2021 (10) TMI 818 - HC - SEBI

Simulatnaous Adjudication proceedings and criminal Prosecution - exoneration in adjudication proceedings is on technical ground and not on merit - Applicants have been exonerated in the adjudication proceedings on the allegations for which, they have been prosecuted by the SEBI - HELD THAT - In the case of K.C. Builders ( 2004 (1) TMI 7 - SUPREME COURT )the Hon ble Apex Court had taken a view that when there is categorical finding in the adjudication proceedings exonerating the person, it is binding and conclusive and thus, the Prosecution cannot be allowed to stand. In case in hand, the Applicants have been exonerated in the adjudication proceedings on merits and not on technical ground, and therefore the Prosecution for identical violation shall continue, if the order passed by Securities Appellate Tribunal is quashed and set aside by the Hon ble Supreme Court in Civil Appeal, preferred by the SEBI against the decision of Securities Appellate Tribunal, Mumbai. 2008 (10) TMI 628 - SECURITIES APPELLATE TRIBUNAL MUMBAI Thus, for the reasons stated above, the proceedings in the complaint pending on the file of Additional Chief Metropolitan Magistrate, 9th Court, Bandra, Mumbai, against the Applicants, shall remain stayed till the decision of the Hon ble Apex Court in the Civil Appeal s instituted by the SEBI against the decision of the Securities Appellate Tribunal 2008 (10) TMI 628 - SECURITIES APPELLATE TRIBUNAL MUMBAI

Summary

Issues:
1. Challenge to order of discharge in SEBI Special Case No.177/2015.
2. Allegations of market manipulation and violation of SEBI regulations.
3. Exoneration in adjudication proceedings and its impact on criminal prosecution.

Analysis:
1. The Revision Application challenged the order of the Additional Sessions Court, Greater Mumbai, which declined to pass a discharge order in SEBI Special Case No.177/2015. The Applicant Company was charged with manipulating the market in its shares based on investigation findings by SEBI. The company was restrained from accessing the capital market for a year for violating SEBI regulations. The Securities Appellate Tribunal quashed the charges of making false announcements and manipulation in the annual accounts. The Applicants sought discharge, arguing that the findings in the adjudication proceedings exonerated them, making the prosecution unsustainable.

2. SEBI filed a complaint under the SEBI Act, alleging market manipulation, violation of accounting practices, and misleading information provision. The Applicants moved for discharge citing the Securities Appellate Tribunal's decision and the binding nature of adjudication findings. The Additional Sessions Judge rejected the discharge application. The Applicants argued that since they were exonerated in the adjudication proceedings, the prosecution could not be sustained. The Applicants relied on legal precedents to support their argument that exoneration on merits in adjudication proceedings should prevent the continuation of criminal prosecution.

3. The High Court analyzed the impact of exoneration in adjudication proceedings on criminal prosecution. Referring to legal judgments, the Court highlighted that if exoneration is based on merits and not technical grounds, the prosecution for identical violations can continue. The Court emphasized that the nature of exoneration in adjudication proceedings determines the fate of criminal prosecution. The Court admitted the Revision Application and stayed the proceedings pending the decision of the Supreme Court in the SEBI's Civil Appeal against the Securities Appellate Tribunal's decision. The Court ruled that the prosecution could continue if the Supreme Court quashed the Tribunal's decision.

This detailed analysis of the judgment showcases the issues involved, the arguments presented, and the legal principles applied by the High Court in its decision.