2025 (3) TMI 340 - HC - SEBI

Funds withheld by the Bombay Stock Exchange (BSE) due to an alleged fraudulent transaction involving shares - actual ownership of the Shares/amount - whether Petitioner was involved in the alleged fraud? HELD THAT - Petitioner had genuinely put its Shares in market for sale through Respondent No. 2. The alleged fraud has been played at the end of Respondent No. 2 by one Amit Jain from Royal International Shares Pvt. Ltd. and allegedly with some involvement of Ashish Aggarwal Jain who is an employee of the Respondent No. 2 Company. There may have been a fraudulent call received by Respondent No. 2 placing an Order for purchase of the Shares of M/s Ashutosh Paper Mills Ltd. and consequently the Shares got purchased but in this entire alleged fraud the role of the Petitioner as being a party to this fraud cannot be deciphered. Petitioner being the owners of the Shares had made them available for sale. Therefore for the alleged fraud committed on the Complainant the Petitioners whose value of shares of Rs.15.90 lakhs got sold in the market cannot be denied to him. It is pertinent to observe that the Shares are not in the possession of the Petitioner but have been handed over to the concerned Agency/SEBI for being sold in the market. On a query it has been explained that these Shares do not have any market value as on date for which reason the Respondent No. 2 is not inclined to take responsibility of these Shares which he had admittedly purchased for and on behalf of Brij Mohan Gagrani. There may have been some fraud committed at the level of Respondent No. 2 since allegedly no Shares were directed to be purchased by Brij Mohan Gagrani and Respondent No. 2 may have suffered some financial loss on account of some fraud committed at its end but that cannot be foisted on the Petitioner who in no way is a party to the alleged fraud. There has been some argument raised that in the Statement of the Petitioner recorded during the further investigations as directed by the learned M.M he has not been consistent about the number of Shares. Petitioner has explained that inadvertently the correct number of Shares has not been mentioned though the entire transaction has been truthfully stated by Shri Rajneesh Kumar Director of the Petitioner Company. There being no denial of the Shares originally belonged to Petitioner which he had put in the market for sale and which also got sold the Petitioner is entitled to release of Rs.15.90 lakhs realized on sale of the Shares in the market. It is therefore directed that without prejudice to the merits of the case it is hereby directed that this amount of Rs.15.90 lakhs be released to the Petitioner on Superdari subject to him furnishing a Guarantee of the same amount before the learned M.M. It is hereby clarified that there is no finding on the actual ownership of the Shares/amount which is subject to adjudication on the merits of the case.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal issues considered in this judgment include:

• Whether the Petitioner, Spire Marketing (P) Ltd., is entitled to the release of Rs. 15.90 lakhs withheld by the Bombay Stock Exchange (BSE) due to an alleged fraudulent transaction involving shares of M/s Ashutosh Paper Mills.
• Whether the Petitioner was involved in the alleged fraud and thus responsible for the withholding of funds by BSE.
• Whether the orders of the learned Magistrate (M.M) and Additional Sessions Judge (ASJ) denying the release of funds were legally justified.
• The role and responsibility of Respondent No. 2, NDA Securities Ltd., in the alleged fraudulent transaction.
• The applicability of Section 482 of the Code of Criminal Procedure, 1973, for setting aside the impugned orders.

2. ISSUE-WISE DETAILED ANALYSIS

Entitlement to Release of Funds:

• Relevant Legal Framework and Precedents: The Petition was filed under Section 482 of the Cr.P.C., which provides the High Court with inherent powers to make orders necessary to prevent abuse of the process of any court or otherwise to secure the ends of justice.
• Court's Interpretation and Reasoning: The Court noted that the Petitioner had placed shares in the market for sale through Respondent No. 2. The alleged fraud was committed by an employee of Respondent No. 2 and Amit Jain from Royal International Shares Pvt. Ltd., not by the Petitioner.
• Key Evidence and Findings: The Petitioner had no direct involvement in the fraudulent call or transaction. The shares were genuinely placed for sale, and the fraud was committed by others.
• Application of Law to Facts: The Court applied the principle that the Petitioner, having no involvement in the fraud, should not be deprived of the proceeds from the sale of shares.
• Treatment of Competing Arguments: Respondent No. 2 argued that the Petitioner was involved in the fraud, but the Court found no evidence supporting this claim.
• Conclusions: The Court concluded that the Petitioner was entitled to the release of Rs. 15.90 lakhs, subject to furnishing a guarantee of the same amount.

Involvement in Fraud:

• Relevant Legal Framework and Precedents: The allegations involved Sections 420 and 120B of the IPC, concerning cheating and conspiracy.
• Court's Interpretation and Reasoning: The Court found no evidence linking the Petitioner to the fraudulent activities. The fraud was orchestrated by Amit Jain and others, not the Petitioner.
• Key Evidence and Findings: Investigations revealed that a fraudulent call was made by Amit Jain, impersonating a client, which led to the purchase of shares.
• Application of Law to Facts: The Court applied the law to determine that the Petitioner was not a party to the fraud.
• Treatment of Competing Arguments: The Respondent's claims of the Petitioner's involvement were not substantiated by evidence.
• Conclusions: The Court concluded that the Petitioner was not involved in the fraudulent transaction.

Legality of Lower Court Orders:

• Relevant Legal Framework and Precedents: The orders of the learned M.M and ASJ were challenged under Section 482 of the Cr.P.C.
• Court's Interpretation and Reasoning: The Court found the lower courts' decisions to deny the release of funds to be unjustified given the lack of evidence against the Petitioner.
• Key Evidence and Findings: The evidence showed the Petitioner was not involved in the fraud, and the funds were rightfully theirs.
• Application of Law to Facts: The Court determined that the lower courts' decisions were not in line with the evidence and legal principles.
• Treatment of Competing Arguments: The Court dismissed the Respondent's arguments supporting the lower courts' decisions.
• Conclusions: The Court set aside the orders of the learned M.M and ASJ, allowing the release of funds to the Petitioner.

3. SIGNIFICANT HOLDINGS

• Verbatim Quotes of Crucial Legal Reasoning: "The Petitioner being the owners of the Shares, had made them available for sale. Therefore, for the alleged fraud committed on the Complainant, the Petitioners whose value of shares of Rs.15.90 lakhs got sold in the market, cannot be denied to him."
• Core Principles Established: A party not involved in fraud cannot be deprived of their rightful proceeds. The inherent powers of the Court under Section 482 Cr.P.C. can be invoked to secure justice.
• Final Determinations on Each Issue: The Petitioner is entitled to the release of Rs. 15.90 lakhs, subject to furnishing a guarantee. The orders of the lower courts were set aside, and the Petition was allowed.