Bombay High Court
Manojdev Gokulchand Seksaria vs The State Of Maharashtra on 14 November, 2025
Author: A. S. Gadkari
Bench: A. S. Gadkari
2025:BHC-AS:48970
Mahesh Chavan WP 245 of 2020.doc
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
CRIMINAL APPELLATE JURISDICTION
CRIMINAL WRIT PETITION NO. 245 OF 2020
Manoj Gokulchand Seksaria
R/o. 33, Maheshwar Niketan,
5-B, Peddar Road,
Mumbai - 400026. ... Petitioner
V/s.
1. The State of Maharashtra
Through Public Prosecutor.
2. C. B. I., BS & FC, Mumbai ... Respondents
WITH
CRIMINAL WRIT PETITION NO. 730 OF 2020
Manojdev Gokulchand Seksaria
R/o. 33, Maheshwar Niketan,
5-B, Peddar Road,
Mumbai - 400026. ... Petitioner
V/s.
1. The State of Maharashtra
2. C. B. I., BS & FC, Mumbai,
Central Bureau Investigation,
Mumbai - 400 032. ... Respondents
______________________
Mr. Aabad Ponda, Senior Advocate a/w Mr. Jugal Kanani a/w Mr. Rahul
Pandey i/by Mr. Alok Singh, Advocate for Petitioner.
Smt. M. M. Deshmukh, Public Prosecutor a/w Mr. Vinod Chate, APP for the
Respondent No.1 - State.
Mr. Kuldeep Patil, Advocate for Respondent No.2 - CBI.
______________________
Digitally signed
by SANJAY
SANJAY KASHINATH
KASHINATH NANOSKAR 1/69
NANOSKAR Date:
2025.11.14
19:26:17 +0530
::: Uploaded on - 14/11/2025 ::: Downloaded on - 14/11/2025 22:50:52 :::
Mahesh Chavan WP 245 of 2020.doc
CORAM : A. S. GADKARI AND
RANJITSINHA RAJA BHONSALE, JJ.
RESERVED ON : 15th SEPTEMBER 2025
PRONOUNCED ON : 14th NOVEMBER 2025
JUDGMENT [Per: RANJITSINHA RAJA BHONSALE, J] :-
1) By way of these Petitions, filed under Article 227 of Constitution
of India and Section 482 of the Criminal Procedure Code, 1973, the Petitioner
seeks to quash and set aside criminal proceedings i.e impugned Order dated
19th March 2008 in respect of FIR No. RC 3(E)/2006/BS&FC/ Mumbai dated
20th February 2006 in Special Case No. 47 of 2007 alongwith chargesheet
dated 2nd March 2009 and impugned Order dated 10th March 2008 in respect
of FIR No. RC 4(E)/2006/BS&FC/Mumbai dated 20 th February 2006 in
Sessions Court Special Case No.48 of 2007 alongwith chargesheet dated 2 nd
March 2009, both registered under Section 120-B r/w. read with section 420,
467, 468, 471 of Indian Penal Code and Section 13(2) read with Section
13(1)(d) of the Prevention of Corruption Act, 1988 and under Section 68-A of
the Companies Act, 1956.
Facts :
2) The Securities and Exchange Board of India (SEBI), addressed a
complaint letter to the Central Bureau of Investigation (CBI/Respondent
No.2), giving information in respect of certain illegal acts/offences which had
been committed in respect of the Initial Public Offerings (IPO's) of Yes Bank
Mahesh Chavan WP 245 of 2020.doc
Limited (YBL) and Infrastructure Development Finance Corporation (IDFC).
Pursuant to the complaints, CBI registered two criminal complaints Criminal
Case No. RC 3(E) / 2006 / BS&FC / Mumbai and Criminal Case No. RC
4(E) /2006 /BS & FC / Mumbai. The Petitioner is an accused in both
complaints. The case of the prosecution is that, the accused including the
Petitioner pursuant to a criminal conspiracy, opened Bank and Demat accounts
in the name of fictitious persons and applied for shares, in the said fictitious
names in the retail investor category (RII) i.e shares meant for retail investors,
predatory cornered the shares meant for genuine retail investors. The said
illegally cornered shares were then transferred to the accounts of some the
accused including the Petitioner and then sold in the market at substantial
higher prices. The said illegal acts ensured unjust profit and wrongful gain for
the Petitioner and other accused. This was done and achieved at the cost of
the retail investors and by abusing the IPO process/system. The entire game
plan was masterminded, designed and executed by the accused including the
Petitioner with the help of public servants/bank employees of PSU banks. The
complaint proceeds on the basis that the acts of the accused including the
Petitioner are not only detrimental to the orderly development of the
securities market but also criminal in nature as forged documents were used
and genuine retail investors at large were deprived of the legitimate allotment
of shares through the IPO process.
3) The CBI/Respondent No.2 registered, Criminal Case No. RC
Mahesh Chavan WP 245 of 2020.doc
3(E)/2006/BS&FC/Mumbai and RC 4(E)/2006/BS&FC/Mumbai, in respect of
the illegalities committed by the accused including the Petitioner in respect of
the IPO's of YBL and IDFC respectively. Criminal prosecutions were under
Section 120-B r/w. read with section 420, 467, 468, 471 of Indian Penal Code
and Section 13(2) read with Section 13(1) (d) of the Prevention of Corruption
Act, 1988 and Section 68-A of the Companies Act, 1956.
4) SEBI issued to the Petitioner, Show Cause Notices under Section
11B and 11(4) of SEBI Act, 1992. The WTM, SEBI passed ad-interim ex parte
Orders dated 12th January, 2006 and 27th April, 2006 under sections 11 and
11B of the SEBI Act, 1992. Notice dated 7 th June, 2006 was issued, to the
Petitioner, under the SEBI (Procedure for holding Inquiry and Imposing
penalties by Adjudicating Officer) Rules, 1995, No. A & E/BS/68771/2006.
5) Criminal Case No. RC 3(E)/2006/BS&FC/Mumbai is registered
against 19 accused persons. On 19th October, 2007, a chargesheet was filed, in
Criminal Case No. RC 3(E)/2006/BS&FC/Mumbai, after completion of
Investigations vide Special Case No 48 of 2007, against 16 accused including
the Petitioner. A supplementary chargesheet was filed in Criminal Case No RC
3(E)/2006/BS&FC/Mumbai which was numbered as Special Case No 22 of
2014 and further 9 accused persons were added with the original 16 accused,
totaling to 25 accused.
6) Criminal Case No RC 4(E)/2006/BS&FC/Mumbai is registered
against 26 accused persons including the Petitioner. On 29th July 2007, a
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chargesheet was filed, in Criminal Case No RC 4(E)/2006/BS&FC/Mumbai,
after completion of investigation, vide Special Case No 47 of 2007 against 22
accused. A supplementary chargesheet was filed in Criminal Case No RC
4(E)/2006/BS&FC/Mumbai which was numbered as Special Case No74 of
2014 and further 21 accused persons were added with the original 22
accused, totaling to 43 accused.
7) SEBI introduced a consent procedure, whereby, the entity/person,
against whom SEBI had initiated proceedings under the securities laws
including 11B and 11(4) proceedings, adjudicatory proceedings etc, could
approach SEBI, for amicable settling the proceedings, by filing a consent
application. SEBI made the consent procedure applicable to enforcement
actions i.e. Administrative and or Civil/under civil laws. The consent
procedure, provided that, compounding of Offence may cover appropriate
prosecution cases filed by SEBI before the criminal courts. The said consent
application, if approved by the High Powered Committee is further processed
and consent orders are passed by the Whole Time Member, SEBI.
8) SEBI by its Circular dated 20th April, 2007 bearing No. EFD/ED/
Cir-1/2007, issued guidelines for consent orders and for considering request
of composition of offences under SEBI Act, SCRA Act, and Depositories Act.
The Circular interalia provides for the process of filing a consent application,
the cases in which consent application may be filed, the consent procedure
which is to be undertaken, factors to be considered for consent, waivers,
Mahesh Chavan WP 245 of 2020.doc
consequences for non- acceptance etc.
9) Petitioner, vide application dated 5th November, 2008 (Exh.E/Pg
119 in Criminal Writ Petition No.245/2020 and Exh.F/Pg 185 in Criminal Writ
Petition No.730/2020), filed his consent applications in both the proceedings.
The Petitioner, in point no 11 in the applications under the heading "Case
Pending with SEBI/SAT/Court:" (Page No.121 in Criminal Writ Petition
No.245/2020 and Page No.186 Criminal Writ Petition No.730/2020) has after
referring to Show cause Notices Under Section 11B and 11(4) of SEBI Act,
Order dated 12th January, 2006, bearing No WTM/GA/43/ISD/01/06; Notice
under Rule SEBI (Procedure for holding Inquiry and Imposing penalties by
Adjudicating Officer) Rules, 1995, No. A & E/BS/68771/2006 dated 7th June,
2006 has also referred to the present criminal prosecutions i.e RC 3(E)/
2006/BS&FC/Mumbai and RC 4(E)/ 2006/BS&FC/ Mumbai. Petitioner, in
point 19 of the Consent Application, sought to be exonerated from all the
proceeding adopted against him by SEBI or at the behest of SEBI.
10) Petitioners consent application No.1041/2008, was considered by
the High Powered Advisory Committee, of SEBI, and recommended for
settlement. Petitioner was directed to disgorge an amount of Rs.2,05,18,968/-
(Rupees Two Crore Five Lakh Eighteen Thousand Nine Hundred and Sixty
Eight Only) being the unjust profits made and also pay a sum of
Rs.20,51,897/- (Rupees Twenty Lakh Fifty One Thousand Eight Hundred and
Ninety Seven Only) being 20% of the disgorged amount towards settlement
Mahesh Chavan WP 245 of 2020.doc
charges to SEBI.
11) On 7th December, 2009, the Whole Time Member, SEBI, accepted
the recommendations of the High Powered Committee, and passed the
Consent Order. The WTM, SEBI referred, to the ad interim ex-parte orders
dated 12th January,2006 and 27th April, 2006, passed by SEBI under sections
11 and 11B of the SEBI Act,1992 , adjudication proceedings under Chapter VI
A of the Act and proposed initiation of prosecution under section 24 of the Act
against the Petitioner. The Petitioner without admitting or denying the
charges, remitted a sum of Rs.2,25,70,864/-(Rupees two crore twenty five
lakh seventy thousand eight hundred and sixty four only). The Consent Order
dated 7th December, 2009, specifically records that the consent Order
disposes of the pending proceedings under section 11(4) and 11B of the SEBI
Act, 1992, the adjudication proceedings and the proposed prosecution against
the Petitioner in the matter of irregularities relating to Initial Public Offerings.
12) Petitioner armed with the Consent Order dated 7 th December,
2009, approached this Hon'ble Court, by filing Writ Petition No.406 of 2018
under Article 226 of the Constitution of India read with Section 482 of Code
of Criminal Procedure, for quashing the criminal proceedings and charge-
sheet filed pursuant to FIR bearing No. RC 3 (E)/2006/BS & FC/Mumbai and
RC 4 (E)/2006/BS & FC/Mumbai dated 21.02.2016. This Hon'ble Court, by
its Order dated 27th February, 2018 was pleased to dismiss the said writ
petition.
Mahesh Chavan WP 245 of 2020.doc
13) Aggrieved by the Order dated 27th February, 2018, Petitioner filed
Special Leave Petition (Crl.) Nos.3495 of 2018. The Hon'ble Supreme Court
vide Order dated 7th January, 2020, granted the Petitioner liberty to withdraw
the Petition and to raise the question as to the effect and legal consequences
of Order dated 7th December, 2009 passed by the SEBI before this Court.
Accordingly, the Special Leave Petition was dismissed as withdrawn with
liberty as prayed for being granted.
14) The Petitioner, thereafter filed Writ Petition No.245 of 2020 and
Writ Petition No.730 of 2020 and sought to challenge the Order of cognizance
and issuing process dated 10th March, 2008 and 19th March, 2008 in Special
CBI Case No.47 of 2007 and 48 of 2007 arising out of FIR Nos. RC 3 (E)/2006
/BS & FC/Mumbai and RC 4 (E)/2006/BS & FC/Mumbai respectively. As
there was no challenge to the FIR/Charge-sheet in Writ Petition No.245 of
2020 and Writ Petition No.730 of 2020, and challenge only pertained to the
Order of taking cognizance, the Petitions were placed before the learned
Single Judge of this Court. After hearing the parties, this Court by Order
dated 05th January, 2022 was pleased to allow the Petition and held that, the
continuation of the proceedings in Special CBI Case No. 47 of 2007 and
Special CBI Case No. 48 of 2007 pending on the files of the Special Judge
(CBI), Greater Mumbai, qua the Petitioner would be an abuse of process of
Court and in Order to meet the ends of justice, the same were quashed and set
aside.
Mahesh Chavan WP 245 of 2020.doc
15) The Order dated 05th January, 2022, was challenged, by the CBI/
Respondent No.2 before the Hon'ble Supreme Court by filing Special Leave
Petition Nos. 12344 and 12345 of 2022. The Hon'ble Supreme Court, by its
Order dated 22nd August, 2024, after considering the submission of the
learned counsels for the parties, was please to dispose off the Special Leave
Petition with the following observation as recorded in Paragraph No.23 of the
said Order:
"23. As to whether the respondent had made out a case for
quashing the proceedings will be independently decided by the
Division Bench which will now hear the matter on remand. The
Division Bench will not be influenced by the observations of the
previous Division Bench in Writ Petition 406 of 2018, the Order
of this Court dated 07.10.2020, the Order of the Single Judge in
Writ Petition No. 245 of 2020 and Writ Petition No. 730 of 2020
and also by the present Order which we have now passed. The
Division Bench will independently decide the matter on its own
merits and in accordance with law."
16) Pursuant to the said Order dated 22 nd August, 2024, these
Petitions were listed for hearing before this Court on 18 th October, 2024. The
learned Advocate for the Petitioner, sought leave to amend the Petition, to
incorporate additional pleadings and prayer clauses. As the said request was
made at belated stage, particularly when the Hon'ble Supreme Court had not
granted any such liberty, this Hon'ble Court had expressed its doubt about
granting such a request. The Petitioner requested for time, to seek a
Mahesh Chavan WP 245 of 2020.doc
clarification from the Hon'ble Supreme Court. By an Order dated 08.11.2024,
the Hon'ble Supreme Court permitted the Petitioner to approach this Court for
considering the request for amendment of the Petition. Directions were passed
to dispose off present petitions within 3 months.
17) On 17th May, 2025, the Hon'ble Supreme Court was pleased to
extend time to dispose of the present proceeding for the period of 6 months.
The Hon'ble Supreme Court granted interim stay of further proceeding in
Special Case No.47 of 2007 and 48 of 2007 pending before the learned
Special Judge (CBI), Greater Mumbai.
18) In the aforesaid background and the directions of the Hon'ble
Supreme Court, the petitions are placed before this Court for hearing. We
have heard Mr Aabad Ponda, learned Senior Counsel appearing for the
Petitioner and Mr Kuldeep Patil learned Advocate for the Respondent No2. We
have perused Petitions and all the relevant documents.
19) The questions, which arise for our consideration, are as follows:-
(i) What is the effect and legal consequences of the Consent
Order dated 7th December, 2009, passed by the Whole Time Member, SEBI, on
the criminal prosecution, registered by CBI being Criminal Case No. RC
3(E)/2006/BS&FC/ Mumbai and RC 4(E)/2006/BS&FC/Mumbai both under
Section 120-B r/w. read with section 420, 467, 468, 471 of Indian Penal Code
and Section 13(2) read with Section 13(1)(d) of the Prevention of Corruption
Act, 1988 and under Section 68-A of the Companies Act, 1956?
Mahesh Chavan WP 245 of 2020.doc
(ii) Whether after considering the allegations in the present
criminal prosecutions and the Consent Order dated 7 th December 2009, can
the criminal proceedings registered by the CBI being Criminal Case No. RC
3(E)/2006/BS&FC/Mumbai and RC 4(E)/2006/BS&FC/Mumbai be quashed?
Petitioner's Submissions:
20) Mr. Aabad Ponda learned Senior Counsel appearing for the
Petitioner submits that SEBI had filed the present complaint with the CBI.
Initially, CBI after investigating complaint had not charge-sheeted the
Petitioner. In March 2009, upon a protest petition being filed by SEBI, the
name of present petitioner was included in both the criminal prosecutions as
an accused.
20.1) Mr. Ponda referred to Clause (v) of the chargesheet, (@ page 54
of Writ Petition No 245 of 2020) to submit that, the allegations against the
present petitioner in Criminal Case No. RC 3(E)/2006/BS&FC/Mumbai is that
the Petitioner, a sub broker of KSBL, while doing business in his individual
capacity, put in 192 IPO applications in fictitious names in the IPO of YBL,
thereby cornered 14,000 shares and earned profit of Rs.1,98,000/-. He further
referred to Clause (iv) of the chargesheet (@ Page 76 of Writ Petition No 245
of 2020) to submit that, the allegation in RC No.4 (E)/2006/BS&FC/Mumbai
is that the Petitioner, a sub broker of the KSBL, while doing business in his
individual capacity, put in 2000 IPO applications in fictitious names in the IPO
of IDFC, thereby cornered 5,30,304 shares and earned profit of
Mahesh Chavan WP 245 of 2020.doc
Rs.1,64,00,000/-
20.2) Mr. Ponda referred to Circular dated 20 th April, 2007 bearing No.
EFD/ED/Cir-1/2007 issued by SEBI, relating to guidelines of consent Order, in
respect of composition of offences under the SEBI Act, SCRA Act and
Depositories Act. Mr. Ponda, submits that, SEBI has issued guidelines for the
consent/settlement procedure under which the person/entity desirous of the
settling the matter can apply for settlement. That, the Securities laws permit
composition of offences. That, under section 24A of the SEBI Act,
composition of offences is permitted. That, Clause 7 of the Circular, allows
compounding of an offence after filing criminal complaint by SEBI.
20.3) Mr. Ponda submits that, in clause 11 of the Circular, various
factors which are considered by SEBI in deciding the consent application are
mentioned. Mr. Ponda, submits that, under clause 14 of the Circular, if the
Committee believes that the proposal of consent is not commensurate with the
violation or the factors mentioned in clause 11 are not satisfied or the waivers
are not given, it may decline to consider the proposal of the party. In such an
event, the Board and the party will both be free to resort to legal recourse as
may be available to them under the law. That, under clause 17 of the Circular,
the Court may, if found fit, pass an Order in terms of the consent terms and
subject to such further terms as the Court may find appropriate in the facts
and circumstances of the case. That, the Petitioner in the consent application
dated 5th November, 2008, at point no 11 under the caption "Case pending
Mahesh Chavan WP 245 of 2020.doc
with SEBI/SAT/Court" refers to and includes both the current prosecutions. A
pray was also made, by the Petitioner, that he be exonerated from all the
above proceeding adopted against the Petitioner by SEBI or at the behest of
SEBI.
20.4) Mr. Ponda submits that, under the Consent Order dated
07.12.2009, the Petitioner has been directed to disgorge an amount of
Rs.2,05,18,897/- being unjust profit made by the Petitioner and pay
Rs.20,51,897/- being 20% of the disgorged amount towards settlement
charges to SEBI.
20.5) Mr. Ponda submits that, vide Order dated 22 nd August, 2024, the
Hon'ble Supreme Court has permitted Petitioner to raise the question of the
effect of legal consequences of the consent Order dated 07.12.2009 passed by
the SEBI on the pending criminal prosecutions. Mr. Ponda, submits that the
Hon'ble Supreme Court in the case of Prakash Gupta Vs. SEBI reported in
(2021) 17 Supreme Court Cases 451, in Para No.104, has suggested
guidelines for compounding under section 24A of the SEBI Act. That, the said
guidelines be considered by this Court.
20.6) Mr. Ponda submits that, the Petitioner has already paid an
amount of Rs.2,25,70,794/- in the form of disgorgement and settlement fees
to SEBI. That, SEBI, the expert body after considering various aspects of the
matter, accepted the consent application vide its Order dated 7 th December,
2009. He submits that, the Petitioners case is covered by the judgment and
Mahesh Chavan WP 245 of 2020.doc
Order of the Hon'ble Supreme Court in the matters of K Bharthi Devi and
another V/s State of Telangana and another reported in (2024) 10 SCC 384
and Central Bureau of Investigation, SPE, SIU(X), New Delhi V/s. Duncans
Agro Industries Ltd., Calcutta reported in (1996) 5 Supreme Court Cases 591.
20.7) Mr Ponda submits that, continuation of the proceedings would
be an abuse of the process of law as SEBI being the complainant has imposed
a penalty and penal consequences on the Petitioner. That, the issues/disputes
between the Petitioner and SEBI have been set to rest on the basis of the
Consent terms. That, SEBI does not have any claim against the Petitioner and
no individual complaint has been filed. That, proceeding with the
trial/complaint would be an exercise in futility.
20.8) The sum and substance of the arguments, advanced on behalf of
the Petitioner is that:-(i) under the Consent Order, an amount of Rs
2,25,70,794/- has been paid in the form of disgorgement and settlement fees
to SEBI, (ii) that all other civil matters have been settled. (iii) pursuing the
present matters/prosecutions, will serve no useful purpose; (iv) the SEBI has
settled the matter; (v) it is only in the interest of justice, that present criminal
proceedings be quashed and set aside.
Respondent No.2/CBI's Submissions:
21) Per Contra, Mr. Kuldeep Patil, Advocate for appearing for
Respondent No.2-CBI submits that, the complaint and the investigation by the
CBI have revealed that the offences alleged against the accused including the
Mahesh Chavan WP 245 of 2020.doc
Petitioner are wrongdoings and offences against retail investors i.e general
public, the State and the economy of the country. Mr. Kuldeep Patil, while
referring to the record i.e chargesheet ( Pg 68 onwards in Writ Petition
No.245 of 2020), submits that pursuant to a conspiracy, the Petitioner opened
bank accounts and Demat accounts in fictitious names by extensively using as
genuine forged documents. By using the said fictitious bank and Demat
accounts, accused persons including petitioner put in applications in fictitious
names in the IPO's of YBL and IDFC and predatorily cornered in fictitious
names, the shares meant for retail/small investors and then transferred such
cornered share to their own accounts and for their own unjust benefit/profit.
That, accused including the Petitioner by illegal means deprived the
small/retail investors of their legitimate entitlement. That, in these criminal
acts the accused persons, were knowingly aided and abetted by the certain
bank officials/public servants and officials of Depository Participants. That,
the acts of the accused persons, including petitioner are criminal acts and
offences against the society. That, the role of the Petitioner is specifically
mentioned in Clause 4 (iv), 27, 28 read with Clause 5,6,7,10 and 14 of the
charges. That, the accused are charged with offences under section 120B read
with section 420, 467, 468, 471 of Indian Penal Code and Section 13(2) r/w.
13(1)(d) of the Prevention of Corruption Act, 1988 and under Section 68-A of
the Companies Act, 1956.
21.1) Mr. Kuldeep Patil sought to rely upon the Judgments of the
Mahesh Chavan WP 245 of 2020.doc
Hon'ble Supreme Court in the following cases (i) State of Maharashtra,
Through Central Bureau of Investigation V/s. Vikram Anantrai Doshi & Ors.,
reported in (2014) 15 Supreme Court Cases 29; (ii) Central Bureau of
Investigation V/s. Maninder Singh (2016) 1 Supreme Court Cases 389; (iii)
Parbatbhai Aahir Alias Parbatbhai Bhimsinghbhai Karmur & Ors V/s. State of
Gujarat & Anr. Reported in (2017) 9 Supreme Court Cases, 641; (iv) State of
M. P. V/s. Laxmi Narayan & Ors. reported in (2019) 5 SCC 688, to submit that,
permitting the quashing of criminal complaint would be permissible
depending on the facts and circumstances of the each case. That, one needs to
see whether the criminal complaint, of which quashing is sought, is an offence
against the society or against an individual alone. The seriousness, gravity and
nature of the crime have to be considered. That, in heinous, serious offences
and offences against the society, quashing ought not to be permitted.
21.2) Mr. Kuldeep Patil submits that, in the case in hand, there is a
conspiracy involving cornering of shares meant for retail/small investors,
manipulation of security market, earning unjust profit/wrongful gain and
thereby causing wrongful loss to the retail investors in the market. That,
fabricated the documents have been utilized. That,there is active participation
of the Petitioner. That, all the accused have conspired against the Initial
Public Offering process. The investigation is completed and chargesheets have
been filed. That, the offences in the present case are under Section 120-B r/w.
read with section 420, 467, 468, 471 of Indian Penal Code and Section 13(2)
Mahesh Chavan WP 245 of 2020.doc
r/w. 13(1)(d) of the Prevention of Corruption Act, 1988 and under Section
68-A of the Companies Act, 1956. That bank employees being public servants
are involved in the conspiracy. That, in the present case the offences are
crimes against the society and the public at large. That, the present case
cannot be quashed only because the Petitioner has paid monies to SEBI under
the consent procedure.
21.3) Mr. Kuldeep Patil relied upon the Judgment of the Hon'ble
Supreme Court in Rumi Dhar V/s. State of West Bengal & Anr., reported in
(2009) 6 Supreme Court Cases, 364, to submit that, an Order of civil
proceeding which is rendered on the basis of settlement, would not be of
much relevance in a criminal proceeding. He placed reliance on section
Section 43 of the Indian Evidence Act. He submitted that, the consent Order
dated 7th December, 2009, considers only the proceedings under section 11
and 11(B) of the SEBI Act, the adjudicating proceeding under chapter 6A of
SEBI Act and the proposed criminal action under the SEBI Act. That, there is
no reference to CBI's present criminal prosecutions, as being settled or
compromised, in the consent Order dated 7 th December, 2009. He submitted
that, the Consent Order can have no effect on the present criminal
prosecutions, which are an independent prosecution. He submits that, the
mere mentioning of or referring to the CBI criminal prosecutions in the
Petitioners consent application, does not mean that SEBI has agreed to
compound or settle the present criminal proceedings. That SEBI has not
Mahesh Chavan WP 245 of 2020.doc
considered the chargesheet and the fact that it has been filed against a large
number of accused. That, when the Consent Order dated 7 th December, 2009,
was passed, the present prosecutions were already initiated and the
cognizance thereof was taken as early as 19 th March, 2008. That the judgment
in the matter Prakash Gupta (Supra) is on a different issue and does not
pertain to quashing of the criminal proceeding.
Petitioner's Rejoinder Arguments :
22) Mr. Ponda Senior Counsel in rejoinder submits that, the
arguments of CBI that the charge-sheet is filed etc are all covered by the
judgment of K Bharthi Devi V/s State of Telangana . He refers to paragraph 7
of the judgement of K Bharathi Devi (Supra), to submit that even the said case
the chargesheet was filed and even the sections/offences alleged were similar.
That, in the said case there was a settlement with the bank, an OTS was
entered into. Mr. Ponda submits that, the case in hand cannot be compared or
equated with other matters of quashing, in as much as the petitioner, after
making consent application and SEBI after considering various facts, the
consent application, has been directed by SEBI to disgorge the amount of
Rs.2,05,18,897/- and pay Rs.20,51,897/- towards settlement charges to SEBI.
22.1) Mr. Ponda submits that, in the present case the prosecution was
initiated i.e. Section 120-B, 420, 467, 468, 471 of Indian Penal Code which is
similar to that of the case of K Bharathi Devi (Supra). That in K Bharathi Devi
(Supra) even though offence of cheating is prima facie constituted, the
Mahesh Chavan WP 245 of 2020.doc
Hon'ble Supreme Court quashed the complaint. That the Hon'ble Supreme
Court has taken into consideration various facts, i.e the time lapse i.e
complaint was filed in the year 1987, the bank has chosen not to continue
with the prosecution, the claim of the bank was satisfied etc. In view thereof
the Hon'ble Supreme Court had permitted the quashing of the Complaint in
the case of K Bharathi Devi (Supra). Mr. Ponda further submits that, the
statement that this offence is against the society or economy of the country or
against the public money, is not correct, as the petitioner has used his own
money and no public money is involved.
22.2) Mr. Ponda relied upon the case of Central Bureau of Investigation,
SPE, SIU(X), New Delhi V/s. Duncans Agro Industries Ltd., Calcutta reported
in (1996) 5 Supreme Court Cases 591 , to submit that, in the said case the
Hon'ble Supreme Court held that even when an offence of cheating is prima
facie constituted, a compromise decree in a suit would amount to
compounding of the offence of cheating.
22.3) Mr. Ponda further relied upon the case of Nikhil Merchant V/s.
Central Bureau of Investigation and Anr. Reported in (2008) 9 Supreme Court
Cases 677, and submitted that the Hon'ble Supreme Court quashed non
compoundable offences when a compromise was entered into between the
company (borrower) and the bank. That, even the said case the offences were
similar to the present case i.e case was registered under Sections 120-B r/w.
420, 467, 468, and 471 of Indian Penal Code read with Section 5(2) and 5(1)
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(d) of the Prevention of Corruption Act, 1947 and Section 13(2) read with
Section 13(1)(d) of the Prevention of Corruption Act, 1988. That, the Hon'ble
Supreme Court in the said Judgment held that, the disputes between the
Company and the Bank have been set at rest on the basis of the compromise
arrived at by them where under the dues of the Bank have been cleared and
the Bank does not appear to have any further claim against the Company. The
dispute involved herein has overtones of a civil dispute with certain criminal
facets.
22.4) Mr. Ponda relied upon the case of Central Bureau of
Investigation, ACB, Mumbai V/s. Narendra Lal Jain & Ors. Reported in (2014)
5 Supreme Court Cases 364 and submitted that, the present case was in
respect of alleged conspiracy of the accused and the conspiracy of the bank
official and had projected inflated figures of the creditworthiness of the
companies represented by them and in this manner had secured more
advances/loans from the bank than they were entitled to. That, accused
persons compromised the suits with the bank in terms of consent term and
upon receipt of monies the suits were dispose off. That, the High Court has
right to invoke its power under Section 482 of Cr. P. C. quashing the complaint
as continuance of a criminal proceeding which is likely to become oppressive
or may partake the character of a lame prosecution.
23) As stated above, the matter has been remanded back by the
Hon'ble Supreme Court with direction to consider the matter independently
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and to decide as to whether the Petitioner has made out case of quashing the
proceedings. The effect of the consent Order dated 9 th December 2009 is also
required to be considered.
Reasons:
SEBI ACT
24) The object and purpose of the SEBI Act is to provide for the
establishment of a Board to protect the interest of the investors in securities
and to promote the development of, and to regulate, the securities market by
such measures as it thinks fit. The main object of SEBI, is to promote orderly
and healthy growth of the securities market and for protecting the interest of
the investors. The SEBI Act is a social welfare legislation, seeking to regulate
the securities market and protect the interest of the common man/general
public who are small investors. SEBI has enacted various rules and regulations
to ensure that the participants in the securities market abide by the same and
act in an orderly manner. SEBI, issues various orders and direction to ensure
that the securities law are complied with and abided by the all participants
and intermediaries. SEBI takes administrative, regulatory action and or
adjudicatory action in cases of violation of the securities laws. In cases of
serious malpractice or acts akin to criminal offences or any unfair fraudulent
practice having far reaching consequences SEBI initiates criminal
action/prosecution.
24.1) Section 24 of the SEBI Act deals with Offences and Section 24A
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provides for composition of certain offences punishable under the SEBI Act.
The sections read as under:-
24. Offences.--(1) Without prejudice to any award of penalty by the
adjudicating officer [or the Board] under this Act, if any person
contravenes or attempts to contravene or abets the contravention of
the provisions of this Act or of any rules or regulations made
thereunder, he shall be punishable with imprisonment for a term
which may extend to [ten years, or with fine, which may extend to
twenty-five crore rupees or with both].
(2) If any person fails to pay the penalty imposed by the adjudicating
officer [or the Board] or fails to comply with any directions or orders,
he shall be punishable with imprisonment for a term which shall not
be less than one month but which may extend to [ten years, or with
fine, which may extend to twenty-five crore rupees or with both.]
24A. Composition of certain offences.--Notwithstanding anything
contained in the Code of Criminal Procedure, 1973 (2 of 1974), any
offence punishable under this Act, not being an offence punishable
with imprisonment only, or with imprisonment and also with fine, may
either before or after the institution of any proceeding, be
compounded by a Securities Appellate Tribunal or a court before
which such proceedings are pending.
24.2) A perusal of section 24A of the SEBI Act, gives us some insight on
the intention and purpose behind this section. The section begins with a non
obstante clause and deals with composition of certain offences and not all
offences. Further from a bare reading of the section it is clear that, for
offences punishable under SEBI Act, composition of the offence is linked with
or related to the consequences/punishment for the offence. It is to an extent
indicative of and throws light upon the nature of offences that may be
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compounded under the SEBI Act, 1992. Section 24A of the SEBI Act, applies
to offence, only where fine is in the alternative to imprisonment. In offences of
which the punishment, is imprisonment or imprisonment and/or fine the
section does not apply. In our opinion, this is an important aspect of the
matter. SEBI in its parent statute i.e. Securities and Exchange Board of India
Act, 1992 has consciously provided for compounding of only certain offence
i.e offences only where fine is an alternative to imprisonment, thereby
implying that Section 24A does not apply to the offence, which is punishable
with imprisonment or imprisonment with fine. The distinction would imply
that an offence which is grave and serious in nature is not compounded.
24.3) We find that such an object or intention of the SEBI, is further
fortified in its Circular dated 25 th May, 2012, by which the Circular dated 20 th
April, 2007, was amended, and certain new guidelines were issued in relation
to the Consent Orders. In the said Circular, SEBI has provided that
compounding should not be permitted in serious, fraudulent and unfair trade
practices which in the opinion of the Board caused substantial losses to
investors and small shareholders or have or may have market wide impact,
except those defaults where the entity makes good the losses due to the
investors. A conjoint reading, of the Consent Circulars, Consent Order and
Section 24A of SEBI Act, make it very clear that SEBI does not take within the
purview of Consent Order, the offences which are grievous, serious, fraudulent
and/or amount to unfair trade practices, which, in the opinion of the Board,
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causes substantial losses to investors, especially retail investors and small
shareholders or have or may have market wide impact, except those defaults
where the entity makes good the losses due to the investors.
25) As far as the issue of compounding of offence, the Hon'ble
Supreme Court in the Judgment of Prakash Gupta (Supra) in Paragraph No.63
and 64 has observed that;
"63 . Analyzing the above decisions, it is evident that legislative
sanction for compounding of offences is based upon two
contrasting principles: first, that private parties should be
allowed to settle a dispute between them at any stage (with or
without the permission of the Court, depending on the offence),
even of a criminal nature, if proper restitution has been made to
the aggrieved party; and second, that, however, this should not
extend to situations where the offence committed is of a public
nature, even when it may have directly affected the aggrieved
party. The first of these principles is crucial so as to allow for
amicable resolution of disputes between parties without the
adversarial role of Courts, and also to ease the burden of cases
coming before the Courts. However, the second principle is
equally important because even an offence committed against a
private party may affect the fabric of society at large. Non-
prosecution of such an offence may affect the limits of conduct
which is acceptable in the society. The Courts play an important
role in setting these limits through their adjudication and by
prescribing punishment in proportion to how far away from
these limits was the offence which was committed. As such, in
deciding on whether to compound an offence, a Court does not
just have to understand its effect on the parties before it but also
consider the effect it will have on the public. Hence, societal
interest in the prosecution of crime which has a wider social
dimension must be borne in mind.
64. This formulation of this principle is also in alignment with
the position under English common law, where in a judgment of
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the Queen's Bench in Keir vs F. Leeman and Pearson, Lord
Denman CJ held 16:
"We shall probably be safe in laying it down that the law will
permit a compromise of all offences, though made the subject of
a criminal prosecution, for which offences the injured party
might sue and recover damages in an action. It is often the only
manner in which he can obtain redress. But, if the offence is of a
public nature, no agreement can be valid that is founded on the
consideration of stifling a prosecution for it."
Emphasis supplied"
25.1) The Hon'ble Supreme Court in Prakash Gupta V/s. Securities and
Exchange Board of India, (supra) laid down the guidelines for compounding
the offence 24A of the SEBI Act. the Hon'ble Supreme Court, has observed as
as under;
"104.1....... They should consider the factors enumerated in
SEBI's Circular dated 20 April 2007 and the accompanying FAQs,
while deciding whether to allow an application for a consent Order
or an application for compounding. These factors, which are non-
exhaustive, are:
"Following factors, which are only indicative, may be taken into
consideration for the purpose of passing Consent Orders and also
in the context of compounding of offences under the respective
statute:
1. Whether violation is intentional.
2. Party's conduct in the investigation and disclosure of full facts.
3. Gravity of charge i.e. charge like fraud, market manipulation or
insider trading.
4. to 14 .....
15. Any other factors necessary in the facts and circumstances of
the case.
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104.2. According to the Circular dated 20 April 2007 and the
accompanying FAQs, an accused while filing their application for
compounding has to also submit a copy to SEBI, so it can be
placed before the HPAC. The recommendation of the HPAC is then
filed before the SAT or the Court, as the case may be. As such, the
SAT or the Court must give due deference to such opinion. As
mentioned above, the opinion of HPAC and SEBI indicates their
position on the effect of non-prosecution on maintainability of
market structures. Hence, the SAT or the Court must have cogent
reasons to differ from the opinion provided and should only do so
when it believes the reasons provided by SEBI/HPAC are mala fide
or manifestly arbitrary;
104.3. The SAT or Court should ensure that the proceedings under
Section 24A do not mirror a proceeding for quashing the criminal
complaint under Section 482 of the CrPC, thereby providing the
accused a second bite at the cherry. The principle behind
compounding, as noted before in this judgment, is that the
aggrieved party has been restituted by the accused and it consents
to end the dispute. Since the aggrieved party is not present before
the SAT or the Court and most of the offences are of a public
character, it should be circumspect in its role. In the generality of
instances, it should rely on the SEBI's opinion as to whether such
restitution has taken place; and
104.4. Finally, the SAT or the Court should consider whether the
offence committed by the party submitting the application under
Section 24A is private in nature, or it is of a public character, the
non-prosecution of which will affect others at large. As such, the
latter should not be compounded, even if restitution has taken
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place."
25.2) We may also note here, that the issues before the Hon'ble
Supreme Court in the matter of Prakash Gupta (Supra) were as follows (i)
Firstly, whether consent of SEBI under section 24-A of the SEBI Act, while
deciding application for compounding an offence under Section 24(1) of the
SEBI Act, is mandatory ? (ii) Secondly, whether SEBI does not have a veto in
regard to compounding of offence and whether SAT or a court must obtain the
views of SEBI for furnishing guidance to its ultimate decision? and (iii)
Thirdly whether gravity of offences needs to be kept in mind while exercising
powers of compounding under section 24-A of the SEBI Act? In the said
matter, while answering the issues, the Hon'ble Supreme Court held that: (i)
the consent of SEBI was not mandatory before SAT or any court; (ii) the
views of SEBI may be sought in a matter of compounding under section 24A
of the SEBI Act and (iii) the court must be conscious of the gravity of the
offences that the accused is prosecuted for and that serious acts which
impinged upon the protection of investors and the stability of the securities
market must not be compounded. We have also noted the fact that, the
Hon'ble Supreme Court, after considering the nature of the allegations in the
said matter observed that:
"... Finally, SAT or the court should consider whether the offence
committed by the party submitting the application under Section 24-A is
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private in nature, or it is of a public character, non-prosecution of which will
affect others at large. As such, the latter should not be compounded, even if
restitution has taken place."
We have noted the observations of the Hon'ble Supreme Court and the fact
that the Supreme Court has concluded that in the said matter the nature of
the allegations were such so as to preclude a decision to compound the
offences. The allegations being serious, did not warrant compounding.
Consent Order and SEBI Circular:
26) A perusal of the Circular dated 20th April, 2007, would indicate
that under the securities laws, SEBI may pursue two streams of enforcement
actions i.e. Administrative/Civil action or Criminal action. The Administrative
/civil actions include issuing directions such as remedial orders, cease and
desist orders, suspension or cancellation of certificate of registration and
imposition of monetary penalty under the respective statutes and action
pursued or defended in a court of law/tribunal. Criminal action involves
initiating prosecution proceedings against violators by filing complaint before
a criminal courts. SEBI's power to pass consent orders appears to be in
respect of administrative and civil actions or in respect of proposed criminal
prosecutions which have not been instituted. As regards the criminal
prosecutions, the power to compound is interalia recognized under section
24A of the SEBI Act. The scope and reach of the power of SEBI, or the guiding
principles, as one may call it, are set out in Circular dated 20 th April 2007 and
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clarified in Circular dated 25th May 2012. SEBI possess the power and right to
proceed for appropriate action if it cannot achieve its objectives through
a consent Order. Clause 5 of the Circular, specifically refers to and states that
all appropriate administrative or civil actions and other civil matters
pending before Securities Appellate Tribunal (SAT)/courts may be settled
between SEBI and a person (party) who may prima facie be found to have
violated the securities laws or against whom administrative or civil action
has been commenced for such violation.
26.1) Under clause 7, SEBI has the discretion to pass Consent Orders
at any stage however, in the event of a serious and intentional violation, the
process is not completed till the fact finding process is completed whether by
way of investigation or otherwise. It provides that compounding of offence
can take place after filing criminal complaint by SEBI. Clause 9 provides
for the procedure for consent, in other cases, where any person/party who is
notified or who has reasonable grounds to believe that a civil/administrative
proceeding may or will be instituted against him/her, or any party to a
proceeding already instituted, may, at any time, propose in writing for
an offer of consent. Further if any person/party is notified or who has
reasonable ground to believe that a criminal proceeding may or will be
instituted against it, may, before filing a criminal complaint by SEBI
before any criminal court, propose in writing for an offer of consent. The
Committee considers the proposal of consent, requisite waivers by the
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party, facts and circumstances of the case, material available on record
and takes into account the factors and guidance as set out in clause 11
thereof. The Committee may in cases if it finds that the terms for passing a
consent Order are inadequate, ask the party to revise the consent terms.
If the Committee agrees with the proposal, suitable consent terms shall
be recommended to a panel of two Whole Time Members, who may
pass a suitable Order in view of the recommendation of the Committee.
26.2) Under clause 15, depending upon the facts and circumstances of
the case, gravity of violation/offence, interest of investors and the securities
market and deterrent effect, settlement/compounding charges have to be paid
by the party including legal expenses incurred by SEBI. Clause 17 provides for
Settlement before Securities Appellate Tribunal (SAT)/Courts. Clause 19,
provides for Composition of Offences under the SEBI Act, SCRA and the
Depositories Act, 1996, wherever applicable.
26.3) SEBI by its Circular dated 25th May, 2012, amended the Circular
dated 20th April, 2007 and issued certain new guidelines in relation to the
consent orders and also provided a list of offences and inter alia also provided
list of offences, which SEBI shall not settled. The relevant provisions reads as
under;
"ii. Serious fraudulent and unfair trade practices which, in the opinion
of the Board, cause substantial losses to investors and/or affects their
rights, especially retail investors and small shareholders or have or may
have market wide impact, except those defaults where the entity makes
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good the losses due to the investors;"
26.4) A perusal of the both the circulars, is indicative of the fact that,
SEBI has after giving some thought to the consent process and considering its
experiences, thought it appropriate to qualify the consent process in as much
as it excluded serious offences, fraudulent and unfair trade practices which,
cause substantial losses to investors and/or affect their rights, especially retail
investors and small shareholders or have or may have market wide impact,
except those defaults where the entity makes good the losses due to the
investors. The exception is to serious and fraudulent offences, which cause
substantial losses or affects rights or have a market wide impact. According to
the Circular, what is considered is the fact that the rights of retail investors are
affected. We have noted that, the Circular, for excluding offences from the
scope of compounding, is not solely based on, monetary/financial quantifiable
losses, but goes on to include, what seems to be of paramount importance,
and rightly so, the adverse effect on rights of the small investors, the market
wide impact, the orderly development of the capital markets or a wide market
impact. The adverse impact, is not kept limited, to monetary loss or
quantifiable loss. The adverse effect on rights of the small investors and
market impact is also taken into consideration to exclude offences from the
scope of compounding. Even in the present case, the rights of the retail
investors have been adversely affected, in as much as the opportunity of retail
investors to participate in the IPO under the category of RII's was impaired
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and possibility of getting an allotment of shares in the IPO was impaired or in
some cases may be wiped out. The acts of the Petitioner and other accused
have adversely affected the market mechanism, the IPO process, the rights of
retail investors and had a wide market impact also. At least that was the case
of the SEBI in its complaint. This, surely is not good for the orderly
development and protection of the securities market.
27) A perusal of the circulars and the guidelines, makes it clear, and
there can be no doubt of the fact that the Consent Order may settle all issues
or reserve an issue or claim. What is important, that the consent Order or
initial approval must precisely state what issues or claims are settled and/or
covered under the Consent Order and which are left out. Non-mentioning of a
particular claim would mean that the same has been left out and not within
the scope and ambit of the Consent Order. We note that, there is no reference
to the present criminal prosecutions in the consent Order dated 7 th December,
2009. The Consent Order, does not state that the present criminal proceeding
have been compromised or permitted to be compromised or being dealt with
or even referred to. We find that except the unilateral reference made by the
Petitioner in his consent application, to the present criminal prosecution, there
is no discussion or reference of the present criminal prosecutions in the
Consent Order. More importantly, the Consent Order specifically records that,
the consent Order disposed of only, the pending proceedings under section
11(4) and 11B of the SEBI Act,1992, the adjudication proceedings and the
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proposed prosecution against the applicant in the matter of irregularities
relating to initial public offerings. The Consent Order settled only the said
issues. It precisely states what issues or claims were settled.
27.1) We have also noted that the Consent Order dated 7 th December,
2009 was passed, after the cognizance of the present criminal complaints was
already taken on 19th March, 2008. Therefore, the reference of the proposed
prosecution, appearing in paragraph No.5 of the consent Order obviously
cannot refer to or mean to make a reference to the present criminal
prosecutions filed by the CBI. It is not clear as to which further proposed
criminal proceeding SEBI was in the process of initiating. As noted above, the
said reference cannot be to the present criminal proceedings as they are prior
in time, chargesheets have been filed and cognizance also taken.
27.2) As regards the contention that, the present criminal complaints
are included in the consent process as in Clause 11 of consent application
dated 5th November, 2008 the present Petitioner has made a reference to
them, is of no legal consequences. That, in our view is a unilateral reference.
The same appears to be deliberate or intentionally made to take undue
advantage of the consent process. As noted above, the Consent Order dated 7 th
December, 2009 does not even refer to the present criminal proceedings. It
would, at the highest refer the prosecution, which would be proposed as of
the date of approval of High Power Committee or as of 7 th December, 2009
when the consent Order was passed and not to a prosecution prior to that
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date. We find that the Consent Order is only in respect of administrative and
civil proceeding. The Consent Order does not refer to or deal with the present
pending criminal proceedings. The present investigation is an independent
investigation and the consent Order can have no effect or impact on the
investigation. The Consent Order therefore does not affect the present
criminal prosecutions.
Law laid down by the Hon'ble Supreme Court:
28) As regards the question of quashing the present criminal
prosecutions, one needs to first consider the law as laid down by the Hon'ble
Supreme Court for the parameters of exercise of power under section 482 of
the Code of Criminal Procedure,1973 in normal cases so also cases in which
settlements/compromises have been arrived.
28.1) the Hon'ble Supreme Court in case of State of Haryana v.
Bhajan Lal reported in 1992 Supp (1) SCC 335 : 1992 SCC (Cri) 426, at
paragraph 102, laid down illustrative categories where quashing of
proceedings is justified. These are:
"(1) Where the allegations made in the first information
report or the complaint, even if they are taken at their face
value and accepted in their entirety do not prima facie
constitute any offence or make out a case against the
accused.
(2) Where the allegations in the first information report
and other materials, if any, accompanying the FIR do not
disclose a cognizable offence, justifying an investigation
by police officers under Section 156(1) of the Code except
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under an Order of a Magistrate within the purview of
Section 155(2) of the Code.
(3) Where the uncontroverted allegations made in the FIR
or complaint and the evidence collected in support of the
same do not disclose the commission of any offence and
make out a case against the accused.
(4) Where the allegations in the FIR do not constitute a
cognizable offence but constitute only a non-cognizable
offence, no investigation is permitted by a police officer
without an Order of a Magistrate as contemplated under
Section 155(2) of the Code.
(5) Where the allegations made in the FIR or complaint
are so absurd and inherently improbable on the basis of
which no prudent person can ever reach a just conclusion
that there is sufficient ground for proceeding against the
accused.
(6) Where there is an express legal bar engrafted in any of
the provisions of the Code or the Act concerned (under
which a criminal proceeding is instituted) to the
institution and continuance of the proceedings and/or,
where there is a specific provision in the Code or the Act
concerned, providing efficacious redress for the grievance
of the aggrieved party.
(7) Where a criminal proceeding is manifestly attended
with mala fide and/or where the proceeding is maliciously
instituted with an ulterior motive for wreaking vengeance
on the accused and with a view to spite him due to private
and personal grudge."
28.2) In the case of Manik B Vs. Kadapala Sreyes Reddy , reported in
2023 LiveLaw (SC) 642 the Hon'ble Supreme Court has held that, the scope
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of interference while quashing the proceedings under Section 482 of Cr.P.C. is
very limited and the power would be exercised only if the Court finds that
taking the case at its face value, no case is made out at all. the Hon'ble
Supreme Court observed that it is not permissible for the Court to go into
correctness or otherwise of the material placed by the prosecution in the
chargesheet.
28.3) In the case of Iqbal @ Bala and Ors. vs. State of U.P. and Ors.,
(2023 SCC Online SC 949), the Hon'ble Apex Court declined to interfere in
the Order of the High Court rejecting the petition filed for quashing of the
FIR, taking note of the fact that, the investigation had been completed and
chargesheet is required to be filed. The view taken by the Apex Court is that
the Trial Court should be allowed to look into materials which the
investigation officer might have collected forming part of the chargesheet,
despite the observation of the Apex Court that the allegation leveled in the
FIR did not inspire any confidence.
28.4) The Hon'ble Supreme Court in the cases of (i) State of Haryana &
Ors. vs. Ch. Bhajan Lal & Ors., AIR 1992 SC 604, (ii) Rajeev Kourav vs.
Baisahab & others, (2020) 3 SCC 317 and (iii) Kaptan Singh vs. State of Uttar
Pradesh and others, (2021) 9 SCC 35, has held that, exercise of powers under
Section 482 Cr.P.C. to quash the proceedings is an exception and not a rule.
Appreciation of evidence is not permissible at the stage of quashing of
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proceedings in exercise of powers under Section 482 of Cr.P.C.
28.5) Similarly in the case of State of Odisha vs. Pratima Mohanty and
others, (2022) 16 SCC 703, the Hon'ble Supreme Court has held that once the
charge-sheet is filed, the High Court should be reluctant to quash the
complaint. Paragraph no.8.2 of the Judgment reads as under :
"8.2 It is trite that the power of quashing should be exercised
sparingly and with circumspection and in rare cases. As per the
settled proposition of law while examining an FIR/complaint
quashing of which is sought, the court cannot embark upon any
enquiry as to the reliability or genuineness of allegations made in
the FIR/complaint. Quashing of a complaint/FIR should be an
exception rather than any ordinary rule. Normally the criminal
proceedings should not be quashed in exercise of powers under
section 482 CrPC when after a thorough investigation the charge-
sheet has been filed. At the stage of discharge and/or considering
the application under section 482 CrPC the courts are not required
to go into the merits of the allegations and/or evidence in detail as if
conducting the mini-trial. As held by this court the powers under
section 482 CrPC are very wide, but conferment of wide power
requires the court to be more cautious. It casts all onerous and more
diligent duty on the Court.
28.6) The Hon'ble Supreme Court in the matter of Chilakamarthi
Venkateswarlu & Anr. V/s. State of Andhra Pradesh & Anr reported in (2020)
17 SCC 595, once again reiterated with approval the pronouncement in the
matter of State of Haryana V/s Bhajanlal and in paragraph 23 observed that :-
"23. In this case, the High Court rightly refused to quash the
criminal complaint, observing that it can exercise power under
Section 482 of the CrPC only in rare cases. The power to quash the
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proceedings is generally exercised when there is no material to
proceed against the Petitioners even if the allegations in the
complaint are prima facie accepted as true. The High Court in effect
found, and rightly, that the allegations in the complaint coupled
with the statements recorded by the learned Magistrate had the
necessary ingredients of offences under Sections 307, 323, 427,
447 and 506(2) read with Section 34 of the IPC."
28.7) In the case of Iqbal @ Bala & Ors. vs. State of U. P. & Ors (supra)
in its judgment and Order dated 8 th August, 2023, the Hon'ble Supreme Court
has held that;
"7. It is relevant to note that the victim has not furnished any
information in regard to the date and time of the commission of
the alleged offence. At the same time, we also take notice of the
fact that the investigation has been completed and charge sheet is
ready to be filed. Although the allegations levelled in the FIR do
not inspire any confidence more particularly in the absence of any
specific date, time, etc. of the alleged offences, yet we are of the
view that the appellants should prefer discharge application
before the Trial Court under Section 227 of the Code of Criminal
Procedure (CrPC). We say so because even according to the State,
the investigation is over and charge sheet is ready to be filed
before the competent court. In such circumstances, the Trial Court
should be allowed to look into the materials which the
investigation officer might have collected forming part of the
charge sheet. If any such discharge application is filed, the Trial
Court shall look into the materials and take a call whether any
case for discharge is made out or not."
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28.8) The general principle of law which emerges from the aforesaid
case law is that a court while exercising its jurisdiction under Section 482 of
the Code of Criminal Procedure, 1973 should be careful and it must be
exercised sparingly. It would be the duty of the High Court to intervene when
extraordinary circumstances arise and if the continuation of criminal
proceedings would amount to an abuse of process of law, or where the dispute
is purely of a civil nature and there is no criminal intend in the said case. The
criminality involved is required to be examined.
29) The law as laid down by the Hon'ble Supreme Court for exercise
of power under section 482 of the Code of Criminal Procedure, 1973, when
matters are settled/compromised is as under:-
29.1) The Hon'ble Supreme Court in the matter of Gian Singh Vs. State
of Punjab & Anr reported in (2012 10 SCC 303) , in Para No.58, 60 and 61
observed that;
"58. ..... In respect of serious offences like murder, rape, dacoity,
etc; or other offences of mental depravity under IPC or offences of
moral turpitude under special statutes, like Prevention of
Corruption Act or the offences committed by public servants while
working in that capacity, the settlement between offender and
victim can have no legal sanction at all."...
60. We find no incongruity in the above principle of law and the
decisions of this Court in Simrikhia, Dharampal, Arun Shankar
Shukla, Ishwar Singh, Rumi Dhar (Smt.). and C Ashok
Sadarangan. The principle propounded in Simrikhia that the
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inherent jurisdiction of the High Court cannot be invoked to
override express bar provided in law is by now well settled. In
Dharampal, the Court observed the same thing that the inherent
powers under Section 482 of the Code cannot be utilized for
exercising powers which are expressly barred by the Code. Similar
statement of law is made in Arun Shankar Shukla. In Ishwar
Singh, the accused was alleged to have committed an offence
punishable under Section 307, IPC and with reference to Section
320 of the Code, it was held that the offence punishable under
Section 307 IPC was not compoundable offence and there was
express bar in Section 320 that no offence shall be compounded if
it is not compoundable under the Code. In Rumi Dhar (Smt.)
although the accused had paid the entire due amount as per the
settlement with the bank in the matter of recovery before the
Debts Recovery Tribunal, the accused was being proceeded with
for commission of offences under Section 120-B, 420, 467, 468,
471 of the IPC along with the bank officers who were being
prosecuted under Section 13(2) read with 13(1)(d) of Prevention
of Corruption Act. The Court refused to quash the charge against
the accused by holding that the Court would not quash a case
involving a crime against the society when a prima facie case has
been made out against the accused for framing the charge. Ashok
Sadarangani was again a case where the accused persons were
charged of having committed offences under Sections 120-B, 465,
467, 468 and 471, IPC and the allegations were that the accused
secured the credit facilities by submitting forged property
documents as collaterals and utilized such facilities in a dishonest
and fraudulent manner by opening letters of credit in respect of
foreign supplies of goods, without actually bringing any goods but
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inducing the bank to negotiate the letters of credit in favour of
foreign suppliers and also by misusing the cash-credit facility. The
Court was alive to the reference made in one of the present
matters and also the decisions in B. S. Joshi, Nikhi Merchant and
Manoj Sharma and it was held that B.S. Joshi and Nikhil Merchant
dealt with different factual situation as the dispute involved had
overtures of a civil dispute but the case under consideration in
Ashok Sadarangani was more on the criminal intent than on a civil
aspect. The decision in Ashok Sadarangani supports the view that
the criminal matters involving overtures of a civil dispute stand on
a different footing.
61. The position that emerges from the above discussion can be
summarized thus: the power of the High Court in quashing a
criminal proceeding or FIR or complaint in exercise of its inherent
jurisdiction is distinct and different from the power given to a
criminal court for compounding the offences under Section 320 of
the Code. Inherent power is of wide plenitude with no statutory
limitation but it has to be exercised in accord with the guideline
engrafted in such power viz; (i) to secure the ends of justice or (ii)
to prevent abuse of the process of any Court. In what cases power
to quash the criminal proceeding or complaint or F.l.R may be
exercised where the offender and victim have settled their dispute
would depend on the facts and circumstances of each case and no
category can be prescribed. However, before exercise of such
power, the High Court must have due regard to the nature and
gravity of the crime. Heinous and serious offences of mental
depravity or offences like murder, rape, dacoity, etc. cannot be
fittingly quashed even though the victim or victim's family and the
offender have settled the dispute. Such offences are not private in
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nature and have serious impact on society. Similarly, any
compromise between the victim and offender in relation to the
offences under special statutes like Prevention of Corruption Act or
the offences committed by public servants while working in that
capacity etc; cannot provide for any basis for quashing criminal
proceedings involving such offences. But the criminal cases having
overwhelmingly and pre-dominatingly civil flavour stand on
different footing for the purposes of quashing, particularly the
offences arising from commercial, financial, mercantile, civil,
partnership or such like transactions or the offences arising out of
matrimony relating to dowry, etc. or the family disputes where the
wrong is basically private or personal in nature and the parties
have resolved their entire dispute. In this category of cases, High
Court may quash criminal proceedings if in its view, because of the
compromise between the offender and victim, the possibility of
conviction is remote and bleak and continuation of criminal case
would put accused to great oppression and prejudice and extreme
injustice would be caused to him by not quashing the criminal case
despite full and complete settlement and compromise with the
victim. In other words, the High Court must consider whether it
would be unfair or contrary to the interest of justice to continue
with the criminal proceeding or continuation of the criminal
proceeding would tantamount to abuse of process of law despite
settlement and compromise between the victim and wrongdoer
and whether to secure the ends of justice, it is appropriate that
criminal case is put to an end and if the answer to the above
question(s) is in affirmative, the High Court shall be well within its
jurisdiction to quash the criminal proceeding."
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29.2) In the matter of Sushil Suri V/s. Central Bureau of Investigation
& Ors. reported in (2011) 5 Supreme Court Cases 708 , the Hon'ble Supreme
Court has held that,
"..when more than sufficient circumstances exist suggesting
hatching of a criminal conspiracy, forgery of documents, having
regard to the modus operandi adopted by the accused as depicted
in the chargesheet and when an offence is a serious offence against
the society mere repayment to the bank cannot exonerate the
accused from a criminal liability."
In para 16,19, 25 and 32 it has been further held that;
"16. Section 482 of the Cr.P.C. itself envisages three circumstances
under which the inherent jurisdiction may be exercised by the High
Court, namely (i) to give effect to an Order under the Cr.P.C.; (ii) to
prevent an abuse of the process of Court; and (iii) to otherwise
secure the ends of justice. It is trite that although the power
possessed by the High Court under the said provision is very wide
but it is not unbridled. It has to be exercised sparingly, carefully and
cautiously, ex debito justitiae to do real and substantial justice for
which alone the Court exists. Nevertheless, it is neither feasible
nor desirable to lay down any inflexible rule which would govern
the exercise of inherent jurisdiction of the Court. Yet, in numerous
cases, this Court has laid down certain broad principles which may
be borne in mind while exercising jurisdiction under Section 482 of
the Cr.P.C. Though it is emphasized that exercise of inherent powers
would depend on the facts and circumstances of each case, but, the
common thread which runs through all the decisions on the subject
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is that the Court would be justified in invoking its inherent
jurisdiction where the allegations made in the Complaint or
Chargesheet, as the case may be, taken at their face value and
accepted in their entirety do not constitute the offence alleged.
19. Recently, this Court in A. Ravishankar Prasad & Ors. (supra),
relied upon by learned counsel for the CBI, referring to several
earlier decisions on the point, including R. P. Kapur (supra); State of
Haryana & Ors. Vs. Bhajan Lal & Ors., Janata Dal Vs. H. s.
Chowdhary & Ors.; B. S. Joshi & Ors (supra); Nikhil Merchant
(supra) etc. has reiterated that the exercise of inherent powers
would entirely depend on the facts and circumstances of each case.
20. It has been further observed that: (A. Ravishankar Prasad
case, SCC pp. 357-58, para 23)
"23. ...... The inherent powers should not be exercised to
stifle a legitimate prosecution. The High Court should normally
refrain from giving a prima facie decision in a case where all the
facts are incomplete and hazy, more so, when the evidence has not
been collected and produced before the Court and the issues
involved, whether factual or legal, are of such magnitude that they
cannot be seen in their true perspective without sufficient material."
25. The essential ingredient of the offence of "criminal
conspiracy", defined in Section 120A IPC, is the agreement to
commit an offence. In a case where the agreement is for
accomplishment of an act which by itself constitutes an offence,
then in that event, unless the Statute so requires, no overt act is
necessary to be proved by the prosecution because in such a fact-
situation criminal conspiracy is established by proving such an
agreement. In other words, where the conspiracy alleged is with
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regard to commission of a serious crime of the nature as
contemplated in Section 120B read with the proviso to sub-section
(2) of Section 120A IPC, then in that event mere proof of an
agreement between the accused for commission of such crime alone
is enough to bring about a conviction under Section 120B and the
proof of any overt act by the accused or by any one of them would
not be necessary. (See: Suresh Chandra Bahri Vs. State of Bihar).
32. It needs little emphasis that even one additional or different
fact may make a world of difference between the conclusions in two
cases and blindly placing reliance on a decision is never proper. It is
trite that while applying ratio, the Court may not pick out a word or
sentence from the judgment divorced from the context in which the
said question arose for consideration. (See: Zee Telefilms Ltd. &
Anr. Vs. Union of India & Anr). In this regard, the following words
of Lord Denning, quoted in Haryana Financial Corporation & Anr.
Vs. Jagdamba Oil Mills & An., are also quite apt: (SCC p. 509, Para
22).
"22. ..... 'Each case depends on its own facts and a close
similarity between one case and another is not enough
because even a single significant detail may alter the
entire aspect. In deciding such cases, one should avoid the
temptation to decide cases (as said by Cardozo) by
matching the colour of one case against the colour of
another. To decide, therefore, on which side of the line a
case falls, the broad resemblance to another case is not at
all decisive.'"
29.3) In the matter of State of Maharashtra, CBI Vs. Vikram Anantrai Doshi &
Ors. reported in 2014 (15) SCC 29, in Paragraph Nos.25 and 26 it is held that;
Mahesh Chavan WP 245 of 2020.doc
"25. In this context, we may usefully refer to a two-Judge Bench
decision in Central Bureau of Investigation V. Jagjit Singh [14]
wherein the Court being moved by the CBI had overturned the
Order of the High Court quashing the criminal proceeding and in
that backdrop had taken note of the fact that accused persons had
dishonestly induced delivery of the property of the bank and had
used forged documents as genuine. Proceeding further the Court
opined as follows:- (SCC P. 692 Para 15)
"15....... The offences when committed in relation with banking
activities including offences under Sections 420, 471 IPC have
harmful effect on the public and threaten the well-being of the
society. These offences fall under the category of offences involving
moral turpitude committed by public servants while working in
that capacity. Prima facie, one may state that the bank is the victim
in such cases but, in fact, the society in general, including
customers of the bank is the sufferer. In the present case, there was
neither an allegation regarding any abuse of process of any court
not anything on record to suggest that the offenders were entitled
to secure the Order in the ends of justice.
26. We are in respectful agreement with the aforesaid view. Be it
stated, that availing of money from a nationalized bank in the
manner, as alleged by the investigating agency, vividly exposits
fiscal impurity and, in a way, financial fraud. The modus operandi
as narrated in the chargesheet cannot be put in the compartment
of an individual or personal wrong. It is a social wrong and it has
immense societal impact. It is an accepted principle of handling of
finance that whenever there is manipulation and cleverly
conceived contrivance to avail of these kind of benefits it cannot be
regarded as a case having overwhelmingly and predominantingly
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of civil character. The ultimate victim is the collective. It creates a
hazard in the financial interest of the society. The gravity of the
offence creates a dent in the economic spine of the nation. The
cleverness which has been skillfully contrived, if the allegations are
true, has a serious consequence. A crime of this nature, in our view,
would definitely fall in the category of offences which travel far
ahead of personal or private wrong. It has the potentiality to usher
in economic crisis. Its implications have its own seriousness, for it
creates a concavity in the solemnity that is expected in financial
transactions. It is not such a case where one can pay the amount
and obtain a "no due certificate" and enjoy the benefit of quashing
of the criminal proceeding on the hypostasis that nothing more
remains to be done. The collective interest of which the Court is
the guardian cannot be a silent or a mute spectator to allow the
proceedings to be withdrawn, or for that matter yield to the
ingenuous dexterity of the accused persons to invoke the
jurisdiction under Article 226 of the Constitution or under Section
482 of the Code and quash the proceeding. It is not legally
permissible. The Court is expected to be on guard to these kinds of
adroit moves. The High Court, we humbly remind, should have
dealt with the matter keeping in mind that in these kind of
litigations the accused when perceives a tiny gleam of success,
readily invokes the inherent jurisdiction for quashing of the
criminal proceeding. The court's principal duty, at that juncture,
should be to scan the entire facts to find out the thrust of
allegations and the crux of the settlement. It is the experience of
the Judge comes to his aid and the said experience should be used
with care, caution, circumspection and courageous prudence. As
we find in the case at hand the learned Single Judge has not taken
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pains to scrutinize the entire conspectus of facts in proper
perspective and quashed the criminal proceeding. The said
quashment neither helps to secure the ends of justice nor does it
prevent the abuse of the process of the Court nor can it be also said
that as there is a settlement no evidence will come on record and
there will be remote chance of conviction. Such a finding in our
view would be difficult to record. Be that as it may, the fact
remains that the social interest would be on peril and the
prosecuting agency, in these circumstances, cannot be treated as an
alien to the whole case. Ergo, we have no other option but to hold
that the Order of the High Court is wholly indefensible."
29.4) In the matter of Narinder Singh & Ors. Vs. State of Punjab & Anr,
(2014) 6 SCC 466, the Hon'ble Supreme Court has held that in case of
heinous and serious offences, which are generally to be treated as crime
against society, it is the duty the of the state to punish the offender. Hence
even when there is a settlement, the view of the offender and the victim will
not prevail since it is the interest of society that the offender should be
punished to deter others from committing similar crimes.
29.5) the Hon'ble Supreme Court in the matter of Central Bureau of
Investigation Vs. Maninder Sing (AIR 2015 Supreme Court 3657), in
Paragraph 11 and 12 it is observed that;
" 17. .... In economic offences Court must not only keep in view
that money has been paid to the bank which has been defrauded
but also the society at large. It is not a case of simple assault or a
theft of a trivial amount; but the offence with which we are
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concerned is a well planned and was committed with a deliberate
design with an eye of personal profit regardless of consequence to
the society at large. To quash the proceeding merely on the ground
that the accused has settled the amount with the bank would be a
misplaced sympathy. If the prosecution against the economic
offenders are not allowed to continue, the entire community is
aggrieved.
18. In recent decision in Vikram Anantrai Doshi (supra), this
Court distinguished Nikhil Merchant's case and Narendra Lal Jain's
case where the compromise was a part of the decree of the court
and by which the parties withdrew all allegations against each
other. After referring to various case laws under subject in Vikram
Anantrai Doshi's case, this Court observed that cheating by bank
exposits fiscal impurity and such financial fraud is an offence
against society at large in para (23), this Court held as under:-
"26. ...Be it stated, that availing of money from a nationalized
bank in the manner, as alleged by the investigating agency, vividly
exposits fiscal impurity and, in a way, financial fraud. The modus
operandi as narrated in the chargesheet cannot be put in the
compartment of an individual or personal wrong. It is a social
wrong and it has immense societal impact. It is an accepted
principle of handling of finance that whenever there is
manipulation and cleverly conceived contrivance to avail of these
kind of benefits it cannot be regarded as a case having
overwhelmingly and predominantingly of civil character. The
ultimate victim is the collective. It creates a hazard in the financial
interest of the society. The gravity of the offence creates a dent in
the economic spine of the nation. The cleverness which has been
skillfully contrived, if the allegations are true, has a serious
Mahesh Chavan WP 245 of 2020.doc
consequence. A crime of this nature, in our view, would definitely
fall in the category of offences which travel far ahead of personal
or private wrong. It has the potentiality to usher in economic
crisis. Its implications have its own seriousness, for it creates a
concavity in the solemnity that is expected in financial
transactions. It is not such a case where one can pay the amount
and obtain a "no due certificate" and enjoy the benefit of quashing
of the criminal proceedings on the hypostasis that nothing more
remains to be done. The collective interest of which the Court is
the guardian cannot be a silent or a mute spectator to allow the
proceedings to be withdrawn, or for that matter yield to the
ingenuous dexterity of the accused persons to invoke the
jurisdiction under Article 226 of the Constitution or under Section
482 of the Code and quash the proceeding. It is not legally
permissible. The Court is expected to be on guard to these kinds of
adroit moves. The High Court, we humbly remind, should have
dealt with the matter keeping in mind that in these kind of
litigations the accused when perceives a tiny gleam of success,
readily invokes the inherent jurisdiction for quashing of the
criminal proceeding. The court's principal duty, at that juncture,
should be to scan the entire facts to find out the thrust of
allegations and the crux of the settlement. It is the experience of
the Judge comes to his aid and the said experience should be used
with care, caution, circumspection and courageous prudence. As
we find in the case at hand the learned Single Judge has not taken
pains to scrutinize the entire conspectus of facts in proper
perspective and quashed the criminal proceeding. The said
quashment neither helps to secure the ends of justice nor does it
prevent the abuse of the process of the Court nor can it be also
Mahesh Chavan WP 245 of 2020.doc
said that as there is a settlement no evidence will come on record
and there will be remote chance of conviction. Such a finding in
our view would be difficult to record. Be that as it may, the fact
remains that the social interest would be on peril and the
prosecuting agency, in these circumstances, cannot be treated as
an alien to the whole case. Ergo, we have no other option but to
hold that the Order of the High Court is wholly indefensible".
29.6) In the case of Daxaben Vs. State of Gujarat and Others reported
in 2022 LiveLaw (SC) 642 wherein it has been observed in para No. 41 that;
"41. In Gian Singh V. State of Punjab MANU/SC/0781/2012:
(2012) 10 SCC 303, this Court discussed the circumstances in
which the High Court quashes criminal proceedings in case of a
non-compoundable offence, when there is a settlement between
the parties and enunciated the following principles:-
"58. Where the High Court quashes a criminal
proceeding having regard to the fact that the dispute
between the offender and the victim has been settled
although the offences are not compoundable, it does so
as in its opinion, continuation of criminal proceedings
will be an exercise in futility and justice in the case
demands that the dispute between the parties is put to
an end and peace is restored; securing the ends of
justice being the ultimate guiding factor. No doubt,
crimes are acts which have harmful effect on the public
and consist in wrongdoing that seriously endangers and
threatens the well-being of the society and it is not safe
to leave the crime-doer only because he and the victim
have settled the dispute amicably or that the victim has
been paid compensation, yet certain crimes have been
made compoundable in law, with or without the
permission of the court. In respect of serious offences
like murder, rape, dacoity, etc., or other offences of
mental depravity under IPC or offences of moral
turpitude under special statutes, like the Prevention of
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Corruption Act or the offences committed by public
servants while working in that capacity, the settlement
between the offender and the victim can have no legal
sanction at all. However, certain offences which
overwhelmingly and predominantly bear civil flavour
having arisen out of civil, mercantile, commercial,
financial, partnership or such like transactions or the
offences arising out of matrimony, particularly relating
to dowry, etc. or the family dispute, where the wrong is
basically to the victim and the offender and the victim
have settled all disputes between them amicably,
irrespective of the fact that such offences have not been
made compoundable, the High Court may within the
framework of its inherent power, quash the criminal
proceeding or criminal complaint or FIR if it is satisfied
that on the face of such settlement, there is hardly any
likelihood of the offender being convicted and by not
quashing the criminal proceedings, justice shall be
casualty and ends of justice shall be defeated. The
above list is illustrative and not exhaustive. Each case
will depend on its own facts and no hard-and-fast
category can be prescribed".
29.7) The Hon'ble Supreme Court in the matter of Parbatbhai Aahir @
Parbatbhai Bhimsinhbhai Karmur & Ors. Vs. State of Gujrat & Anr. Reported
in (2017) 9 SCC 641, wherein it has been observed in Para No.13 and 15;
"13. The same principle was followed in Central Bureau of
Investigation v Maninder Singh by a bench of two learned Judges
of this Court. In that case, the High Court had, in the exercise of
its inherent power under Section 482 quashed proceedings under
Sections 420, 467, 468 and 471 read with Section 120-B of the
Penal Code. While allowing the appeal filed by the Central
Bureau of Investigation Mr Justice Dipak Misra (as the learned
Chief Justice then was) observed that the case involved
allegations of forgery of documents to embezzle the funds of the
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bank. In such a situation, the fact that the dispute had been
settled with the bank would not justify a recourse to the power
under Section 482:
"...In economic offences Court must not only keep in view that
money has been paid to the bank which has been defrauded but
also the society at large. It is not a case of simple assault or a
theft of a trivial amount; but the offence with which we are
concerned is well planned and was committed with a deliberate
design with an eye of personal profit regardless of consequence to
the society at large. To quash the proceeding merely on the
ground that the accused has settled the amount with the bank
would be a misplaced sympathy. If the prosecution against the
economic offenders are not allowed to continue, the entire
community is aggrieved."
15. The broad principles which emerge from the precedents on
the subject, may be summarised in the following propositions :
(i) ...
(ii) ...
(iii) ...
(iv) While the inherent power of the High Court has a wide ambit
and plenitude it has to be exercised; (i) to secure the ends of
justice or (ii) to prevent an abuse of the process of any court;
(v) The decision as to whether a complaint or First Information
Report should be quashed on the ground that the offender and
victim have settled the dispute, revolves ultimately on the facts
and circumstances of each case and no exhaustive elaboration of
principles can be formulated;
(vi) In the exercise of the power under Section 482 and while
dealing with a plea that the dispute has been settled, the High
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Court must have due regard to the nature and gravity of the
offence. Heinous and serious offences involving mental depravity
or offences such as murder, rape and dacoity cannot
appropriately be quashed though the victim or the family of the
victim have settled the dispute. Such offences are, truly speaking,
not private in nature but have a serious impact upon society. The
decision to continue with the trial in such cases is founded on the
overriding element of public interest in punishing persons for
serious offences;
(vii) As distinguished from serious offences, there may be
criminal cases which have an overwhelming or predominant
element of a civil dispute. They stand on a distinct footing in so
far as the exercise of the inherent power to quash is concerned;
(viii) Criminal cases involving offences which arise from
commercial, financial, mercantile, partnership or similar
transactions with an essentially civil flavour may in appropriate
situations fall for quashing where parties have settled the dispute;
(ix) In such a case, the High Court may quash the criminal
proceeding if in view of the compromise between the disputants,
the possibility of a conviction is remote and the continuation of a
criminal proceeding would cause oppression and prejudice; and
(x) There is yet an exception to the principle set out in
propositions (viii) and (ix) above. Economic offences involving
the financial and economic well-being of the state have
implications which lie beyond the domain of a mere dispute
between private disputants. The High Court would be justified in
declining to quash where the offender is involved in an activity
akin to a financial or economic fraud or misdemeanour. The
consequences of the act complained of upon the financial or
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economic system will weigh in the balance."
29.8) In the case of The State of Madhya Pradesh Vs. Laxmi Narayan &
Ors (2019) 5 SCC 688 the ratio of Gian Singh, Parbatbhai Aahir @ Parbatbhai
Bhimsinhbhai Karmur , Narinder Singh & Ors. has been reiterated. the Hon'ble
Supreme Court observed that;
"the quashing of criminal complaint would permissible depending
on the facts and circumstances of the each case. That, it needs to
be seen whether the criminal complaint, of which quashing is
sought, is an offence against the society or against the individual
alone. That, the kind of dispute, seriousness and nature of the
crime is required to be seen."
29.9) the Hon'ble Supreme Court in the matter of Anil Bhavarlal Jain &
Anr. Vs. The State of Maharashtra & Ors. reported in 2024 SCC OnLIne 3823
in Para Nos. 14, 16, 17 and 18 has observed as under:
"14. This Court in Gian Singh (supra) has dealt with the powers
of the High Court under Section 482 r/w Section 320 of the CrPC
and the consequent authority of the High Court to quash criminal
proceedings, FIRs or complaints under its inherent jurisdiction as
in contradistinction to the power with criminal courts for
compounding offenses under Section 320 of the CrPC. The High
Court observed that quashing was dependent on the unique
circumstances of each case and though no fixed category can be
established, heinous and severe offences should not be quashed
even if the parties have settled. However, this Court in Gian Singh
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(supra) categorically made an observation that:
"61. ........ The offences of mental depravity under the
Indian Penal Code or offences of moral turpitude under
special statutes like Prevention of Corruption Act or the
offences committed by the public servants while working in
that capacity, the settlement between offender and victim
can have no legal sanction at all."
16. Another reference can be made to the judgment of this Court
in Parbatbhai Aahir vs State of Gujrat and Anr. wherein it was
observed that, economic offenses involving financial and
economic well-being of the state have implications which lie
beyond the domain of a mere dispute between the private
disputants. The High Court would be justified in declining to
quash where the offender is involved in an activity akin to a
financial or economic fraud or misdemeanour. The consequences
of the act complained of upon the financial or economic system
will weigh in the balance. Thus, it can be concluded that
economic offences by their very nature stand on a different
footing than other offences and have wider ramifications. They
constitute a class apart. Economic offences affect the economy of
the country as a whole and pose a serious threat to the financial
health of the country. If such offences are viewed lightly, the
confidence and trust of the public will be shaken.
17. A profitable reference in this regard can be made to the
judgment in State vs. R Vasanthi Stanley wherein this Court
declined to quash the proceedings in a case involving alleged
abuse of the financial system. It was observed as under:
"15. ........ A grave criminal offence or serious economic
offence or for that matter the offence that has the
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potentiality to create a dent in the financial health of the
institutions is not to be quashed on the ground that there is
delay in trial or the principle that when the matter has been
settled it should be quashed to avoid the head on the
system. That can never be an acceptable principle or
parameter, for that would amount to destroying stem cells
of law and Order in many a realm and further strengthen
the marrow of unscrupulous litigations. Such a situation
should never be conceived of.
18. In the instant case, it is on record that consent terms were
submitted by the parties before the DRT. It is admitted that the
bank had suffered losses to the tune of Rs. 6.13 Crores
approximately. Hence, a substantial injury was caused to the
public exchequer and consequently it can be said that public
interest has been hampered. Keeping in view the fact that in the
present case a special statute i.e. PC Act has been invoked, we are
of the view that quashing of offences under the said Act would
have a grave and substantial impact not just on the parties
involved, but also on the society at large. As such the High Court
committed no error in declining to exercise its inherent powers in
the present case, thereby refusing to quash the criminal
proceedings."
29.10) The Hon'ble Supreme Court in the matter of Dinesh
Sharma V/s. Emgee Cables and Communications Ltd. & Anr reported in (2025
LiveLaw (SC) 492), in Para No.18 and 23 it is observed that;
"18. Though the High Court has unfettered powers conferred by
the CrPC for exercising its inherent jurisdiction under Section 482,
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the same is expected to be used very sparingly and only in
exceptional circumstances. There cannot be any straight jacket
formula as to when the High Court would be justified to exercise
jurisdiction under Section 482 of CrPC and each case is required to
be dealt with on its own merits.
23. A profitable reference can be made to the case of Parbatbhai
Ahir v. State of Gujrat and Anr wherein it was observed that
economic offences by their very nature lie beyond the domain of
mere dispute between private parties and the High Court would be
justified in declining to quash where the offender is involved in an
activity akin to a financial or economic fraud or misdemeanour.
The consequences of the act complained of upon the financial or
economic system will weigh in the balance. Thus, it can be
concluded that economic offences by their very nature stand on a
different footing than other offences and have wider ramifications.
They constitute a class apart. Economic offences affect the
economy of the country as a whole and pose a serious threat to
the financial health of the country. If such offences are viewed
lightly, the confidence and trust of the public will be shaken."
Role of Petitioner:
30) Having considered the law as laid down by the Hon'ble Supreme
Court, it is necessary to consider the facts of the present case, the allegations
in SEBI's complaint and the role attributed to the Petitioner to see if a case for
quashing the criminal prosecutions can be made out.
31) Perusal of the record in both the complaints i.e C. R. No. RC
3(E)/2006/ BS & FC / Mumbai and RC 4(E)/2006/ BS&FC/Mumbai, would
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indicate that SEBI's complaints pertain to illegal predatory cornering of
shares, in the IPO's by the accused persons including the Petitioner, which
were meant to be allotted to the genuine retail investors (RII). From the year
2009 onwards, a general trend of the primary capital market was that shares
of the companies allotted to the investors in IPO at issue price on listing
commended a huge premium in the secondary capital market. The accused
persons including the Petitioner by observing the said general trend, in
pursuance of a well-designed and well-planned conspiracy, opened bank and
Demat accounts, both in fictitious names by extensively using forged
documents as genuine and cornering shares, legitimately meant for genuine
RII/small individual investors. Names of fictitious persons were used to open
the bank and Demat accounts, forged documents were created and used.
Some accused, who were public servants in the employment of the Indian
Overseas Bank, a Public Sector Bank have assisted and aided the accused. The
investigations allege that the between the period 2003 to 2004, the accused
entered into criminal conspiracy and illegally cornered the shares of Yes Bank
Limited (YBL) and Infrastructure Development Finance Corporations (IDFC)
that were legitimately meant for allotment to genuine RII's. The illegal acts of
the accused deprived the genuine RII's an opportunity to invest in and be a
part of the Initial Public Offer process. The accused abused the IPO process,
acted to the detriment of the orderly development of the capital markets.
32) Based on the investigations carried out by the CBI, specific
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roles/acts have been attributed to each of the accused persons, including the
Petitioner which are referred to in detail in the charge sheet. The role
attributed to the Petitioner is that, the Petitioner in the issue of YBL submitted
192 applications in names of fictitious individuals, in whose names Demat
accounts were opened by him with the Depository Participant (PSLV/Accused
No.15). This was done by forging the signatures of the said fictitious
applicants. The said applications were examined and processed by
KCPL/Accused No.13 and out of 192 fictitious Demat accounts, shares
numbering 13200 were allotted to 88 fictitious accounts operated by the
Petitioner. Similarly, 1,69,150 cornered shares were transferred to the
fictitious Demat accounts operated by Mr P G Budhwani/accused No. 4 held
with Depository Participant (PSLV/Accused No.15) and other DP's. Then, the
said illegally cornered shares, allotted to the fictitious Demat accounts
operated by the Petitioner and Mr P G Budhwani/Accused No 4 with
Depository Participant (PSLV/Accused No.15), were allowed to be transferred
by accused No.14 to the genuine Demat account of the Petitioner/Accused
No.5 and Mr P G Budhwani/accused No.4 by irregularly issuing single
delivery instruction slips without keeping any record for the same as required
as per the guidelines issued by the Depositories. The Petitioner, then
sold/liquidated the said cornered shares at a substantial premium and is said
to have earned unjust/illegal pecuniary gain of Rs 1,98,000/- at the cost of
the genuine retail investors.
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33) Similarly in the IPO of IDFC, the Petitioner/Accused No 4, put in
2000 IPO applications in fictitious names and cornered 5,30,304 shares and is
said to have earned a profit of Rs 1.64 crores. The Petitioner opened fictitious
bank accounts in HDFC Bank and 2000 fictitious Demat accounts with DP KCL
by forging signatures. The Petitioner submitted 2000 applications in names of
fictitious persons in whose names bank and Demat accounts were opened. The
Petitioner availed loan from KCL, Hydrebad by forging the signatures. Each
application submitted by the Petitioner was allotted 266 shares and the same
got credited to the fictitious accounts opened and operated by the Petitioner.
By using forged transfer slips , the Petitioner got transferred 5,30,304 illegally
cornered shares into his own Demat Account and made a profit of Rs
1,64,00,000/-. In the IPO of IDFC, the Petitioner, Accused Nos.1 to 3 were
aided and abetted by Accused No 12,13,16, officials of KCL/Accused No.20
wherein KCL funded the fictitious IPO Applications put in by the Petitioner
and Accused Nos. 1 to 3. The conspiracy with the officials of KCL/Accused
No.20, is heightened by the fact that as NBFC, one of their entities financed
the fictitious applications even when KCL/Accused No 20 did not have
sufficient funds in their account. A single out stationed cheque of Hyderabad
for Rs 51.90/- crores, was sent towards subscription money for 10,900
fictitious applications, to the Escrow Bank Account of the IDFC issue, operated
at ICICI Bank Mumbai. This was done with a dishonest intention, as KCL was
aware that; an outstation cheque cannot be entertained for subscription,
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cheques cannot be entertained in a IPO beyond the closing date of the issue,
and that cheques cannot be issued from an account having insufficient funds.
In bidding process, local cheques were not annexed, bidding for the shares in
fictitious names was done when funds were not available. Credit for the
factious applications was made available on 30th July 2005 i.e 8 days after
closure of the issue. In reply to a Show Cause Notice, issued by SEBI, one of
the accused gave imaginary cheques numbers to SEBI.
Conclusion :
34) Considering the facts of the matter, the complaint by SEBI and
specific role attributed to the Petitioner after the investigations, we are of the
opinion, that the present case deals with and pertains to intelligent and clever
persons, who employed devious, dishonest and sinister means to make unjust
profits at the cost of the securities market, the IPO process and small retail
investors. The accused including the Petitioner have sought to enrich
themselves by depriving the small investors of their opportunity to invest in
the IPO. A separate category is created by the name Retail Investors (RII's), in
which category only small individual investors, can apply for shares in the
IPO. The number of shares which an individual can apply for, in the category,
is restricted and in case of an over subscription of the IPO the same is altered
proportionately. The acts of the accused including the Petitioner have
adversely affected this right of a small investor and had a market wide adverse
impact. The acts of the accused are actual public wrongs or offences
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committed against society. The gravity and magnitude attached to these
offences is concentrated at the public at large. The hit appears to have been
taken by small retail investors/the RII's category as a whole. We find that in
the present case there is a clear element of criminality, illegal self-gratification
at the cost of the small investor/public, done by way of a planned conspiracy
to defeat the system, the IPO mechanism. Most pertinently it is conspiracy
aided and assisted by public servants/bank employees of PSU banks. Fictitious
loan applications were made, monies availed and used. There is a total
disregard to the law. There is prima facie material against the accused
including the Petitioner and the acts committed i.e making fictitious
applications, opening fictitious bank and Demat accounts, illegally cornering
shares legitimately meant for retail investors, depriving the retail investors of
their chance for participating in an IPO offering and arranging and procuring
loans by illegal means are all acts which indicate the existence of criminality
or the criminal intent right from the inception. The progress of and
participation of RII's in the securities market was adversely hampered,
illegally altered and impacted by using illegally means. This in our opinion is
a crime against the society and societal well-being.
35) The facts of the present case amount to and are akin to a
financial/economic fraud and fall within the ambit of social wrong and having
an adverse societal impact. The present case, cannot be quashed because the
Petitioner has paid the money under a Consent Order. The facts of the present
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case, surely make out a prima facie case for the offences as alleged against the
Petitioner. The role attributed to the petitioner cannot be put in the category
of an individual or personal wrong. Prima facie, it is a conspiracy, to get
personal gain at the cost of society, the victim being the small retail investor
who lost their opportunity to invest in an IPO. The implications of this crime
are serious, far reaching and bring in doubt, the robustness, security and
integrity of the system. We also note that the investigation is over and the
Chargesheet/Supplementary Chargesheets have been filed.
36) We are conscious of the fact, that the Petitioner has under the
Consent Order paid monies i.e disgorgement amount and settlement fees to
SEBI. At the same time, we are also reminded of and cannot lose sight of the
fact, that the Petitioner along with other accused misused the market
mechanism, the IPO process, adversely affected and harmed the retail
investors and entire eco-system of the securities market and consequently the
financial market. According to us, the offences were a part of well-crafted
criminal conspiracy executed with precision, after a lot of thought and
keeping in mind only one thing i.e the personal profit and personal illegal
enrichment at the cost of the small investor. This was at the cost of the society.
We are of the firm view that only because money has been paid, an accused
cannot be exonerated from the criminal liability. To quash the criminal
proceedings, exonerating the Petitioner from the criminal liability, on the
ground that monies have been paid to the SEBI, under a consent Order, would
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be misplaced and set wrong precedent. This cannot and should not be
allowed. We are of the view that, in the facts and circumstances of the present
case, not allowing a quashing of criminal proceedings, would be in the interest
of justice. Permitting quashing of proceedings, in matters, in which the offence
is against society, would be a mockery of the process of law and the criminal
justice system. It would erode the faith of the common man/general public in
the criminal justice system and give rise to the perception that an accused can
get away with a serious prima facie charge/offence by settling the matter or
making payments to the regulator. This for sure is not the objective of SEBI
and also that of the criminal justice system.
37) The power under section 482, is an inherent power of wide
plenitude with no statutory limitation, exercise of which has to be with
restraint and in accordance with the guiding principles engrafted in the power
itself i.e to secure the ends of justice or to prevent abuse of the process of any
Court. The exercise of the power depends on the facts of each case and no
category or straight jacket formula can be prescribed. Under section 482 of
the Code of Criminal Procedure, 1973 this court is required to consider the
material available on the record to see if any case is made out for quashing a
criminal offence/proceeding. Based on this material, one could decide if as to
whether the ends of justice would justify such exercise of power or not. If
securing the ends of justice is the guiding principle, the court needs to factor
in the said principle for both the accused and the victim/society. In crimes or
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wrongful acts which have adverse effect on the general public, are wrong
doings which seriously affect and threaten the interest and well-being of
society or against the society at large, cannot be given a go by to only because
the accused and an institution have arrived at a settlement. It is well settled
that in serious and grievous offences or other offences of mental depravity
under IPC or offences of moral turpitude under special statutes, like
Prevention of Corruption Act or the offences committed by public servants
while working in that capacity, or serious financial/economic offences against
the financial system, a settlement between offender and victim can have no
legal sanction at all. The present case also invokes certain sections of the
Prevention of Corruption Act and sections of the Indian Penal Code including
section 120B i.e criminal conspiracy.
38) We are of view that, broadly, a criminal prosecution can be
classified into 2 categories/types i.e first category/type is in which a criminal
prosecution subsequently arises out of a pure civil dispute/civil litigation or a
civil transaction and the second category/type is an act or conduct which is a
criminal offence having the criminality or criminal intent since its inception.
The present case, according to us, clearly falls in the second category. Criminal
prosecutions coming in second category and based on facts like the present
complaints ought not to be quashed. In addition, the present prosecutions are
acts/offences against the society/societal wrongs.
39) We are also aware of and have taken note of the fact that, the
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Hon'ble Supreme Court in some matters, has quashed criminal prosecutions
on the basis of a settlement. We are of the view, that facts of each case have to
assessed and analyzed independently. Some cases cited by the advocate for
the Petitioner though have similar sections referred to, but are distinct and
different in facts and factual situations. The nature of the transactions is
different. In some case civil transactions/disputes are subsequently given the
colour of criminality. They were disputes primarily with a civil flavor.
According to us, the present case, falls in the second category/type, as the acts
and conduct of the Petitioner and other accused bring out the criminality and
the criminal intent right since the inception. The facts of the case, the intent,
criminality, the nature and gravity of the crime are all aspects which need to
be considered. Heinous/serious offences, offences against the society,
economic offences against the financial system cannot be quashed even if
there is a settlement or a victim has been compensated. It cannot be that we
are swayed away by the fact that a consent Order is passed and amounts are
paid to SEBI. We also need to keep in mind the society at large and the
impact thereon. The acts have been committed with a deliberate design with
an eye of personal profit/unjust enrichment regardless of consequence of the
same on the society at large. To quash the proceeding merely because
payments are made to SEBI would be nothing short of unwarranted and
misplaced sympathy. If the prosecution against the economic offenders are not
allowed to continue, the entire community is aggrieved. Quashing the present
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criminal prosecutions would in fact tantamount to an absolute abuse of
process of law.
40) As regards the general proposition, that the possibility of
conviction is remote or bleak or no useful purpose will be served by
continuing the criminal proceedings or that the continuation of criminal case
would put accused to great oppression/prejudice and extreme injustice would
be caused to the accused despite the settlement and compromise with an
institution, we are of the firm opinion that the same cannot take precedence
over the harm to and adverse impact on the society or in a offence which is
against the society/public or the system as a whole. In serious and grave
offences, economic offences, offences against the financial markets or serious
economic frauds the said argument cannot hold good. The said contentions,
when contrasted, with the facts of the present case, are of no consequences
and ought not to even be considered.
41) Taking an overall view thereof, we hold that, in the facts of the
present case, the Consent Order dated 7 th December, 2009 and the payments
made by the Petitioner thereunder towards disgorgement and/or settlement
charges do not in any manner whatsoever affect or impact the present
criminal prosecution/proceedings. Payment to an institution, in an offence
against a society/societal interest ought not to be considered as a ground for
quashing a criminal prosecution.
42) We are of the opinion that the charges are serious, the offenses
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as alleged have been prima facie made out, the offences affect the rights and
interests of retail investors, the economy, are against the orderly development
of the security market and protection of retail investors. The charges, as
against some accused pertain to offences under the Prevention and Corruption
Act in as much as bank officials of PSU have aided, abetted and assisted the
accused including the Petitioner to plan and execute the entire conspiracy. It is
a conspiracy against the securities market mechanism, the financial system
and in a manner against the economy of the country.
43) In view thereof, both the Petitions deserve to be dismissed and
are accordingly dismissed. Rule is discharged.
(RANJITSINHA RAJA BHONSALE, J.) ( A.S. GADKARI, J.)
