration from 'the Board',
in accordance with the Collective Investment Regulations, the respondents
had clearly breached the bar created by Section 12(1 B) of the SEBI
H Act. On account of the fact, that respondent nos. l and 2 had even on
SECURITIES AND EXCHANGE BOARD OF INDIA v. 29
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.)
their own showing, continued to be the promoter-directors ofM/s. Gaurav A
Agrigenetics Ltd. upto 30. 7 .1998 (with reference to the respondent no.
I -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(1 B) of the SEBI Act.
12. Mr. Jatin Zaveri, learned counsel representing respondent nos. B
I and 2, seriously disputed the above interpretation placed by learned
counsel fo1 the appellant, on Section 12( I B) of the SEBI Act. First and
foremost, learned counsel for the respondents, referred to the press
releases dated 18.11.1997 and 26.11.1997 issued by the Government of
India and 'the Board', respectively, as also, the public notice dated
18.12.1997 issued by 'the Board'. We have already extracted the
c
aforesaid press releases and the public notice above. We have also
highlighted the portions thereof, relied upon by learned counsel 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 D
the insertion of Section 12( I B) 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 Regulations,
contemplated under Section 12(1 B) of the SEBI Act. It was, therefore
the submission of learned counsel for the respondents, that the action of E
the respondents, in merely commencing the activity of sponsoring or
carrying on a collective investment scheme, should not be treated as a
violation of Section 12( I B), at their hands. It was also contended on
behalf of the respondents, that a breach of Section 12( I B) could have
arisen, only ifM/s. Gaurav Agrigenetics Ltd., could be blamed ofhaving F
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 G
into force with effect from 15. l 0.1999, according to learned counsel for
the respondents, carrying on such activity after 15.10.1999 would be
unauthorized, if the persons concerned did not obtain a certificate of
registration from 'the Board', in accordance with the notified regulations.
It was submitted, that both the respondents had exited from the affairs H
30 SUPREME COURT REPORTS [2016] 7 S.C.R.
A of Mis. Gaurav Agrigenetics Ltd. (surely with effect from 30.7.1998
and 23.12.1998 respectively), well before the Collective Investment
Regulations came into existence (-on 15. I 0.1999). And therefore, nt:ither
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.
B
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 oflndia, (2006) 12 SCC 753, wherefrom, the following
observations, were sought to be highlighted:-
c
"Conditional legislation and delegated legislation
16. We, at the outset, would like to express our disagreement
with the contentions raised before us by the learned counsel
appearing on behalf of the respondents that the impugned
D notification is in effect and substance a conditional legislation and
not a delegated legislation. The distinction between conditional
legislation and delegated legislation is clear and unambiguous. In
a conditional legislation the delegatee has to apply the law to an
area or to determine the time and manner of carrying it into effect
or at such time, as it decides or to understand the rule oflegislation.
E 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
F exercising its own judgment as to whether such conditions have
been fulfilled and/or the time has come when such legislation should
be brought into force. The taking effect of a legislation, therefore,
is made dependent upon the determination of such fact or condition
by the executive organ of the Government. Delegated legislation,
however, involves delegation ofrule-making power oflegislation
G and authorises an executive authority to bring in force such an
area by reason thereof. The discretion conferred on the executive
by way of delegated 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
H which has been fashioned by the legislature to be exercised in the
SECURITIES AND EXCHANGE BOARD OF INDIA v. 31
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
manner laid down in the legislation itself. By reason ofSection 3 A
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. Union oflndia, AIR 1960 SC 554,
this Court stated: (AIR p. 566, para 29) B
"The distinction between conditional legislation and delegated
l~islation is this that in the former the delegate's power is that
of detennining when a legislative declared rule of conduct shall
become effective; Hampton & Co. v. U.S .. 276 US 394, and
the latter involves delegation of rule-making power which c
constitutionally may be exercised by the administrative agent.
This means that the legislature having laid 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 D
and in the case of conditional legislation the power oflegislation
is exercised by the legislature conditionally leaving to the
discretion of an external authority the time and manner of
carrying its legislation into effect as also the determination of
the area to which it is to extend;" E
(See also M.P. High Court Bar Assn. v. Union oflndia, (2004) 11
SCC 766; State of T.N. v. K. Sabanayagam, (1998) I SCC 318,
and Orient Paper and Industries Ltd. v. State ofOrissa, 1991 Supp
(1) sec 81.)"
14. We have heard learned counsel for the rival parties. We are F
of the considered view, that it would be appropriate in the first instance,
to interpret sub-Section (IB) of Section 12 of the SEBI Act. And only
thereafter, proceed to deal with the other issues canvassed by learned
counsel.
15. In our considered view, an effective interpretation of Section G
12( IB) can be rendered, only upon understanding the intent behind Section
12( I B), and the exception created through the proviso thereunder. On
being so considered it is apparent, that on the insertion of Section 12(1 B)
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
H
32 SUPREME COURT REPORTS (2016] 7 S.C.R.
A activity of sponsoring or carrying on a collective investment sch1;:me
prior to 25.1.1995 (this category will be referred to hereinafter as, the
proviso category). This category would be governed by the p:oviso
under Section 12(1B). The second category created by Section 12(1B)
was constituted of persons who had not commenced the activity of
sponsoring or carrying on a collective investment scheme prior to
B
25.1.1995 (this category will be referred to hereinafter as, the non-proviso
category).
16. The persons covered by the proviso category, referred to
hereinabove, were permitted to continue their existing collective
investment activities, till the framing of the Collective Investment
c 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, the same
D was barred from sponsoring or carrying on a collective investment
initiative, without first obtaining a certificate of registration from 'the
Board', in accordance with the Collective Investment Regulations. The
non-proviso category, comprised of persons who had not commenced
any activity in the nature of a collective investment, prior to 25.1.1995.
E In other words, Section 12(1 B) introduced a clear bar, prohibiting any
action of sponsoring or initiating a collective investment scheme after
25.1.1995, without obtaining a certificate ofregistration 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
F 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 were
framed by 'the Board' under Section 12(1 B), and a certificate of
registration was obtained, no fresh entry could be made in the field of
G collective investment, by a person/entity not already carrying on such
activity.
18. A perusal of the conclusions drawn by us in the foregoing
two paragraphs, wherein we have interpreted Section 12(1 B) of the
SEBI Act would reveal, that persons governed by the substantive
H provision (the non-proviso category) were permitted to "commence"
SECURITIES AND EXCHANGE BOARD OF INDIA v. 33
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
activities concerning collective investment, only after obtaining a A
certificate ofregistration; 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.
B
19. The Collective Investment Regulations came into force on
15.10. I 999. A person falling in the proviso category, namely, an individual
who had commenced the activity of sponsoring or carrying on a collective
investment initiative prior to 25. I .1995, was liable to move an application
for registration under Regulation 5 of the Collective Investment
Regulations. Regulation 5, is extracted hereunder:-
c
"Application by existing Collective Investment Schemes
5. (I) Any person who immediately prior to the commencement
of these regulations was operating a scheme, shall subject to the
provisions of Chapter IX of these regulations make an application D
to the Board for the grant of a certificate within a period of two
months from such date.
(2) An application under sub-regulation (I) 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 E
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 or carrying on a collective investment
scheme by the said individual could not be termed as an "existing" F
collective investment scheme. An "existing" collective investment scheme
(-as the heading of Regulation 5, suggests) within the meaning of Section
12(18) read with the Collective Investment Regulations, could only be
one which had commenced prior to 25. I. I 995, i.e. prior to the insertion
of Section 12(18) in the SEBI Act. A collective investment scheme,
which commenced after 25.1.1995, could not be described as an G
"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.
H
34 SUPREME COURT REPORTS [2016] 7 S.C.R.
A Any person/entity not falling in the proviso category (an "existing"
operator, of a collective investment scheme) was barred from
commencing to sponsor or carry on any collective investment activity,
after the insertion of Section 12(1 B) into the SEBI Act, till such time as
he/it had obtained a certificate of registration from 'the Board', in
accordance with the Collective Investment Regulations. Therefore, an
B
"existing" collective investment scheme, at the time of notification of
the regulations, could only be one which had commenced its activities
prior to 25.1.1995. We may also notice, that the procedural details for
obtaining a certificate of registration from 'the Board'; have been
enumerated in Regulations 68 to 72 of the Collective Investment
c 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
D in the nature of collective investment, after seeking a certificate of
registration under the Collective Investment Regulations. For which
purpose, they were required to apply under Regulation 4 of the Collective
Investment Regulations. Regulation 4 aforementioned is reprodu·ced
below:-
E " Application for grant of certificate
4. Any person proposing to carry any activity as a Collective
. Investment Management Company on or after the commencement
of these regulations shall make an application to the Board for the
grant of registration in Form A."
F A perusal of Regulation 4 extracted above, leaves no room fur 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(1 B), all persons who had
not commenced to sponsor or carry on a collective investment scheme
G 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 activity in the nature ofcollective investment after 25.1.1995,
were clearly and unambiguously barred from doing so, unless they were
possessed of a certificate of registration, issued by 'the Board' under
the Collective Investment Regulations. ·
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 35
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
21. In view of the above, we have no hesitation in holding, thatan A
"existing" collective investment scheme within the meaning of Section
12(1B), as also, within the meaning of the Collective Investment
Regulations, comprised only of such collective investment scheme(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
B
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. Our inevitable conclusion is, that sponsoring or carrying on c
any collective investment activity, for the firsttime, on or after 25.1.1995,
was a complete bar, in the absence of a certificate of registration from
'the Board'. It accordingly follows, that ifa person/entity had commenced
to sponsor or carry on a collective investment scheme after 25.Ll 995,
without obtaining a certificate ofregistration from 'the Board', it would
D
tantamount to breaching the express mandate contained in Section 12( 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( I B)
of the SEBIAct, with reference t<:> such new entrepreneurs, is concerned. E
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) under
Section 12(1B) of the SEBI Act, was not dependent on the framing of
the regulations. The above bar was absolute and unconditional, till the F
new entrepreneur (described above) obtained a certificate ofregistration,
in accordance with the regulations. The said bar would, therefore,
undoubtedly extend till the framing of the regulations. The above bar,
would further extend, even beyond the framing of the above regulations,
till the concerned new entrepreneur was successful in obtaining a_
certificate of registration. Therefore, the period during which the G
concerned activities were barred (for the non-proviso category) under
Section 12(1 B)- commenced from the date ofinsertion of Section 12(1 B)
into the SEHI Act (-25 .1.1995), and subsisted upto, the actual date when
the new entrepreneur obtained a certificate of registration. We hold so
accordingly. H
36 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 23. In view of the above, we have no hesitation in accepting the
contention advanced by learned counsel for 'the Board', that the bar
created under Section 12(1 B), forbidding persons who had not engaged
themselves, in an activity of collective investment before 25.1.1995,
continued till the concerned persons/entities successfully obtained the
required certificate of registration, under the Collective Investment
B
Regulations. Our conclusion hereinabove emerges from, inter alia, the
following salient features. Firstly because, the Statement of Objects
and Reasons of the Securities Laws (Amendment) Act, 1995, which
resulted in the insertion of sub-Section (IB) in Section 12 of the SEBI
Act, reveals that the same was brought in, on account of past experience
c of 'the Board', and the dire need to protect the interests of investors.
Secondly because, the language of sub-Section (I B) 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(1 B). And it barred new operators from commencing collective
D
investment scheme(s), till after they had obtained a certificate of
registration. Thirdly because, of the use of negative words in sub-Sectio1;
(1 B)- "No person shall. .. ", denotes mandatory intent, with reference
to those not already engaged in collective investment operations. Fourthly
because, of the use of negative words in conjunction with the word
E "shall", further makes the legislative intent absolutely clear, and also,
mandatory, with reference to 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
F fornew operators, ofa collective investment initiative, was absolute and
mandatory. The bar under Section 12( 1B), restrained persons (who were
not engaged in any collective investment venture upto 25.1.1995), from
commencing activities concerning collective investment, till they had
obtained a certificate ofregistration, in consonance with the Collective
G ·Investment Regulations.
24. We are also of the view, that the judgments relied upon by
learned counsel forthe appellant, namely, Orient Papers Mills, U.P. State
Electricity Board, Lucknow, and A.K. Pandey (supra), have no relevanc;;
to the controversy in hand. In the above cases, the question which came
H up for consideration was, whether the authority concerned could have
SECURITIES AND EXCHANGE BOARD OF INDIA v. 37
GAURAVVARSHNEY & ANR. [JAGDJSH SINGH KHEHAR, J.]
acted in the manner provided under the concerned statute, before the A
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.
B
25. In spite of the position expressed hereinabove, it was the
contention of learned counsel for the respondent nos. 1 and 2, that the
aforementioned determination would not adversely affect the private
respondents, because the complaint filed by 'the Board' under Section
200 of the Cr.P.C. read with Sections 24(1) and 27 of the SEBI Act, did
not accuse the respondents, of having committed a breach of the bar
c
expressed with reference to new entrepreneurs, under Section 12(1 B)
of the SEBI Act. It was submitted, that the only accusation levelled at
the respondents was, for a bl°each of the Collective Investment
Regulations, framed under Section 12( 18). In order to substantiate his
aforesaid contention, learned counsel for the respondents invited our D
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
provisions of the Companies Act and the accused nos. 2 to 11 are E
the directors of the accused no. I 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 commission of offences.
8. The accused no. I is operating collective investment schemes F
and raised an aggregate amount ofRs.14,63,279/- (Rupees fourteen
lakhs sixty three thousand two hundred seventy nine only) from
the general public.
9. The accused no. 1 company filed information/details with SEBI
regarding its collective investment schemes pursuant to SEBI press G
release dated November 26. 1997. and/or public notice dated
December 18, 1997.
IO. In terms of Chapter IX of the said regulations, any person
who had been operating a.COiiective investment schemes at the
time of commencement of the said regulations shall be deemed to
H
38 SUPREME COURT REPORTS [2016] 7 S.C.R.
A be an existing collective investment scheme and shall comply with
the provisions of the said Chapter IX. Further, in terms of the
said Chapter IX any person who immediately prior to the
commencement of the said regulations was operating a collective
investment scheme shall make an apolication to SEBI for grant of
registration within a period of two months from the date of
B
notification of the said regulations.
11. SEBI vide its letters dated December 15, 1999/December
29. 1999 and also by way of a public notice dated December I 0,
1999 gave intimation to the accused no. I directing it to send an
information memorandum to all the investors detailing the state of
c 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
D 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.
13. However, the accused no. I failed to make any application
E 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 schemes which failed
to make an application for registration with SEBI, shall wind up
F 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
repa~ment to the existing investors in the manner specified in
G
Regulation 73.
15. 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
H
SECURITIES AND EXCHANGE BOARD OF INDfA v. 39
· GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
12(1 B) of Securities and Exchange Board oflndia Act. 1992 and A
Regulation 5(1) read with Regulation 68(1), 68(2), 73 and 74 of
the said regulations.
16. On December 7, 2000 SEBI by exercising its powers
conferred upon it under Section 118 of Securities and Exchange
Board of India Act, 1992 directed the accused no. 1 to refund the B
money 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 c
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. I raised a total amount of Rs.14,63.279/-
(Rupees fourteen lakhs sixty three thousand two hundred seventy D
nine only) by its own admission and its failure to refund the amounts
to the general public who invested their hard-earned money in the
schemes operated by the accused no. 1. caused huge pecuniarv
damage to them.
19. In view of the above, it is charged that the accused no. 1 has E
committed the violation of Section 1I B. 12( I B) of Securities and
Exchange Board oflndia Act, 1992 and Regulation 5(1) read with
Regulations 68(1), 68(2), 73 and 74 of the Securities and Exchange
Board oflndia (Collective Investment Schemes) Regulations. 1999
which is punished under Section 24( I) of Securities and Exchange
Board oflndia Act. 1992. F
20. The accused nos. 2 to 11 are the Directors of the accused no.
I, 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. I, as provided under Section 27 of Securities
and Exchange Board oflndia Act, 1992. G
21. The violation of the aforesaid Jaws by the accused were the
acts of omission and were occurred within the jurisdiction of this
Hon'ble Court and as such this Hon'ble Court has got jurisdiction
to try punish the accused. This complaint is within the limitation.
The complainant craves the leave of this Hon 'ble Court to produce H
40 SUPREME COURT REPORTS [2016] 7 S.C.R.
A the documents referred to hereinabove as and when required.
PRAYER
It is, therefore, most respectfully prayed to this Hon'ble Court to
summon the accused and punish them in strictest terms as provided
by law in the interest of justice."
B
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
c with Regulation 5 of the Collective Investment Regulations. Regulation
5, allows an "existing" enterprise operating a collective investment
scheme, to apply for registration. We have already interpreted Regulation
5, more particularly, the term "existing", used in conjunction with
collective investment schemes, in paragraph 19 above. The accusations
D levelled against the respondents, will have to be understood in the context
of Regulation 5, on account of the express stance adopted by 'the Board'
in paragraph 10 of the complaint, wherein, having 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
E 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 term "existing" with
F reference to collective investment schemes, in Chapter IX, would be the
same, as has been interpreted by us, in paragraph 19 above. It was,
therefore, submitted on behalf of the respondents, that they were not
accused of having unauthorisedly commenced a collective investment
scheme. It was contended, that the violation of Section 12(JB) of the
G SEBI Act, alleged against the respondents, had to be understood in the
manner expressed in the complaint. The complaint described the
respondents, as operating an "existing" collective investment venture.
It was pointed out, that the respondents were proceeded against, only
fortheir failure to obtain a certificate ofregistration under Regulation 5
of the Collective Investment Regulations, read with Chapter IX of the
H said regulations, and more particularly, Regulations 68, 73 and 74 (refer
SECURITIES AND EXCHANGE BOARD OF INDIA v. 41
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
to paragraphs 8, I 0, 11, 13 to 15, 18 and 19 of the complaint). Therefore, A
according to learned counsel for the respondents, the appellant had
expressly treated the respondents as persons falling in the proviso
category of Section 12( I B), namely, those who had commenced a
collective investment undertaking prior to insertion of Section 12( I B)
into the SEBI Act (-on 25 .1.1995). It was, therefore submitted, that the
B
respondents could not be proceeded against by treating them as belonging
to the non-proviso category (-who had not commenced any activity
associated with collective investment, before 25.1.1995) of Section
12( I B), by considering 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 c
at the hands of learned counsel for the private respondents. The
respondents were only accused of having not comp! ied 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 respondents commenced D
the activity of collective investment after the insertion of sub-Section
(I B) of Section 12 of the SEBI Act (-25.1.1995), cannot be gone into, to
determine whether or not the said activity was in breach of the bar
contemplated under Section 12( I 8) ofthe SEBI Act. Having so concluded
it emerges, that the continuation of the activity of sponsoring or carrying
on a collective investment scheme by the respondents, after 25.1.1995 E
(when Section 12(1 B) was inserted into the SEBI Act), 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. F
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 framed against
him. The prosecution was required to prove that particular charge G
and not to go beyond that and attribute "rash and negligent" acts
which are not the part of the charge. Culpability is specifically
related to the "act" committed on 22.12.1987 at about 9 a.m. in
the hospital viz. the act of performing surgical procedure. It is,
thus, this act alone, and nothing more, for which the appellant and
H
42 SUPREME COURT REPORTS [201 ~] 7 S.C.R.
A Dr. Mukherjee were charged and the appellant is supposed to
meet this charge alone."
The fact that 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,
B 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(1 B) of the SEBI
c Act. We may clarify, that proceedings are permissible, against both
categories. Against the non-proviso category, for having commenced
the barred activity after 25.1.1995, without registration. And also against
the proviso category, for having continued the concerned activity without
obtaining registration, after the notification ofthe Collective Investment
Regulations. It needs to be understood, that in the present case, the
D instant submission is canvassed before us on behalf of 'the Board', by
describing the respondents as belonging to the non-proviso category,
wherein persons not already engaged in an "existing" ~ollective
investment venture as on 25.1.1995, were precluded from activities
concerning collective investment, till the time they obtain a certificate of
E 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 dated 15.12.2003. The question posed, is
answered accordingly.
F 30. The sequence of facts narrated hereinabove reveals,
incorporation ofM/s. Gaurav Agrigenetics Ltd. after 25 .1.1995, and also,
that it commenced a collective investment scheme prior to 15.10.1999
(the date, when the Collective Investment Regulations, were notified).
Undoubtedly, M/s. Gaurav Agrigenetics Ltd., could have been proceeded
against, for having violated Section 12(1B). And it would have been
G fully justified for 'the Board', to proceed against Mis. 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
H 12(1 B) of the SEBI Act? Were the accused described as falling in the
SECURITIES AND EXCHANGE BOARD OF INDIA v. 43
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
non-proviso category? Were the accused, proceeded against on the A
ground, that they had commenced activities concerning collective
investment schemes after 25.1.1995, without seeking a certificate of
registration? Answers to the aforesaid queries, by the erstwhile directors
of Mis. Gaurav Agrigenetics Ltd., are in the negative. The above
response of the accused, is seriously contested by Mr. Arvind Datar,
B
learned senior counsel representing 'the Board'. We shall endeavour, in
the first instance, to determine the veracity of the submissions advanced
at the hands of 'the Board', namely, whether 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
c
a collective perusal of paragraphs 8 and 15 of the complaint dated
15.12.2003, would leave no room for any doubt, thatthe 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:- D
"8. The accused no. 1 is operating collective investment schemes
and raised an aggregate amount ofRs.14,63,279 (Rupees fourteen
lakhs sixty three thousand two hundred seventy nine only) from
the general public.
*** *** *** E
15. However, the accused no. I 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
12(1B) of Securities and Exchange Board oflndiaAct, 1992 and F
Regulation 5(1) r/w Regulations 68(1), 68(2), 73 and 74 of the
said regulations."
32. Having given our tlroughtful consideration to the factual
assertions contained in the complaint, it is not possible for tfs to agree
with the learned senior counsel representing 'the Board', for the simple G
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 the Collective Investment Regulations. And
secondly, the accused did not take any steps for winding up of the
collective investment scheme(s) being operated by them, refunding
H
44 SUPREME COURT REPORTS [201 E] 7 S.C.R.
A deposits made by the investors, as per the provisions of the Collective
Investment Regulations. The basis of the accusations levelled against
the accused was not, that they had no right to commence a collective
investment venture, during the period between 25.1.1995 when Section
12( lB) of the SEBI Act came to be inserted, till the requisite certificate
of registration was sought. The complaint did not include any direct or
B
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
c proceeding against the accused, for violation of the non-proviso mandate,
under Section 12(18).
33. We are mindful of the fact that, paragraph 15 of the complaint
relied upon by the learned senior counsel, does make a reference to the
violation of Section 12( I B), but the violation alleged is on account of
D having not applied for registration, for carrying on the collective
investment scheme, and alternatively, for not having taken steps to wind
up the collective investment undertaking by making refunds to the
investors, as provided for under the 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
E
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 (after theirnotification).
F 34. There can be no doubt whatsoever, that the particulars of the
offence, of which an accused is charged, have to be clearly stated to
him. In case the accused in the present case were to be charged for
having violated Section 12( 1B) as new operators under the non-proviso
category, it was imperative to inform them ofall the relevant particulars,
a namely, that they had unauthorisedly commenced a collective investment
scheme, during the period when there was a complete bar, 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.
H This is one of the basic tenets of the criminal jurisprudence.
SECURITIES AND EXCHANGE BOARD OF INDIA v. 45
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
35. We will now proceed to deal with the second submission, A
advanced at the hands of the learned senior counsel, for 'the Board'. In
support of his second submission, the learned senior counsel relied on
Section 25 I of the Cr.P.C. The said provision is reproduced hereunder:-
"251. Substance of accusation to be stated.- When in a summons-
case the accused appears or is brought before the Magistrate, the B
particulars of the offence of which he is accused shall be stated
to h:m, and he shall be asked whether he pleads guilty or has any
defence to make, but it shall not be necessary to frame a formal
charge."·
A perusal of Section 251 leaves no room for any doubt, that " ... the c
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( IB) 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 D
the initiation of a new collective investment endeavour stood barred under
Section 12(1B), the accused had to be accosted of the same. And only
thereupon, the accused would have understood, what charge was being
levelled against him. Merely mention of the statutory provision, namely,
Section 12( 1B) of the SEBI Act, would not amount to disclosing to the E
accused, the particulars of the offence of which they were accused.
One cannot lose sight of the fact, that implications for the proviso category
(-those who commenced operations before 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 F
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 case. Th is, in our considered
view is clearly impermissible. We are also of the view, that Section 251
G
of the Cr.P.C. will not remedy the above defect and deficiency in the
complaint. In the above view of the matter, for the reasons recorded
hereinabove, and additionally, forthe reasons recorded while rejecting
the first contention advanced at the hands of the learned senior counsel
for 'the Board', we find no merit in the submission founded on Section
251 of the Cr.P.C. H
46 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 36. The third submission advanced on behalfof'the Board', was
based on the determination rendered by the trial Court, that the accused
had violated Section 12(1 B) of the SEBI Act. Learned senior counsel
pointed out, that the date of incorporation of Mis. 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.
B
Mis. Gaurav Agrigenetics was undisputedly incorporated after 25.1.1995.
It was further urged, that neither of the accused directors disputed the
fact that the company of which they were promoter-directors, was
actually carrying on a collective investment scheme. Such being the
undisputed factual position, it was asserted, that a breach of Section
c l 2( I B), as applicable to the non-proviso category, was clearly established.
And further, that such breach was affirmed by the trial Court. It was,
therefore, the contention of the learned senior counsel representing 'the
Board', that it was no longer open to the accused to canvass, that the
particulars of the offence under Section 12 (I B) were not clearly disclosed,
in the complaint filed by 'the Board'.
D
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,
E
that the company in question commenced its collective investment
activities on its own for the first time after 25 .1.1995. It could well be,
that an existing collective investment sc~eme covered by the proviso
category under Section 12(1B), came to be purchased or taken over by
the concerned company, after its incorporation. There is no bar against
F a newly incorporated company, restraining it from taking over an existing
business. If that was the case, there would be no violation of Section
12(1 B), 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(18), without a certificate ofregistration,
till the framing of the Collective Investment Regulations. Therefore,
G 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
commencement ofcollective investment activities under Section 12( 18)
of the SEBI Act is concerned. In the above view of the matter, we find
H no merit even in the third submission advanced on behalfof 'the Board'.
SECURITIES AND EXCHANGE BOARD OF INDIA v. 47
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
38. The last submission advanced at the hands of the learned A
senior counsel for 'the Board', was based on Section 465 of the Cr.P.C.
The said provision is extracted hereunder:-
"465. Finding or sentence when reversible by reason of error,
omission or irregularity.- (1) Subject to the provisions hereinbefore
contained, no finding, sentence or order passed by a Court of B
competent jurisdiction shall be reversed or altered by a Court of
apptal, 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 c
of that Court, a failure of justice has in fact been occasioned
thereby.
(2) In determining whether any error, omission or irregularity in
any proceeding under this Code, or any error, or irregularity in
any sanction forthe prosecution has occasioned afailure ofjustice, D
the Court shall have regard to the fact whether the objection could
and should have been raised at an earlier stage in the proceedings."
Relying on Section 465 of the Cr.P.C. it was contended, that after the
conclusion of a criminal case, resulting in recording an order of conviction,
and also, the imposition of sentence, neither the findings nor the sentence E
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(1 B) of the SEBI Act in the complaint, F
should be taken as sufficient to understand the particulars, on the basis
whereof, the accused were being proceeded against. It was accordingly
submitted, that there was no justification whatsoever, in view of the
clear mandate contained in Section 465 of the Cr.P.C., to interfere in the
findings recorded by the trial Court, and/or to interfere with the sentence
imposed. In addition to the aforesaid contention it was pointedly urged, G
that sub-Section (2) of Section 465 of the Cr.P.C. provided the benchmark,
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 ofjustice".
H
48 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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 that the accused were directors of Mis. Gaurav
Agrigenetics Ltd., was also undisputed. Neither the company concerned
B
nor the accused, had contested the fact, that they had sponsored or had
been carrying on a collective investment scheme, which was initiated
after 25.J.I995. Based on the undisputed and clear factual position
narrated above, it was asserted, that no one could arrive at the conclusion,
in the facts and circumstances of the case, that the findings recorded by
c the trial Court, had occasioned a "failure ofjustice".
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:-
D "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 ofthe legal position made by the Supreme
Court concerning the procedural aspect about the cases involving
offences under the SC/ST Act. A de novo trial should be the last
E resort ,and that too only when such a course becomes so
desperately indispensable. It should be limited to the extreme
exigency !<>avert "a failure of justice". Any omission or even the
illegality in the procedure "hichgoes not affect the core of the
case is not a ground for ordcri•!g" <le nova trial. This is because
the appellate court has plcn;ir:- powers for revaluating and
F reappraising the evidence and even 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
G again for repeating the whole depositions would be a sheer waste
of time, energy and _c;g~ts.unless there is miscarriage of justice
otherwise. Hence the ·said course can be resorted to when it
becomes unpreventable for the pur_pose of averting "a failure of
justice". The superior court which orders a de novo trial cannot
afford to overlook the realities and the serious impact on the
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 49
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
pending cases in trial courts which are crammed with dockets, A
and how much that order would inflict hardship on many innocent
persons who once took all the trouble to reach the court and
deposed their versions in the very same case. To them and the
public the re-enactment of the whole labour might give the
impression that law is more pedantic than pragmatic. Law is not
B
an instrument to be used for inflicting sufferings on the people but
for the '."lrocess ofjustice dispensation.
*** *** ***
12. Section 465 of the Code falls within Chapter XXXV under
the caption "Irregular Proceedings". The Chapter consists of seven c
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
46: of the Code contains another catalogue of irregularities which
in the legislative perception would renderthe entire proceedings
nu! I and void. It is pertinent to point out that the former catalogue D
contains the instance of a Magistrate, who is not empowered to
take cognizance of offence, taking cognizance erroneously and in
good faith. The provision says that the proceedings adopted in
such a case, though based on such erroneous order, "shall not be
set aside merely on the ground of his not being so empowered". E
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 ifthe court is satisfied
that proceedings conducted erroneously in a wrong sessions division F
"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 would render the proceedings void, no
other proceedings would get vitiated ipso facto merely on the
ground that the proceedings were erroneous. The court of appeal
or revision has to examine specifically whether such erroneous G
steps had in fact occasioned a failure of justice. Then alone the
proceedings can be set aside. Thus the entire purport of the
provi5;ons subsumed in Chapter XXXV is to save the proceedings
linked with such erroneous steps, unless the error is of such a
nature that it had occasioned a failure of justice. H
50 SUPREME COURT REPORTS [2016) 7 S.C.R.
A 14. We have to examine Section 465( 1) of the Code in the above
context. It is extracted below:
"465. (I) Subject to the provisions herein before contained, no
finding, sentence or order passed by a court of competent
jurisdiction shall be reversed or altered by a court of appeal,
B 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 enquiry 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 failure ofjustice has in fact been
c occasioned thereby."
15. A reading of the section makes it clear thatthe error, omission
or irregularity in the proceedings held before or during the trial or
in any enquiry were reckoned by the legislature as possible
occurrences in criminal courts. Yet the legislature disfavoured axing
D down the proceedings 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.
E 16. What is meant by "a failure ofjustice" 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, thus: (SCC p. 585, para 23):
"23. We often hear about 'failure of justice' and quite often
F the submission in a criminal court is accentuatt:.: 'vith the said
expression. Perhaps it is too pliable or facile an expression
which could be fitted in any situation ofa case. The expression
'failure ofjustice' would appear, sometimes, as an etymological
chameleon (the simile is borrowed from Lord Diplock in Town
G Investments Ltd. v. Deptt. of the Environment), (1977) I All
ER 813. The criminal cout1, particularly the superior cout1
should make a close examination to ascertain whether there
was really a failure ofjustice or whether it is only a camouflage."
*** *** ***
23. We conclude that the trial held by the Sessions Court reaching
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 51
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
the judgment impugned before the High Court in appeal was A
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 Madhya Pradesh was governed by the decision
of the Full Bench of the Madhya Pradesh High Court. The High
B
Court should have dealt with the appeal on merits and on the
basis of the evidence already on record. To facilitate the said
course, we set aside the judgment of the High Court impugned in
this appeal. We remit the case back to the High Court for disposal
of the appeal afresh on merits in accordance with law and subject
to the observations made above." c
41. We have given our thoughtful consideration 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. D
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 some
significance, that Chapter XXXV of the Cr.P.C. include Sections 460 to
466. The heading of the instant Chapter is "Irregular Proceedings".
Not only that, each one of the Sections in Chapter XXXV of the Cr.P.C. E
make pointed reference only to matters of procedure. There can be no
doubt, therefore, that omissions and/or irregularities in matters of
procedure can be overlooked, subject to the condition, that such an
omission or irregularity does not occasion "failure of justice". This is
our understanding of Section 465 of the Cr.P.C. F
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 ofan offence,
cannot be viewed as a procedural omission. The above requirement is G
not procedural, but substantive. Accordingly, it is not possible for us to
accept that the lapse which the appellant desires this Court to overlook
and exemrt, can be overlooked under Section 465. We are also of the
considered view, that irregularity and omission in the present case, in not
disclosing to the accused, the particulars of the offence for which they
H
52 SUPREME COURT REPORTS [2016] 7 S.C.R.
A were being proceeded against, would occasion "failure ofjustice". Thus
viewed, it is not possible for us to accept the contention advanced at the
hands of the learned senior counsel, that the pending proceedings before
the trial Court, should not be interfered with.
43. The sole allegation levelled against the respondents was, that
B 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 complaint made
c against the respondents. Insofar as the instant charge against the
respondents is concerned, it was the contention of learned counsel for
the respondents, that the Collective Investment Regulations were notified
on 15.10.1999. The said regulations, therefore, could not have been
breached by the respondents, prior to 15 .10.1999. It was submitted, that
D the respondent no. 1 - Gaurav Varshney, can indisputably be taken to
have resigned from the directorship of M/s. Gaurav Agrigenetics Ltd.
with effect from 30. 7 .1998, and respondent no. 2 - Vi nod 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
E 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
should not interfere with the impugned order passed by the High Court
dated 13.5.2010, quashing the complaint preferred bv 'the Board', as
F there were legally valid reasons for doing so.
44. Having given our thoughtful consideration to the contentions
advanced at the hands of learned counsel for the respondents, we are
satisfied, that the quashing of the proceedings initiated by 'the Board',
against respondent nos. 1 and 2, calls for no interference, for the simple
G reason, that they relate to an alleged breach by Mis. 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
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 53
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
paragraph 29 above). The said regulations came into existence with A
effect from 15.10.1999. By the time the Collective Investment Regulations
were notified, respondent nos. I and 2 - Gaurav Varshney and Vinod
Kumar Varshney, had already severed their relationship with M/s. Gaurav
Agrigenetics Ltd. In view of the uncontroverted factual position
expressed by learned counsel for the respondents, we find no difficulty
B
in concluding, that proceedings which were initiated against respondent
nos. 1 and 2, and were quashed by the High Court, cal I for no interference.
Ordered accordingly.
45. In the result, the appeals stand dismissed.
Criminal Appeal nos. 833-836 of 2012 c
46. It is not a matter of dispute, that the respondent herein -
Mrs. Parvesh Varshney was one of the directors of Mis. 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 of2012, upheld the order dated 13.5.20 I 0 D
passed by the High Court in Criminal Miscellaneous Case nos. 7468-
7471 of2006 and Criminal Miscellaneous no. 951 of2007, quashing the
proceedings initiated against two of the directors of the above company,
namely, Gaurav Varshney and Yi nod Kumar Varshney. The High Court
in the above judgment (pertaining to Gaurav Varshney and Vi nod Kumar
Varshney) had quashed the proceedings initiated against the co-directors E
of the respondent herein, arising out of a complaint dated 15.12.2003
filed by 'the Board' before the Chief Metropolitan Magistrate, Tis Hazari
Courts, Delhi, in exercise of its jurisdiction 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 F
Metropolitan Magistrate, Tis Hazari Courts, Delhi against M/s. Gaurav
Agrigenetics Ltd., and ten of its directors. In the above complaint, Gaurav
Yarshney was arrayed as accused no. 5 and Yinod Kumar Varshney
was impleaded as accused no. 8.
47. Insofar as the instant criminal appeal is concerned, the same G
has been filed againstthe impugned judgment and order dated 12.8.2010,
rendered by the High Court in Criminal Miscellaneous Case nos. 7468-
7471 of2006 and Criminal Miscellaneous no. 951 of2007. It would be
relevant to mention, that the respondent herein - Mrs. Parvesh Varshney
had also assailed the same complaint dated 15.12.2003 filed by 'the
Board' before the Chief Metropolitan Magistrate, Tis Hazari Courts, H
54 SUPREME COURT REPORTS [2016] 7 S.C.R.
A Delhi, wherein she was arrayed as accused no. 6. The High Court by
its judgment and order dated 12.8.20 I0, 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
B adjudicated upon by us (Criminal Appeal nos. 827-830of2012), and the
present criminal appeals is, that whilst Gaurav Varshney - accused no.
5, had tendered his resignation from the position of director of Mis.
Gaurav Agrigenetics Ltd. on 30. 7.1998, and Vi nod Kumar Varshney -
accused no. 8, had tendered his resignation from the above company on
23.12.1998, the respondent herein - Mrs. Parvesh Varshney- accused
c no. 6, had tendered her resignation from the position of director of Mis.
Gaurav Agrigenetics Ltd. with effect from 6.4.1998. The resignation of
the respondent herein, had taken effect before the Collective Investment
Regulations were notified - on 15.10.1999. The said regulations,
therefore, could not have been breached, by the respondent herein.
D Therefore, for exactly the same consideration and reasons as have
weighed with us, for not accepting the pleas raised by 'the Board' in
Criminal Appeal nos. 827-830 of2012 against the other co-accuseo in
the same complaint dated 15.12.2003, we decline to interfere with the
impugned order passed by the High Court, dated 12.8.20 I0, with reference
to the respondent - Mrs. Parvesh Varshney - accused no. 6; as well.
E
49. In the result, the instant appeals are dismissed.
Criminal Appeal no. 252 of 2015
50. Only a word of caution. In the connected earlier criminal
appeals (nos. 827-830 of2012, and 833-836 of2012), 'the Board' was
F the appellant, and the accused were the respondents. Herein, the
accused - Major P.C. Thakur is the appellant, and 'the Board' is the
respondent.
51. The instant appeal relates to Mis. Accord Plantation Ltd., a
company incorporated under the provisions of the Companies Act, 1956,
G on 16.10.1996. Even though the list of dates describes the appellant -
Major P.C. Thakur, as a promoter-director of the said company, learned
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 Mis. Accord Plantation Ltd., was limited
to tendering advice with reference to its agricultural activities, and that,
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 55
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
the appellant- Major P.C. Thakur, was neither in charge of nor responsible A
to the company, for the conduct of its business activities.
52. In addition to the submissions noticed with reference to the
earlier appeals (Criminal Appeal nos. 827-830 of 2012), it was the
vehement contention of learned counsel for the appellant, that it was not
open for 'the Board' to proceed against the appellant under Section 27 B
of the SEBI Act, which is extracted hereunder:-
"27.0ffences by Companies. - (!)Where an offence under this
Act has been committed by a company, every person 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 c
company, as well as the company, shall be deemed to be guiltv 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 D
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 (I), where
an offence under this Act has been committed by a company and E
it is proved that the offence has been committed with the consent
or connivance of, or is attributable to any neglect on the part of,
any director, manager, secretary or other officer of the company,
such director, manager, secretary or other officer shall also be
deemed to be guilty of the offence and shall be liable to be
proceeded against and punished accordingly. F
Explanation.- For the purposes of this section, -
(a) "company" means any body corporate and includes a firm
or other association ofindividuals; and
(b) "director", in relation to a firm, means a partner in the G
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 H
56 SUPREME COURT REPORTS [2016] 7 S.C.R.
A manner" ... in charge of, and was responsible to ... " the company for
the conduct of its business. It was, therefore submitted, that it was not
open to 'the Board' to proceed against the appellant. In order to
substantiate the instant contention, learned counsel placed reliance on
S.M.S. Pharmaceuticals Ltd. vs. Neeta Bhalla, (2005) 8 SCC 89,
wherefrom our attention was invited to the following observations:-
B
"4. In the present case, we are concerned with criminal liability
on account of dishonour of a cheque. It primarily falls on the
drawer 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
c 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 criminal liability for dishonour ofa cheque
D to officers of the company. Section 141 contains conditions which
have to be satisfied before the liability can be extended to officers
of a company. Since the provision creates criminal liability, the
conditions have to be strictly complied with. The conditions are
intended to ensure that a person who is sought to be made
vicariously liable for an offence of which the principal accused is
E the company, had a role to play in relation to the incriminating act
l!nd 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
F 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 person who, at the time the
offence was committed, was in charge of, and was responsible to
the company forthe conduct of business of the company. as well
G as the company. liable for the offence. The proviso to the sub-
section contains an escape route for persons who are able to
prove that the offence was committed without their knowledge or
that they had exercised all due diligence to prevent commission of
the offence.
H *** *** ***
SECURITIES AND EXCHANGE BOARD OF INDIA v. 57
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
l 0. While analysing Section 141 of the Act, it will be seen that it A
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:
B
"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 guiltv of the offence, etc."
What is required is that the persons who are sought to be made
criminally liable under Section 141 should be, at the time the offence c
was committed, in charge of and 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. It is only those persons who were in charge of and
responsible for the conduct of business of the company at the
D
time of commission of an offence, 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 E
relevant time when the offence was committed and not on the
basis of merely holding a designation or office in a company.
Conversely, a person not holding any office or designation in a
company may be liable if he satisfies the main requirement of
being in charge of and responsible for the conduct of business of
F
a company at the relevant time. Liability depends on the role one
plays in the affairs ofa company and not on designation or status.
If being a director or manager or secretary was enough to cast
criminal liability, the section would have said so. Instead of"every
person" the section would have said "every director, manager or
secretary in a company is liable" ... , etc. The legislature is aware G
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.
*** *** *** H
58 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 12. The conclusion is inevitable that the liabilitv arises on account
of conduct, act or omission on the part ofa person and not merely
on account of holding an office or a position in a company.
Therefore, in order to bring a case within Section 141 of the Act
the complaint must disclose the necessary facts which make a
person liable.
B
*** *** ***
15. Cases have arisen under other Acts where similar provisions
are contained creating vicarious liability for officers of a company
in cases where primary liability is that of a company. State of
Karnataka v. Pratap Chand, ( 1981) 2 SCC 335, was a case under
c the Drugs and Cosmetics Act, 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
D 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 finn could not be held
liable. In Municipal Corpn. ofDelhi v. Ram Kishan Rohtagi, (1983)
1 SCC I, the case was under the Prevention of Food Adulteration
Act. It was first noticed that under Section 482 of the Criminal
E Procedure Code in a complaint, the order of a Magistrate issuing
process against the accused can be quashed or set aside in a case
where the allegation made in the complaint or the statements of
the witnesses recorded in support of the same taken at their face
value make out absolutely no case against the accused or the
F complaint does not disclose the essential ingredients ofan 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.
I 6. In State of Haryana v. Brij Lal Mittal, (1998) 5 SCC 343, it
was held that vicarious liability of a person for being prosecuted
G for an offence committed under the Act by a company arises if at
the material time he was in charge of and was also responsible to
the company for the conduct of its business. Simply because a
person is a director of a company, it does not necessarily mean
that he fulfils both the above requirements so as to make him
H liable. Conversely, without being a director a person can be in
SECURITIES AND EXCHANGE BOARD OF INDIA v. 59
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
·charge of and responsible to the company for the conduct of its A
business.
For the same purpose, reliance was placed on National Small Industries
Corporation Ltd. vs. Harmeet Singh Paintal, (2010) 3 SCC 330, and this
Court's attention was drawn to the following observations recorded
therein:- B
"12.lt 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
c
the ambit of the provision. Only those persons who were in charge
of and responsible for the conduct of the business of the company
at the time of commission of an offence will be liable for criminal
action. It follows from the fact that if a Director of a company
who was not in charge of and was not responsible for the conduct D
of the business of the company at the relevant time, will not be
liable for a criminal offence under the provisions. The liability
arises from being in charge of and responsible for the conduct of
the business of the company at the relevant time when the offence
was committed and not on the basis of merely holding a designation
E
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 F
of the company without anything more as to the role of the
Director. But the complaint should spell out as to how and in what
manner Respondent 1 was in charge of or was responsible to the
accused Company for the conduct of its business. This is in
consonance with strict interpretation of penal statutes, especially, G
where such statutes create vicarious liability.
*** *** ***
22. Therefore, this Court has distinguished the case of persons
who are in charge of and responsible for the conduct of the
business of the company at the time of the offence and the persons
H
60 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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
B how the Directors concerned were alleged to be in charge of and
were responsible for the conduct and affairs of the company."
Last of all, learned counsel invited our attention to Gunma la Sales Private
Limited vs. Anu Mehta, (2015) I SCC I 03, wherefrom reliance was
placed on the following observations:-
c
"22. In National Small Industries Corpn. Ltd. v. 1-Iarmeet
Singh Paintal, (20 I 0) 3 SCC 330, this Court was dealing with the
same question. After referring to S.M.S. Pharmaceuticals
Ltd. v. Neeta Bhalla (I), (2005) 8 SCC 89, S.M.S. Pharmaceuticals
Ltd. v. Neeta Bhalla (2), (2007) 4 SCC 70, Saroj Kumar
D Poddar v. State (NCT of Delhi), (2007) 3 SCC 693, N.K.
Wah i v. Shekhar Singh, (2007) 9 SCC 481, N.
Rangachari v. BSNL, (2007) 5 SCC I 08, 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
E down the following principles: (National Small Industries Corpn.
Ltd. case (supra), sec pp. 345-46, para 39)
"(i) The primary responsibility is on the complainant to make
specific averments as are required under the law in the complaint
so as to make the accused vicariously liable. For fastening the
F criminal liability, there is no presumption that every Director
knows about the transaction.
(ii) Section 141 does not make all the Directors liable for the
offence. The criminal liability can be fastened only on those
who, at the time of the commission of the offence, were in
charge of and were responsible for the conduct of the business
G
of the company.
(iii) Vicarious liability can be inferred against a company
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
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 61
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
therein vicariously liable foroffence committed by the company A
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 ofa person must be pleaded B
and proved and not inferred.
(v, If the accused is a Managing Director or a Joint Managing
Director then it is not necessary to make specific averment in
the complaint and by virtue of their position they are liable to
be proceeded with. C
(vi) If the accused is a Director or an officer of a company
who signed the cheques on behalf of the company then also it
is not necessary to make specific averment in complaint.
(vii) The person sought to be made liable should be in charge
of and responsible for the conduct of the business of the D
company at the relevant time. This has to be averred as a fact
as there is no deemed liabilitv of a Director in such cases."
*** *** ***
28. We are concerned in this case with Directors who are not
E
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 necessary
to aver in the complaint filed under Section 138 read with Section
141 of the NI Act that at the relevant time when the offence was F
committed, the Directors were in charge of and were responsible
for the conduct of the business of the company. This is a basic
requirement. There is no deemed liability of such Directors. This
averment assumes importance because it is the basic and essential
averment which persuades the Magistrate to issue process against
G
the Director. That is why this Court in SMS Pharma (I) (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 H
62 SUPREME COURT REPORTS [2016] 7 S.C.R.
A complaint at the threshold if he finds that there is no sufficient
ground for proceeding ..... "
*** *** ***
34. We may summarise our conclusions as follows:
34.1. Once in a complaint filed under Section 138 read with Section
8 141 of the NI Act the basic averment is made that the Director
was in charge of and responsible for the conduct of the business
of the company at the relevant time when the offence was
committed, the Magistrate can issue process against such Director.
34.2. If a petition is filed under Section 482 of the Code for
c quashing of such a complaint by the Director, the High Court
may, in the facts of a pai1icular case, on an overall 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.
D 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
E evidence which is beyond suspicion or doubt or totally acceptable
circumstances which may clearly indicate that the Director could
not have been concerned with the issuance of cheques and asking
him to stand the trial would be abuse of process of court. Despite
the presence of basic averment, it may come to a conclusion that
no case is made out against the Director. Take for instance a
F case of a Director suffering from a terminal illness who was
bedridden at the relevant time or a Director who had resigned
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
G 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 being there cannot be
ruled out. In the absence of such evidence or circumstances,
H complaint cannot be quashed.
SECURITIES AND EXCHANGE BOARD OF INDIA v. 63
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
34.4. No restriction can be placed on the High Court's powers A
under Section 482 of the Code. The High Court always uses and
must use this power sparingly and with great circumspection to
prevent inter alia the abuse of the process of the 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
B
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."
It was pointed out, that even though the judgments relied upon and
c
referred to hereinabove, were with reference to Section 13 8 of the
Negotiable Instruments Act, yet Section 141 thereof is exactly similar to
Section 27 of the SE81 Act. And, therefore, insofar as the present issue
is concerned, the cited judgments would be fully applicable to interpret
and construe Section 27 of the SEBI Act. It was therefore asserted, D
that in the absence of any clear and firm assertion or material on the
record of the case, to establish that the appellant was" ... in charge of,
and was responsible to ... " the company for the conduct of its business,
he could not be proceeded against.
53. It is not necessary for us to deal with the pointed issue at E
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 Mis. Accord Plantation Ltd. The
conclusions drawn by the High Court in the impugned order, are extracted
hereunder:-
F
"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 ofDW2, an official from Punjab and Sind
Bank that an· authority letter from the company was received
stating therein that Major P.C. Thakur was its director as on
24.2.1998 and he was authorized to operate the accounts of the G
company with the aforesaid bank. A copy of the account opening
form is Ex. DW2/B, whereas a copy of the extract from the minutes
of the meeting of Board of Directors of the company is Ex. DW2/
C. A copy of the authority letter is Ex. DW2/D. The fact that
Mr.. P.C. Thakur was getting remuneration from the company H
64 SUPREME COURT REPORTS [2016] 7 S.C.R.
A and was also authorized to operate its bank accounts clearly shows
that he was also a person incharge and responsible to the COJlJ.lli!fil'.
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
8 concluding, that the appellant - Major P.C. Thakur was in charge, and
was responsible to the company, for the conduct of its business. It is not
possible forus to accept, thatthe appellant-Major P.C. Thakur's activities
concerning M/s. Accord Plantation Ltd., were confined to tendering
advice with reference to its agricultural activities alone. In the above
view of the matter, we find no difficulty whatsoever in affirming, that
c the appellant was liable to shoulder the responsibilities of the company
relatable to its business activities, and therefore, was justifiably proceeded
against, under Section 27 of the SEBI Act.
54. Insofar as the present appeal is concerned, a show cause
notice dated 12.5 .2000 was issued by the SEBI to Mis. Accord Plantation
D 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( I}, any person
E who immediately prior to the commencement of these Regulations
was operating a Collective Investment Scheme, shall subject to
the provisions of Chapter IX of these Regulations make an
application to SEBI for grant of certificate ofregistration within a
period of two months from the date of notification (i.e. October
F 15, I 999). Subsequently, having regard to the interests of investors
and requests received from entities, SEBI had extended the last
date for submitting application by existing entities upto March 31,
2000 and the same was intimated by SEBI by a Press Release
and Public Notice. Thus, you as an existing Collective Investment
Scheme entity, subject to the provisions of Chapter IX of these
G Regulations, were required to apply for registration by March 31,
2000.
As per Regulation 73( I) an existing Collective Investment Scheme
(CIS) which has failed to make an application for registration to
SEBL shal I wind up the existing scheme and repay the investors.
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 65
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
Further. as per Regulation 74, an existing CIS which is not desirous A
ofobtaining 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(2). The existing
Collective Investment Scheme to be wound up shall send an
information memorandum to the investors who have subscribed
8
to the schemes, within two months from the date of receipt of
intimation from SEBI.
Vide our letter dated December 15/29, 1999 and also by way ofa
public notice dated December I 0, 1999 all the existing Collective
Investment Schemes, including you, which were not desirous of
obtaining provisional registration from SEBI or had failed to make
c
an application for registration from SEBI were given individual
intimation in terms ofregulation 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. D
Accordingly you were required to send the information
memorandum to the investors by February 28, 2000.
It is noted that you have not applied for registration by March 3 1,
2000 and also appear to have failed to take steps for winding up
of the scheme(s) in terms of Regulations. You have. therefore, E
prima facie violated the provisions of Section 12( I 8) of SEBI
Act, 1992 and regulation 5( I) read with regulations 68( I), 68(2),
73 and 74 ofSEBI (Collective Investment Schemes) Regulations,
1999."
55. Even in the complaint filed by 'the Board' under Section 200 F
of the Cr.P.C. read with Sections 24(1) and 27 of the SEBI Act, the
accusations levelled against Mis. 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. I company filed infonnation/details with SEBI G
regarding the collective investment schemes pursuant to SEBI
press release dated November 26. 1997 and/or public notice dated
Dec<-1nber 18. 1997.
8. In terms of Chapter IX of the said regulations. any person
who had been operating a collective investment scheme at the
H
66 SUPREME COURT REPORTS [2016] 7 S.C.R.
A time of commencement of the said regulations shall be deemed to
be an existing collective investment scheme and shall comply with
the provisions of the said Chapter IX. Further, in terms of the
said Chapter IX any person who immediately prior to the
commencement of the said regulations was operating a collective
investment scheme shall make an ap12!ication to SEBI for grant of
B
registration within a period of two months from the date of
notification of the said regulations.
9. SEB! having regard to the interest of investors and request
received from various 12ersons operating collective investment
schemes extended the last date of submitting the application by
c 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. I failed to make any application
with SEBI for registration of the collective investments schemes
being operated by it as r.er the said regulations.
D
11. It is submitted that in terms of regulation 73( 1) of the said
regulations an existing collective investment scheme which failed
to make an apr.lication for registration with SEBI, shall wind up
the existing collective investment schemes and reray the amounts
collected from the investors. Further, in terms ofregulation 74 of
E the said regulations, an existing collective investment scheme which
is not desirous ofobtaining 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.
12. SEBI vide its letter dated December I 0, 1999 and December
F 29, 1999 and also by way of a public notice dated Dl'Ccmber I 0,
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, the amount repayable to each investor
and the manner in which such amount is determined. As per the
G
aforesaid letters of SEBI, the information memorandum to the
investors was required to be sent latest by February 28, 2000.
SEBJ vide another public notice published in newspapers on
February 22, 2000 infonned to the company that all the companie~
carrying out collective investment schemes who had not made
H any application for grant of registration or were not desirous of
SECURITIES AND EXCHANGE BOARD OF INDIA v. 67
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
obtaining provisional registration were required to compulsorily A
windup their existing schemes as per the provisions ofregulation
73( I) of the said regulations.
13. However, the accused no. I 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 B
regul~tions and as such had violated the provisions of section 11 8,
12(1 B) of Securities and Exchange Board oflndiaAct, 1992 and
regulation 5(1) r/w regulations 68(1), 68(2), 73 and 74 of the said
regulations."
56. Based on the above show-cause notice and complaint (dated
12.5.2000 and 21.1.2003, respectively), it was the contention of learned
c
counsel for the appellant, that 'the Board' treated M/s. Accord Plantation
Ltd. as an "existing" collective investment enterprise, namely, a collective
investment scheme falling within the meaning of the proviso under Section
12( I B) of the SEBI Act. Referring to the show-cause notice it was
pointed out, that 'the Board' had accused the appellant for not having D
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
E
period of two months from the date of commencement of the Collective
Investment Regulations), the said date was subsequently extended to
31.3 .2000. It was submitted, that the imputations contained in the show-
cause notice were clearly misconceived, as the appellant had ceased to
have any concern with the company, with effect from 20.2.2000. The
instant factual position was sought to be demonstrated by placing reliance F
on Form-32, submitted with the Registrar of Companies. Our attention
was also drawn to the statement of DW6 - Vikram, Senior Dealing
Assistant Of the office of the Registrar of Companies, Jalandhar, who in
his examination-in-chief, had acknowledged that in Form-32 (exhibited
as DW6/l ), Major P.C. Thakur was shown to have resigned from the
G
directorship ofM/s. Accord Plantation Ltd., with effect from 20.2.2000.
Premised on the above factual position, it was submitted, thatthe appellant
cannot be implicated fo.· 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 31.3.2000, the
extended last date for submitting applications for registration, by"existing" H
68 SUPREME COURT REPORTS (2016] 7 S.C.R.
A entities). We find merit in the contention advanced by learned counsel
for the appellant, that since it has been effectively established, that the
appellant ceased to be a director on 20.2.2000, and culpability, if at all,
would arise only on 31.3.2000, the proceedings initiated against the
appellant were not sustainable, and would be liable to be quashed.
B 57. Learned counsel for 'the Board' however seriously contested,
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 ofForm-32
c (exhibited as DW6/I ), Major P.C. Thakur was shown to have resigned
from the directorship of Mis. Accord Plantation Ltd. with effect from
20.2.2000, yet in his cross-examination, he acknowledged" ..... as per
my record, the persons named as members of the Board of directors in
the annual return of 201h September, 2002 - Exhibit DW6/4 and 5 are
D Sh. Ajay Vohra, Tej inder Singh, P.C. Thakur, Rajan Rana and Rajkumar
Sharma. These returns have been submitted by the company ..... ". It
was the contention of learned counsel, that annual returns are tiled by a
company under Section 159 of the Companies Act, 1956. Sub-Section
(I) of Section 159 is extracted below:-
E " 159. Annual return to be made by company having a share
capital.-
( I) 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
F return containing the particulars specified in Pan I cf 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,
G (d) its shares and debentures,
( e) its indebtedness,
(t) its members and debenture-holders, past and present,
and
(g) its directors, managing directors, managers and
secretaries, past and present:
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 69
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
Provided that any of the five immediately preceding returns A
has given as at the date of the annual general meeting with reference
to which it was submitted, the full particulars required as to past
and present members and the shares held and transferred by them,
the return in question may contain only such of the particulars as
relate to persons ceasing to be or becoming members since that
B
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 c
not been held, be construed as a reference to the latest day on or
before which that meeting should have been held in accordance
with the provisions of this Act."
Relying on Section 159(1) extracted above, it was submitted, that annual
returns filed by a company are submitted on a prescribed proforma, and D
as such, the same being a statutory requirement, will have to be accepted
as correct, unless it was shown otherwise.
58. It was also submitted, that the aforesaid statutory requirement
is akin to the statutory requirement under Section 303 of the Companies
Act, 1956, inter alia, pertaining to the details of the existing directors
E
and/or any change among the directors, managing directors, managers
or secretaries ofa 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. - (I) *** *** ***
(2) The company shall, within the periods respectively mentioned F
in this sub-section, send to the Registrar a return in the prescribed
form containing the particulars specified in the said register and a
notification in the prescribed form of any change among its
directors managing directors, managers or secretaries, specifying
the date of the change. G
The period within which the said return is to be sent
shall be a period of thirty days from the appointment of the first
directors of the company and the period within which the said
notification of a change is to be sent shall be thirty days from the
happening thereof;"
H
70 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 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.
B
Accord Plantation Ltd. on 30.9.2002, Major P.C. Thakur was shown as
one of the directors. It was, therefore submitted on behalf of'thc Board',
that Major P.C. Thakur had not been in a position to clearly and effectively
establish, that he had resigned from the concerned company, with effect
from 20.2.2000.
c 60. In order to repudiate the above contention, learned counsel
representing the appellant - Major P.C. Thakur, placed reliance on the
decision of this Court in Harshendra Kumar D. vs. Rebatilata Koley,
(20 I I) 3 SCC 351, and highlighted the issue under consideration, by
emphasizing on the following observations recorded therein:-
D "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 (I) 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
E containing the particulars specified in the register. Any change
among its Directors, Managing Directors, managers or secretaries
specifying the date of change is also required to be furnished to
the Registrar of Companies in the prescribed form within 30 days
of such change. There is, thus, statutory requirement of informing
F the Registrar of Companies about change among Directors of the
company.
17. In this view of the matter. in our opinion. it must be held that a
Director. whose resignation has been acceP.ted by the company
and that has been duly notified to the Registrar of Companies ..
cannot be made accountable and fastened with liability for anything
G
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 (I) 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
H have been committed."
SECURITIES AND EXCHANGE BOARD OF INDIA v. 71
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
Based on the above, it was submitted, that no one could be permitted to A
dispute the fact that the appellant - Major P.C. Thakur, had resigned
from Mis. Accord Plantation Ltd. with effect from 20.2.2000.
61. We have given our thoughtful consideration to the afore-stated
contention, pertaining to the date when Major P.C. Thakur severed his
relationship with M/s. Accord Plantation Ltd., by tendering his resignation B
and submitting the same with the Registrar of Companies in Form-32.
Based on the judgment 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,
c'
cannot per se lead to the inference, that Major P.C. Thakur, was still on
the Board of directors ofM/s. Accord Plantation Ltd .. We say so because,
Section 159( I )(g) of the Companies Act, 1956, requires that alongwith
the annual return, the particulars of the directors, managing directors,
1irnnagers and secretaries," ... past and present. .. ", have to be indicated. D
That being the mandate of Section 159, the assertion made at the hands
oflearned counsel for 'the Board' could only be justified ifthe name of
Major P.C. Thakur(in the annual return submitted on 30.9.2002) projected
him as a "present" director. It is, therefore, that we examined photocopies
ofDW6/4 and DW6/5, (referred to in the statement ofDW6- Vikram).
DW6/5 was a part of the annual return of the concerned company. E
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 F
Singh, PC Thakur, Rajan Rana and Rajkumar Sharma were admittedly
depicted. The dates of their appointment as directors were also
mentioned. Exhibit DW6/5 is silent, as to whether the names reflected in
the annual return were of the past directors, or of the present directors.
Since information of the past directors was also to be reflected at S.No.
IV, in our considered view, no clear inference can be drawn from Exhibit G
DW6/5, that Major P.C. Thakur, was a "present" director at the time of
filing of the above return. We 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 appel !ant- Major P.C. Thakur had resigned
fro!n t~e company on 20.2.2000. H
72 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 62. In addition to above, it is also relevant to mention, that a copy
ofForm-32, relating to the resignation of Major P.C. Thakur from Mis.
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, while deposing before the trial Court in the case on hand. The
veracity of Form-32 depicting the resignation of Major P.C. Thakur, was
8
not contested by 'the Board', before the trial Court. Thus viewed, we
find no justification whatsoever, in permitting 'the Board' to contest the
same, before this Court. We, therefore, hereby affirm that Major P.C.
Thakur had duly resigned from the directorship ofM/s. Accord Plantation
Ltd. on 20.2.2000.
c 63. On the issue ofliability of the appellant- Major P.C. Thakur,
we also consider it appropriate to make a reference to Section 2 7 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
D 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 of
the offence allegedly committed by the company. There can be no
dispute about the fact, that a director of a company, may well be in
charge of, and responsible forthe conduct of the business of the company
E (though the above position would not emerge ipso facto, by holding the
position of a director). Yet, after the concerned individual has resigned
from the position of director, in our view, he cannot be considered to be
responsible to the company, for the conduct of its business. Any action
of omission or commission of the coinpany, after the date on which the
F 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.
G 64. Based on the factual position noticed in the preceding
paragraph, we are of the view, that for exactly the same reasons as
have been recorded by us in Criminal Appeal nos. 827-830of2012, the
appellant herein was not accused of having violated the substantive
provision of Section 12(18) of the SEBI Act, by commencing a collective
investment undertaking as a new operator belonging to the non-proviso
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 73
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
category (-who had not commenced the above activity before 25.1.1995). A
The appellant was only accused of having breached Regulation 5 of the
Collective Investment Regulations, read with Chapter 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 sati.sfied that the last date for moving an
B
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 Mis. Accord Plantation Ltd., as also, by the
appellant herein, in case such an application had not been filed under
Regulation 5 on or before 31.3.2000. The instant conclusion drawn by
us is sufficient to exculpate the appellant, who had severed his relationship, c
with Mis. Accord Plantation Ltd. with effect from 20.2.2000, and to
accept his plea that proceedings initiated against him, were not pennissible
in law.
65. We will be failing in effectively discharging our responsibility,
if we do not examine another legal contention advanced on behalf of the D
appellant. It was also pointed out, that the question of initiation of
proceedings against Mis. 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 E
addressed by Mis. Accord Plantation Ltd. to SEBI. The aforesaid
communication is extracted hereunder:-
"ACCORD PLANTATION LTD.
HO Blue Peak Office Complex (Near Gainda Mull Stairs)
The Mall Shim la 171 00 I F
Corp Office 19 A Swastik Vihar Panchkula HR
Phone No. 172-552962
Date Feb 07, 2000
Ref. No. H0/101/775100
G
Shri Suresh Gupta
Division Chief
SEBI
Earnest House, 194, Nariman Point
Mumbai 400 021
H
74 SUPREME COURT REPORTS [2015] 7 S.C.R.
A Kind Attn.: Mr. Suresh Gupta, Divisional Chief
Dear Sir,
This is with reference to plantation schemes of the Company and
its registration with SEBI as per latest guidelines on registration.
We wish to inform you that we are no more interested in operating
B this scheme due to stringent guidelines ofSEBI.
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
c end.
Thanking you.
Yours faithfully,
Sd/-
Managing Director"
D Based on the aforesaid letter dated 7.2.2000, it was contended, that Ml
s. Accord Plantation Ltd. had decided to wind up its operations on account
of the fact, that it was not possible for it to continue its erstwhile activities,
because of the stringent conditions imposed in the Collective Investment
Regulations. In the instant view of the matter, it was the contention of
learned counsel for the appellant, that the question of making an
E application for registration under Regulation 5 of the Collective Investment
Regulations, or for M/s. Accord Plantation Ltd. to follow the procedure
stipulated under the Collective Investment Regulations, for seeking a
ce1iificate ofregistration, did not arise.
66. In the aforesaid context, learned counsel for the appellant
F also placed reliance on Regulations 73 and 74 to contend, that Mis.
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
G which such amount is determined ... ". Regulations 73 and 74 are
reproduced hereunder:-
"Manner ofrepayment and winding up
73. ( 1) An existing collective investment scheme which:
(a) has failed to make an application for registration to the
H Board; or
SECURITIES AND EXCHANGE BOARD OF INDIA v. 75
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
(b) has not been granted provisional registration by the Board: A
or
(c) having obtained provisional registration fails to comply with
the provisions of regulation 7 I;
shall wind up the existing scheme.
(2) The existing Collective Investment Scheme to be wound up B
under sub-regulation (I) 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 c
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
the information memorandum, as it deems fit.
D
(5) The information inemorandum shall be sent to the investors
within one week from the date of the information memorandum.
(6) The information memorandum shall explicitly state that
investors desirous of continuing with the scheme shall have to
give a positive consent within one month from the date of the
information memorandum to continue with the scheme.
E
(7) The investors who give positive consent under sub-regulation
(6), shall continue with the scheme at their risk and responsibility
: Provided that ifthe 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. F
(8) The paymentto 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. G
Existing scheme not desirous of obtaining registration to repay
74. An existing collective investment scheme which is not desirous
ofobtaining provisional registration from the Board shall formulate
a scheme of repayment and make such repayment to the existing
investors in the manner specified in regulation 73 ." H
76 SUPREME COURT REPORTS [2016] 7 S.C.R.
A It was submitted, that intimation as was required to be furnished by 'the
Board' under Regulation 73(2), was never furnished by the respondent-
Board, either to Mis. Accord Plantation Ltd. or to 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).
B
67. Since the respondent-Board had not denied the fact, that Ml
s. Accord Plantation Ltd. did address the Jetter 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 stringent
conditions postulated under the Collective Investment Regulations notified
c on 25. I .1995, the question of refund would arise only after intimation
was furnished by 'the Board' under Regulation 73(2) to Mis. Accord
Plantation Ltd., or to the appellant. Since details of such intimation by
'the Board' were not brought to the notice of this Court on behalfof 'the
Board', we are of the view, that it was not open to 'the Board' to initiate
D action against Mis. Accord Plantation Ltd. or its directors, till 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 againstthe appellant were wholly
misconceived, as it has not been established, that the appellant either
E 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 the appellant - Major P.C. Thakur are set
aside, and the complaint stands dismissed.
F Criminal Appeal no. 251 of 2015
70. The instant appeal has been preferred by Sunita Bhagat, an
accused in a complaint filed by 'the Board'. Obviously, therefore, 'the
Board' is the respondent herein.
71. A complaint of the nature referred to in the earlier matters,
G
was filed by the respondent-Board on 21.1.2003 under Section 200 of
the Cr.P.C. read with Sections 24( I) and 27 of the SEBI Act, against Ml
s. Accord Plantation Ltd., and five of its directors. Sunita Bhagat, wife
ofVinodh Bhagat was arrayed as accused no. 4. The charges levelled
against the appellant - Sunita Bhagat emerge from paragraphs 13, 15
H and 18 of the complaint, which are extracted hereunder:-
SECURITIES AND EXCHANGE BOARD OF INDIA v. 77
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
"13.However, the accused no. I neither applied for registration A
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(1 B) of Securities and Exchange Board oflndia Act, 1992
and Regulation 5( 1) r/w Regulations 68( I), 68(2), 73 and 74 of
B
the said regulations.
*** *** ***
15. On January 31, 2001, SEBI by exercising its powers conferred
upon it under Section 118 of Securities and Exchange Board of
India Act, 1992 directed the accused no. 1 to refund the money
collected under the aforesaid collective investment schemes of c
the accused no. 1 to the persons who invested therein within a
period of one month 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 11 B, 12( 1B) of Securities and D
Exchange Board of India Act, 1992 r/w Regulation 5( 1) r/w
Regulations 68( I), 68(2), 73 and 74 of the Securities and Exchange
Board oflndia (Collective Investment Schemes) Regulations, 1999
which is punishable under Section 24( I) of Securities and Exchange
Board oflndia Act, 1992. The accused nos. 2 to 5 are the directors E
and/or persons in charge of and responsible to the accused no. I
for the conduct of its business and are liable for the violations of
the accused no. I, in tenns of Section 27 of Securities and Exchange
Board oflndiaAct, 1992."
It is apparent from the complaint, that the appellant- Sunita Bhagat was F
accused, firstly, of not applying for a certificate of registration under the
Collective Investment Regulations, and secondly, for not having taken
steps for winding up the collective 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 G
Magistrate, Tis Haz.ari 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 accused pleaded not guilty
and claimed trial. The trial was conducted by the Additional Sessions
H
78 SUPREME COURT REPORTS (2016] 7 S.C.R.
A Judge (Central-0 l ), Delhi. After recording the evidence furnished by
the complainant, as also the evidence produced in defence, the trial Court
vi de its judgment dated 25.3.2010 arrived at the conclusion, that the guilt
of the accused-company - M/s. Accord Plantation Ltd., as also, of
accused numbers 2 to 5 (-who were its directors), had been duly
established.
B
72. The trial Court held, that the accused had floated a collective
investment scheme, and mobilized funds from the general public, without
obtaining a certificate ofregistration, as required under Section 12( I B)
of the SEBI Act. The trial Court also concluded, that despite the
notification of the Collective Investment Regulations on 15.10.1999, the
c 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 investment scheme, nor repaid its
investors as per Regulations 73 and 74 of the Collective Investment
Regulations. The accused were accordingly held guilty of violating
D Regulations 5( I) read with Regulations 68( I), 68(2), 73 and 74 of the
Collective Investment Regulations read with Sections 26 and 27 of the
SEBI Act. By a separate order passed on 26.3 .20 I 0, the trial Court
sentenced accused numbers 2 to 5 to rigorous imprisonment for six
months each. The accused-company and accused nos. 2 to 5 were
ordered to pay a fine of Rs. I 0 lakhs each, and in default thereof, accused
E 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 of2010 before the High Court.
F The appeal preferred by the appellant - Sunita Bhagat alongwith the
appeal preferred by Major P.C. Thakur (Criminal Appeal no. 464 of
20 I 0) and the other appeals filed on behalf of the directors of Mis.
Accord Plantation Ltd., were dismissed by the High Court on 29.1.2014.
The instant criminal appeal arises from the said common judgment and
G order of the High Court, dated 29.1.2014.
74. During the course of hearing it was submitted, that M/s.
Accord Plantation Ltd. was incorporated under the Companies Act, 1956,
on 16.10.1996. The appellant herein - Sunita Bhagat was admittedly
one of the promoter-directors of the said company. It was asserted that
the appellant - Sunita Bhagat had resigned from the company on
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 79
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
31.8.1999 with immediate effect. It is not a matter of dispute, that Fonn- A
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 hereunder:-
B
"17.As far as the appellant. Sunita Bhagat is concerned, admittedly
she was a Director of the appellant Company on 25.1.1995 when
sub-section ( 1B) of Section 12 of the Act came to be notified, she
having resigned only on 20.9.1999. She has also been operating
the bank account of the Company. Therefore. the offence to the
extent of contravention of sub section (I B) of Section 12 by the c
Company was committed during the period she was its Director.
The first letter sent to SEBI on 9.12.1997, stating therein the main
objects of the Company and giving information with respect to
the funds mobmzed from the investors and also enclosing returns,
copies of offer documents and bio datas of Promoters was sent D
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 Company during the financial year
1997-1998. All these documents leave no reasonable doubt that E
she also was a person in-charge of and responsible to the Company
for conduct of its business. No evidence has been led by her to
prove that the contravention of sub-section (I B) of Section 12 of
the Act was committed without her knowledge or that she had
exercised all due diligence to prevent the commission of the F
aforesaid offence by the Company."
75. On the issue ofresignation of the appellant- Sunita Bhagat
from the company, our attention was invited to the statement of DW3 -
Yashpal, JTA, Registrar of Companies, Jalandhar. The same is extracted
hereunder:-
G
" 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 Fonn 32 reflects that as on 31.8.1999, the accused
no. 4 Sunita Bhagat had resigned as Director of the Accord
H
80 SUPREME COURT REPORTS [2016] 7 S.C.R.
A Plantation Ltd. The resignation letter is on my record. Copy of
the same is Ex. DW3/B.
XXXX by counsel Sh. Sachit Setia for the SEBI
We have received the resignation letter on 20.9.1999. It is
correct that no date of receipt had been mentioned on the
B resignation letter Ex. DW3/B. On receipt of the resignation letter
we have placed it on the record, being accepted.
XXXX by counsel Sh. Neeraj Tiwari for A-5, Rajan Rai
We did not prepare any list of directors after accepting the
resignation ofSmt. Sunita Bhagat. However, the modified list of
c 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
D 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 change in Board of Directors on the basis of
resignation and the receipt No. 21181 dated 20.9.99. The copy of
E
the receipt is Ex. DW3/D (OSR) ..... "
Learned counsel for the appellant reiterated the legal submissions
advanced before this Court in the connected appeals, and submitted,
that for exactly the reasons mentioned by a co-accused - Major P.C.
Thakur, the proceedings initiated against the appellant herein, were also
F unsustainable, because the appellant herein had also resigned as director
(-on 31.8. I 999)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. 252of2015 (Major P.C. Thakur
G vs. Securities and Exchange Board oflndia}, 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, read with Regulations 68 to 72, or in the alternative,
Regulations 73 and 74 of the Collective Investment Regulations.
H 77. Learned counsel for the appellant herein, had emphatically
SECURITIES AND EXCHANGE BOARD OF INDIA v. 81
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
raised the plea oflimitation, also. Since the contention was pressed, and A
also responded to, we consider it just and appropriate to deal with the
same. It was the contention of learned counsel for the appellant, that
the complaint preferred by 'the Board' on 21.1.2003 before the Additional
Chief Metropolitan Magistrate, was incompetent in law, in view of the
period of limitation stipulated under the provisions of the Cr.P.C. In
8
order to support his claim under Section 468 of the Cr.P.C., learned
counsel, ir. 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 Jaw for the time being in force."
c
Relying on Section 32 it was contended, that the provisions under the
SEBI Act were in addition to, and not in derogation of, the provisions of
any other law for the time being in force, including the Cr.P.C. This
position was not repudiated on behalf of 'the Board'. We are satisfied
in recording, that the above contention, advanced on behalf of the D
appellant, is fully justified.
78. With reference to the provisions of the Cr.P.C., and to
substantiate the plea of limitation, reliance was placd.on Section 468,
which is reproduced below:-
E
"468. Bar to taking cognizance after lapse of the period of
limitation.- (I) Except as otherwise provided elsewhere in this
Code, no Court, shall take cognizance ofan offence of the category
specified in sub-section (2), after the expiry of the period of
limitation.
(2) The period oflimitation shall be- F
(a) six months, ifthe offence is punishable with fine only;
(b) one year, ifthe offence is punishable with imprisonment
for a term not exceeding one year;
(c) three years, ifthe offence is punishable with imprisonment
for a term exceeding one year but not exceeding three G
years."
79. For invoking the pleaoflimitation, learned counsel also pointed
out, that under Section 24 of the SEBI Act, before its amendment on
29.10.2002, a punishment of imprisonment of one year or fine or both,
was postulated. Since the punishment contemplated under Section 24 of H
82 SUPREME COURT REPORTS [2016] 7 S.C.R.
A the SEBl Act was not in excess of one year, for the violation alleged
against the appellant, it was submitted, that the competence 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
B was asserted, that the appellant had ceased to be a director of Mis.
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
Mis. Accord Plantation Ltd., could not legally extended beyond 20.9.1999.
As such, according to learned counsel for the appellant, in view of the
mandate contained in Section 468 of the Cr.P.C., the period oflimitation
c for filing a complaint by 'the Board' against the appellant- Sunita Bhagat
would expire one year after she severed her relationship with Mis. Accord
Plantation Ltd., i.e. on 20.9.2000. It was asserted, that the admitted
factual position is, that the complaint in the instant case came to be filed
on 21.1.2003. In the above view of the matter it was asserted, that
D 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-
E 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 the punishment
contemplated under Section 24 of the SEBI Act at the relevant juncture,
did not exceed one year, the period of limitation for taking cognizance
under Section 468 of the Cr.P.C. would be one year. We are also inclined
F to accept the contention advanced at the hands of learned counsel for
the appellant, that the period of limitation in the present case would
commence to run with effect from.the date the appellant- Sunita Bhagat
tendered her resignation from the position of director of Mis. Accord
Plantation Ltd., namely, with effect from 20.9.1999. Thus viewed, the
G 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.
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. 83
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
82. For the reasons recorded hereinabove, not only on account of A
the legal position expressed above, but also, on account of the plea of
limitation, the proceedings initiated against the appellant were not
sustainable in law. The instant appeal is accordingly allowed, and the
conviction and sentence imposed on the appellant-Sunita Bhagat is set
aside, and the complaint filed against the appellant, stands dismissed.
B
Criminal A;meal no. 832 of 2012
83. The position stands reversed again. 'The Board' is the
appellant 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 c
the respondent - Raj Chawla, who had approached the High Court by
filing Criminal Miscellaneous Case 3937 of2009, under Section 482 of
the Cr.r.~., 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 Sections 24(1) D
and 27 of the SEBJ Act. On the receipt of the above complaint, the
Chief Judicial Magistrate had summoned the accused on 15 .12.2003 for
21.2.2004. The High Court, through the impugned order dated 12.1.2010,
quashed the criminal complaint filed by 'the Board' against Raj Chawla.
'The Board' has approached this Court by filing the instant criminal
appeal, to assail the order of the High Court, dated 12.1.2010. E
85. In order to effectively adjudicate upon the cause which has
arisen with reference to the respondent- Raj Chawla, it would be essential
to notice that the respondent - Raj Chawla was a promoter-director of
Mis. Fair Deal Forests Ltd .. Mis. Fair Deal Forests Ltd. was incorporated
under the Companies Act, 1956, on 16.10.1996. The respondent- Raj F
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 Mis. Fair Deal Forests Ltd. was
operating a collective investment scheme, and had raised a sum of
Rs.5,20,000/- from the general public, for the said purpose. Mis. Fair G
Deal Forests Ltd. had also submitted to 'the Board', an information
memorandum, in response to the general public notice issued by 'the
Board', detctiling the particulars of the investors, including the amount
payable to each investor, and the manner in which such amount was
determined.
H
84 SUPREME COURT REPORTS [2016] 7 S.C.R.
A 86. Dissatisfied with response received, 'the Board' filed a
criminal complaint against M/s. Fair Deal Forests Ltd. and 9 of its directors,
wherein the respondent - Raj Chawla was arrayed as accused no. I 0.
A relevant extract of the complaint is reproduced below:-
"7. The accused no. I is a company registered under the
B provisions of Companies Act and the accused nos. 2 to 11 are the
Directors of the accused no. I 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 commission of offences.
8. The accused no. 1 is operating collective investment schemes
c and raised an aggregate amount of nearly Rs.S,20,000/- from the
general public.
9. The accused no. I company filed infonnation/details with SEBI
regarding its collective investment schemes pursuant to SEBI press
release dated November 26, 1997, and/or public notice dated
D December 18, 1997.
*** *** ***
12. 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 applic<1tion by
E 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. I failed to make any application
with SEBI for registration of the collective investment schemes
being operated by it as per the said regulations.
F 14. It is submitted that in terms of Regulations 'i .J( 1) of the said
regulations, an existing collective investment scheme which failed
to make an application for registration with SEBI, shall wind up
the existing collective investment scheme and repay the amounts
collected from the investors. Further, in terms of Regulation 74
of the said regulations, an existing collective investment scheme
G 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. I neither applied for registration
H under the said regulations nor took any steps for 11 inding up of the
SECURITIES AND EXCHANGE BOARD OF INDIA v. 85
GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]
schemes and repayment to the investors as provided under the A
regulations and as such had violated the provisions of Section
12(1B) of Securities and Exchange Board oflndiaAct, 1992, and
Regulation 5(1) read with Regulations 68(2), 73 and 74 of the said
regulations.
*** *** *** B
18. The accused no. I raised a total amount of nearly Rs.5,20,000/-
by its own admission and its failure to refund the amounts to the
general public who invested hard-earned money in the schemes
operated by the accused no. I, caused pecuniary damage to them.
19. In view of the above, it is charged that the accused no. I has
committed the violation of Sections 11 B, 12(1 B) of the Securities c
and Exchange Board of India Act, 1992 and regulation 5( 1) read
with regulations 68( I), 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 the
Securities and Exchange Board of India Act, 1992." D
87. We are satisfied, that the controversy raised in the instant
appeal is exactly similar to the one decided in Criminal Appeal nos. 827-
830 of 2012 (Securities and Exchange Board of India vs. Gaurav
Varshney and another), for the reason that the respondent herein had
resigned from the position of director of Mis. Fair Deal Forests Ltd., on E
30.3.1997. We are also satisfied, that the controversy raised in the instant
appeal is also similar to the one decided in Criminal Appeal no. 251 of
2015 (Sunita Bhagat vs. Securities and Exchange Board of India) for
the reason, that the complaint in the present case was filed against the
respondent on 15.12.2003 i.e., well after the period ofone year, calculated
from the date of the respondent's resignation. For the reasons recorded F
in the two similar cases referred to above, the instant appeal deserves to
be rejected. Accordingly this appeal stands dismissed.
Note: The emphases supplied in all the quotations in the instant judgment,
are ours.
G
Devika Gujral Appeals disposed of.
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