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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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constituted.

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, it is hereby brought to the

notice of the public that as a result of the provisions of section 12(1B) of the

SEBI Act, no person can sponsor or cause to be sponsored any new

collective investment scheme and raise further funds.

Further, the provisions of section 12(1B) provides that till regulations are

notified all collective investment schemes which are in existence can continue

with their operations till the regulations are notified. It is hereby brought to the

notice of the public that existing collective investment schemes which are

desirous of taking benefit of the proviso to section 12(1B) of the SEBI Act and

continue their operations are directed to send to SEBI, by 15

th

January 1998

information 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

and Names, details and background of promoters/sponsors.

Note: The above information regarding existing collective investment schemes

in northern, southern and eastern region maybe filed with the respective

regional office of SEBI.

In further exercise of the powers under section 11 read with section 11(B) all

collective investment schemes which want to take benefit of the proviso of

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.”

3.In order to appreciate the stance adopted on behalf of respondent nos. 1 and

2, it is essential to point out, that in consonance with Section 12(1B) of the SEBI Act,

and in furtherance of the power vested with ‘the Board’, under Section 30 of the

SEBI Act, ‘the Board’ framed regulations - the Securities and Exchange Board of

India (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as,

the Collective Investment Regulations). The Collective Investment Regulations,

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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

Page 16 16

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

Page 17 17

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

Page 18 18

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

Page 19 19

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

Page 20 20

(-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

Page 21 21

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

Page 22 22

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.

Page 23 23

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

Page 24 24

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

Page 25 25

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

Page 26 26

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.

Page 27 27

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

Page 28 28

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

Page 29 29

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,

Page 30 30

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

Page 31 31

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

Page 32 32

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

Page 33 33

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

Page 34 34

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,

Page 35 35

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

Page 36 36

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).

Page 37 37

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

Page 38 38

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

Page 39 39

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,

Page 40 40

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

Page 41 41

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”.

Page 42 42

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

Page 43 43

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.”

*** *** ***

Page 44 44

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.

Page 45 45

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

Page 46 46

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.

Page 47 47

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

Page 48 48

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

Page 49 49

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

Page 50 50

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

Page 51 51

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.

Page 52 52

*** *** ***

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

Page 53 53

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.

Page 54 54

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

Page 55 55

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

Page 56 56

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.”

Page 57 57

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

Page 58 58

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.

Page 59 59

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

Page 60 60

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.

Page 61 61

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

Page 62 62

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

Page 63 63

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.”

Page 64 64

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

Page 65 65

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

Page 66 66

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

Page 67 67

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

Page 68 68

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

Page 69 69

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.

Page 70 70

(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

Page 71 71

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

Page 72 72

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.

Page 73 73

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.

Page 74 74

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:-

Page 75 75

“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.