Delhi High Court
Jagdish Saran Agarwal vs Securities And Exchange Board Of ... on 29 September, 2008
Author: Sudershan Kumar Misra
* THE HIGH COURT OF DELHI AT NEW DELHI
+ Crl.M.C. No.6300/2006
Date of Decision : September 29, 2008
Jagdish Saran Agarwal ......Petitioner
Through : Mr. Anurag Kumar Aggarwal
& Mr. Umesh Mishra,
Advocates
Versus
Securities And Exchange
Board of India & Anr. ......Respondents
Through : Mr. Ashish Agarwal, Advocate
for respondent No.1
Mr. Pawan Bahl,
Advocate for the State
CORAM :
HON'BLE MR. JUSTICE SUDERSHAN KUMAR MISRA
1. Whether Reporters of local papers may be
allowed to see the judgment?
2. To be referred to the Reporter or not ? Yes
3. Whether the judgment should be reported
in the Digest ? Yes
SUDERSHAN KUMAR MISRA, J
1. The petitioner has moved the court under Section 482 of
the Code of Criminal Procedure praying that the Criminal
Complaint No.106 of 2005 tilted, SEBI Vs. Yojna Agro Forestry
Ltd. & Others, pending before the Learned Additional Sessions
Judge, Tis Hazari Courts, Delhi, be quashed. The petitioner
also seeks quashing of the order passed on 24.8.2006, by the
Ld. Additional Sessions judge, dismissing his application for
discharge. The facts in a nut shell are as follows:-
2. The petitioner, Mr. Jagdish Saran Agarwal, was one of
the directors of Yojna Agro Forestry Limited. This company
was engaged in raising money from the general public and
operating Collective Investment Schemes. On 18.11.1997, the
Government of India issued a notification that such schemes
were governed by the SEBI Act 1992. On 15.10.1999, the
Securities and Exchange Board of India (SEBI), notified the
Securities and Exchange Board of India (Collective Investment
Schemes) Regulations 1999. Chapter IX of these regulations
required all the companies operating Collective Investment
Schemes, including the said Yojna Agro Forestry Ltd., to
register themselves with SEBI within a period of two months
from the date of notification of the said regulations. Later on,
this date was extended by SEBI to 31.3.2000. Under these
regulations, the said company had to apply to SEBI for
registration of its schemes. Meanwhile, vide its letters dated
15.12.1999, 29.12.1999 and by way of a public notice dated
10.12.1999, SEBI directed the said company to send an
information memorandum to all its investors detailing the
state of affairs of the schemes, the amount repayable to each
investor and the manner in which such amount is determined,
latest by 28.2.2000.
3. Since the company failed to take any steps in this regard
and also did not apply for the grant of registration, therefore,
on 7.12.2000, in exercise of its powers under Section 11B of
the SEBI Act 1992, SEBI directed the said company to refund
the money collected under the aforesaid Collective Investment
Schemes, to its investors, within one month, i.e., on or before
6.1.2001. The company however failed to do so.
4. Ultimately, on 16.12.2003 SEBI filed the impugned
complaint before the Trial Court against Yojna Agro Forestry
Ltd. as well as its directors. The petitioner was arrayed as
accused No. 4 therein. The complaint, inter alia, states;
" However, despite repeated directions by
SEBI, the Accused No.1 did not comply with
the said Regulations and from this, it is clear
that the Accused No.1 is intentionally and with
dishonest intentions evading the repayment of
the amount collected by it from the investors."
The specific allegation against the petitioner and the
other accused, all of whom are described as directors of the
said company is as follows;
" The Accused No.2 to 5 are the Directors of
the Accused No.1 and as such persons in
charge of and responsible to the Accused
No.1 for the conduct of its business and are
liable for the violation of the Accused No.1 as
provided under Section 27 of Securities and
Exchange Board of India Act, 1992".
5. Thereafter, on 15.4.2005, the petitioner moved the Trial
Court under Section 227, Cr.P.C. praying that he be
discharged on the ground that the relevant directions which
the said company is said to have violated were admittedly
given to the company after he had already resigned from the
directorship of the said company on 3.9.1998, and therefore,
he could not held responsible for the actions of the said
company after that date. Relying on the judgments of the
Supreme Court in Adalat Prasad Vs. Rooplal Jindal And
Others (2004) 7 SCC 338 and Subramanium Sethuraman
Vs. State of Maharashtra And Anr. (2004) 13 SCC 324,
the Trial Court dismissed this application on 24.8.2006, on the
ground that it has no power under the Code to deal with the
application at that stage without evidence being recorded in
the trial.
6. Counsel for the petitioner contends that much before
the filing of the complaint on 16.12.2003 and even before
6.1.2001, which was the last date for compliance by the
company with the directions of SEBI, the petitioner had
already ceased to be a Director of the Company. According to
Learned Counsel for the petitioner his client resigned on
3.9.1998. He has relied on the Certified Copy of Form 32,
filed by the Company with the Registrar of Companies in
terms of Section 303 (2) of the Companies Act, 1956 for this
purpose. In addition, my attention has also been drawn to the
reply dated 10.2.2006, filed by the complainant to the
petitioner‟s aforesaid application for discharge before the Trial
Court, wherein the fact that the petitioner resigned from the
directorship in the year 1998 has been admitted. Thus, it is
contended by the counsel for the petitioner that the petitioner
cannot be made liable for any offence under Section 27 of the
SEBI Act, which was allegedly committed by the Company
after he had admittedly ceased to be its director.
7. Per contra the counsel for respondent No.1 contends that
whether the petitioner was a director or not at the relevant
time is a disputed question of fact which cannot be decided by
this Court in its exercise under Section 482 of Cr.P.C and can
only be decided during trial. For this he has relied upon a
number of decisions of the Supreme Court and of this Court,
inter alia, Raj Lakshmi Mills Vs. Shakti Bhakoo (2002) 8
SCC 236; S.M. Dutta Vs. State of Gujarat AIR 2001 SC
3253 ; Sunaina R. Matahni Vs. N.C.T of Delhi 2002 I AD
(Delhi) 78.
8. In order to appreciate these contentions Section 27 of
the SEBI Act must be looked into. The relevant portion of
Section 27 of the SEBI Act reads:
"Where an offence under this Act has been
committed by a company, every person
who at the time the offence was committed
was in charge of, and was responsible to,
the company for the conduct of the
business of the company, as well as the
company, shall be deemed to be guilty of
the offence and shall be liable to be
proceeded against and punished
accordingly.."
9. To explain the scope of this section, counsel for the
petitioner has relied on the decision of this Court in Virender
Kumar Singh & Anr. Vs. Securities And Exchange Board
of India, 2008 [2] JCC 802 where it was held that:
"7... Where the offence has been
committed by a company, in order to
invoke the deeming provision of 27(1)
SEBI Act it will have to be shown by the
complainant that the person who is
arraigned in his capacity as a Director of
such company was in charge of the affairs
of the company and responsible to it for
the conduct of its business „at the time of
commission of the offence.‟ The averment
in the complaint concerning the time of
commission of the offence is therefore
crucial for determining even the prima
facie liability of the individual directors."
In that case, on reaching the conclusion that the petitioners
were not the Directors of the company at the time of the
commission of the offence, this Court quashed the criminal
complaint against the petitioners.
10. In the case at hand, it appears that the complaint was
filed because the company failed to comply with the direction
of the first respondent within the time granted, which expired
on 7.12.2000. Therefore, the cause of action can only be said
to have arisen against the company on 7.1.2001 and not
before.
11. To my mind, under the circumstances of this case, the
question whether the petitioner was a Director of the said
company at the relevant time is not something that cannot be
decided without evidence being recorded at the trial. In
Virender Kumar Singh & Anr. Vs. Securities And
Exchange Board of India (supra) this court held that:
"9.... Even an inspection of the record in the
office of Registrar of Company can confirm
whether in fact such Form-32 has been filed or
not. It is not possible to accept the submission
that this question can be examined only by the
trial court when it can easily be verified by a
mere inspection of the record of the Registrar of
Companies...... Although in Sunaina R. Mathani
this Court had opined that the question whether
there was a Form-32 should also be examined by
the trial court, this court does not find it
necessary to do so here because certified copies
of the Form 32 have been placed on record and
despite sufficient time available to it SEBI has
not brought anything on record to doubt their
genuineness..."
12. Here, in this case, the only allegation against the
petitioner was that as a director of the company, he was in
charge of and responsible to the company for the conduct of
its business. However, certified copies of the Form 32 showing
that he had ceased to be director on 3.9.1998 has been placed
on the record. In addition, in its reply dated 10.2.2006, filed
before the Trial Court, the complainant SEBI has itself taken
the categoric stand that the petitioner, "..... resigned from the
Directorship in the year 1998".
13. The power of this Court under Section 482 Cr.P.C is well
settled. In State of Punjab Vs. Kasturi Lal (2004) 12 SCC
195 the Supreme Court discussing the scope of Section 482
of the Code held that:
"10. The section does not confer any new
powers on the High Court. It only saves the
inherent power which the court possessed
before the enactment of the Code. It envisages
three circumstances under which the inherent
jurisdiction may be exercised, namely: (i) to give
effect to an order under the Code, (ii) to prevent
abuse of the process of court, and (iii) to
otherwise secure the ends of justice. It is neither
possible nor desirable to lay down any inflexible
rule which would govern the exercise of
inherent jurisdiction....... While exercising
powers under the section, the court does not
function as a court of appeal or revision.
Inherent jurisdiction under the section though
wide has to be exercised sparingly, carefully and
with caution and only when such exercise is
justified by the tests specifically laid down in the
section itself. It is to be exercised ex debito
justitiae to do real and substantial justice for the
administration of which alone courts exist.......
In exercise of the powers court would be
justified to quash any proceeding if it finds that
initiation/continuance of it amounts to abuse of
the process of court or quashing of these
proceedings would otherwise serve the ends of
justice. When no offence is disclosed by the
complainant, the court may examine the
question of fact. When a complaint is sought to
be quashed, it is permissible to look into the
materials to assess what the complainant has
alleged and whether any offence is made out
even if the allegations are accepted in toto."
14. Under the circumstances, keeping in view the fact that
the complainant itself admits that the petitioner had ceased to
be a director of the accused company from 3.9.1998, and also
the certified copy of Form 32 produced by him evidencing that
fact; I have no doubt that it would be futile, and wholly unjust
to permit the proceedings to continue against the petitioner
and that it is appropriate for this Court to interfere in the
exercise of its jurisdiction under Section 482 Cr.P.C.
15. Under the circumstances Criminal Complaint No.106 of
2005, and the order dated 24.8.2006 qua the petitioner are
hereby quashed and set aside.
16. The petition is disposed of.
Sudershan Kumar Misra, J.
September 29, 2008
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