Srg Infotech Ltd. & Ors vs Securities And Exchange Board Of ...
2014 Latest Caselaw 4709 Del

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*      IN THE HIGH COURT OF DELHI AT NEW DELHI


%                              Judgment reserved on :17.9.2014.
                              Judgment delivered on :23.09.2014

+   CRL.REV.P. 137/2009 & Crl. M.A. No.18878/2010
    SRG INFOTECH LTD. & ORS.                       ..... Petitioners
                    Through     Mr. Chandra Shekhar, Adv.for
                                petitioner No. 1.
                                Mr. Mohit Mathur, Mr. Ashish
                                Virmani, Ms. Kritika Khanojia,
                                Mr. Danish Chowdhary, Mr.
                                Varun Tankha and Mr. Pankaj
                                Verma, Advs for petitioners No. 3
                                & 4.
                    versus
    SECURITIES AND EXCHANGE BOARD OF INDIA
                                                  ..... Respondent
                    Through     Ms. Pinky Anand, ASG with Mr.
                                Ashish Aggarwal, Adv.
CORAM:
HON'BLE MS. JUSTICE INDERMEET KAUR
INDERMEET KAUR, J.

1 Petitioner no.1 is the company M/s SRG Infotech Limited.

Petitioner no.3 (G.L.Sharma), petitioner no.4 (Sandeep Bansal) along

with petitioner no.1 are aggrieved by the order dated 08.4.2004 passed

by the Additional Chief Metropolitan Magistrate ( ACMM).

2 The ACMM vide the said order, on a complaint filed by the

Securities Exchange Board of India (SEBI) had summoned the

petitioners. Apart from the present petitioners, Ashok Aggarwal

(arrayed as petitioner no.2) had also been summoned. He has since

expired. No steps were taken to bring on record his legal

representatives. Proceedings qua petitioner no.2 stand abated.

3 The present complaint had been filed by the SEBI for violation of

Regulation 6(d) of the Securities and Exchange Board of India

(Prohibition of Fraudulent and Unfair Trade Practices Related to

Securities Market) Regulations, 1995 and Section 11(3) of the Securities

and Exchange Board of India Act, 1992 (hereinafter referred to as the

Act) read with Section 24 and Section 27 of the said Act. This

complaint was originally filed in the Court of ACMM who had passed

the impugned order. A revision petition had been filed before the

Sessions Judge. During the pendency of that revision petition by virtue

of the judgment dated 11.1.2008 of the High Court delivered in W.P.(C)

18093/2006 M/s Churuwale Exports Pvt. Ltd. Vs. High Court of Delhi

the original offence became triable by the Sessions Judge. Accordingly

on 07.3.2009 the Additional Sessions Judge before whom the revision

petition was pending transferred this matter to the High Court.

4 Arguments have been addressed separately by the petitioners.

5 On behalf of the petitioners no.3 and 4, at the outset, it has been

pointed out that the cognizance order (impugned order) suffers from a

legal bar, the bar of limitation is a hurdle. Submission being that (as per

the un-amended Act) the offence for which the complaint was filed was

punishable with imprisonment up to 1 year and in terms of Section 468

(2) (b) of the Cr.P.C. the period of limitation for taking cognizance of

such an offence is one year. It is pointed out that even as per the

averments made in the complaint the SEBI was aware of the offence

purported to have been committed by the petitioners on 04.01.2000;

limitation for taking cognizance of such an offence expired on

04.01.2001; impugned order passed on 08.4.2004 taking cognizance of

an offence which had taken place on 04.01.2000 suffers from the vice of

limitation. It is pointed out that under Section 469 of the Cr.P.C. the

period of limitation has to commence from the date of the offence and in

the alternate where the commission of the offence first comes to the

knowledge of such a person; submission being reiterated that in this case

admittedly knowledge about the offence was known to the Board on

04.01.2000 and cognizance having been taken four years later i.e. on

08.4.2004 is clearly time barred. For this proposition reliance upon

(1995) 1 SCC 42 State of Maharashtra Vs. Sharadchandra Vinayak

Dongre and 134(2006) DLT 221 Prashant Goel Vs. State and Anr. The

respondent has also not claimed exclusion of time under any of the

categories under Section 470 of the Cr.P.C.; their case even otherwise

does not fall under that category. Further submission being that

extension of period of limitation in certain cases may be granted under

Section 473 of the Cr.P.C. but even in that category of cases if the Court

is to extend the period of limitation it is only after a hearing has been

granted to the non-applicant; submission being based on the principle of

audi alterem partem that no order can be passed against a party, which

prejudicially affects his rights, without notice to him. For this

proposition reliance has been placed upon [1981] 3 SCR 349 State of

Punjab Vs.Sarwan Singh, 28 (1985) DLT Vinod Kumar Jain Vs.

Registrar of Companies, Delhi & Haryana, (1995) 1 SCC 42 State of

Maharashtra Vs. Sharadchandra Vinayak Dongre as also[2008] 84 SCL

479 (DELHI) Fortune Stones Ltd. Vs. Registrar of Companies. On

merits, it is pointed out that a vicarious liability is sought to be fastened

on petitioner nos.3 and 4. The complaint does not disclose the specific

role of petitioner nos. 3 and 4 and in the absence of which they could not

have been summoned. A mere bald statement by the complainant that

the petitioner was in charge of the day to day affairs of the company and

was responsible for its conduct or affairs would not by itself be

sufficient to summon the petitioner. To support this proposition,

reliance has been placed upon (2007) 3 SCC (Cri) 203 N.K.Wahi Vs.

Shekhar Singh and Anr. , (2011) 1 SCC (Cri) 167 Central Bank of India

Vs. Asian Global Limited and Ors. and 1989 SCC (Cri) 783 Sham

Sunder and Ors. Vs. State of Haryana.

6 On behalf of the petitioner no.1 separate submissions have been

made. It is pointed out that unless and until the mandatory hurdle of

limitation is crossed by the complainant, the summoning order is bad.

Learned counsel for the petitioner no.1 while adopting the arguments of

the co-petitioners has placed reliance upon the same judgment i.e.

Fortune Stones Ltd. (supra) as also another judgment Vinod Kumar Jain

(supra) to support his submission that where cognizance is taken of an

offence beyond the period of limitation the complaint is liable to be

quashed.

7 Arguments have been refuted. The learned ASG has drawn

attention of the Court to the provisions of the said Act including Section

26 and Section 30. Submission being that under Regulation 7 the

Board has the power to order investigation. Under Regulation 10, the

Investigating Officer has to submit a report to the Board. Attention has

also been drawn to the averments made in the complaint wherein it has

been stated that the Board had approved the report of investigation

ordered by it on 09.10.2003; it was this date which is relevant to bring

the complaint within limitation. Learned ASG points out that as a

matter of abundant precaution even before the Sessions Judge and also

before this Court the Board has filed an application under Section 473 of

the Cr.P.C. and if the Court deems fit, the prayer made in that

application seeking condonation of delay in filing the complaint be

allowed. Submission being that this is an alternate argument however

the foremost submission being that the complaint was within limitation.

Attention has also been drawn to the Crl.M.A.No.18878/2010 which

was an application filed by the respondent-SEBI (part of the record of

this case) wherein a date-wise chart has been appended detailing various

dates after January, 2000 wherein fresh complaints had been received by

the Board from various sources against petitioner no.1 and that these

complaints had lastly been forwarded on 27.5.2002 by the Ministry of

Finance to the SEBI; SEBI had reminded the investigating agency to

submit its investigation report on 03.7.2003 which was finally submitted

and approved by the Board on 09.10.2003. On merits also a prima facie

case is made out for summoning.

8 In reply to the last but one argument learned counsel for the

petitioners points out that these dates which have now been appended in

this application do not form a part of the original complaint and the

question of limitation has to be decided dehors this application and

based only on the averments contained in the complaint.

9 This Court is in agreement with this submission of the learned

counsel for the petitioners. There is no doubt that it is only the

averments made in the complaint and the documents annexed along with

which have to be taken into account to decide as to whether the

complaint was prima facie within the period of limitation or not.

10 Section 26 of the said Act reads herein as under:

"26.Cognizance of offences by courts- (1) No court shall take cognizance of any offence punishable under this Act or any rules or regulations made thereunder, save on a complaint made by the Board.

(2) No court inferior to that of a Court of Sessions shall try any

offence punishable under this Act."

11 It clearly stipulates that no court shall take cognizance of any

offence punishable under this Act except on a complaint made by the

Board.

12 Under Section 30 of the Act, the Board by a notification may

make regulations which are consistent with this Act.

13 Regulation 7 of the Securities and Exchange Board of India

(Prohibition of Fraudulent and Unfair Trade Practices Related to

Securities Market) Regulations, 1995 reads as under:

7.(1) The Board may, suo-moto or upon information received by it, cause an investigation to be made in respect of the conduct and affairs of any person buying, selling or otherwise dealing in securities, by an investigating officer whom the Board considers fit.

Provided that no such investigation shall be made except for the purposes specified in sub-regulation 92).

(2) The purposes referred to in sub-regulation (1) are the following namely-

(a) to ascertain whether there are any circumstances which would render any person guilty of having contravened any of these regulations or any directions issued thereunder;

(b) to investigate into any complaint of any contravention of the regulation, received from any investor, intermediary or any other person;"

14 Sub Section (2) states that the Board may cause an investigation

to be made into the conduct and affairs of any person dealing in

securities by Investigating Officer whom the Board considers fit to

ascertain whether there are circumstances which would render any

person guilty of having contravened any regulations as also to

investigate into any complaint of any contravention (of any regulations)

by any persons.

15 Regulation 9 casts a duty upon such a person to produce records.

16 Under Regulation 10, the Investigating Officer shall upon

completion of the investigation after taking into account all relevant

facts and submissions made by the persons concerned, submit a report to

the Board.

17 The wholesome reading of these Regulations thus clearly specify

that the Board has the power to order an investigation; this is a

preliminary investigation carried out by the Board after giving notice to

the suspected person and this is for the purpose of ascertaining whether

any prima facie case of guilt is made out against such a person. It does

not necessarily mean that the investigation must end into finding of

guilt. It can also be the converse. It is only after the investigation is

complete and the report has been submitted to the Board that a

complaint can be filed under Section 26 of the Said Act and it is the

Board alone which can file a complaint. In the case at hand, para 21 of

the complaint specifically states that the Board had approved the

investigation report on 09.10.2003. Thus the competency of the Board

to file the complaint under Section 26 of the said Act arose only on

09.10.2003.

18 There is no reason to disbelieve this averment which has been

made in the complaint at this initial stage. The submission of the

learned counsel for the petitioner that there is no explanation as to why

the Board remained silent during the intervening period i.e. between

04.01.2000 up to 09.10.2003, cannot be answered at this stage. It is a

matter of trial. The averments contained in the Crl.M.A.No.18878/2010

also cannot be examined at this stage. At the time of taking cognizance

the Court has to look into only the averments made in the complaint.

Apart from the specific averments made in the complaint, Annexure 'C'

appended along with the complaint is the report of investigation dated

10.8.2000 which discloses that during the course of investigation the

Board had noted several discrepancies in the Share Transfer Record of

the petitioner no.1. They were informed to Sharwan Mangla, Senior

Manager of the company. During the visit of this Senior Manager on

09.10.2000 additional discrepancies were noted in respect of distribution

schedule submitted by the company to the Stock Exchanges and the

SEBI. These were also pointed out. It was agreed that a detailed letter

would be sent to petitioner no.1 pointing out these discrepancies noted

in the share transfer record/distribution schedule and their explanation

would be sought. There was a rider that a questionnaire will be sent to

the company to be answered by it. Thus at this stage it cannot be said

that even prima facie there was no explanation given by the Board in

this intervening gap.

19 The Supreme Court in (2013) 2 SCC 435 Udai Shanker Awasthi

Vs. State of U.P. and Anr. while reiterating the proposition that a

criminal offence is considered as a wrong against the State and the

society as a whole, even though it is committed against an individual,

inter alia in the context of delay in launching of a criminal prosecution

noted herein as under:

"The question of delay in launching a criminal prosecution may be a circumstance to be taken into consideration while arriving at a final decision, however, the same may not itself be a ground for dismissing the complaint at the threshold. Moreover, the issue of limitation must be examined in light of the gravity of the charge in question.

20 In 1982 Crl.L.J. 2230 Oriental Bank of Commerce Vs.DDA the

Court while dealing with the question of limitation had inter alia noted

as under:

" I am, therefore, of the view that both the DDA and the public servant who files the complaint will be considered complainants. Assuming that the Delhi Development Authority is the sole complainant and thus, a person aggrieved, and that it has to act through its officers authorized by it, can the knowledge of the inspecting officer be imputed to the DDA? It cannot be, because until the matter comes to the notice of the proper person who is authorized to file a complaint, it cannot be said that the knowledge of the inspecting officers if the knowledge of the DDA. To that extent, I am in

respectful agreement with Prithvi Raj J in Gurmeet Kaur (Supra). It will be a matter of inquiry into facts as to when the authority which sanctioned the prosecution came to acquire the knowledge of the offence. Such an enquiry cannot be undertaken over here."

21 The Division Bench of this court in 1995 (33) DRJ (DB) MCD

Vs. Sunil Sabharwal had observed as follows:

"The Municipal Corporation of Delhi is not a natural person and thus, unless and until the factum of commission of offence comes to the notice of an officer who is entitled to act as a complainant on behalf of Municipal Corporation of Delhi."

22 Thus it was only after the investigation report had been submitted

to the Board and approved that the Board was authorized to file a

complaint. Counting the period of one year as stipulated under Section

468(2) of the Cr.P.C. w.e.f. 09.10.2003, the impugned order dated

08.4.2004 taking cognizance of the offence on the present complaint is

not time barred. The question of limitation is accordingly answered in

favour of the respondent.

23 The judgments relied upon by the learned counsel for the

petitioners on this score are distinct on their own facts. They do not

apply.

24 The second submission of the learned counsel for the petitioner

that there is no specific role attributed to the present petitioners is also

negatived. Petitioner no.1 is the company of whom admittedly petitioner

nos.3 and 4 are directors. Para 5 specifically states that accused no.1 is

a company incorporated under the Indian Companies Act of whom the

three petitioners before this Court are the persons in-charge and

responsible for the conduct of its affairs. They, admittedly, are the

working directors of the company. It is also not the case of the

petitioners that they were not the directors of the company during the

period when the alleged offence was committed.

25 The judgments relied upon by the learned counsel for the

petitioners are inapplicable being distinct on their own facts. In

N.K.Wahi (supra) the Court while dealing with a complaint under

Section 138 of Negotiable Instruments Act, 1881 had emphasized that

the liability would lie only on those persons who at that time of the

commission of offence were in-charge and responsible to the company

for the conduct of the business of the company and that merely by virtue

of being a director of the company it would not make such person liable.

The ratio of this judgment is in fact against the submission made by the

learned counsel for the petitioner. The complaint categorically discloses

that petitioner nos.3 and 4 were in-charge and responsible to the

company for conduct of its day to day business. The subsequent

judgment of Central Bank of India (supra) and Sham Sunder ( supra)

are also inapplicable. They merely laid down the settled proposition that

vicarious liability cannot be fastened upon a partner of a firm unless it is

shown that the said partner was actively involved in the business of the

firm. The second argument is also negatived.

26 There is no merit in the revision petition. Dismissed.

INDERMEET KAUR, J SEPTEMBER 23, 2014 ndn