Court’s Decision
The Delhi High Court dismissed a petition under Section 482 CrPC seeking quashing of a SEBI complaint and the order framing charges against the petitioner for allegedly launching an unregistered Collective Investment Scheme (CIS). The Court held that:
“Exercising the inherent jurisdiction at this juncture to quash the proceedings, before the respondent has had an opportunity to lead its evidence, will be an abuse of the process of law.”
The Court found no merit in the petitioner’s claim that the complaint lacked specific averments regarding his role and refused to interfere with the trial court’s order framing charges under Section 24(1) read with Section 27 of the SEBI Act, 1992.
Facts
The respondent, SEBI, filed a complaint against a company and its directors, including the petitioner, for allegedly floating a CIS without registration.
An email complaint was received on 26.11.2013 alleging that the company was running an unregistered CIS.
SEBI passed an ex parte interim order on 30.12.2014, directing the company not to mobilize further funds, not to divert assets, and to submit a full inventory of assets.
Despite replies, SEBI found, by final order dated 30.11.2015, that the schemes met the criteria under Section 11AA(2) of the SEBI Act and constituted a CIS.
The petitioner was a director from incorporation till 28.03.2014 and allegedly participated in board meetings and signed documents on behalf of the company.
The trial court framed charges on 22.12.2021 under Section 24(1) and Section 27 of the SEBI Act against the petitioner.
Issues
Whether the complaint and the order framing charges are liable to be quashed under Section 482 CrPC.
Whether sufficient material exists to demonstrate that the petitioner was responsible for the day-to-day affairs of the company.
Petitioner’s Arguments
The complaint contains vague and bald allegations without specifying the petitioner’s role in the alleged offence.
No document contains the petitioner’s signature nor demonstrates his involvement in the CIS.
Mere designation as a director is insufficient for liability; there must be material showing he was in charge of the company’s business.
Relied on jurisprudence interpreting similar language in Section 141 of the Negotiable Instruments Act, 1881.
Respondent’s Arguments
The petitioner was one of the first directors and promoters of the company.
He attended board meetings and signed various documents on the company’s behalf.
The mobilisation of funds occurred during the petitioner’s tenure.
The final SEBI order dated 30.11.2015, holding that the company ran a CIS, has attained finality.
Analysis of the Law
The Court reiterated that inherent powers under Section 482 CrPC must be exercised sparingly and only in rare cases.
Summarized principles from Indian Oil Corporation v. NEPC India Ltd. and Rathish Babu Unnikrishnan to underscore that proceedings should not be quashed when material facts are disputed.
The Court highlighted that mere absence of elaborate particulars in the complaint does not warrant quashing if basic averments are present.
Referring to S.P. Mani & Mohan Dairy v. Snehalatha Elangovan, the Court noted that to avoid trial, a director must furnish “sterling incontrovertible material.”
Precedent Analysis
Cited Gunmala Sales (P) Ltd. v. Anu Mehta, where the Supreme Court held that if a complaint contains basic averments about a director’s role, it is not liable to be quashed without unimpeachable contrary material.
Referred to H.R. Kapoor v. SEBI, where a similar challenge to a SEBI complaint was rejected, upholding the sufficiency of broad averments regarding directors’ responsibility.
Also relied on Sajjan Kumar v. CBI and State of Gujarat v. Dilipsinh Kishorsinh Rao to reinforce that charge framing requires only a prima facie case or grave suspicion, not full proof.
Court’s Reasoning
The petitioner’s arguments raised disputed questions of fact (such as his level of involvement) inappropriate for resolution under Section 482 CrPC.
The complaint clearly alleged that the petitioner was responsible for the day-to-day affairs of the company at the relevant time.
The petitioner failed to produce unimpeachable evidence to show he was not involved.
The Trial Court order, based on sufficient material, established grave suspicion against the petitioner.
Conclusion
The Delhi High Court found that the complaint was not bereft of basic averments and that:
“At this stage, prima facie, it is improbable that the petitioner was unaware of the very nature of operations of the accused company if he was actively partaking in Board Meetings and grave suspicion exists against him.”
Accordingly, the petition was dismissed.
Implications
Reinforces that directors of companies accused of running CIS without SEBI registration can be prosecuted if the complaint contains basic allegations about their control and responsibility.
Clarifies that petitions under Section 482 CrPC cannot be used to prematurely quash proceedings without clear, unimpeachable evidence.
Sets a precedent that such criminal complaints will be permitted to proceed to trial even in the absence of specific roles being outlined, so long as directors’ overall responsibility is alleged.
