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2016 (7) TMI 642 - SC - Companies LawBreach of provisions of the Collective Investment Regulations - whether respondent nos. 1 and 2 Gaurav Varshney and Vinod Kumar Varshney had violated Section 12(1B) by incorporating M/s. Gaurav Agrigenetics Ltd. under the provisions of the Companies Act 1956 on 3.7.1995 in the capacity of its first directors and promoters - sole allegation levelled against the respondents was that they were guilty of having breached the provisions of the Collective Investment Regulations by failing to make any application to the Board for registration of the collective investment scheme(s) being operated by them and by failing to wind up their existing collective investment scheme(s) and/or in repaying the amounts collected from the investors Held that - Having given our thoughtful consideration to the contentions advanced at the hands of learned counsel for the respondents we are satisfied that the quashing of the proceedings initiated by the Board against respondent nos. 1 and 2 calls for no interference for the simple reason that they relate to an alleged breach by M/s. Gaurav Agrigenetics Ltd. of the Collective Investment Regulations by treating them as existing collective investment undertaking. Those belonging to the proviso category could only be proceeded against for having continued their activities relating to collective investment without obtaining registration after the notification of the Collective Investment Regulations (see paragraph 29 above). The said regulations came into existence with effect from 15.10.1999. By the time the Collective Investment Regulations were notified respondent nos. 1 and 2 Gaurav Varshney and Vinod Kumar Varshney had already severed their relationship with M/s. Gaurav Agrigenetics Ltd. In view of the uncontroverted factual position expressed by learned counsel for the respondents we find no difficulty in concluding that proceedings which were initiated against respondent nos. 1 and 2 and were quashed by the High Court call for no interference. Ordered accordingly.
Issues Involved:
1. Violation of Section 12(1B) of the SEBI Act by incorporating and operating collective investment schemes without registration. 2. Interpretation and implications of Section 12(1B) and the Collective Investment Regulations. 3. The effect of resignation of directors on liability under the SEBI Act. 4. Jurisdiction and procedural aspects under the Cr.P.C. in SEBI Act violations. 5. Limitation period for filing complaints under the SEBI Act. Detailed Analysis: 1. Violation of Section 12(1B) of the SEBI Act: The core issue was whether the respondents violated Section 12(1B) by incorporating and operating collective investment schemes without obtaining a certificate of registration from SEBI. The court held that Section 12(1B) barred new entrepreneurs from sponsoring or carrying on collective investment activities without registration from SEBI, effective from 25.1.1995. This bar was absolute and extended until the entrepreneur obtained the necessary certificate of registration. 2. Interpretation and Implications of Section 12(1B) and the Collective Investment Regulations: The court interpreted Section 12(1B) to create two categories: those who commenced activities before 25.1.1995 (proviso category) and those who did not (non-proviso category). The proviso category could continue their activities until the regulations were framed, after which they needed to obtain registration. The non-proviso category was barred from commencing activities until they obtained registration under the regulations. The court concluded that the bar was absolute and mandatory for new operators. 3. The Effect of Resignation of Directors on Liability Under the SEBI Act: The court examined the resignation dates of the directors to determine their liability. For instance, Gaurav Varshney and Vinod Kumar Varshney had resigned before the Collective Investment Regulations were enforced on 15.10.1999. The court held that since they had resigned before the regulations came into force, they could not be held liable for violations of the regulations. Similarly, Major P.C. Thakur and Sunita Bhagat were found to have resigned before the critical dates, absolving them of liability under the SEBI Act. 4. Jurisdiction and Procedural Aspects Under the Cr.P.C. in SEBI Act Violations: The court discussed the procedural requirements under the Cr.P.C., emphasizing that the particulars of the offense must be clearly stated to the accused. The court found that the complaints filed did not adequately inform the accused of the specific charges under Section 12(1B) for new operators, thus failing to meet the procedural requirements. The court also referenced Section 465 of the Cr.P.C., which pertains to procedural irregularities but concluded that the omissions in the complaints were substantive, not procedural. 5. Limitation Period for Filing Complaints Under the SEBI Act: The court addressed the limitation period for filing complaints under the SEBI Act, referencing Section 468 of the Cr.P.C. The court held that the period of limitation for taking cognizance of offenses under Section 24 of the SEBI Act (before its amendment in 2002) was one year. Since the complaints were filed well after this period, they were barred by limitation. For instance, Sunita Bhagat's resignation was effective from 20.9.1999, and the complaint was filed on 21.1.2003, making it time-barred. Conclusion: The court dismissed the appeals against the directors who had resigned before the regulations came into force and those whose complaints were barred by limitation. It upheld the interpretation that new operators could not commence collective investment activities without registration from SEBI post-25.1.1995 and emphasized the need for clear procedural adherence in filing complaints.
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