Case: Securities &amp; Exchange Board of India &amp; Others Vs. Gaurav Varshney &amp; Others

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, 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 v. 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).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 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.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 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 `theAppeal nos. 833-836 ofIt 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.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 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 theAppeal no. 252 ofThe 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 appellants 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.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 extractedOffences 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 punishedthat 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 suchNotwithstanding 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 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 punishedFor the purposes of this section,"company" means any body corporate and includes a firm or other association of individuals;"director", in relation to a firm, means a partner in theon 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. v. Neeta Bhalla, (2005) 8 SCC 89 , wherefrom our attention was invited to the followingIn 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 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 the0. 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 theat 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,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 to2. 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 person5. 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.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 itsthe same purpose, reliance was placed on National Small Industries Corporation Ltd. v. Harmeet Singh Paintal, (2010) 3 SCC 330 , and this Courts attention was drawn to the following observations recordedIt is very clear from the above provision that what is required is that the persons who are sought to be made vicariously liable for a criminal offence under Section 141 should be, at the time the offence was committed, was in charge of, and was responsible to the company for the conduct of the business of the company. Every person connected with the company shall not fall within the ambit of the provision. Only those persons who were in 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.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 vicarious2. 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 theof all, learned counsel invited our attention to Gunmala Sales Private Limited v. Anu Mehta, (2015) 1 SCC 103 , wherefrom reliance was placed on the followingIn 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. 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, paraThe 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 theSection 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 theVicarious 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 proceededVicarious liability on the part of a person must be pleaded and proved and notIf 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 proceededIf 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 inThe 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 such8. 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 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 Magistrates discretion to reject the complaint at the threshold if he finds that there is no sufficient ground forNo restriction can be placed on the High Courts 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 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 particularwas 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.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... 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 itsview 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. Thakurs 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 SEBIAppeal no. 251 ofThe 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.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 extractedHowever, 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 said5. 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 invested therein within a period of one month from the date of the said8. 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,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.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.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, datedAppeal no. 832 ofThe 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.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

Reasoning:
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 as, the non-proviso category).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 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.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.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 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.We express our complete agreement, with the stance adopted at the hands of learned counsel for the private respondents. The respondents were only accused of having not complied with, the provisions of the Collective Investment Regulations, pertaining to "existing" collective investment operators (those who had commenced the activity before 25.1.1995). Thus viewed, the fact that the 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.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 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.Having given our thoughtful consideration to the factual assertions contained in the complaint, it is not possible for us to agree with the learned senior counsel representing `the Board, for the simple reason, that a perusal of the above factual assertions, reveal two accusations against the accused. Firstly, that the accused did not apply for registration under 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).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). 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).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 criminalperusal 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 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.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, 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.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 Bhoorajis 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.Having so interpreted Section 465 of the Cr.P.C., we may also indicate, that material facts constituting the offence, for which an accused is being charged, must mandatorily be put to the accused. Lack of material facts, which are vital to establish the ingredients of an offence, cannot be viewed as a procedural omission. The above requirement is not procedural, but substantive. Accordingly, it is not possible for us to accept that the lapse which the 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.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 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.Appeal nos. 833-836 ofThe 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, asAppeal no. 252 ofIn 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.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 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 companys 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.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 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.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 been established, that the appellant either violated Regulation 5 read with Regulations 68 to 72, or Regulations 73 and 74 of the Collective InvestmentAppeal no. 251 ofReferring 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 hands of the appellant, the complaint filed by `the Board against the appellant was barred by limitation.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 theAppeal no. 832 ofWe 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 v. 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 CriminalAppeal no. 251 of2015 (Sunita Bhagat v. 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 respondents