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2016 (7) TMI 642 - SC - Companies LawInterpretation of statutes - Breach of provisions - Violation of Section 12(1B) of the SEBI Act by incorporating and operating collective investment schemes without registration - capacity of its first directors and promoters - High Court misunderstood and misconstrued the bar created by Section 12(1B) of the SEBI Act - Non-proviso category. HELD THAT - 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 . 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 . 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. 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. In the result the appeals stand dismissed.
Issues Involved:
1. Violation of Section 12(1B) of the SEBI Act by incorporating and operating collective investment schemes without registration. 2. Interpretation and implications of Section 12(1B) and the Collective Investment Regulations. 3. The effect of resignation of directors on liability under the SEBI Act. 4. Jurisdiction and procedural aspects under the Cr.P.C. in SEBI Act violations. 5. Limitation period for filing complaints under the SEBI Act. Detailed Analysis: 1. Violation of Section 12(1B) of the SEBI Act: The core issue was whether the respondents violated Section 12(1B) by incorporating and operating collective investment schemes without obtaining a certificate of registration from SEBI. The court held that Section 12(1B) barred new entrepreneurs from sponsoring or carrying on collective investment activities without registration from SEBI, effective from 25.1.1995. This bar was absolute and extended until the entrepreneur obtained the necessary certificate of registration. 2. Interpretation and Implications of Section 12(1B) and the Collective Investment Regulations: The court interpreted Section 12(1B) to create two categories: those who commenced activities before 25.1.1995 (proviso category) and those who did not (non-proviso category). The proviso category could continue their activities until the regulations were framed, after which they needed to obtain registration. The non-proviso category was barred from commencing activities until they obtained registration under the regulations. The court concluded that the bar was absolute and mandatory for new operators. 3. The Effect of Resignation of Directors on Liability Under the SEBI Act: The court examined the resignation dates of the directors to determine their liability. For instance, Gaurav Varshney and Vinod Kumar Varshney had resigned before the Collective Investment Regulations were enforced on 15.10.1999. The court held that since they had resigned before the regulations came into force, they could not be held liable for violations of the regulations. Similarly, Major P.C. Thakur and Sunita Bhagat were found to have resigned before the critical dates, absolving them of liability under the SEBI Act. 4. Jurisdiction and Procedural Aspects Under the Cr.P.C. in SEBI Act Violations: The court discussed the procedural requirements under the Cr.P.C., emphasizing that the particulars of the offense must be clearly stated to the accused. The court found that the complaints filed did not adequately inform the accused of the specific charges under Section 12(1B) for new operators, thus failing to meet the procedural requirements. The court also referenced Section 465 of the Cr.P.C., which pertains to procedural irregularities but concluded that the omissions in the complaints were substantive, not procedural. 5. Limitation Period for Filing Complaints Under the SEBI Act: The court addressed the limitation period for filing complaints under the SEBI Act, referencing Section 468 of the Cr.P.C. The court held that the period of limitation for taking cognizance of offenses under Section 24 of the SEBI Act (before its amendment in 2002) was one year. Since the complaints were filed well after this period, they were barred by limitation. For instance, Sunita Bhagat's resignation was effective from 20.9.1999, and the complaint was filed on 21.1.2003, making it time-barred. Conclusion: The court dismissed the appeals against the directors who had resigned before the regulations came into force and those whose complaints were barred by limitation. It upheld the interpretation that new operators could not commence collective investment activities without registration from SEBI post-25.1.1995 and emphasized the need for clear procedural adherence in filing complaints.
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