Securities and Exchange Board of India v. Gaurav Varshney

Criminal Appeal nos. 827-830 of 2012
Estimated Reading Time: 14 minutes

Facts

On 25 January 1995, section 12(1B) was incorporated into the Securities and Exchange Board of India Act, 1992 (the “SEBI Act”). It is given that no individual might carry out a CIS unless he or she gets a certificate of enrollment from the Securities and Trade Board of India (“SEBI”) “in understanding with the regulations”. In any case, the “regulations” alluded to within the said arrangement were ordered by SEBI as it were with impact from 15 October 1999 within the shape of the SEBI (Collective Investment Plans) Regulations, 1999 (the “CIS Regulations”). Within the intervals, on 3 July 1995, the respondents within the central offer, Gaurav Varshney and Vinod Kumar Varshney, started carrying out CIS operations through a company they consolidated. The lawful address in this manner was whether by carrying out CIS action amid the period when section 12(1B) (that forces a bar on such movement without enrollment) was in drive but not the CIS Directions (that endorse the mode of getting SEBI endorsement), the Varshneys were in breach of the legitimate administration so as to be subject to criminal activity. The High Court underneath suppressed SEBI’s activity beneath section 482 of the Criminal Procedure Code. It is against this choice that SEBI requested some time recently from the Supreme Court.

Contention on behalf of the Petitioner

The essential dispute that progressed for the sake of ‘the Board’ was that the High Court misconstrued and misjudged the bar made by Section 12 (1B) of the SEBI Act. It was submitted for the sake of the appealing party, that the bar mulled over beneath Section 12(1B), came into impact on the exceptional date Section 12(1B) was embedded into the SEBI Act (i.e. from 25.1.1995). It was declared, that the said bar limited everybody, from supporting or carrying on any collective venture movement, without getting a certificate of enlistment from ‘the Board’, beneath the Collective Investment Regulations. And as such, any act of supporting or graduation of a collective speculation wonder, without getting a certificate of enlistment, on or after 25.1.1995, was completely illegal.

It was submitted for the sake of the appealing party, that the proviso beneath Section 12(1B), made the position completely clear and unambiguous. It was pointed out, that the proviso authorized all people who had supported or were carrying on a collective speculation plot “instantly sometime recently the graduation of the Securities Law (Amendment) Act, 1995, for which no certificate of enrollment was required earlier to such commencement”, to proceed to function, till directions were surrounded beneath clause (d) of Sub- Section (2) of Section 30. Hence, depending on the proviso beneath Section 12(1B), it was submitted, that activities of supporting or carrying on a venture of collective speculation, were allowed to as it were such people, who had commenced such exercises earlier to the graduation of the Securities Law (Amendment) Act, 1995 (i.e., earlier to 25.1.1995).

In arrange to substantiate the afore-noted dispute, conjointly, in arrange to illustrate, that the activity of ‘the Board’ in not surrounding the Collective Speculation Directions, would have no bearing, to the bar made beneath Area 12(1B), learned guide set dependence on Orissa State (Prevention & Control of Pollution) Board vs. Orient Paper Mills, (2003) 10 SCC 421, and welcomed our consideration to the taking after perceptions recorded therein:- organize to examine the important arrangements of the law. Section 21 of the Act gives that subject to the arrangements of the said segment no individual might build up or work any mechanical plant in a discussed contamination control range without past assent of the State Government. In an industry which has been working for some time recently the statement of the range as discussed contamination control region might apply to the Board for assent inside the period endorsed for the reason. Section 22 gives as under:

People carrying on industry etc. not permit emanation of discussing poisons in the abundance of the guidelines laid down by State Board.-No individual working any mechanical plant in any discuss contamination control zone might release or cause or allow to be released the emanation of any discuss poison in the abundance of the guidelines laid down by the State Board beneath clause (g) of sub-section (1) of Section 17.” Section 19 enables the State Government to pronounce a zone as discuss contamination control region. The pertinent portion of Section 19 peruses as follows: 

Power to announce discuss contamination control areas- 

(1) The State Government may, after an interview with the State Board, by notice within the Official Gazette, announce in such a way as may be endorsed, any region or regions inside the State as discuss contamination control region or zones for the purposes of this Act.

(2) The State Government may, after meeting with the State Board, by notice within the Official Gazette- 

(a) Modify any discuss contamination control range whether by way of expansion or reduction; 

(b) Pronounce a modern discuss contamination control region in which may be combined one or more existing discuss contamination control regions or any portion or parts thereof. 

The address for thought is, as to whether, as long the way isn’t endorsed beneath the rules for the announcement of a region as a contamination control zone, a substantial notice beneath Section 19(1) of the Act can be distributed within the Official Gazette or not.

So distant as the statutory arrangement is concerned, the Act beneath Section 19 vests the State Government with control to inform any region, in an Official Journal, as discuss contamination control zone, but to say that work out of such control is exclusively subordinate upon surrounding of the rules endorsing the way in which a zone may be announced as discuss contamination control zone, does not appear to be adjusted. Section 19 of the Act would be examined as takes after by excluding the words “in such way as may be prescribed” which portion we put into the bracket as follows: 

Power to pronounce discuss contamination control areas- 

(1) The State Government may, after meeting with the State Board, by notice within the Official Gazette, announce (in such a way as may be endorsed), any range or regions inside the State as discuss contamination control range or regions for the purposes of this Act.

Section 19 says “such way as may be prescribed” and not “in the way prescribed” or “within the endorsed manner”. The expression utilized clears out some lever or play within the working of the arrangement. We would like to lay emphasis on the utility of the word “as” which is noteworthy. The way is dependent upon “as” maybe endorsed, on the off chance that it isn’t endorsed, there’s no way accessible such as to be taken after. The meaning of the word “as” has been shown in Brief Oxford English Word reference, 10th Edn. 2002 among others to cruel as takes after:

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Contention on behalf of the Respondent

In arrange to appreciate the position received for the sake of respondent nos. 1 and 2, it is fundamental to point out, that in consonance with Section 12(1B) of the SEBI Act, and in the encouragement of the control vested with ‘the Board’, beneath Section 30 of the SEBI Act, ‘the Board’ surrounded directions – the Securities and Trade Board of India (Collective Investment Schemes) Directions, 1999 (hereinafter alluded to as, the Collective Investment Regulations). The Collective Investment Regulations were to come into constraint, on the date of their distribution within the official newspaper. It isn’t a matter of debate that the same was brought into constraint, on 15.10.1999.

Respondent nos. 1 and 2 – Gaurav Varshney and Vinod Kumar Varshney, were distressed by the criminal procedures started against them, on the premise of a complaint recorded by ‘the Board’, beneath Section 200 of the Code of Criminal Procedure, 1973 (hereinafter alluded to as, the CrPC.), studied with Sections 24(1) and 27 of the SEBI Act, affirming, that they had breached the bar made by Section 12(1B), which had illegal the supporting or carrying on of a collective investment initiative, without getting a certificate of enrollment from ‘the Board’. 

Respondent nos. 1 and 2 drawn closer to the High Court of Delhi (hereinafter alluded to, as the High Court), by recording Criminal Different Case nos. 7468-7471 of 2006 and Criminal Random no. 951 of 2007, for suppressing Complaint Case no. 1241 of 2003, pending within the Court of the Chief Metropolitan Judge, Tis Hazari Courts, Delhi, titled as “SEBI vs. Gaurav Agrigenetics Ltd. and others”, as well as, the arrange dated 15.12.2003, by which the Chief Metropolitan Magistrate had summoned them.

The basic dispute progressed at the hands of respondent nos. 1 and 2 were, that the bar against supporting or carrying on a collective venture plot, without getting a certificate of enrollment from ‘the Board’ beneath the Collective Investment Regulations, seem to emerge as it were after the Collective Investment Regulations were brought into presence. For this sake, it was pointed out that the Collective Investment Regulations were as a matter of fact brought into constraint from 15.10.1999. To exonerate their association within the proceedings initiated against them, the most statement progressed for sake of respondent nos. 1 and 2 was, that respondent no. 1 – Gaurav Varshney had submitted Form-32 with the Enlistment center of Companies, communicating the factum of his acquiescence from the directorship of M/s. Gaurav Agrigenetics Ltd., on 10.5.1996.

Since the aforementioned Form-32 had been submitted with the Recorder of Companies on 30.7.1998, it was fought for the sake of respondent no. 1, that he had no complaint on the off chance that it was accepted (for assurance of the show contention), that respondent no. 1 had surrendered from the directorship of the concerned company on 30.7.1998. Moreover, it was pointed out that respondent no. 2 – Vinod Kumar Varshney, had submitted Form-32 with the Recorder of Companies, communicating the factum of his renunciation from the directorship of the company, on 15.9.1998. It was, in any case, recognized, that Form-32 with regard to his acquiescence, was submitted with the Enlistment center of Companies, on 23.12.1998. It was fought for the sake of respondent no. 2, that he had no complaint to this Court accepting, that respondent no. 2 had disjoined his relationship with M/s. Gaurav Agrigenetics Ltd. on 23.12.1998, i.e. the date when Form-32 was submitted with the Enlistment center of Companies.

Within the foundation of the truth circumstance taken note hereinabove, it was encouraged, that in case the date of renunciation of respondent no. 1 – Gaurav Varshney from the directorship of M/s. Gaurav Agrigenetics Ltd. is taken as 30.7.1998, which of respondent no. 2 – Vinod Kumar Varshney, is taken as 23.12.1998, both of them had in fact surrendered from the directorship of M/s. Gaurav Agrigenetics Ltd., earlier to come into the presence of the Collective Venture Controls (with impact from 15.10.1999). The High Court, by its reviled, arrange dated 13.5.2010, had concurred with the recommendation canvassed on the sake of respondent nos. 1 and 2, and had subdued Complaint Case no. 1241 of 2003 (pending within the Court of Chief Metropolitan Officer, Tis Hazari Courts, Delhi), as well as, the arrange dated 15.12.2003 issued by the said Chief Metropolitan Judge, summoning respondent nos. 1 and 2 within the over famous complaint case.

Judgement

In replying to the lawful address, the Incomparable Court deciphered section 12(1B) of the SEBI Act, which peruses as takes after: No individual should support or cause to be supported or carry on or cause to be carried on any wander capital stores or collective conspire counting shared stores unless he gets a certificate of enrollment from the Board in understanding with the directions: Given that any individual supporting or cause to be supported, carrying or causing to be carried on any wander capital reserves or collective speculation plot working within the securities showcase instantly some time recently the graduation of the Securities Laws (Amendment) Act, 1995 for which no certificate of enlistment was required earlier to such commencement, may proceed to function till such time directions are made beneath clause (d) of sub-section (2) of section 30. After analysing the arrangement, the Supreme Court concluded that it has two parts. The primary, meant by the most arrangement, relates to people who had not commenced CIS action earlier to 25 January 1995, when the arrangement was brought in to drive, i.e. those who started the commerce once again after that date. The moment, implied by the proviso, relates to those who were carrying on CIS action indeed earlier to that date, i.e. Existing movement. After doing so, the Court concluded that the case relating to the Varshneys would drop inside the primary portion of section 12(1B), i.e. Unused movement. The address hence was whether the bar against graduation of CIS action after 25 January 1995 (when section 12(1B) came into the drive) would work from that date or as it were when the directions endorsed by SEBI thereunder came into drive. Here, the court was earnest in its conclusion that the bar against commencing CIS movement without enlistment would work with impact from the date that the statutory arrangement (i.e. Section 12(1B)) came into drive and not as it were when the directions were informed. The Court watched: Our inescapable conclusion is, that supporting or carrying on any collective speculation movement, for the primary time, on or after 25.1.1995, was a total bar, within the nonappearance of a certificate of enlistment from ‘the Board’. It is like manner takes after, that in the event that a person/entity had commenced to support or carry on a collective venture plot after 25.1.1995, without getting a certificate of enlistment from ‘the Board’, it would commensurate to breaching the express order contained in Section 12(1B) of the SEBI Act. 22. In our considered see, there can be no question, that the date when the Collective Investment Regulations came into constrain (-15.10.1999), has no significance, insofar as the breach of Section 12(1B) of the SEBI Act, with reference to such modern business people, is concerned. The bar to support our cause to be supported, or carry on or cause to be carried on any collective venture action by a modern business person (who had not commenced the concerning exercises, sometime recently 25.1.1995) beneath Section 12(1B) of the SEBI Act, was not subordinate on the surrounding of the directions. The over bar was supreme and unrestricted, till the modern business person (depicted over) got a certificate of enlistment, in understanding the directions. 

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In spite of the fact that on this legitimate address the Supreme Court held in support of SEBI, it maintained the choice of the Tall Court underneath in suppressing the criminal procedures against the Varshney. This was on account of procedural issues. The Court put impressive accentuation on the reality that SEBI’s complaint was made beneath the proviso category, i.e. Where an individual was carrying on existing CIS action when section 12(1B) was brought into drive. On the other hand, the complaint needs to have been made beneath the non-proviso category, i.e. In regard to unused businesses that were commenced after the segment was brought in to drive on 25 January 1995. This refinement was found to be or may be significant, and the truth SEBI continued beneath the off-base category was found to be deadly to its indictment. Thus, whereas the substantive lawful address was chosen in support of SEBI, the procedural address was replied to for the advantage of the Varshneys, due to which SEBI’s complaint against them was suppressed. Separated from the case relating to Varshneys, the Supreme Court too managed to arrange certain related requests on comparable and other related questions.

Implications

From a broader point of view, the Supreme Court’s choice has suggestions on limitations of commercial movement forced by enactment, particularly when such movement is subject to authorizing or enlistment necessities. Since such confinements are subject to point-by-point rules or directions to be proclaimed by the administrative specialists, the choice has suggestions on how people may carry out such exercises between the time that the enactment has forced confinement and sometime recently the administrative specialists proclaim the rules or controls. The Court’s resonating reply is that the action cannot be carried out within the between times, and this works as an add-up to forbiddance. That forbiddance will be lifted as it were when the rules or controls are hence proclaimed. The issue gets to be even more intense when there’s an impressive delay between the burden of the authoritative confinement and the consequent proclamation of the rules or directions, as was the case with section 12(1B) and the CIS Controls, which confronted a delay of over three a long time. This puts influenced parties at an impediment, as no CIS movement may have been carried on within the between times period. 

The lesson from this choice for the administrative specialists would be that they need to find instruments for authorizing or enlistment as soon as any such limitations are forced by enactment, without any delays within the intervals. On the other hand, the procedural perspective of the choice has the effect of forcing a burdensome burden on the controllers in that they are required to be more particular with respect to the offense that has been committed by a party. In circumstances such as within the display case, where section 12(1B) contains two parts, i.e. For existing businesses and unused businesses, the controller will have to indicate whether the infringement in a given case is beneath either of the two parts. On the off chance that the controller falls flat to do so, at that point arraignment for an offense beneath the SEBI Act may conclude up being pointless because it turned out within the display case.

Conclusion

Once in a complaint recorded beneath Section 138 studied with Section 141 of the NI Act the essential averment is made that the Executive was in charge of and mindful for the conduct of the commerce of the company at the important time when the offense was committed, the Judge can issue a handle against such Director. If an appeal is recorded beneath Section 482 of the Code for suppression of such a complaint by the Director, the High Court may, within the actualities of a specific case, on an by and large perusing of the complaint, refuse to subdue the complaint since the complaint contains the essential averment which is adequate to form out a case against the Director.

Within the realities of a given case, on a generally perusing of the complaint, the High Court may, despite the nearness of the essential averment, suppress the complaint since of the nonappearance of more particulars almost the part of the Executive within the complaint. It may do so having come over a few irreproachable, undeniable proof which is past doubt or question or completely worthy circumstances which may clearly show that the Chief seems not to have been concerned with the issuance of cheques and inquiring him to stand the trial would be mishandled of prepare of court.

In spite of the nearness of essential averment, it may come to a conclusion that no case is made out against the Executive. Take for the occasion a case of an Executive enduring from a terminal ailment who was out of commission at the pertinent time or a Chief who had surrendered long some time recently issuance of cheques. In such cases, on the off chance that the High Court is persuaded that indicting such an Executive is just an arm-twisting strategy, the High Court may subdue the procedures. It bears reiteration to state that to set up such a case irreproachable, indisputable proof which is past doubt or question or some totally satisfactory circumstances will have to be brought to the notice of the High Court. Such cases may be few and far between but the plausibility of such a case being there cannot be ruled out. Within the nonappearance of such proof or circumstances, complaints cannot be quashed.

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