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2021 (4) TMI 1138 - HC - SEBIOffence under SEBI - complainant foisting vicarious liability upon the accused No.1 - criminal breach of trust of the complainant and sold its shares to their own Company - HELD THAT - After applying a ratio laid down by the Hon ble Supreme Court in the case of Iridium India Telecom Ltd. 2010 (10) TMI 85 - SUPREME COURT it is clear that, the accused No.1-Morgan is a necessary party for proper adjudication of the complaint. It is to be noted here that, the Letter of Pledge (Agreement) dated 7th March, 2000 is executed by the Authorized Signatory of the complaint on behalf of it, in favour of the accused No.1 company and therefore also impleadment of Morgan (A-No.1) is necessary for proper adjudication of the present complaint. The contention that, the accused No.1 is being foisted with vicarious liability, is the defence and a specious plea raised by the said accused. The accused No.1 will have to prove the said defence at the time of trial by leading cogent and plausible evidence in that behalf. The aforestated deliberation leads to draw an irresistible conclusion that, the accused No.1 company is a necessary and relevant party to the said complaint and it cannot be dropped from the present proceedings at its inception. The accused with dishonest intention have committed criminal breach of trust, deceived the complainant and have committed the act of cheating against it. In view thereof, the complainant succeeds. In view of the statement made by the complainant in the present proceedings that, the complainant hereinafter will not pursue application of Section 15-HA of the SEBI Act in the said complaint, Section 15-HA of SEBI Act is dropped from the Order dated 22nd March, 2017 passed below Exh-1 in CC No.56/SW/2011. The Order dated 22nd March, 2017 passed by the learned Magistrate is modified to that extent only. In view of the above, Writ Petition filed by the complainant are allowed. The present complaint filed in the month of February, 2011 by the complainant, is pending on the file of learned Metropolitan Magistrate, Railway Mobile Court, Andheri, Mumbai for last more than 10 years. In view thereof, learned Magistrate seized of the said complaint is directed to expedite hearing of the said complaint and to make an endeavour to dispose off the same within a period of one year from the date of receipt of present Order. It is needless to mention that, the period during which the smooth functioning of the concerned Court is paralyzed or affected due to the present pandemic situation, will be excluded from computation of the said period of one year.
Issues Involved:
1. Legality of the issuance of process under Sections 406, 420 r/w Section 34 of IPC and Section 15-HA of SEBI Act by the Metropolitan Magistrate. 2. Validity of the Revisional Court's order exonerating some accused and upholding charges against others. 3. Applicability of Section 15-HA of SEBI Act. 4. Allegations of criminal breach of trust, cheating, and the role of arbitration proceedings. 5. Vicarious liability of the company and its directors. 6. Delay in filing the complaint. Detailed Analysis: 1. Legality of Issuance of Process: The complainant filed a complaint alleging that the accused committed criminal breach of trust and cheating by misappropriating pledged shares. The Metropolitan Magistrate issued process under Sections 406, 420 r/w Section 34 of IPC and Section 15-HA of SEBI Act. The accused challenged this, leading to the Revisional Court's partial exoneration. The High Court upheld the issuance of process by the Metropolitan Magistrate, noting that the complainant made a prima facie case of criminal breach of trust and cheating. 2. Revisional Court's Order: The Revisional Court had set aside the process against Morgan Securities Pvt. Ltd. (Accused No.1) entirely and against the directors (Accused Nos.2 to 4) under Section 420 IPC and Section 15-HA of SEBI Act. However, it upheld the process under Section 406 r/w Section 34 of IPC against the directors. The High Court quashed the Revisional Court's order, reinstating the charges as initially issued by the Metropolitan Magistrate, except for Section 15-HA of SEBI Act, which the complainant chose not to pursue. 3. Applicability of Section 15-HA of SEBI Act: The complainant decided not to press for the application of Section 15-HA of SEBI Act. The High Court accepted this and dropped the section from the charges, modifying the Metropolitan Magistrate's order accordingly. 4. Allegations of Criminal Breach of Trust and Cheating: The complainant alleged that the accused sold the pledged shares at a minimal price to their sister concern, Doogar and Associates Ltd., which later sold them at a higher price, causing a loss to the complainant. The High Court noted that the allegations and evidence presented prima facie indicated criminal breach of trust and cheating, justifying the issuance of process. 5. Vicarious Liability of the Company and Directors: The accused argued that the company could not be held vicariously liable for the directors' actions and vice versa. The High Court rejected this, citing the Supreme Court's decision in Iridium India Telecom Ltd. v. Motorola Inc., which held that a company could be prosecuted for criminal offences and that directors could be held liable for the company's actions. The High Court emphasized that the company, being a juristic person, could be prosecuted and fined, even if it could not be imprisoned. 6. Delay in Filing the Complaint: The accused argued that the complaint, filed in 2011 for offences allegedly committed in 2001, was delayed. The High Court found that the complainant had explained the delay satisfactorily and noted that the limitation period did not apply to offences under Section 420 IPC, thus rejecting the delay argument. Conclusion: The High Court quashed the Revisional Court's orders, reinstating the Metropolitan Magistrate's issuance of process under Sections 406, 420 r/w Section 34 of IPC, while dropping Section 15-HA of SEBI Act. The Court directed the Metropolitan Magistrate to expedite the hearing and dispose of the complaint within a year, excluding periods affected by the pandemic. The writ petitions filed by the complainant were allowed, and those by the accused were dismissed.
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