2014 (10) TMI 1079 - HC - SEBI

Collective investment scheme - violation of Section 12(1B) of the Securities and Exchange Board of India Act 1992 and Regulation 5(1) read with Regulation 68(1) 68(2) 73 and 74 of the Securities and Exchange Board of India Collective Investment Scheme and Regulations 1999 - as contended by the petitioner that he resigned from the company from the post of Director as early as on 18.11.1998 itself - Prosecution against director - whether any individual notice was issued to the petitioner to ascertain whether he was a Director of the first accused company during the relevant time the learned counsel submitted that no such notice was issued? HELD THAT - It may be true that the first accused company had given information that the petitioner was also a Director of the company during the relevant time but the respondent ought not have been satisfied with the said information instead the respondent ought to have verified with the Registrar of Companies before launching the prosecution. Thus the respondent has failed to do so. The proceedings of the Assistant Registrar of Companies which has been produced before this Court shows that the petitioner was not a Director of the company with effect from 18.11.1998. Thus it is crystal clear that the petitioner was not a Director of the first accused company during the relevant time in the year 1999 when the Regulation came into force and therefore the prosecution of the petitioner is not sustainable. This criminal original petition is allowed.

Summary

Issues:
Alleged violation of Section 24(1) of the Securities and Exchange Board of India Act, 1992; Petitioner's resignation as Director before the Regulations came into force; Failure to verify Directorship status before prosecution.

Analysis:
The judgment pertains to a petition filed by the third accused seeking to quash proceedings in a case alleging an offense under Section 24(1) of the Securities and Exchange Board of India Act, 1992. The case was based on a private complaint regarding the operation of a collective investment scheme without proper registration. The petitioner contended that he had resigned as a Director of the company before the relevant Regulations came into force in 1999. The petitioner presented evidence from the Assistant Registrar of Companies confirming his resignation on 18.11.1998, prior to the enforcement of the Regulations.

The respondent opposed the petition, stating that the company had informed them that the petitioner was a Director during the relevant period. However, it was revealed that no individual notice was issued to the petitioner to verify his Directorship status. The Court noted that while the company's information was considered, the respondent failed to verify with the Registrar of Companies before initiating prosecution. The records from the Assistant Registrar of Companies confirmed that the petitioner ceased to be a Director from 18.11.1998, which was before the Regulations came into effect in 1999.

The Court held that the respondent's failure to verify the petitioner's Directorship status before prosecution rendered the case unsustainable. It was emphasized that the respondent should have independently verified the Directorship information instead of solely relying on the company's response. Consequently, the criminal original petition was allowed, and the case against the petitioner was quashed in C.C.No.37 of 2004.