2008 (2) TMI 974 - HC - SEBI

Summary

Issues Involved:

1. Legality of criminal complaints filed by SEBI against plantation companies under the SEBI Act and CIS Regulations.
2. Requirement of prior investigation before filing criminal complaints.
3. Specificity of allegations against directors of companies.
4. Applicability and interpretation of Section 27 of the SEBI Act.
5. Validity of procedure followed in transferring cases to the Additional Sessions Judge.

Detailed Analysis:

1. Legality of Criminal Complaints:

The petitions sought the quashing of criminal complaints filed by SEBI against plantation companies for alleged violations of Sections 11-B, 12 (1-B) read with Section 24 of the SEBI Act, 1992, and the CIS Regulations. The complaints were filed due to non-compliance with SEBI's directives concerning collective investment schemes. The court held that the complaints made a prima facie case against the petitioners under the SEBI Act, as they contained sufficient averments to attract the offence.

2. Requirement of Prior Investigation:

The petitioners argued that the SEBI Act requires an inquiry into the affairs of a company before commencing criminal proceedings. The court observed that while the SEBI Act postulates an inquiry, the complaints contained adequate allegations to proceed without a preliminary investigation, as supported by the Supreme Court's ruling in N. Rangachari.

3. Specificity of Allegations Against Directors:

Petitioners contended that the complaints were vague, with bald allegations against directors without specifying their roles in the alleged violations. The court noted that the complaints sufficiently alleged that directors were in charge of and responsible for the company's affairs, satisfying the requirements for proceeding with the case. The court referenced the Supreme Court's decision in N. Rangachari, which emphasized that specific roles could be determined during the trial.

4. Applicability and Interpretation of Section 27 of the SEBI Act:

Section 27 holds individuals responsible if they were in charge of the company at the time of the offence. Petitioners argued that the complaints did not specify the time of the offence. The court acknowledged that offences under the SEBI Act are of a continuing nature and that the burden of proving lack of involvement lies with the accused after the complainant establishes a prima facie case.

5. Validity of Procedure in Transferring Cases:

In Crl. MC 2747/2006, petitioners argued that the transfer of the case to the Additional Sessions Judge was illegal as it did not follow the procedure under Section 193 CrPC. The court dismissed this argument, referencing a Division Bench decision affirming the ASJ's jurisdiction in similar SEBI Act cases.

Conclusion:

The court dismissed the petitions, finding no grounds to interfere under Section 482 CrPC. It emphasized that the observations made would not influence the trial court's independent assessment of evidence. The court also noted that individual defenses, such as proving cessation of directorship before the offence, could be addressed during the trial based on evidence like Form 32.