2020 (12) TMI 157 - HC - SEBI

Violation of provision of SEBI Act v/s IPC - Bail application - offence punishable under other Act such as IPC - Whether amount taken from the clients was 'deposit' or fees - invoking the principles of M.P. Nikshepakon Ke Hiton Ka Sanrakshan Adhiniyam, 2000 - HELD THAT - Section 26 of SEBI Act only prohibits cognizance of offence which is punishable under SEBI Act, but does not prevent cognizance in respect of offence punishable under other Act such as IPC. It is true that the police has come to know about the complainants after communicating with SEBI and after obtaining particulars from the same agency and in the FIR the names of the complainants have been given, but under Section 154 of Cr.P.C, it is not imperative that the aggrieved person is only authorized to lodge FIR. FIR has been lodged by SHO on the directions of ASP who after obtaining relevant information from SEBI regarding duped customers has directed the SHO to lodge FIR. The FIR contains the names of customers. After lodging of FIR, statements of such complainants have been recorded which reflect offences as laid down in the FIR and which are cognizable in nature. Thus, it is not that there is violation of provision of SEBI Act only, but provisions of IPC are also prima facie attracted for investigation of which police is the only appropriate authority. Investigation by police is not excluded in view of Section 32 of SEBI Act. For invoking the principles of M.P. Nikshepakon Ke Hiton Ka Sanrakshan Adhiniyam, 2000, it should be shown that the amount which has been taken by the company from its client was in the form of deposit. There is substance in the prosecution case that the aforesaid company, was though on papers was an advisory company rendering advice to consumers on payment of fees, was in fact involved in receiving money from investors and such money could not be termed as fees but was more in the nature of 'deposit' - such advisory companies registered with SEBI have mushroomed in various parts of the country. However, instead of doing their business by charging fees, are involved in taking lump sum amounts from their clients, assuring them with the promise of huge returns, but are indulging in malpractices resulting in huge loss to investors. On papers such company appears to be properly constituted, showing to be acting as per their given ambit and scope of business, but in reality the consumers are given a raw deal. It is also found that the whole operation is run by persons who are not qualified as per set out norms. The applicant in the present case, although an employee of Flanking Research Investment Company is an E-Commerce Company, was looking after the complete operations at Indore and was also involved in recruiting ill equipped employees who were as many as 114 in numbers. Such firms/companies, are not only causing immense hardship to the citizens, but also causing loss to the Government and Financial and Banking Institutions in a big way. The activities of such advisory firms have to be dealt with an iron hand. Further, Tarun Chandani, the main owner of this company is still absconding - no case is made out for grant of bail to the applicant. The same stands rejected.

Summary

Issues:
Repeat bail application under Section 439 of Cr.P.C. for grant of bail; Implication in multiple criminal offenses under IPC and M.P. Nikshepakon Ke Hiton Ka Sanrakshan Adhiniyam, 2000; Interpretation of SEBI Act provisions; Determination of whether the amount taken from clients was a 'deposit' or 'fees'.

Analysis:
The applicant filed a repeat bail application under Section 439 of Cr.P.C. for grant of bail, being implicated in various criminal offenses under IPC and M.P. Nikshepakon Ke Hiton Ka Sanrakshan Adhiniyam, 2000. The first bail application was previously rejected by the Court. The applicant's counsel argued that the police action against the applicant, an employee of a SEBI-certified advisory firm, was unauthorized under SEBI Act Section 26(1), which prohibits cognizance of offenses under SEBI Act without a complaint by the Board. However, the Court noted that SEBI Act Section 32 allows the application of other laws such as IPC in addition to SEBI Act, and police investigation was justified based on complainants' statements and the nature of the offenses. The Court differentiated this case from a previous order where no victim complaint was filed, emphasizing the relevance of complainants' statements in the present matter.

The applicant contended that the amount taken from clients was not a 'deposit' but 'fees.' However, the Court examined receipts showing discrepancies in amounts charged and paid, indicating a pattern of receiving substantial sums from clients promising investment in shares. The Court observed that the charges did not resemble fixed 'fees' typically associated with service provision, suggesting the amounts taken were more akin to 'deposits.' The Court highlighted the prevalence of advisory firms misusing investor funds and engaging in malpractices, emphasizing the need for stringent action against such entities. The Court noted the involvement of unqualified personnel in these firms, causing significant losses to investors, the government, and financial institutions. The Court ultimately denied bail to the applicant after considering the prosecution's arguments and the nature of the offenses involved.

In summary, the judgment addressed the repeat bail application under Section 439 of Cr.P.C., the interpretation of SEBI Act provisions in relation to police action, and the determination of whether the amounts taken from clients constituted 'deposits' or 'fees.' The Court emphasized the need to combat malpractices by advisory firms misusing investor funds and engaging in fraudulent activities, highlighting the risks posed by unqualified personnel in such entities. The denial of bail underscored the seriousness of the offenses and the need for stringent action against those involved in financial misconduct.