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‘  REPORTABLE’

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NOS. 827-830 OF 2012

Securities and Exchange Board of India … Appellant

Versus Gaurav Varshney & Anr. … Respondents

WITH CRIMINAL APPEAL NOS. 833-836 OF 2012

Securities and Exchange Board of India … Appellant

Versus Parvesh Varshney … Respondent

WITH CRIMINAL APPEAL NO. 252 OF 2015

Major P.C. Thakur … Appellant Versus

Securities and Exchange Board of India … Respondent

WITH CRIMINAL APPEAL NO. 251 OF 2015

Sunita Bhagat … Appellant Versus

Securities and Exchange Board of India … Respondent

WITH CRIMINAL APPEAL NO. 832 OF 2012  

Securities and Exchange Board of India … Appellant

Versus Raj Chawla … Respondent

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J U D G M E N T

Jagdish Singh Khehar, J.

Criminal Appeal nos. 827-830 of 2012

1. Sub-Section (1B) 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(1B) is extracted hereunder:-

“12. Registration of stock-brokers, sub-brokers, share transfer agents, etc. –  

(1B) 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 regulations:

Provided  that  any  person  sponsoring  or  cause  to  be  sponsored, carrying or causing to be carried on any venture capital funds or collective investment scheme operating in the securities market immediately before the commencement of the Securities Laws (Amendment) Act, 1995 for which no certificate  of  registration  was  required  prior  to  such  commencement,  may continue to operate till  such time regulations are made under clause (d) of sub-section (2) of section 30.

Explanation.– For the removal of doubts, it  is hereby declared that, for the purposes of this section, a collective investment scheme 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.”

The question that arises for consideration in the present criminal appeals is, whether

respondent  nos.  1  and  2  –  Gaurav  Varshney  and  Vinod  Kumar  Varshney, had

violated Section 12(1B), by incorporating M/s. Gaurav Agrigenetics Ltd., under the

provisions  of  the  Companies  Act,  1956,  on  3.7.1995,  in  the  capacity  of  its  first

directors  and  promoters.   This  position  emerges,  because  it  is  not  a  matter  of

dispute,  that  M/s.  Gaurav  Agrigenetics  Ltd.  commenced  a  collective  investment

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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:-

“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 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 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 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 Investment Schemes.

Once these regulations come into force, it is expected that they will promote legitimate  investment  activity  on  plantation  and  other  agriculture  based business,  while  at  the  same  time  give  investors  an  adequate  degree  of protection for their investments.”

For the same purpose, as stated above, the Securities and Exchange Board of India

(hereinafter referred to as, ‘the Board’) also issued a separate press release, dated

26.11.1997.  The text of the above press release, is reproduced below:-

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

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The provisions of section 12(1B) of the SEBI Act prohibit collective investment schemes including mutual  funds from sponsoring any new scheme till  the regulations are notified. While the regulations for mutual fund schemes have been notified by SEBI, regulations for collective investment schemes including plantations schemes require to be notified in view of the press release issued by the Central Government. These regulations are under preparation and will be issued in due course, first in draft form for the public discussion and later in the final form. Till these regulations are notified, as a result of the provisions of section  12(1B)  of  the  SEBI  Act,  no  person  can  sponsor  or  cause  to  be sponsored any new collective investment scheme and raise further funds.

The provisions of    section   12(1B)     provides that till regulations are notified all collective investment  schemes which are operating can continue with their activities till  the regulations are notified.  Any collective investment scheme which is desirous of taking benefit of the proviso to section 12(1B) of the SEBI Act  is  directed  to  send  to  SEBI  information  within  21  days  from  today containing details such as:-

- Terms and conditions of the schemes launched - Funds raised through all the schemes

- Promises or assurances or assured returns made in the scheme

- Copies of offer document of the scheme

- Names, details and background of promoters/sponsors

All collective investment schemes which want to take benefit of the proviso of Section  12(1B)  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.”

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(1B).   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 entities which issued instruments such as agro bonds, plantation bonds, etc. has to be put in place. The Government has decided that schemes through which such instruments are issued would be treated as collective investment schemes coming under the  provisions  of  the  SEBI  Act.  In  terms  of  the  press  release,  SEBI  has initiated action for drafting regulations for such collective investment schemes. A committee  under  the  chairmanship  of  Dr.  S.A.  Dave  has  already  been

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were to come into force, on the date of their publication in the official gazette.  It is

not a matter of dispute, that the same were brought into force, on 15.10.1999.

4. Respondent nos. 1 and 2 – Gaurav Varshney and Vinod Kumar Varshney,

were aggrieved by the criminal proceedings initiated against them, on the basis of a

complaint filed by ‘the Board’, under Section 200 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 of registration from ‘the Board’.  Respondent nos. 1

and 2  approached the  High Court  of  Delhi  (hereinafter  referred  to,  as  the  High

Court), by filing Criminal Miscellaneous Case nos. 7468-7471 of 2006 and Criminal

Miscellaneous no. 951 of  2007, for quashing Complaint  Case no. 1241 of  2003,

pending in the Court of the Chief Metropolitan Magistrate, Tis Hazari Courts, Delhi,

titled as “SEBI vs. Gaurav Agrigenetics Ltd. and others”, as well as, the order dated

15.12.2003, by which the Chief Metropolitan Magistrate had summoned them (in the

aforementioned complaint case).

5. The simple contention advanced at  the hands of  respondent nos. 1 and 2

was, that the bar against sponsoring or carrying on a collective investment scheme,

without obtaining a certificate of 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

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assertion advanced on behalf of respondent nos. 1 and 2 was, that respondent no. 1

–  Gaurav  Varshney  had  submitted  Form-32  with  the  Registrar  of  Companies,

communicating the factum of his resignation from the directorship of M/s. Gaurav

Agrigenetics Ltd., on 10.5.1996.  Since the aforesaid Form-32 had been submitted

with  the  Registrar  of  Companies  on  30.7.1998,  it  was  contended  on  behalf  of

respondent no. 1, that he had no objection if it was assumed (for determination of

the present controversy), that respondent no. 1 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 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 behalf of respondent no. 2, that he had no objection to this Court

assuming,  that  respondent  no.  2  had severed his  relationship  with  M/s.  Gaurav

Agrigenetics Ltd. on 23.12.1998, i.e. the date when Form-32 was submitted with the

Registrar of Companies.

6. In the background of the fact situation noticed hereinabove, it was urged, that

if  the  date  of  resignation  of  respondent  no.  1  –  Gaurav  Varshney  from  the

directorship  of  M/s.  Gaurav Agrigenetics  Ltd.  is  taken as 30.7.1998,  and that  of

respondent no. 2 – Vinod Kumar Varshney, is taken as 23.12.1998, both of them

had admittedly resigned from the directorship of M/s. Gaurav Agrigenetics Ltd., prior

to the coming into existence of the Collective Investment Regulations (with effect

from 15.10.1999).  The High Court,  by its impugned order dated 13.5.2010, had

agreed with the proposition canvassed on behalf of respondent nos. 1 and 2, and

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had quashed Complaint  Case no.  1241 of  2003 (pending in  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. 1 and 2 in the above noted complaint case.

7. Dissatisfied  with  the  determination  rendered  by  the  High  Court  (vide  the

impugned  order  dated  13.5.2010),  ‘the  Board’  approached  this  Court,  through

Criminal Appeal nos. 827-830 of 2012, to raise a challenge to the order passed by

the High Court.   

8. The primary contention advanced on behalf of ‘the Board’ was, that the High

Court misunderstood and misconstrued the bar created by Section 12(1B) of the

SEBI Act.  It was submitted on behalf of the appellant, that the bar contemplated

under Section 12(1B), came into effect on the very date Section 12(1B) 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  of  registration  from  ‘the  Board’,  under  the  Collective

Investment Regulations.  And as such, any act of sponsoring or commencement of a

collective investment venture,  without obtaining a certificate of  registration, on or

after  25.1.1995,  was  absolutely  forbidden.   It  was  submitted  on  behalf  of  the

appellant, that the proviso under Section 12(1B), made the position absolutely clear

and unambiguous.  It was pointed out, that the proviso authorized all persons who

had sponsored or were carrying on a collective investment scheme “… immediately

before the commencement of the Securities Law (Amendment) Act, 1995, for which

no  certificate  of  registration  was  required  prior  to  such  commencement…”,  to

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continue to operate, till regulations were framed under clause (d) of sub-Section (2)

of  Section  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).

9. In  order  to  substantiate  the  afore-noted  contention,  and  also,  in  order  to

demonstrate, that the action of ‘the Board’ in not framing the Collective Investment

Regulations,  would  have  no  bearing,  to  the  bar  created  under  Section  12(1B),

learned counsel placed reliance on Orissa State (Prevention & Control of Pollution)

Board vs. Orient Paper Mills, (2003) 10 SCC 421, and invited our attention to the

following 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 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:

“22. Persons  carrying  on  industry  etc.  not  to  allow  emission  of  air pollutants in excess of the standards laid down by State Board.—No person operating any industrial  plant in any air pollution control area shall discharge or cause or permit to be discharged the emission of any air pollutant in excess of the standards laid down by the State Board under clause (  g  ) of sub-section (1) of Section 17.”

Section  19  empowers  the  State  Government  to  declare  an  area  as  air pollution control area. The relevant part of Section 19 reads as follows:

“19. Power  to  declare  air  pollution  control  areas.—(1)  The  State Government may, after consultation with the State Board, by notification in the Official Gazette, declare in such manner as may be prescribed, any area or areas within the State as air pollution control area or areas for the purposes of this Act.

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(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 be merged one or more existing air pollution control areas or any part or parts thereof.

(3)-(5)***”

*** *** *** 10. The question for consideration is, as to whether, as long the manner is not  prescribed  under  the  rules  for  declaration  of  an  area  as  air  pollution control  area,  a  valid  notification  under  Section  19(1)  of  the  Act  can  be published in the Official 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 say that exercise of such power is solely dependent upon framing of the rules 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:

“19. Power  to  declare  air  pollution  control  areas.—(1)  The  State Government may, after consultation with the State Board, by notification in the Official Gazette, declare (in such manner as may be prescribed), any area or areas within the State as air pollution control area or areas for the purposes of this Act. (2)-(4)***”

12. Section 19 says “… such manner as may be prescribed” and not “in the manner prescribed” or “… in the prescribed manner”. The expression used leaves some lever or play in the 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,  10th  Edn.,  2002 amongst others to mean as follows:

*** *** *** 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  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, if such a manner is in being or

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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 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 Official Gazette any area declaring it to be an air pollution control area. In case,  however,  the  rules  have  been  framed  prescribing  the  manner, undoubtedly, the declaration must be in accordance with such rules.

14. On the proposition indicated above, a decision reported in T. 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 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 would be no power of appointment of a Chief or Seim nor for his removal either. This Court negated the view taken by the High Court observing that: (AIR p. 281, para 10)

“[I]t seems to us that the High Court has read far more into para 3(1)(  g  ) than is justified by its language. Para 3(1) is in 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.”

This Court found that para 2(4) relating to administration of an autonomous district, vested in the District Council such powers and further observed as under: (AIR p. 281, para 10)

“The Constitution could not have intended that all administration in the autonomous districts  should  come to  a  stop  till  the  Governor  made regulations under para 19(1)(  b  ) or till District Council passed laws under para  3(1)(  g  ).  …  Doubtless  when  regulations  are  made  …  the administrative authorities would be bound to follow the regulations so made or the laws so passed.”

15. It is thus clear from the decision referred to in the preceding paragraph that the power which vests in an authority would not cease to exist simply for

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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.

*** *** *** 20. We feel  that so far as the point  relating to the meaning of  the word “may” used under Section 19 of the Act is concerned, it  is not relevant for resolving  the  controversy  we  are  concerned  with.  Once  the  manner  is prescribed under the rules undoubtedly, the declaration of the area has to be only in accordance with the manner prescribed but absence of rules will not render the Act inoperative. The power vested under Section 19 of the Act, would still be exercisable as provided under the provision i.e. by declaring an area as air pollution control area by publication of notification in the Official Gazette.  Non-framing  of  rules  does  not  curtail  the  power  of  the  State 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 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  of T. 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  in Surinder  Singh v.Central Govt., (1986) 4 SCC 667. The Central Government had not framed rules in respect  of  disposal  of  property  forming  part  of  the  compensation  pool  as contemplated under the provisions of the relevant Act. It was claimed by one of the parties that the authority constituted under the Act had no jurisdiction to dispose of urban agricultural property by auction-sale in absence of rules. The contention 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  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, if any. If rules are framed, the powers so conferred on authority could be exercised in accordance with these rules. But if no rules are framed there is no void and the authority is not precluded from exercising the power conferred by the statute.”

A reference was also made to the decisions of this Court in the cases reported in B.N.  Nagarajan v. State  of  Mysore, AIR  1966  SC  1942,  and Mysore SRTC v. Gopinath  Gundachar  Char, AIR  1968  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 be correct

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to say that simply because the rules have not been framed prescribing the manner  it  would  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  published  in  the  Official Gazette. No other manner is prescribed nor exists. The relevant notifications issued by  the  Government  cannot  be  said  to  be  contrary  to  any  rules  in existence as framed by the Government. The respondent had knowledge of the notification and had also  applied  for  consent  of  the Board which was granted to the respondent. But it may be clarified that this is not the reason for taking  the  view  that  we  have  taken,  it  is  mentioned  only  by  way  of  an additional fact and nothing more.  The whole working and functioning of the 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 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:-

6. The material part of Section 46 of the Act reads thus:

“46. (1) A tariff to be known as the Grid Tariff shall, in accordance with any regulations made in this behalf, be fixed from time to time by the Board in respect of each area for which a scheme is in force, and tariffs fixed under this section may, if the Board thinks fit, differ for different areas.

(2) Without prejudice to the provisions of Section 47, the Grid Tariff shall  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 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 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 City Board is that in the absence of any regulations framed by the Electricity Board under Section 79 of the Act regarding the principles governing the fixing of Grid Tariffs, it was not  open to the Electricity  Board to  issue the impugned notifications.  This

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contention is based on sub-section (1) of Section 46 of the Act which provides that  a  tariff  to  be  known  as  the  Grid  Tariff  shall  in  accordance  with  any 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 Electricity Board by the  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 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 of regulations under Section 79 (  h  ) of the Act cannot be a condition precedent for fixing the Grid Tariff….”

10. It  was also the contention of  learned counsel  for  ‘the Board’,  that  the bar

created by Section 12(1B), 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 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(1B),

learned counsel placed reliance on Union of India vs. A.K. Pandey, (2009) 10 SCC

552, and the Court’s attention was drawn to the following observations recorded

therein:-

8. Rule 34 of the Army Rules, 1954 with which we are concerned reads as follows:

“34. Warning  of  accused  for  trial.—(1)  The  accused  before  he  is arraigned shall 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  call  in  his  defence,  reasonable  steps  will  be  taken  for procuring their attendance, and those steps shall be taken accordingly. The interval between his being so informed and his arraignment shall

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not be less than ninety-six hours or where the accused person is on active service less than twenty-four hours.

(2) The officer at the time of so informing the accused shall give him a copy of the charge-sheet and shall, if necessary, read and explain to him the charges brought against him. If the accused desires to have it in a language which he understands, a translation thereof shall also be given to him.

(3) The officer shall also deliver to the accused a list of the names, rank and corps (if any) of the officers who are to form the court, and where  officers  in  waiting  are  named,  also  of  those  officers  in court-martial other than summary court-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.”

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.

9. In  his  classic  work, Principles  of  Statutory  Interpretation (7th  Edn.), Justice  G.P. Singh  has  quoted  a  passage  of  Lord  Campbell  in Liverpool Borough Bank v. Turner, [(1860) 30 LJ Ch 379], that reads:

“No  universal  rule  can  be  laid  down  as  to  whether  mandatory enactments  shall  be  considered  directory  only  or  obligatory  whether implied nullification for disobedience. It is the duty of courts of justice to try to get at the real intention of the legislature by carefully attending to the whole scope of the statute to be considered.”

*** *** ***

14. In Mannalal  Khetan v. Kedar  Nath  Khetan, (1977)  2  SCC  424,  while dealing with Section 108 of the Companies Act, 1956 a three-Judge Bench of this Court held: (SCC pp. 429-31, paras 17-23)

“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 reading the provision one way or the other, the relation of the  particular  provision  to  other  provisions  dealing  with  the  same

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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  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 of India, AIR 1962 SC 113.

18. The High Court said that the provisions contained in Section 108 of the Act are directory because non-compliance with Section 108 of the Act is not declared an offence. The reason given by the High Court is that when the law does not prescribe the consequences or does not lay down  penalty  for  non-compliance  with  the  provision  contained  in Section 108 of the Act the provision is to be considered as directory. The High Court  failed to consider the provision contained in Section 629(  a  )  of  the  Act.  Section  629(  a  )  of  the  Act  prescribes  the  penalty where  no  specific  penalty  is  provided  elsewhere  in  the  Act.  It  is  a question of construction in 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 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 shall not be entered into so as to be valid at law.  A distinction is sometimes made between contracts entered into with the object of committing an illegal act and contracts expressly or impliedly prohibited by 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: if a contract 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, if  the parties enter into a prohibited contract,  that contract is unenforceable.  (See St.  John  Shipping  Corpn. v. Joseph  Rank Ltd. (1957) 1 QB 267) (See also Halsbury's Laws of England, 3rd Edn., Vol. 8, p. 141.)

20. It is well established that a contract which involves in its fulfilment the doing of  an act  prohibited by statute is  void.  The legal  maxim a pactis  privatorum  publico  juri  non  derogatur means  that  private agreements cannot alter the general law. Where a contract, express or

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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.

21. If 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.

22. Penalties are imposed by statute for two distinct purposes:

(1) for the protection of the public against fraud, or for some other object of public policy;

(2) for  the  purpose  of  securing  certain  sources  of  revenue either to the State or to certain public bodies. If it is clear that a penalty  is  imposed  by  statute  for  the  purpose  of  preventing something from being done on some ground of public policy, the thing prohibited, if done, will be treated as void, even though the penalty if imposed is not enforceable.

23. The provisions contained in Section 108 of  the Act are for the reasons indicated earlier mandatory. The High Court erred in holding that the provisions are directory.”

15. The principle seems to be fairly well settled that prohibitive or negative words are ordinarily indicative of mandatory nature of 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 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 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 for which he is to be tried, decide  about  his  defence  and  ask  the  authorities,  if  necessary,  to  take reasonable steps in 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

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above  judgments,  that  the  bar  created  through  Section  12(1B),  forbidding  new

entrepreneurs from commencing activities concerning collective investment, without

obtaining a certificate of registration, was strict and mandatory.

11. Based on the assertions noticed above, as also, the legal position declared by

this  Court,  it  was  sought  to  be  canvassed,  that  by  incorporating  M/s.  Gaurav

Agrigenetics Ltd. on 3.7.1995, and immediately on its incorporation, by sponsoring

or carrying on a collective investment enterprise, without obtaining a certificate of

registration  from  ‘the  Board’,  in  accordance  with  the  Collective  Investment

Regulations,  the  respondents  had  clearly  breached  the  bar  created  by  Section

12(1B) of the SEBI Act.  On account of the fact, that respondent nos. 1 and 2 had

even on their own showing, continued to be the promoter-directors of M/s. Gaurav

Agrigenetics Ltd. upto 30.7.1998 (with reference to the respondent no. 1 – Gaurav

Varshney), and 23.12.1998 (with reference to the respondent no. 2 – Vinod Kumar

Varshney)  respectively,  they  were  obviously  in  breach  of  the  bar,  contemplated

under Section 12(1B) of the SEBI Act.

12. Mr.  Jatin  Zaveri,  learned  counsel  representing  respondent  nos.  1  and  2,

seriously  disputed  the  above  interpretation  placed  by  learned  counsel  for  the

appellant, on Section 12(1B) 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

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

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in the understanding of the Government of India, as also, ‘the Board’ itself, there

was no bar on sponsoring or commencing or carrying on a collective investment

scheme,  even  after  the  insertion  of  Section  12(1B)  into  the  SEBI  Act.   It  was

submitted,  that  the  aforementioned  press  releases  and  public  notice  merely

highlighted the requirement of obtaining a certificate of registration from ‘the Board’,

consequent  upon  the  framing  of  the  Collective  Investment  Regulations,

contemplated  under  Section  12(1B)  of  the  SEBI  Act.   It  was,  therefore  the

submission  of  learned  counsel  for  the  respondents,  that  the  action  of  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(1B),

at their hands.  It was also contended on behalf of the respondents, that a breach of

Section 12(1B) could have arisen, only if M/s. Gaurav Agrigenetics Ltd., could be

blamed  of  having  carried  on  activities  concerning  collective  investment,  without

obtaining  a  certificate  of  registration  from  ‘the  Board’,  in  accordance  with  the

Collective Investment  Regulations.   But  that,  according to  learned counsel,  was

possible,  only  after  the  said  regulations  were  framed,  and the  respondents  had

continued  their  activity, in  breach  of  the  said  regulations.   Since  the  Collective

Investment  Regulations  were  admittedly  brought  into  force  with  effect  from

15.10.1999,  according to  learned 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

of M/s. Gaurav Agrigenetics Ltd. (surely with effect from 30.7.1998 and 23.12.1998

respectively), well before the Collective Investment Regulations came into existence

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(-on 15.10.1999).  And therefore, neither of the respondents could be accused of

violating Section 12(1B) of the SEBI Act, or of not complying with the provisions of

the Collective Investment Regulations.

13. In  order  to  controvert  the  submissions  advanced  at  the  hands  of  learned

counsel for the appellant, based on the judgments rendered by this Court, emphatic

reliance was placed on the decision in Vasu Dev Singh vs. Union of India, (2006) 12

SCC 753, wherefrom, the following observations, were sought to be highlighted:-

“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 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  of  legislation,  it  would  be  a  conditional legislation. The legislature in such a case makes the law, which is complete in all  respects  but  the  same  is  not  brought  into  operation  immediately.  The enforcement of the law would depend upon the fulfillment of a condition and what is delegated to the executive is the authority to determine by exercising its own judgment as to whether such 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 of rule-making power of legislation 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 which has been fashioned by the legislature to be exercised in the manner laid down in the legislation itself. By reason of Section 3 of the Act, the Administrator, however, has been empowered to issue a notification whereby and whereunder, an exemption is granted for application of the Act itself.

17. In Hamdard Dawakhana v. Union of India, AIR 1960 SC 554, this Court stated: (AIR p. 566, para 29)

“The  distinction  between  conditional  legislation  and  delegated

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legislation  is  this  that  in  the  former  the  delegate's  power  is  that  of determining 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  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 and in  the  case of  conditional  legislation  the  power  of  legislation  is exercised by the legislature conditionally leaving to the discretion of an external authority the time and manner of carrying its legislation into effect as also the determination of the area to which it is to extend;”

(See also M.P. High Court Bar Assn. v. Union of India,  (2004) 11 SCC 766; State of T.N. v. K. Sabanayagam,  (1998) 1 SCC 318, and Orient Paper and Industries Ltd. v. State of Orissa, 1991 Supp (1) SCC 81.)”

14. We have heard learned counsel for the rival parties.  We are of the considered

view, that it would be appropriate in the first instance, to interpret sub-Section (1B) 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 12(1B) can be

rendered,  only  upon  understanding  the  intent  behind  Section  12(1B),  and  the

exception created through the proviso thereunder.  On being so considered it  is

apparent, that on the insertion of Section 12(1B) in the SEBI Act on 25.1.1995, two

classes of persons were created.  The first class comprised of such person(s) who

had commenced the activity of sponsoring or carrying on a collective investment

scheme  prior  to  25.1.1995  (this  category  will  be  referred  to  hereinafter  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  sponsoring  or  carrying  on  a  collective

investment scheme prior to 25.1.1995 (this category will be referred to hereinafter

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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 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 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.  In other words, Section 12(1B) introduced a clear bar, prohibiting any

action of  sponsoring or initiating a collective investment scheme after 25.1.1995,

without obtaining a certificate of registration from ‘the Board’, under the Collective

Investment  Regulations.   Stated  differently,  a  new  entrepreneur  desirous  of

sponsoring or carrying on any activity in the nature of collective investment for the

first time after 25.1.1995, could do so only after he/it had obtained a certificate of

registration  from  ‘the  Board’,  in  accordance  with  the  Collective  Investment

Regulations.  Therefore, till such time the Collective Investment Regulations were

framed by ‘the Board’ under Section 12(1B), and a certificate of registration was

obtained, no fresh entry could be made in the field of collective investment, by a

person/entity not already carrying on such activity.

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18. A perusal of the conclusions drawn by us in the foregoing two paragraphs,

wherein  we have interpreted  Section  12(1B)  of  the SEBI  Act  would  reveal,  that

persons  governed  by  the  substantive  provision  (the  non-proviso  category)  were

permitted  to  “commence”  activities  concerning  collective  investment,  only  after

obtaining  a  certificate  of  registration;  and  persons  covered  under  the  proviso

category  (-who  were  already  carrying  on  such  activities),  were  permitted  to

“continue” their activities (concerning collective investment), and after the concerned

regulations were framed, they could continue the said activities only after obtaining a

certificate of registration.

19. The Collective Investment  Regulations came into  force  on  15.10.1999.   A

person falling in the proviso 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 Collective Investment Regulations.  Regulation 5, is extracted hereunder:-

“Application by existing Collective Investment Schemes

5. (1) 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 to the Board for the grant of a certificate within a period of two months from such date.

(2) An application under sub-regulation (1) shall contain such particulars as are  specified  in  Form  A and  shall  be  treated  as  an  application  made  in pursuance of regulation 4 and dealt with accordingly.”  

An application under Regulation 5 could not have been made by an individual falling

under the non-proviso category, for the simple reason, that an activity of sponsoring

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

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of Section 12(1B) read with the Collective Investment 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.

This  has  been the  clear  and unambiguous  stance even of  the  learned  counsel

representing ‘the Board’.  We may venture a different course, of reaching the same

conclusion.  What a statute bars, cannot be authorized through regulations.  Any

person/entity not falling in the proviso category (an “existing” operator, of a collective

investment  scheme)  was  barred  from commencing  to  sponsor  or  carry  on  any

collective investment activity, after the insertion of Section 12(1B) 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 “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

Regulations (these regulations are not being extracted herein, for reason of brevity).

20. Insofar as persons falling in the non-proviso category (namely, those desirous

of  commencing  activities  concerning  collective  investment,  after  25.1.1995)  are

concerned,  such persons could commence an activity  in the nature of  collective

investment, after seeking a certificate 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 reproduced

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below:-

“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.”

A perusal of Regulation 4 extracted above, leaves no room for any doubt, that the

same is applicable to a person “… proposing to carry any activity…” in the nature of

a  collective  investment.   On  the  analogy  of  the  interpretation  placed  by  us  on

Section 12(1B),  all  persons who had not  commenced to  sponsor  or  carry  on a

collective investment scheme before 25.1.1995, would fall in this category.  In the

above  view of  the  matter,  we  are  satisfied,  that  persons  who  were  desirous  to

sponsor or carry on the activity in the nature of collective 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.   

21. In  view of  the  above,  we have no hesitation in  holding,  that  an  “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  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

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sponsoring or carrying on any collective investment activity, for the first time, 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 if a person/entity had commenced to

sponsor  or  carry  on  a  collective  investment  scheme  after  25.1.1995,  without

obtaining  a  certificate  of  registration  from  ‘the  Board’,  it  would  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(1B) of the SEBI Act, with reference to such new

entrepreneurs, is concerned.  The bar to sponsor or cause to be sponsored, or carry

on  or  cause  to  be  carried  on  any  collective  investment  activity  by  a  new

entrepreneur (-who had not commenced the concerned activities, before 25.1.1995)

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  new

entrepreneur (described above) obtained a certificate of registration, 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 concerned activities  were barred (for  the non-proviso category)  under

Section 12(1B) - commenced from the date of insertion of Section 12(1B) into the

SEBI  Act  (-25.1.1995),  and  subsisted  upto,  the  actual  date  when  the  new

entrepreneur obtained a certificate of registration.  We hold so accordingly.

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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(1B),  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 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 (1B) in Section 12 of the SEBI Act, reveals that the same was brought

in, on account of past experience of ‘the Board’, and the dire need to protect the

interests  of  investors.   Secondly  because,  the  language  of  sub-Section  (1B)  of

Section 12 of the SEBI Act is clear and unambiguous – it allowed existing collective

investment  scheme(s)  entrepreneurs,  to  continue  with  the  same by  creating  an

exception in their favour, through the proviso under Section 12(1B).  And it barred

new operators from commencing collective investment scheme(s), till after they had

obtained a certificate of registration.  Thirdly because, of the use of negative words

in sub-Section (1B) – “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 “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 for new

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operators, of a collective investment initiative, was absolute and mandatory.  The bar

under Section 12(1B), restrained persons (who were not engaged in any collective

investment  venture  upto  25.1.1995),  from  commencing  activities  concerning

collective  investment,  till  they  had  obtained  a  certificate  of  registration,  in

consonance with the Collective Investment Regulations.

24. We are also of the view, that the judgments relied upon by learned counsel for

the appellant, namely, Orient Papers Mills, U.P. State Electricity Board, Lucknow,

and A.K. Pandey (supra),  have no relevance to the controversy in hand.  In the

above  cases,  the  question  which  came  up  for  consideration  was,  whether  the

authority concerned could have acted in the manner provided under the concerned

statute,  before  the  regulations  were  framed.   The  issue  considered  was  the

jurisdiction of the concerned authority, and nothing more.  No such question, arises

in the present case.  Herein, a bar has been created, preventing a new entrepreneur

from commencing a defined activity.  No question of jurisdiction (of the competent

authority), arise in the present controversy.

25. In  spite  of  the  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 expressed with reference to new entrepreneurs, under Section

12(1B) of the SEBI Act.  It was submitted, that the only accusation levelled at the

respondents was,  for  a  breach of  the Collective Investment  Regulations,  framed

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under Section 12(1B).   In order to substantiate his aforesaid contention, learned

counsel for the respondents invited our attention to the complaint dated 15.12.2003.

In order to appreciate the contention of learned counsel, an extract of the aforesaid

complaint, including all the paragraphs relied upon by him, is reproduced below:-

“7. The accused no. 1 is a company registered under the provisions of the Companies Act and the accused nos. 2 to 11 are the directors of the accused no. 1 company.  The accused nos.  2 to 11 are the persons incharge and responsible for the day to day affairs of the company and all of them were actively connived with each other for the commission of offences.

8. The  accused  no.  1  is  operating  collective  investment  schemes  and raised an aggregate amount of Rs.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 release dated November 26, 1997, and/or public notice dated December 18, 1997.

10. In terms of Chapter IX of the said regulations, any person who had been operating a collective investment schemes at the time of commencement of the said regulations shall be deemed to be an existing collective investment scheme and shall comply with the provisions 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 application to SEBI for grant of registration within a period of two months from the date of 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 10, 1999 gave intimation to the accused no. 1 directing it to send an information memorandum to all the investors detailing the state of affairs of the schemes, the amount repayable to each investor and the manner in which such amount is determined.  As per the aforesaid letters of SEBI, the information memorandum to the investors was required to be sent latest by February 28, 2000.

12. SEBI having regard to the interest  of  investors and request received from various persons operating collective investment schemes extended the last date of submitting the application by existing entities upto March 31, 2000 and the same was declared by SEBI vide a press release and a public notice.

13. However, the accused no. 1 failed to make any application with SEBI for registration of the collective investment schemes being operated by it as per the said regulations.

14. It is submitted that in terms of Regulations 73(1) of the said regulations,

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an existing collective investment schemes which failed to make an application for  registration  with  SEBI,  shall  wind  up  the  existing  collective  investment schemes and repay the amounts collected from the investors.   Further, in terms  of  Regulation  74  of  the  said  regulations,  an  existing  collective investment scheme which is not desirous of obtaining provisional registration from SEBI shall formulate a scheme of repayment and make such repayment to the existing investors in the manner specified in Regulation 73.

15. However, the accused no. 1 neither applied for registration under the said  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 of India Act, 1992 and 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  11B  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  the  accused  no.  1  to  the  persons  who invested  therein  within  a  period  of  one  month  from the  date  of  the  said directions.

17. However, despite repeated directions by SEBI, the accused no. 1 did not comply with the said regulations and from this, it is clear that the accused no. 1 is intentionally and with dishonest intentions evading the repayment of the amounts collected by it from the investors.

18. The accused no.  1 raised a total  amount  of  Rs.14,63,279/-  (Rupees fourteen lakhs sixty three thousand two hundred seventy 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 pecuniary damage to them.

19. In view of the above, it is charged that the accused no. 1 has committed the violation of Section 11B, 12(1B) of Securities and Exchange Board of India Act, 1992 and Regulation 5(1) read with Regulations 68(1), 68(2), 73 and 74 of  the  Securities  and  Exchange  Board  of  India  (Collective  Investment Schemes)  Regulations,  1999  which  is  punished  under  Section  24(1)  of Securities and Exchange Board of India Act, 1992.

20. The accused nos. 2 to 11 are the Directors of the accused no. 1, and as such  persons  in  charge  of  and  responsible  to  the  accused  no.  1  for  the conduct of its business and are liable for the violations of the accused no. 1, as provided under Section 27 of Securities and Exchange Board of India Act, 1992.

21. The violation of  the aforesaid laws 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

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complaint is within the limitation.  The complainant craves the leave of this Hon’ble Court to produce 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.”

26. Having given our thoughtful consideration to the accusations levelled by ‘the

Board’  against  the  respondents  (in  the  complaint  dated  15.12.2003),  there  is

absolutely no room for any doubt, that the private respondents were being treated

as operating, an “existing” collective investment scheme.  They were accused inter

alia,  for  having  not  complied  with  Regulation  5  of  the  Collective  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 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 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 reference to collective investment schemes, in Chapter IX, would

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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(1B) of the 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 for their failure to obtain a certificate of registration under Regulation 5

of  the  Collective  Investment  Regulations,  read  with  Chapter  IX  of  the  said

regulations, and more particularly, Regulations 68, 73 and 74 (refer to paragraphs 8,

10, 11,  13 to 15, 18 and 19 of  the complaint).   Therefore,  according to learned

counsel for the respondents, the appellant had expressly treated the respondents as

persons falling in the proviso category of Section 12(1B), namely, those who had

commenced a collective investment undertaking prior to insertion of Section 12(1B)

into the SEBI Act (-on 25.1.1995).  It was, therefore submitted, that the 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(1B),  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 at the hands of

learned counsel for the private respondents.  The respondents were only accused of

having not complied with, the provisions of the Collective Investment Regulations,

pertaining to “existing” collective investment operators (those who had commenced

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the  activity  before  25.1.1995).  Thus  viewed,  the  fact  that  the  respondents

commenced the activity of collective investment after the insertion of sub-Section

(1B) 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(1B) of the 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 (when Section 12(1B) 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. 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 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 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, with reference to the complaint filed

by ‘the Board’ against the respondents (dated 15.12.2003).

29. A  significant  question  which  arises  for  consideration  is,  whether  the

respondents against whom the above complaint dated 15.12.2003 was filed, could

be punished for  violating  Section 12(1B)  of  the SEBI  Act.   We may clarify, that

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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  of  the

Collective Investment Regulations.  It needs to be understood, that in the present

case, the 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” collective investment venture as on

25.1.1995, were precluded from activities concerning collective investment, till  the

time they obtain a certificate of registration from ‘the Board’ in accordance with the

Collective Investment Regulations.  As already concluded above, this course could

not be pursued against the respondents, because they were not so accused, in the

complaint dated 15.12.2003.  The question posed, is answered accordingly.

30. The sequence of  facts  narrated hereinabove reveals,  incorporation of  M/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 fully justified for ‘the Board’, to proceed against M/s. Gaurav Agrigenetics Ltd.,

for  having  violated  the  said  provision.   The  issue  which  has  emerged  for

consideration is, whether the complaint  filed by ‘the Board’ against  the company

under reference, as also, its directors, factually accused M/s. Gaurav Agrigenetics

Ltd. and its directors, of having violated Section 12(1B) of the SEBI Act?  Were the

accused  described  as  falling  in  the  non-proviso  category?   Were  the  accused,

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proceeded against on the 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 M/s.

Gaurav Agrigenetics Ltd., are in the negative.  The above response of the accused,

is seriously contested by Mr. Arvind Datar, 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  a  collective  perusal  of

paragraphs 8 and 15 of the complaint dated 15.12.2003, would leave no room for

any doubt, that the directors of the company concerned were pointedly accused of

having violated Section 12(1B) of the SEBI Act.  The said paragraphs 8 and 15 are

reproduced herein below:-

“8. The  accused  no.  1  is  operating  collective  investment  schemes  and raised an aggregate amount  of  Rs.14,63,279 (Rupees fourteen lakhs sixty three thousand two hundred seventy nine only) from the general public.

*** *** *** 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 12(1B) of Securities and Exchange Board of India Act, 1992 and Regulation 5(1) r/w Regulations 68(1), 68(2), 73 and 74 of the said regulations.”

32. Having given our thoughtful consideration to the factual assertions contained

in the complaint, it is not possible for us to agree with the learned senior counsel

representing ‘the Board’, for the simple reason, that a perusal of the above factual

assertions, reveal two accusations against the accused.  Firstly, that the accused did

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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  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(1B) of the SEBI Act came to be inserted, till the requisite certificate

of  registration  was sought.   The complaint  did  not  include any direct  or  indirect

insinuation,  that  the  accused  had  unauthorisedly  commenced  operations  of  a

collective investment scheme, after 25.1.1995.  Even the date of commencement of

the  collective  investment  operations,  by  the  accused,  was  not  expressed  in  the

complaint.   It  was  imperative  for  ‘the  Board’,  to  lay  the  above  charge,  through

express  assertions,  for  proceeding  against  the  accused,  for  violation  of  the

non-proviso mandate, under Section 12(1B).

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(1B), but the violation alleged is on account of 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 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).

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Because in our view, only “existing” operators, had to wind up, if they choose not to

conform with the Collective Investment Regulations (after their notification).

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 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 scheme.  In the absence

of the above particulars of the offence, they could not have been tried or punished

for the same.  No amount of evidence can be looked into, for an accusation not

levelled or made out, in a complaint.  This is one of the basic tenets of the criminal

jurisprudence.

35. We will  now proceed to deal with the second submission, advanced at the

hands  of  the  learned senior  counsel,  for  ‘the  Board’.   In  support  of  his  second

submission, the learned senior counsel relied on Section 251 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 particulars of the offence of which he is accused shall be stated to him, 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 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

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investment scheme, is commenced after 25.1.1995), under Section 12(1B) of the

SEBI  Act,  would  be  the  date  on  which  the  accused  commenced  sponsoring  or

carrying on a collective investment scheme.  If such date fell within the period when

the initiation of a new collective 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 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 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.  This, in our considered view is clearly impermissible.  We are also of the view,

that Section 251 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,  for  the  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.

36. The third submission advanced on behalf of ‘the Board’, was based on the

determination rendered by the trial  Court,  that  the accused had violated Section

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12(1B)  of  the  SEBI  Act.   Learned  senior  counsel  pointed  out,  that  the  date  of

incorporation  of  M/s.  Gaurav  Agrigenetics  Ltd.  (-3.7.1995),  of  which  the

respondents/accused were directors,  was clearly brought  out by way of  concrete

evidence,  before  the  trial  Court.   M/s.  Gaurav  Agrigenetics  was  undisputedly

incorporated  after  25.1.1995.   It  was  further  urged,  that  neither  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 12(1B),  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 (1B) were

not clearly disclosed, in the complaint filed by ‘the Board’.

37.  We have given our thoughtful consideration to the contentions advanced at

the hands of the learned senior counsel, in support of his third submission.  We are,

however, inclined to accept the submissions advanced at the hands of the accused.

Neither the complaint nor the charge-sheet filed against the accused before the trial

Court  demonstrates,  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 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.  If that was the case, there would

be no violation of Section 12(1B), since an existing collective investment scheme,

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which  came  into  existence  prior  to  25.1.1995,  could  legitimately  continue  its

operations under the proviso to Section 12(1B), without a certificate of registration,

till the framing of the Collective Investment Regulations.  Therefore, merely the fact

that the company under consideration was incorporated after 25.1.1995, in our view,

would not be sufficient to demonstrate the culpability of the accused, insofar as, the

restraint  against  fresh  commencement  of  collective  investment  activities  under

Section 12(1B) of the SEBI Act is concerned.  In the above view of the matter, we

find no merit even in the third submission advanced on behalf of ‘the Board’.

38. The last submission advanced at the hands of the learned 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 competent jurisdiction shall be reversed or altered by a Court of appeal, confirmation or revision on account of  any  error,  omission  or  irregularity  in  the  complaint,  summons,  warrant, proclamation, order, judgment or other proceedings before or during trial or in any inquiry or other proceedings under this Code, or any error, or irregularity in  any sanction  for  the prosecution,  unless in the opinion  of  that  Court,  a 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 for the prosecution has occasioned a failure of justice, 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  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

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during  trial  or  in  any  inquiry  or  other  proceedings  under  this  Code…”.   It  was

accordingly  urged,  that  the  mention  of  Section  12(1B)  of  the  SEBI  Act  in  the

complaint, should be 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, 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 of justice”.   

39. It was submitted, that the entire factual scenario was clear and transparent,

and known to one and all.  The date of incorporation of the concerned company,

wherein the accused were directors,  is a matter  of record, substantiated through

cogent evidence produced before the trial Court.  The fact that the accused were

directors  of  M/s.  Gaurav  Agrigenetics  Ltd.,  was  also  undisputed.   Neither  the

company  concerned  nor  the  accused,  had  contested  the  fact,  that  they  had

sponsored  or  had been carrying  on  a  collective  investment  scheme,  which  was

initiated  after  25.1.1995.   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 the trial Court,

had occasioned a “failure of justice”.

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40. In order to support the above contention, the learned senior counsel for ‘the

Board’, placed reliance on State of M.P. vs. Bhooraji, (2001) 7 SCC 679,  wherefrom

the Court’s attention was drawn to the following observations:-

“8. The real question is whether the High Court necessarily should have quashed the trial proceedings to be repeated again only on account of the declaration of the legal position made by the Supreme Court concerning the procedural aspect about the cases involving offences under the SC/ST Act. A de novo trial should be the last resort and that too only when such a course becomes so desperately indispensable.  It  should be limited to the extreme exigency to avert “a failure of justice”. Any omission or even the illegality in the procedure which does not  affect  the core of  the case is  not  a ground for ordering  a  de  novo  trial. This  is  because  the  appellate  court  has  plenary powers  for  revaluating  and  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 again for repeating the whole depositions would be a sheer waste of time, energy and costs unless there is miscarriage of justice otherwise.  Hence the said course can be resorted to when  it  becomes  unpreventable  for  the  purpose  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 pending cases in trial courts which are crammed with dockets, 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 an instrument to be used for inflicting sufferings on the people but for the process of justice dispensation.

*** *** *** 12. Section 465 of the Code falls within Chapter XXXV under the caption “Irregular Proceedings”. The Chapter consists of seven sections starting with Section  460  containing  a  catalogue  of  irregularities  which  the  legislature thought  were  not  enough to  axe  down concluded proceedings  in  trials  or enquiries. Section 461 of the Code contains another catalogue of irregularities which in the legislative perception would render the entire proceedings null and void. It is pertinent to point out that the former catalogue 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”.

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

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section that if the court is satisfied that proceedings conducted erroneously in a wrong sessions division “has in fact occasioned a failure of justice” it is open to  the  higher  court  to  interfere.  While  it  is  provided that  all  the  instances enumerated  in  Section  461  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 steps had in fact occasioned a failure of justice. Then alone the proceedings can be set aside. Thus the entire purport of  the  provisions  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.

14. We have to examine Section 465(1) of the Code in the above context. It is extracted below:

“465.  (1)  Subject  to  the  provisions  hereinbefore  contained,  no  finding, sentence or  order  passed by a court  of  competent  jurisdiction shall  be reversed  or  altered  by  a  court  of  appeal,  confirmation  or  revision  on account of any error, omission or irregularity in the complaint, summons, warrant,  proclamation,  order,  judgment  or  other  proceedings  before  or during trial or in 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  of  justice  has  in  fact  been  occasioned thereby.”

15. A  reading  of  the  section  makes  it  clear  that  the  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  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.

16. What is meant by “a failure of justice” occasioned on account of such error, omission or irregularity? This Court has observed in  Shamnsaheb M. Multtani v.  State of Karnataka, (2001) 2 SCC 577, thus: (SCC p. 585, para 23):

“23. We  often  hear  about  ‘failure  of  justice’  and  quite  often  the submission in a  criminal  court  is  accentuated with  the said expression. Perhaps it is too pliable or facile an expression which could be fitted in any situation  of  a  case.  The  expression  ‘failure  of  justice’  would  appear, sometimes, as an etymological  chameleon (the simile is borrowed from Lord Diplock in Town Investments Ltd. v. Deptt. of the Environment), (1977) 1  All  ER 813.  The criminal  court,  particularly  the superior  court  should make a close examination to ascertain whether there was really a failure of justice or whether it is only a camouflage.”

*** *** ***

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23. We conclude that  the  trial  held  by  the  Sessions  Court  reaching  the judgment impugned before the High Court in appeal was conducted by a court of competent jurisdiction and the same cannot be erased merely on account of a procedural lapse, particularly when the same happened at a time when the law which held the field in the State of Madhya Pradesh was governed by the decision of the Full Bench of the Madhya Pradesh High Court. The High 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.”

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. 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. 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.

42. Having so interpreted Section 465 of the Cr.P.C., we may also indicate, that

material facts constituting the offence, for which an accused is being charged, must

mandatorily  be  put  to  the  accused.   Lack  of  material  facts,  which  are  vital  to

establish the ingredients of an offence, cannot be viewed as a procedural omission.

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The above requirement  is 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 exempt, 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 were being proceeded

against, would occasion “failure of justice”.  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 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  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 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 –

Vinod Kumar Varshney can likewise be taken to have resigned from the directorship

of the said company with effect from 23.12.1998.  Both respondent nos. 1 and 2,

according  to  learned  counsel  representing  them,  ceased  to  have  any

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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 by ‘the Board’, as 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 reason, that they relate to an alleged breach by M/s.

Gaurav Agrigenetics Ltd., of the Collective Investment Regulations, by treating them

as  existing  collective  investment  undertaking.   Those  belonging  to  the  proviso

category,  could  only  be  proceeded  against  for  having  continued  their  activities

relating to collective investment, without obtaining registration, after the notification

of  the  Collective  Investment  Regulations  (see  paragraph  29  above).   The  said

regulations  came  into  existence  with  effect  from  15.10.1999.   By  the  time  the

Collective Investment Regulations were notified, respondent nos. 1 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  in

concluding, that proceedings which were initiated against respondent nos. 1 and 2,

and were quashed by the High Court, call for no interference.  Ordered accordingly.

45. In the result, the appeals stand dismissed.

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Criminal Appeal nos. 833-836 of 2012

46.  It  is  not  a  matter  of  dispute,  that  the  respondent  herein  –  Mrs.  Parvesh

Varshney was one of the directors of M/s. Gaurav Agrigenetics Ltd., i.e. the same

company  involved  in  criminal  appeal  nos.  827-830  of  2012.   We  have,  in  our

conclusions with  reference to  criminal  appeal  nos.  827-830 of  2012,  upheld  the

order dated 13.5.2010 passed by the High Court in Criminal Miscellaneous Case

nos. 7468-7471 of 2006 and Criminal Miscellaneous no. 951 of 2007, quashing the

proceedings initiated against two of the directors of the above company, namely,

Gaurav  Varshney  and  Vinod  Kumar  Varshney.   The  High  Court  in  the  above

judgment (pertaining to Gaurav Varshney and Vinod Kumar Varshney) had quashed

the proceedings initiated against the co-directors 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

Metropolitan Magistrate, Tis Hazari Courts, Delhi against M/s. Gaurav Agrigenetics

Ltd., and ten of its directors.  In the above complaint, Gaurav Varshney was arrayed

as accused no. 5 and Vinod Kumar Varshney was impleaded as accused no. 8.

47. Insofar as the instant criminal appeal is concerned, the same has been filed

against the impugned judgment and order dated 12.8.2010, rendered by the High

Court  in  Criminal  Miscellaneous  Case  nos.  7468-7471  of  2006  and  Criminal

Miscellaneous no. 951 of 2007.  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

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Courts, Delhi, wherein she was arrayed as accused no. 6.  The High Court by its

judgment and order dated 12.8.2010, had quashed the complaint filed against the

respondent herein, in exercise of its jurisdiction under Section 482 of the Cr.P.C.

48. The commonness of the factual position in the appeals adjudicated upon by

us (Criminal Appeal nos. 827-830 of 2012), and the present criminal appeals is, that

whilst  Gaurav Varshney – accused no.  5,  had tendered his resignation from the

position of director of M/s. Gaurav Agrigenetics Ltd. on 30.7.1998, and Vinod Kumar

Varshney – accused no. 8, had tendered his resignation from the above company on

23.12.1998, the respondent herein – Mrs. Parvesh Varshney – 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 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.  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  of  2012  against  the  other  co-accused  in  the  same  complaint  dated

15.12.2003, we decline to interfere with the impugned order passed by the High

Court, dated 12.8.2010, with reference to the respondent – Mrs. Parvesh Varshney

– accused no. 6, as well.

49. In the result, the instant appeals are dismissed.

Criminal Appeal no. 252 of 2015

50. Only  a  word  of  caution.   In  the  connected  earlier  criminal  appeals  (nos.

827-830 of  2012,  and 833-836 of  2012),  ‘the Board’ was the appellant,  and the

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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  M/s.  Accord  Plantation  Ltd.,  a  company

incorporated  under  the  provisions  of  the  Companies  Act,  1956,  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  M/s.  Accord

Plantation  Ltd.,  was  limited  to  tendering  advice  with  reference  to  its  agricultural

activities, and that, the appellant – Major P.C. Thakur, was neither in charge of nor

responsible to the company, for the conduct of its business activities.

52. In addition to the submissions noticed with 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 of the SEBI Act, which is extracted hereunder:-

“27. Offences by Companies. - (1) 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 company, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly:

Provided  that  nothing  contained in  this  sub-section  shall  render  any  such person liable to any punishment provided in this Act, if  he proves that the offence was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such offence.

(2) Notwithstanding  anything  contained  in  sub-section  (1),  where  an offence under this Act has been committed by a company and it is proved that the offence has been committed with  the consent  or  connivance of,  or  is

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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.

Explanation.- For the purposes of this section, -

(a) "company"  means  any  body  corporate  and  includes  a  firm  or other association of individuals; and

(b) "director", in relation to a firm, means a partner in the firm.”

Based  on  Section  27  of  the  SEBI  Act,  it  was  contended,  that  besides  a  bald

statement made by ‘the Board’, in the show-cause notice dated 12.5.2000, and the

complaint  dated  21.1.2003,  there  was no  material  on  the  record  of  the  case to

demonstrate,  that  the  appellant  was  in  any  manner  “…in  charge  of,  and  was

responsible 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:-

“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 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 of a cheque 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 the company, had a role to play in relation to the incriminating act and further that such a person should know what  is attributed to him to make him liable. In other

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words, persons who had nothing to do with the matter need not be roped in. A company being a juristic person, all its deeds and functions are the result of acts of others. Therefore, officers of a company who are responsible for acts done in the name of the company are sought to be made personally liable for acts which result in criminal action being taken against the company. It makes every person who, at the time the offence was committed, was in charge of, and  was  responsible  to  the  company  for  the  conduct  of  business  of  the company, as well 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.

*** *** ***

10. While analysing Section 141 of the Act, it will be seen that it operates in cases where an offence under Section 138 is committed by a company. The key words which occur in the section are “every person”. These are general words and take every person connected with a company within their sweep. Therefore, these words have been rightly qualified by use of the words:

“Who, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty 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 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  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 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 a company at the relevant time. Liability depends on the role one plays in the affairs of a 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 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.

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*** *** ***

12. The  conclusion  is  inevitable  that  the  liability  arises  on  account  of conduct, act or omission on the part of a person and not merely on 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.

*** *** ***

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 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  control  of  the day-to-day affairs of the company or a firm. This was a case of a partner in a firm and it was held that a partner who was not in such overall control of the firm  could  not  be  held  liable. In Municipal  Corpn.  of  Delhi v. Ram  Kishan Rohtagi, (1983)  1  SCC  1,  the  case  was  under  the  Prevention  of  Food Adulteration Act. It was first noticed that under Section 482 of the Criminal 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  complaint  does  not  disclose  the  essential ingredients  of  an  offence  which  are  arrived  at  against  the  accused. This emphasises the need for proper averments in a complaint before a person can be tried for the offence alleged in the complaint.

16. In State of Haryana v. Brij Lal Mittal, (1998) 5 SCC 343, it was held that vicarious liability of a person for being prosecuted for an offence committed under the Act by a company arises if at the material time he was in charge of and was also 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 liable. Conversely,  without  being  a  director  a  person  can  be  in  charge  of  and responsible to the company for the conduct of its 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:-

“12. It is very clear from the above provision that what is required is that the persons who are sought to be made     vicariously liable     for a criminal offence

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under Section 141 should be, at the time the offence was committed, was in charge  of,  and  was  responsible  to  the  company  for  the  conduct  of  the business of the company. Every person connected with the company shall not fall within the ambit of the provision. Only those persons who were in 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 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 or office in a company.

13. Section 141 is a penal provision creating vicarious liability, and which, as per settled law, must be strictly construed. It is therefore, not sufficient to make a bald cursory statement in a complaint that the Director (arrayed as an accused) is in charge of and responsible to the company for the conduct of the  business  of  the  company without  anything  more  as  to  the  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, 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 who are merely holding the post in a company and are not  in  charge of  and responsible  for  the conduct  of  the business of the company. Further, in order to fasten the vicarious liability in accordance with Section 141, the averment  as to the role of  the Directors concerned  should  be  specific.  The  description  should  be  clear  and  there should be some unambiguous allegations as to how the Directors concerned were alleged to be in charge of and were responsible for the conduct and affairs of the company.”

Last of all, learned counsel invited our attention to Gunmala Sales Private Limited

vs. Anu Mehta, (2015) 1 SCC 103, wherefrom reliance was placed on the following

observations:-  

“22. In National  Small  Industries  Corpn.  Ltd. v. Harmeet  Singh  Paintal, (2010)  3  SCC 330,  this  Court  was  dealing  with  the  same question.  After referring to  S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (1),  (2005) 8 SCC 89, S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2), (2007) 4 SCC 70, Saroj Kumar  Poddar v. State  (NCT  of  Delhi),  (2007)  3  SCC  693, N.K. Wahi v. Shekhar Singh, (2007) 9 SCC 481, N. Rangachari v. BSNL, (2007) 5 SCC 108,  Paresh P. Rajda v. State of Maharashtra, (2008) 7 SCC 442, K.K.

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Ahuja  v. V.K.  Vora,  (2009)  10 SCC 48,  and other relevant  judgments,  this Court laid down the following principles: (National Small Industries Corpn. Ltd. case (supra), SCC pp. 345-46, para 39)

“(i) The primary responsibility is on the complainant to make specific averments as are required under the law in the complaint so as to make the accused vicariously liable. For fastening the 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 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  therein  vicariously  liable  for offence committed by the company along with averments in the petition containing  that  accused  were  in  charge  of  and  responsible  for  the business of the company and by virtue of their position they are liable to be proceeded with.

(iv) Vicarious liability on the part of a person must be pleaded 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.

(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  company  at  the relevant time. This has to be averred as a fact as there is no deemed liability of a Director in such cases.”

*** *** *** 28. We are concerned in this case with Directors who are not signatories to the cheques. So far as Directors who are not signatories to the cheques or who are not Managing Directors or Joint Managing Directors are concerned, it is clear from the conclusions drawn in the abovementioned cases that it  is 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 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

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liability of such Directors. This averment assumes importance because it is the basic and essential  averment which persuades the Magistrate to issue process  against  the  Director.  That  is  why  this  Court  in SMS  Pharma (1) (supra),  observed  that  the  question  of  requirement  of  averments  in  a complaint  has  to  be  considered  on  the  basis  of  provisions  contained  in Sections  138 and  141 of  the  NI  Act  read in  the  light  of  the  powers  of  a Magistrate referred to in Sections 200 to 204 of the Code which recognise the Magistrate's discretion to reject the complaint at the threshold if he finds that there is no sufficient ground for proceeding…..”  

*** *** *** 34. We may summarise our conclusions as follows:

34.1. Once in a complaint filed under Section 138 read with Section 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 quashing of such a complaint by the Director, the High Court may, in the facts of a particular 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.

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 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 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 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,  complaint  cannot  be quashed. 34.4. No restriction can be placed on the High Court's powers 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

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Court in this regard and the exercise of this power depends upon the facts and  circumstances  of  each  case.  The  High  Court  at  that  stage  does  not conduct  a  mini  trial  or  roving  inquiry,  but  nothing  prevents  it  from  taking unimpeachable  evidence  or  totally  acceptable  circumstances  into  account which  may  lead  it  to  conclude  that  no  trial  is  necessary  qua  a  particular Director.”

It  was pointed  out,  that  even though the  judgments  relied  upon and referred  to

hereinabove, were with reference to Section 138 of the Negotiable Instruments Act,

yet  Section  141 thereof  is  exactly  similar  to  Section  27  of  the  SEBI  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, 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 hand, on account of

the  clear  findings  recorded  by  the  High  Court  in  the  impugned  order  dated

29.1.2014, depicting the role and involvement of the appellant in the activities of

M/s.  Accord  Plantation  Ltd.   The  conclusions  drawn  by  the  High  Court  in  the

impugned order, are extracted hereunder:-

“18. …  As  would  be  evident  from  the  balance  sheet  of  the  company, remuneration was being paid by it to Mr. P.C. Thakur.  It has also come in the deposition of DW2, 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 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 and was also authorized to operate its bank accounts clearly shows that he was also a person incharge and responsible to the company for conduct of its business, during the period he was its director.”

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In view of the fact, that the above factual position has not been disputed by learned

counsel for the appellant, we are therefore satisfied in concluding, that the appellant

– Major P.C. Thakur was in charge, and was responsible to the company, for the

conduct of its business.  It is not possible for us to accept, that the 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 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 M/s.  Accord Plantation Ltd.   A few of  the

relevant  paragraphs  of  the  show  cause  notice  dated  12.5.2000  are  extracted

hereunder:-

“As you are aware, SEBI (Collective Investment Scheme) Regulations, 1999 (hereinafter referred to as Regulations) came into force on October 15, 1999. As  per  regulation  5(1),  any  person  who  immediately  prior  to  the commencement of these Regulations was 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 of  registration within a period of  two months from the date of  notification (i.e.  October 15,  1999). 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 Regulations, were required to apply for registration by March 31, 2000.

As  per  Regulation  73(1)  an  existing  Collective  Investment  Scheme  (CIS) which has failed to make an application for registration to SEBI, shall wind up the existing scheme and repay the investors.  Further, as per Regulation 74, an existing CIS which is not desirous of obtaining provisional registration from

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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  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 of  a  public notice  dated  December  10,  1999  all  the  existing  Collective  Investment Schemes,  including  you,  which  were  not  desirous  of  obtaining  provisional registration from SEBI or had failed to make an application for registration from SEBI were given individual intimation in terms of regulation 73(2) that casts  an  obligation  on  you  to  send  an  information  memorandum  to  the investors detailing the sate of affairs of the scheme, the amount repayable to each  investors  and  the  manner  in  which  such  amount  is  determined. Accordingly you were required to send the information memorandum to the investors by February 28, 2000.

It is noted that you have not applied for registration by March 31, 2000 and also appear to have failed to take steps for winding up of the scheme(s) in terms of Regulations.  You have, therefore, prima facie violated the provisions of Section 12(1B) of SEBI Act, 1992 and regulation 5(1) read with regulations 68(1),  68(2),  73  and  74  of  SEBI  (Collective  Investment  Schemes) Regulations, 1999.”

55. Even in 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, the accusations levelled against

M/s. Accord Plantation Ltd., as also, the appellant herein, were similar.  Relevant

paragraphs of the complaint dated 21.1.2003 are being extracted hereunder:-

“7. The  accused  no.  1  company  filed  information/details  with  SEBI regarding the collective investment schemes pursuant to SEBI press release dated November 26, 1997 and/or public notice dated December 18, 1997.

8. In terms of Chapter IX of the said regulations, any person who had been operating a collective investment scheme at the time of commencement of the said  regulations  shall  be  deemed  to  be  an  existing  collective  investment scheme and shall comply with the provisions 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 application to SEBI for grant of registration within a period of two months from the date of notification of the said regulations.

9. SEBI having regard to the interest  of  investors and request  received from various persons operating collective investment schemes extended the last date of submitting the application by existing entities upto March 31, 2000 and the same was declared by SEBI vide a press release and a public notice.

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10. However, the accused no. 1 failed to make any application with SEBI for registration of the collective investments schemes being operated by it as per the said regulations.

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 application for registration  with  SEBI,  shall  wind  up  the  existing  collective  investment schemes and repay the amounts  collected from the investors.   Further, in terms of regulation 74 of the said regulations, an existing collective investment scheme which is not desirous of obtaining provisional registration from SEBI shall  formulate  a  scheme of  repayment  and make such repayment  to  the existing investors in the manner specified in regulation 73.

12. SEBI vide its letter dated December 10, 1999 and December 29, 1999 and also by way of a public notice dated December 10, 1999 gave intimation in terms of regulation 73(2) to the accused no. 1 which casts an obligation on the accused no. 1 to send an information memorandum to all the investors detailing the state of affairs of the schemes, 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.  SEBI vide another public notice  published  in  newspapers  on  February  22,  2000  informed  to  the company that all the companies carrying out collective investment schemes who  had  not  made  any  application  for  grant  of  registration  or  were  not desirous  of  obtaining provisional  registration  were required  to compulsorily windup their existing schemes as per the provisions of regulation 73(1) of the said regulations.

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

show-cause notice it was pointed out, that ‘the Board’ had accused the appellant for

not  having made an application under  Regulation 5 of  the Collective Investment

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Regulations,  upto  31.3.2000.   It  was  pointed  out  that  Regulation  5,  pertains  to

“existing” collective investment schemes.  It was contended, that even though under

the Collective Investment Regulations originally drawn, such an application had to

be preferred by 15.12.1999 (i.e. within the period of two months from the date of

commencement  of  the  Collective  Investment  Regulations),  the  said  date  was

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  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 DW6/1), Major P.C. Thakur was shown

to have resigned from the directorship of M/s. Accord Plantation Ltd., with effect from

20.2.2000.   Premised  on  the  above  factual  position,  it  was  submitted,  that  the

appellant  cannot  be  implicated  for  not  having  complied  with  the  Collective

Investment Regulations, because he had already resigned (-on 20.2.2000), before

the cause of disobedience could have arisen (-on 31.3.2000, the extended last date

for submitting applications for registration, by “existing” 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.

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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 of  Form-32 (exhibited  as  DW6/1),  Major  P.C.  Thakur  was shown to  have

resigned  from  the  directorship  of  M/s.  Accord  Plantation  Ltd.  with  effect  from

20.2.2000, 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 20 th

September, 2002 – Exhibit DW6/4 and 5 are Sh. Ajay Vohra, Tejinder 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

filed by a company under Section 159 of the Companies Act, 1956.  Sub-Section (1)

of Section 159 is extracted below:-

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

(a) its registered office, (b) the register of its members, (c) the register of its debenture-holders, (d) its shares and debentures, (e) its indebtedness, (f) its members and debenture-holders, past and present, and (g) its directors, managing directors, managers and secretaries, past and present:

Provided that any of the five immediately preceding returns 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

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members  since  that  date  and  to  shares  transferred  since  that  date  or  to changes  as  compared  with  that  date  in  the  number  of  shares  held  by  a member.

Explanation.-  Any reference in this section or in section 160 or 161 or in any other section or in Schedule V to the day on which an annual general meeting is held or to the date of the annual general meeting shall, where the annual general meeting for any year has not been held, 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 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  and/or  any  change  among  the

directors, managing directors, managers or secretaries of a company.  Insofar as the

instant  aspect  of  the matter  is concerned,  section 303(2)  of  the Companies Act,

1956, which was also relied upon, is extracted hereunder:-

“303. Register of directors etc.- (1) *** *** ***

(2) The company shall,  within the periods respectively  mentioned in this 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.

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;”

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

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in  his  statement  duly  brought  out,  that  as  per  the  record  of  the  Registrar  of

Companies, Major P.C. Thakur had resigned from the directorship of the company

with effect from 20.2.2000, yet an equally significant fact is, that in the annual return

filed by M/s. Accord Plantation Ltd. on 30.9.2002, Major P.C. Thakur was shown as

one of the directors.  It was, therefore submitted on behalf of ‘the 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.

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, (2011) 3 SCC 351, and highlighted the

issue under consideration, by emphasizing on the following observations recorded

therein:-

“16. Every company is required to keep at its registered office a register of its  Directors,  Managing  Director,  manager  and  secretary  containing  the particulars with respect to each of them as set out in clauses (a) to (e) of sub-section (1) of Section 303 of the Companies Act, 1956. Sub-section (2) of Section 303 mandates every company to send to the Registrar a return in duplicate  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 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 accepted by the company and that has been duly notified  to  the  Registrar  of  Companies,  cannot  be  made  accountable  and fastened with liability for anything done by the company after the acceptance of his resignation. The words “every person who, at the time the offence was committed”,  occurring  in  Section  141(1)  of  the  NI  Act  are  not  without significance and these words indicate that criminal liability of a Director must be determined on the date the offence is alleged to have been committed.”

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Based on the above, it was submitted, that no one could be permitted to dispute the

fact  that  the  appellant  –  Major  P.C.  Thakur,  had  resigned  from  M/s.  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 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, cannot per se

lead to the inference, that Major P.C. Thakur, was still on the Board of directors of

M/s.  Accord  Plantation  Ltd..   We  say  so  because,  Section  159(1)(g)  of  the

Companies Act, 1956, requires that alongwith the annual return, the particulars of

the  directors,  managing  directors,  managers  and  secretaries,  “…  past  and

present…”,  have  to  be  indicated.   That  being  the  mandate  of  Section  159,  the

assertion made at the hands of learned counsel for ‘the Board’ could only be justified

if  the 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

of DW6/4 and DW6/5, (referred to in the statement of DW6 – Vikram).  DW6/5 was a

part of the annual return of the concerned company.  Details were provided therein

by the said company, in the format prescribed in Schedule V of the Companies Act,

1956.  At S.No. IV of the format, information was to be provided pertaining to the

past and present directors/manager/secretary.  In the information so provided by the

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concerned  company  at  S.No.  IV, the  names  of  Ajay  Vohra,  Tejinder  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

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

appellant – Major P.C. Thakur had resigned from the company on 20.2.2000.   

62. In addition to above, it is also relevant to mention, that a copy of Form-32,

relating to the resignation of Major P.C. Thakur from M/s. Accord Plantation Ltd. on

20.2.2000, was placed on the record of the case (as Annexure P-3).  The same was

produced by DW7 – Ajay Vohra, 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

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 of M/s. Accord Plantation Ltd. on 20.2.2000.

63. On the issue of liability of the appellant – Major P.C. Thakur, we also consider

it  appropriate  to  make  a  reference  to  Section  27  of  the  SEBI  Act.   The above

provision has already been extracted above, and the debate with reference thereto,

and its conclusion, have also been recorded by us.  The reference which we wish to

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make to Section 27 at the instant juncture, is for a different purpose.  Section 27

makes every  person,  who at  the time when the offence was committed,  was in

charge of, and responsible for, the conduct of the company’s business, guilty 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 for the

conduct  of  the  business  of  the  company  (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  company, after  the  date  on  which  the

concerned director  has resigned,  would not affect  him,  insofar  as,  his  culpability

under Section 27 of  the SEBI Act is concerned.   Thus viewed, there can be no

doubt,  that Major P.C. Thakur ceased to be in a position, as would make him in

charge  of  or  responsible  for  the  conduct  of  the  business  of  the  company, after

20.2.2000.

64. Based on the factual position noticed in the preceding paragraph, we are of

the view, that for exactly the same reasons as have been recorded by us in Criminal

Appeal  nos.  827-830  of  2012,  the  appellant  herein  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  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

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12.5.2000, and paragraph 13 of the complaint dated 21.1.2003).  We are satisfied

that the last date for moving an appropriate application under Regulation 5, having

been extended from 15.12.1999 to 31.3.2000, the aforesaid regulations could be

deemed to have been breached by M/s.  Accord Plantation Ltd.,  as also,  by the

appellant herein, in case such an application had not been 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,  with  M/s.  Accord

Plantation Ltd. with effect from 20.2.2000, and to accept his plea that proceedings

initiated against him, were not permissible 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 appellant.  It was also

pointed  out,  that  the  question  of  initiation  of  proceedings  against  M/s.  Accord

Plantation  Ltd.  or  the  appellant,  on  account  of  a  breach  of  Regulation  5  and

Regulations 68 to 72 under Chapter IX of the Collective Investment Regulations, did

not arise at all.  Insofar as the instant aspect of the matter is concerned, learned

counsel  invited  our  attention  to  a  communication  dated  7.2.2000,  which  was

addressed by M/s. Accord Plantation Ltd. to SEBI.  The aforesaid communication is

extracted hereunder:-

“ACCORD PLANTATION LTD. HO Blue Peak Office Complex (Near Gainda Mull Stairs) The Mall Shimla 171 001 Corp Office 19A Swastik Vihar Panchkula HR Phone No. 172-552962

Date Feb 07, 2000 Ref. No. HO/101/775/00

Shri Suresh Gupta Division Chief  SEBI

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Earnest House, 194, Nariman Point Mumbai 400 021

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 this scheme due to stringent guidelines of SEBI.

However, the company intends to pay all the deposits from sale of tree on due date for year wise detail of income and payment of maturities is enclosed.

We are ready to provide any other information required at your end.

Thanking you.

Yours faithfully, Sd/- Managing Director”

Based on the aforesaid letter dated 7.2.2000, it was contended, that M/s. Accord

Plantation Ltd. had decided to wind up its operations on account of 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  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

certificate of registration, did not arise.

66. In the aforesaid context, learned counsel for the appellant also placed reliance

on Regulations 73 and 74 to contend, that M/s. Accord Plantation Ltd. was required

to repay to the investors the deposits made by them “… within two months from the

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date of receipt of intimation from the respondent-Board, detailing the state of affairs

of the scheme, the amount repayable to each investor and the manner in which

such amount is determined…”.  Regulations 73 and 74 are reproduced hereunder:-

“Manner of repayment and winding up  

73. (1) An existing collective investment scheme which:  

(a) has failed to make an application for registration to the Board; or  

(b) has not been granted provisional registration by the Board; or  

(c) having obtained provisional  registration fails to comply with the provisions of regulation 71;  

shall wind up the existing scheme.  

(2) The existing Collective Investment Scheme to be wound up under sub-regulation  (1)  shall  send  an  information  memorandum  to  the investors who have subscribed to the schemes, within two months from the date of receipt of intimation from the Board, detailing the state of affairs of the scheme, the amount repayable to each investor and the manner in which such amount is determined.  

(3) The  information  memorandum referred  to  in  sub-regulation  (2) shall be dated and signed by all the directors of the scheme.  

(4) The Board may specify such other disclosures to be made in the information memorandum, as it deems fit.  

(5) The information memorandum 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.  

(7) The investors who give positive consent under sub-regulation (6), shall continue with the scheme at their risk and responsibility  

: Provided that if the positive consent to continue with the scheme, is received from only twenty-five per cent or less of the total number of existing investors, the scheme shall be wound up.  

(8) The payment to the investors, shall be made within three months of the date of the information memorandum.

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(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.

Existing scheme not desirous of obtaining registration to repay  

74. An  existing  collective  investment  scheme  which  is  not  desirous  of obtaining 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.”

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 M/s.

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).   

67. Since  the  respondent-Board  had  not  denied  the  fact,  that  M/s.  Accord

Plantation  Ltd.  did  address  the  letter  dated  7.2.2000  (extracted  above),  to  the

respondent-Board, making its intentions clear, that it was not desirous of continuing

its activities any further, because of the stringent conditions postulated under the

Collective  Investment  Regulations  notified  on  25.1.1995,  the  question  of  refund

would arise only after intimation was furnished by ‘the Board’ under Regulation 73(2)

to M/s. 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 behalf of ‘the Board’,

we are of the view, that it was not open to ‘the Board’ to initiate action against M/s.

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 against the appellant were wholly misconceived, as it has not

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been  established,  that  the  appellant  either  violated  Regulation  5  read  with

Regulations  68  to  72,  or  Regulations  73  and  74  of  the  Collective  Investment

Regulations.

69. The  instant  appeal  is  accordingly  allowed.   The  conviction  and  sentence

imposed on the appellant  – Major  P.C.  Thakur are set  aside,  and the complaint

stands dismissed.

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, was filed by the

respondent-Board on 21.1.2003 under Section 200 of the Cr.P.C. read with Sections

24(1) and 27 of the SEBI Act, against M/s. Accord Plantation Ltd., and five of its

directors.  Sunita Bhagat, wife of Vinodh Bhagat was arrayed as accused no. 4.  The

charges levelled against the appellant – Sunita Bhagat emerge from paragraphs 13,

15 and 18 of the complaint, which are extracted hereunder:-

“13. However, the accused no. 1 neither applied for registration under the said  regulations  nor  took  any  steps  for  winding  up  of  the  schemes  and repayment to the investors as provided under the regulations and as such had violated the provisions of  Section 11B,  12(1B)  of  Securities and Exchange Board of India Act, 1992 and Regulation 5(1) r/w Regulations 68(1), 68(2), 73 and 74 of the said regulations.

*** *** *** 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  the  accused  no.  1  to  the  persons  who

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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 11B, 12(1B) of Securities and Exchange Board of India Act, 1992 r/w Regulation 5(1) r/w Regulations 68(1), 68(2), 73 and 74 of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 which is punishable under Section 24(1) of Securities and Exchange Board of India Act, 1992.  The accused nos. 2 to 5 are the directors and/or  persons in charge of  and responsible  to the accused no.  1 for  the conduct of its business and are liable for the violations of the accused no. 1, in terms of Section 27 of Securities and Exchange Board of India Act, 1992.”

It is apparent from the complaint, that the appellant – Sunita Bhagat was 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  Magistrate,  Tis  Hazari  Court,  Delhi,  the  concerned  Magistrate

summoned the appellant vide an order dated 21.1.2003.  On her appearance, the

accused was given a notice of the accusations, alongwith the complaint preferred by

‘the Board’.  On 5.8.2005, the accused pleaded not guilty and claimed trial.  The trial

was  conducted  by  the  Additional  Sessions  Judge  (Central-01),  Delhi.   After

recording the evidence furnished by the complainant, as also the evidence produced

in  defence,  the  trial  Court  vide  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.

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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

of registration, as required under Section 12(1B) of the SEBI Act.  The trial Court

also concluded, that despite the notification of the Collective Investment Regulations

on 15.10.1999, the accused-company had failed to apply for the registration of its

collective investment scheme.  Further, M/s. Accord Plantation Ltd. was found to

have neither wound up its collective 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  Regulations  5(1)  read  with  Regulations

68(1), 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 26.3.2010, 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.10

lakhs each, and in default thereof, accused nos. 2 to 5 were required to undergo

simple imprisonment for a further period of three months each.   

73. Dissatisfied with the orders of conviction and sentence, dated 25.3.2010 and

26.3.2010 respectively, the present appellant – Sunita Bhagat filed Criminal Appeal

no. 442 of 2010 before the High Court.  The appeal preferred by the appellant –

Sunita Bhagat alongwith the appeal preferred by Major P.C. Thakur (Criminal Appeal

no. 464 of 2010) and the other appeals filed on behalf of the directors of M/s. Accord

Plantation  Ltd.,  were  dismissed  by  the  High  Court  on  29.1.2014.   The  instant

criminal appeal arises from the said common judgment and order of the High Court,

dated 29.1.2014.

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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 31.8.1999 with immediate effect.   It  is not a matter  of  dispute,  that

Form-32, depicting the resignation of the appellant, was submitted and received in

the office of the Registrar of Companies on 20.9.1999.  The above factual position

stands  affirmed  in  the  narration  recorded  by  the  High  Court  in  the  impugned

judgment and order dated 29.1.2014.  Paragraph 17 of the impugned judgment, is

extracted hereunder:-

“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 (1B) of Section 12 by the 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 mobilized  from  the  investors  and  also  enclosing  returns,  copies  of  offer documents and bio datas of  Promoters was sent by her.  She was also a Promoter of  the Company and one of  its first directors,  as stated by DW6 Vikram besides being a Director in another company, Blue Peeks Floriculture Limited.  A perusal of the balance sheet of the Company would show that she was  also  paid  remuneration  by  the  Company  during  the  financial  year 1997-1998.  All  these documents leave no reasonable doubt that 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  (1B)  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 aforesaid offence by the Company.”

75. On  the  issue  of  resignation  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:-

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“I  have  brought  the  summoned  records  relating  to  the  company  Accord Plantation Ltd.  The certified copy of Form 32 placed in the judicial record had been issued by our office.  The same is Ex. DW3/A.  The Form 32 reflects that as on 31.8.1999, the accused no. 4 Sunita Bhagat had resigned as Director of the Accord Plantation Ltd.  The 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 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 of Smt. Sunita Bhagat.  However, the modified list of directors would have been furnished by the company alongwith the annual returns filed by the company. As per the record, the directors of the company prior to the resignation of Smt. Sunita Bhagat were Sh. Ajay Vora, Sh. Tejender Singh, Sh. P.C. Thakur, Sh. Pradeep Dewan and Mrs. Sunita Bhagat as per annual return dated 28.9.99. The copy of the same is Ex. DW3/C (OSR).

XXXX by counsel for accused no. 2.

It is correct that fees have to be deposited by the person applying for change in Board of Directors on the basis of resignation and the receipt No. 21181 dated 20.9.99.  The copy of 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 unsustainable,  because the appellant  herein had

also resigned as director (-on 31.8.1999) just as Major P.C. Thakur had resigned

(-on 20.2.2000).

76. Without  going  into  the  details  of  the  matter,  we  have  no  hesitation  in

concluding, for exactly the same reasons as have been recorded by us in Criminal

Appeal no. 252 of 2015 (Major P.C. Thakur vs. Securities and Exchange Board of

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India),  that the proceedings initiated against the appellant – Sunita Bhagat, were

wholly misconceived, as there was no occasion whatsoever for the appellant to have

violated  Regulation  5,  read  with  Regulations  68  to  72,  or  in  the  alternative,

Regulations 73 and 74 of the Collective Investment Regulations.   

77. Learned counsel for the appellant herein, had emphatically raised the plea of

limitation,  also.   Since  the  contention  was  pressed,  and  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 order to support his claim under Section 468 of the Cr.P.C., learned counsel, in

the  first  instance,  placed  reliance  on  Section  32  of  the  SEBI  Act,  which  is

reproduced below:-

“32. Application of other laws not barred.-The provisions of this Act shall be in addition to, and not in derogation of, the provisions of any other law for the time being in force.”

Relying on Section 32 it was 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 appellant, is fully justified.   

78. With reference to the provisions of the Cr.P.C., and to substantiate the plea of

limitation, reliance was placed on Section 468, which is reproduced below:-

“468. Bar  to  taking  cognizance  after  lapse  of  the  period  of  limitation.-  (1) Except as otherwise provided elsewhere in this Code, no Court,  shall  take

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cognizance of an offence of the category specified in sub-section (2), after the expiry of the period of limitation.

(2) The period of limitation shall be –  

(a) six months, if the offence is punishable with fine only; (b) one year, if the offence is punishable with imprisonment for a term not exceeding one year; (c) three years, if the offence is punishable with imprisonment for a term exceeding one year but not exceeding three years.”

79. For invoking the plea of limitation, 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 the SEBI 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 was asserted,

that the appellant had ceased to be a director of M/s. Accord Plantation Ltd., with

effect from 20.9.1999, and as such, her liability for any alleged act of omission or

commission,  with  reference  to  M/s.  Accord  Plantation  Ltd.,  could  not  legally

extended  beyond  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

of  limitation  for  filing  a  complaint  by  ‘the  Board’  against  the  appellant  –  Sunita

Bhagat would expire one year after she severed her relationship with M/s. 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 besides the other legal pleas raised at the

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hands of the appellant, the complaint filed by ‘the Board’ against the appellant was

barred by limitation.

81. We  have,  during  the  course  of  recording  our  consideration  hereinabove,

upheld the contention advanced on behalf  of the appellant – Sunita Bhagat,  that

Section 468 of the Cr.P.C. could be relied upon, in criminal proceedings initiated

under the provisions of the SEBI Act.  Having so concluded we are of the view, that

since 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 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 M/s. Accord Plantation Ltd., namely, with effect from 20.9.1999.  Thus

viewed, the bar of taking cognizance against the appellant – Sunita Bhagat, would

operate with effect from 20.9.2000.  Admittedly, the complaint in the present case

was preferred by ‘the Board’ before the Additional Chief Metropolitan Magistrate, Tis

Hazari Courts, Delhi, on 21.1.2003.  The trial Court could not have taken cognizance

of the same, in view of the clear bar contemplated under Section 468 of the Cr.P.C.

82. For  the  reasons  recorded  hereinabove,  not  only  on  account  of  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

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appellant – Sunita Bhagat is set aside, and the complaint filed against the appellant,

stands dismissed.

Criminal Appeal 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 the respondent –

Raj Chawla, who had approached the High Court by filing Criminal Miscellaneous

Case 3937 of  2009,  under  Section  482 of  the Cr.P.C.,  seeking  quashing  of  the

complaint filed by ‘the Board’, dated 15.12.2003 in the Court of Chief Metropolitan

Magistrate,  Tis  Hazari  Court,  Delhi,  under  Section  200  of  the  Cr.P.C.  read  with

Sections 24(1) and 27 of the SEBI 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.

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 M/s. Fair Deal Forests Ltd..

M/s. Fair Deal Forests Ltd. was incorporated under the Companies Act, 1956, on

16.10.1996.  The respondent – Raj Chawla resigned from the directorship of the

said company on 30.3.1997.  On his resignation, he submitted Form-32 with the

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Registrar of Companies.  It was pointed out, that M/s. 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.  M/s. Fair Deal Forests Ltd. had also

submitted to ‘the Board’, an information memorandum, in response to the general

public  notice  issued  by  ‘the  Board’,  detailing  the  particulars  of  the  investors,

including  the  amount  payable  to  each  investor,  and  the  manner  in  which  such

amount was determined.

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. 10.  A relevant extract of the complaint is

reproduced below:-

“7. The accused no.  1  is  a company registered under  the provisions  of Companies Act and the accused nos. 2 to 11 are the Directors of the accused no.  1 company.  The accused nos.  2 to 11 are the persons incharge and responsible for the day to day affairs of the company and all of them were actively connived with each other for the commission of offences.

8. The  accused  no.  1  is  operating  collective  investment  schemes  and raised an aggregate amount of nearly Rs.5,20,000/- from the general public.

9. The  accused  no.  1  company  filed  information/details  with  SEBI regarding its collective investment schemes pursuant to SEBI press release dated November 26, 1997, and/or public notice dated December 18, 1997.

*** *** ***

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 application by existing entities upto March 31, 2000 and the same was declared by SEBI vide a press release and a public notice.

13. However, the accused no. 1 failed to make any application with SEBI for registration of the collective investment schemes being operated by it as per the said regulations.

14. It is submitted that in terms of Regulations 73(1) of the said regulations, an existing collective investment scheme which failed to make an application for  registration  with  SEBI,  shall  wind  up  the  existing  collective  investment

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scheme and repay the amounts collected from the investors.  Further, in terms of  Regulation  74  of  the  said  regulations,  an  existing  collective  investment scheme which is not desirous of obtaining provisional registration from SEBI shall  formulate  a  scheme of  repayment  and make such repayment  to  the existing investors in the manner specified in Regulation 73.

15. However, the accused no. 1 neither applied for registration under the said  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 of India Act, 1992, and Regulation 5(1) read with Regulations 68(2), 73 and 74 of the said regulations.

*** *** ***

18. The accused no. 1 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. 1, caused pecuniary damage to them.

19. In view of the above, it is charged that the accused no. 1 has committed the violation of Sections 11B, 12(1B) of the Securities and Exchange Board of India Act, 1992 and regulation 5(1) read with regulations 68(1), 68(2), 73 and 74  of  the  Securities  and  Exchange  Board  of  India  (Collective  investment schemes) Regulations, 1999, which is punishable under Section 24(1) of the Securities and Exchange Board of India Act, 1992.”

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  M/s.  Fair  Deal

Forests Ltd., on 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  of  one  year,  calculated  from  the  date  of  the  respondent’s

resignation.  For the reasons recorded in the two similar cases referred to above,

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the  instant  appeal  deserves  to  be  rejected.   Accordingly  this  appeal  stands

dismissed.

……………………………………J.            (Jagdish Singh Khehar)

…………………………………J. (C. Nagappan)

New Delhi; July 15, 2016.

Note: The emphases supplied in all the quotations in the instant judgment, are ours.