Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Crl.), 827-830 of 2012, Judgment Date: Jul 15, 2016


                                                                ‘REPORTABLE’

                        IN THE SUPREME COURT OF INDIA

                       CRIMINAL APPELLATE JURISDICTION

                    CRIMINAL APPEAL NOS. 827-830 OF 2012


Securities and Exchange Board of India               … Appellant

                                   Versus

Gaurav Varshney & Anr.                             … Respondents


                                    WITH
                    CRIMINAL APPEAL NOS. 833-836 OF 2012

Securities and Exchange Board of India            … Appellant

                                   Versus
Parvesh Varshney                                 … Respondent

                                    WITH
                       CRIMINAL APPEAL NO. 252 OF 2015

Major P.C. Thakur                                 … Appellant
                                   Versus

Securities and Exchange Board of India            … Respondent

                                    WITH
                       CRIMINAL APPEAL NO. 251 OF 2015

Sunita Bhagat                                     … Appellant
                                   Versus

Securities and Exchange Board of India            … Respondent

                                    WITH
                       CRIMINAL APPEAL NO. 832 OF 2012

Securities and Exchange Board of India            … Appellant

                                   Versus
Raj Chawla                                        … Respondent


                               J U D G M E N T

Jagdish Singh Khehar, J.

                    Criminal Appeal nos. 827-830 of 2012

1.    Sub-Section (1B) was inserted into Section 12 of  the  Securities  and
Exchange Board of India Act, 1992 (hereinafter  referred  to  as,  the  SEBI
Act), on 25.1.1995.  Section 12(1B) is extracted hereunder:-
“12.  Registration of stock-brokers,  sub-brokers,  share  transfer  agents,
etc. –

(1B)  No person shall sponsor or cause to be sponsored or carry on or  cause
to be carried on any venture capital funds or collective  investment  scheme
including mutual funds, unless he  obtains  a  certificate  of  registration
from the Board in accordance with the regulations:

Provided that any person sponsoring or cause to be  sponsored,  carrying  or
causing to be carried on any venture capital funds or collective  investment
scheme  operating  in  the  securities   market   immediately   before   the
commencement of the Securities Laws  (Amendment)  Act,  1995  for  which  no
certificate of registration was required prior  to  such  commencement,  may
continue to operate till such time regulations are made under clause (d)  of
sub-section (2) of section 30.

Explanation.– For the removal of doubts, it is  hereby  declared  that,  for
the purposes of this section, a collective investment scheme or mutual  fund
shall not include any unit linked insurance policy or  scrips  or  any  such
instrument or unit, by whatever name called, which provides a  component  of
investment besides the component of insurance issued by an insurer.”

The question that arises for consideration in the present  criminal  appeals
is, whether respondent nos. 1 and  2  –  Gaurav  Varshney  and  Vinod  Kumar
Varshney,  had  violated  Section  12(1B),  by  incorporating  M/s.   Gaurav
Agrigenetics Ltd., under the provisions  of  the  Companies  Act,  1956,  on
3.7.1995, in the capacity  of  its  first  directors  and  promoters.   This
position emerges, because it is not a matter of dispute,  that  M/s.  Gaurav
Agrigenetics Ltd. commenced a collective investment scheme,  immediately  on
its incorporation.

2.    In order to highlight the  implications  of  the  amendment,  made  on
25.1.1995, the Government of India issued a press release dated  18.11.1997.
 The text of the same is extracted hereunder:-
“The matter relating to regulating entities which issue instruments such  as
agro  bonds,  plantation  bonds  etc.  has   been   receiving   Government’s
attention.  While the instruments  may  be  funding  agro  based  investment
activity, it is observed that they often offer very  high  rates  of  return
not  consistent  with  normal  returns  in  such  activities.    There   is,
therefore, a high element of risk associated with such  schemes.   In  order
to ensure that investors make investment decisions with the  full  knowledge
of the risks involved in such schemes, Government has felt it  necessary  to
put  in  place  an  appropriate  regulatory  framework  for  such   schemes.
Government after  detailed  consultation  with  the  regulatory  authorities
concerned has decided  to  treat  such  schemes  as  “Collective  Investment
Schemes” coming under the provisions of the Section  11(2)(c)  of  the  SEBI
Act.  In order to regulate such Collective  Investment  Schemes,  both  from
the aspect of investor protection as well as allowing legitimate  investment
activity to take place, SEBI would first  formulate  draft  regulations  for
this purpose.  These draft regulations would be made  available  for  public
discussion.  The investors who have invested in  such  schemes  as  well  as
entities running such schemes will be requested to give  their  comments  on
pertinent matters  to  SEBI  for  enabling  SEBI  to  formulate  appropriate
regulations for such Collective Investment Schemes.

Once these regulations come into  force,  it  is  expected  that  they  will
promote legitimate investment activity on plantation and  other  agriculture
based business, while at the same time give investors an adequate degree  of
protection for their investments.”

For the same purpose, as stated above, the Securities and Exchange Board  of
India (hereinafter referred to as,  ‘the  Board’)  also  issued  a  separate
press release, dated 26.11.1997.  The text of the above  press  release,  is
reproduced below:-
"The Central Government has by a  press  release  dated  18.11.1997  decided
that an appropriate  regulatory  framework  for  regulating  entities  which
issued instruments such as agro bonds, plantation bonds, etc. has to be  put
in place. The  Government  has  decided  that  schemes  through  which  such
instruments are issued would be treated  as  collective  investment  schemes
coming under the provisions of the SEBI Act. In terms of the press  release,
SEBI has initiated action  for  drafting  regulations  for  such  collective
investment schemes.

The provisions of  section  12(1B)  of  the  SEBI  Act  prohibit  collective
investment schemes including mutual funds from  sponsoring  any  new  scheme
till the regulations are notified. While the  regulations  for  mutual  fund
schemes have been notified by SEBI, regulations  for  collective  investment
schemes including plantations schemes require to be notified in view of  the
press release issued by the Central Government. These regulations are  under
preparation and will be issued in due course, first in draft  form  for  the
public discussion and later in the final form. Till  these  regulations  are
notified, as a result of the provisions of section 12(1B) of the  SEBI  Act,
no  person  can  sponsor  or  cause  to  be  sponsored  any  new  collective
investment scheme and raise further funds.

The  provisions  of  section  12(1B) provides  that  till  regulations   are
notified all collective investment schemes which are operating can  continue
with their activities till the regulations  are  notified.   Any  collective
investment scheme which is desirous of taking  benefit  of  the  proviso  to
section 12(1B) of the SEBI Act is  directed  to  send  to  SEBI  information
within 21 days from today containing details such as:-

Terms and conditions of the schemes launched
Funds raised through all the schemes

Promises or assurances or assured returns made in the scheme

Copies of offer document of the scheme

Names, details and background of promoters/sponsors

All collective investment schemes which want to take benefit of the  proviso
of Section 12(1B) are  also  directed  to  make  an  advertisement  only  in
accordance with the advertisement code already prescribed by SEBI under  the
Disclosure and investors protection guidelines.”

In addition to the above, ‘the  Board’  also  issued  a  public  notice,  on
18.12.1997.  The instant public notice also related to, the implications  of
Section 12(1B).  The contents of the public notice, are reproduced below:-
"The Central Government has by a  press  release  dated  18.11.1997  decided
that an appropriate  regulatory  framework  for  regulating  entities  which
issued instruments such as agro bonds, plantation bonds, etc. has to be  put
in place. The  Government  has  decided  that  schemes  through  which  such
instruments are issued would be treated  as  collective  investment  schemes
coming under the provisions of the SEBI Act. In terms of the press  release,
SEBI has initiated action  for  drafting  regulations  for  such  collective
investment schemes. A committee under the chairmanship of Dr. S.A. Dave  has
already been constituted.

The provisions of  section  12(1B)  of  the  SEBI  Act  prohibit  collective
investment schemes including mutual funds from  sponsoring  any  new  scheme
till the regulations are notified. While the  regulations  for  mutual  fund
schemes have been notified by SEBI, regulations  for  collective  investment
schemes including plantations schemes require to be notified in view of  the
press release issued by the Central Government. These regulations are  under
preparation and will be issued in due course, first in draft  form  for  the
public discussion and later in the final form. Till  these  regulations  are
notified, it is hereby brought to the notice of the public that as a  result
of the provisions of section 12(1B) of the SEBI Act, no person  can  sponsor
or cause to be sponsored any new  collective  investment  scheme  and  raise
further funds.

Further, the provisions of section  12(1B) provides  that  till  regulations
are notified all collective investment schemes which are  in  existence  can
continue with their operations till the regulations  are  notified.   It  is
hereby brought  to  the  notice  of  the  public  that  existing  collective
investment schemes which are desirous of taking benefit of  the  proviso  to
section 12(1B) of the SEBI Act and continue their  operations  are  directed
to send to SEBI, by 15th January 1998 information  containing  details  such
as: Terms and conditions of the schemes launched, Funds raised  through  all
the schemes, Promises or assurances or assured returns made in  the  scheme,
Copies of offer document of the scheme and Names, details and background  of
promoters/sponsors.

Note:  The  above  information  regarding  existing  collective   investment
schemes in northern, southern  and  eastern  region  maybe  filed  with  the
respective regional office of SEBI.

In further exercise of the powers under section 11 read with  section  11(B)
all collective investment schemes which want to take benefit of the  proviso
of section 12(1B) are  also  directed  to  make  an  advertisement  only  in
accordance with the advertisement code already prescribed by SEBI under  the
Disclosure and investors protection guidelines.”

3.    In order to appreciate the stance  adopted  on  behalf  of  respondent
nos. 1 and 2, it is essential to point out, that in consonance with  Section
12(1B) of the SEBI Act, and in furtherance of the  power  vested  with  ‘the
Board’, under Section 30 of the SEBI Act, ‘the Board’ framed  regulations  -
the Securities and Exchange Board of India (Collective  Investment  Schemes)
Regulations, 1999 (hereinafter referred to  as,  the  Collective  Investment
Regulations).  The Collective Investment  Regulations,  were  to  come  into
force, on the date of their publication in the official gazette.  It is  not
a matter of dispute, that the same were brought into force, on 15.10.1999.

4.    Respondent nos. 1 and 2 – Gaurav Varshney and  Vinod  Kumar  Varshney,
were aggrieved by the criminal proceedings initiated against  them,  on  the
basis of a complaint filed by ‘the Board’, under Section 200 of the Code  of
Criminal Procedure, 1973 (hereinafter referred to  as,  the  Cr.P.C.),  read
with Sections 24(1) and  27  of  the  SEBI  Act,  alleging,  that  they  had
breached the  bar  created  by  Section  12(1B),  which  had  forbidden  the
sponsoring or carrying on of a  collective  investment  initiative,  without
obtaining a certificate of registration from ‘the Board’.   Respondent  nos.
1 and 2 approached the High Court of Delhi (hereinafter referred to, as  the
High Court), by filing Criminal Miscellaneous Case nos.  7468-7471  of  2006
and Criminal Miscellaneous no. 951 of 2007, for quashing Complaint Case  no.
1241 of 2003, pending in the Court of  the  Chief  Metropolitan  Magistrate,
Tis Hazari Courts, Delhi, titled as “SEBI vs. Gaurav Agrigenetics  Ltd.  and
others”, as well  as,  the  order  dated  15.12.2003,  by  which  the  Chief
Metropolitan Magistrate had summoned them (in the  aforementioned  complaint
case).

5.    The simple contention advanced at the hands of respondent nos.  1  and
2 was,  that  the  bar  against  sponsoring  or  carrying  on  a  collective
investment scheme, without obtaining  a  certificate  of  registration  from
‘the Board’ under the Collective Investment Regulations,  could  arise  only
after the Collective Investment Regulations  were  brought  into  existence.
In  this  behalf  it  was  pointed  out,  that  the  Collective   Investment
Regulations  were  admittedly  brought  into  force  from  15.10.1999.    To
exculpate their involvement in the proceedings initiated against  them,  the
main assertion advanced on behalf of respondent  nos.  1  and  2  was,  that
respondent no. 1 – Gaurav Varshney had submitted Form-32 with the  Registrar
of  Companies,  communicating  the  factum  of  his  resignation  from   the
directorship of M/s. Gaurav Agrigenetics  Ltd.,  on  10.5.1996.   Since  the
aforesaid Form-32 had been submitted with  the  Registrar  of  Companies  on
30.7.1998, it was contended on behalf of respondent no. 1, that  he  had  no
objection if it was assumed (for determination of the present  controversy),
that respondent no. 1 had resigned from the directorship  of  the  concerned
company on 30.7.1998.  Likewise, it was pointed out, that respondent  no.  2
– Vinod  Kumar  Varshney,  had  submitted  Form-32  with  the  Registrar  of
Companies,  communicating  the  factum   of   his   resignation   from   the
directorship of the company, on 15.9.1998.   It  was  however  acknowledged,
that Form-32 with  respect  to  his  resignation,  was  submitted  with  the
Registrar of Companies, on  23.12.1998.   It  was  contended  on  behalf  of
respondent no. 2, that he had no objection  to  this  Court  assuming,  that
respondent no. 2 had severed his relationship with M/s. Gaurav  Agrigenetics
Ltd. on 23.12.1998, i.e. the  date  when  Form-32  was  submitted  with  the
Registrar of Companies.

6.    In the background of the fact situation noticed  hereinabove,  it  was
urged, that if the  date  of  resignation  of  respondent  no.  1  –  Gaurav
Varshney from the directorship of M/s. Gaurav Agrigenetics Ltd. is taken  as
30.7.1998, and that of respondent no. 2 – Vinod Kumar Varshney, is taken  as
23.12.1998, both of them had admittedly resigned from  the  directorship  of
M/s. Gaurav Agrigenetics Ltd., prior to the coming  into  existence  of  the
Collective Investment Regulations (with effect from 15.10.1999).   The  High
Court,  by  its  impugned  order  dated  13.5.2010,  had  agreed  with   the
proposition canvassed on behalf of respondent nos. 1 and 2, and had  quashed
Complaint Case no. 1241 of 2003 (pending in the Court of Chief  Metropolitan
Magistrate,  Tis  Hazari  Courts,  Delhi),  as  well  as,  the  order  dated
15.12.2003 issued by  the  said  Chief  Metropolitan  Magistrate,  summoning
respondent nos. 1 and 2 in the above noted complaint case.

7.    Dissatisfied with the determination rendered by the High  Court  (vide
the impugned order dated 13.5.2010),  ‘the  Board’  approached  this  Court,
through Criminal Appeal nos. 827-830 of 2012, to raise a  challenge  to  the
order passed by the High Court.

8.    The primary contention advanced on behalf of  ‘the  Board’  was,  that
the High Court misunderstood and misconstrued the  bar  created  by  Section
12(1B) of the SEBI Act.  It was submitted on behalf of the  appellant,  that
the bar contemplated under Section 12(1B), came  into  effect  on  the  very
date Section 12(1B) was inserted into the SEBI Act  (i.e.  from  25.1.1995).
It was asserted, that the said bar restrained everyone, from  sponsoring  or
carrying  on  any  collective  investment  activity,  without  obtaining   a
certificate  of  registration  from  ‘the  Board’,  under   the   Collective
Investment Regulations.  And as such, any act of sponsoring or  commencement
of a collective investment  venture,  without  obtaining  a  certificate  of
registration, on or after  25.1.1995,  was  absolutely  forbidden.   It  was
submitted on behalf  of  the  appellant,  that  the  proviso  under  Section
12(1B), made the position absolutely clear and unambiguous.  It was  pointed
out, that the proviso authorized all  persons  who  had  sponsored  or  were
carrying on  a  collective  investment  scheme  “…  immediately  before  the
commencement of the Securities Law  (Amendment)  Act,  1995,  for  which  no
certificate of registration was required prior to  such  commencement…”,  to
continue to operate, till regulations were framed under clause (d)  of  sub-
Section (2) of Section 30.  Therefore, relying on the proviso under  Section
12(1B), it was submitted, that actions  of  sponsoring  or  carrying  on  an
enterprise of collective investment, were permitted to  only  such  persons,
who  had  commenced  such  activities  prior  to  the  commencement  of  the
Securities Law (Amendment) Act, 1995 (i.e., prior to 25.1.1995).

9.    In order to substantiate the  afore-noted  contention,  and  also,  in
order to demonstrate, that the action of ‘the  Board’  in  not  framing  the
Collective Investment  Regulations,  would  have  no  bearing,  to  the  bar
created under Section 12(1B), learned  counsel  placed  reliance  on  Orissa
State (Prevention & Control of Pollution)  Board  vs.  Orient  Paper  Mills,
(2003) 10 SCC 421, and invited our attention to the  following  observations
recorded therein:-
5.    We may at this stage  peruse  the  relevant  provisions  of  the  law.
Section 21 of the Act provides that subject to the provisions  of  the  said
section no person shall establish or operate any industrial plant in an  air
pollution control area without previous consent of the State Government.  An
industry which is functioning since before the declaration of  the  area  as
air pollution control area shall apply to the Board for consent  within  the
period prescribed for the purpose. Section 22 provides as under:

“22.  Persons carrying on  industry  etc.  not  to  allow  emission  of  air
pollutants in excess of the standards laid down by  State  Board.—No  person
operating any industrial plant in  any  air  pollution  control  area  shall
discharge or cause or permit to  be  discharged  the  emission  of  any  air
pollutant in excess of the standards laid down  by  the  State  Board  under
clause (g) of sub-section (1) of Section 17.”

Section 19  empowers  the  State  Government  to  declare  an  area  as  air
pollution control area. The relevant part of Section 19 reads as follows:

“19. Power to declare air pollution control areas.—(1) The State  Government
may, after consultation  with  the  State  Board,  by  notification  in  the
Official Gazette, declare in such manner as may be prescribed, any  area  or
areas within the State as air  pollution  control  area  or  areas  for  the
purposes of this Act.

(2)   The State Government may, after consultation with the State Board,  by
notification in the Official Gazette,—
(a)   alter any air pollution control area whether by way  of  extension  or
reduction;
(b)   declare a new air pollution control area in which may  be  merged  one
or more existing air pollution control areas or any part or parts thereof.

(3)-(5)***”

***              ***              ***
10.   The question for consideration is, as to whether, as long  the  manner
is not prescribed under  the  rules  for  declaration  of  an  area  as  air
pollution control area, a valid notification under Section 19(1) of the  Act
can be published in the Official Gazette or not.

11.   So far as the statutory provision is concerned, the Act under  Section
19 vests the State Government with power to notify any area, in an  Official
Gazette, as air pollution control area, but to say  that  exercise  of  such
power is solely dependent upon framing of the rules prescribing  the  manner
in which an area may be declared as air pollution  control  area,  does  not
seem to be correct. Section 19 of the Act would read as follows by  omitting
the words “in such manner as may be  prescribed”  which  part  we  put  into
bracket as follows:

“19. Power to declare air pollution control areas.—(1) The State  Government
may, after consultation  with  the  State  Board,  by  notification  in  the
Official Gazette, declare (in such manner as may be  prescribed),  any  area
or areas within the State as air pollution control area  or  areas  for  the
purposes of this Act.
(2)-(4)***”

12.   Section 19 says “… such manner as may be prescribed” and not  “in  the
manner prescribed” or “… in the  prescribed  manner”.  The  expression  used
leaves some lever or play in the working of the provision. We would like  to
lay emphasis on the use of the word “as” which is  significant.  The  manner
is dependent upon “as” may be prescribed, if it is not prescribed, there  is
no manner available such as to be followed. The meaning  of  the  word  “as”
has been indicated in Concise Oxford English  Dictionary,  10th  Edn.,  2002
amongst others to mean as follows:

***              ***              ***
In one of the cases decided by this Court, to  be  referred  later  in  this
judgment “as may be prescribed” has been held to mean “if any”. It  is  thus
clear  that  such  expression  leaves  the  scope  for  some  play  for  the
workability of the provision under the law. The meaning  of  the  word  “as”
takes colour in context with which it is used and the manner of its  use  as
prefix or suffix etc. There is no rigidity about it  and  it  may  have  the
meaning of a situation of being in existence during  a  particular  time  or
contingent, and so on and so forth. That is to say, something to  happen  in
a manner, if such a manner is in being or exists, if it  does  not,  it  may
not happen in that manner. Therefore, the reading  of  the  provision  under
consideration makes it clear that manner of declaration is  to  be  followed
“as may be prescribed” i.e. “if any” prescribed.

13.   Thus, in case manner is not prescribed under the rules,  there  is  no
obligation or requirement to  follow  any,  except  whatever  the  provision
itself provides viz. Section 19 in the instant case which is  also  complete
in itself even without any manner  being  prescribed  as  indicated  shortly
before to read the provision omitting this part “in such manner  as  may  be
prescribed”. Merely by absence of rules, the State would not be divested  of
its powers to notify in the Official Gazette any area declaring it to be  an
air pollution control area. In case, however, the  rules  have  been  framed
prescribing the manner, undoubtedly, the declaration must be  in  accordance
with such rules.

14.    On  the  proposition  indicated  above,  a  decision  reported  in T.
Cajee v. U. Jormanik Siem, AIR 1961 SC 276, would be  relevant.  The  matter
pertained to removal of Seim from the office, namely, the Chief  Headman  of
the  area  in  the  District  Council  governed  by  Schedule  VI   of   the
Constitution. The High Court took the view that the District  Council  could
act only by making a law with the assent of the  Governor.  So  far  as  the
appointment and removal from the office of a Seim  is  concerned,  provision
contained in para 3(1)(g) of the Schedule was referred to,  which  empowered
the District Council  to  make  laws  in  respect  of  the  appointment  and
succession of office of Chiefs Headmen. The High Court took  the  view  that
in absence of framing of such a law, there would be no power of  appointment
of a Chief or Seim nor for his removal either. This Court negated  the  view
taken by the High Court observing that: (AIR p. 281, para 10)

“[I]t seems to us that the High Court has read far more  into  para  3(1)(g)
than is justified by its language. Para 3(1) is in  fact  something  like  a
legislative list and enumerates the subjects on which the  District  Council
is competent to make laws. … But it does  not  follow  from  this  that  the
appointment or  removal  of  a  Chief  is  a  legislative  act  or  that  no
appointment or removal can be made without there being first a law  to  that
effect.”

This Court found that para 2(4) relating to administration of an  autonomous
district, vested in the District Council such powers  and  further  observed
as under: (AIR p. 281, para 10)

“The Constitution could not have intended that  all  administration  in  the
autonomous  districts  should  come  to  a  stop  till  the  Governor   made
regulations under para 19(1)(b) or till District Council passed  laws  under
para 3(1)(g). … Doubtless when regulations are  made  …  the  administrative
authorities would be bound to follow the regulations so made or the laws  so
passed.”

15.   It is thus clear from  the  decision  referred  to  in  the  preceding
paragraph that the power which vests in an  authority  would  not  cease  to
exist simply for the reason that the rules  have  not  been  framed  or  the
manner of exercise of the power has not been prescribed. So far  as  Section
54 of the Act is concerned, it only enumerates the  subjects  on  which  the
State Government is entitled to frame rules.

***              ***              ***
20.   We feel that so far as the point relating to the meaning of  the  word
“may” used under Section 19 of the Act is concerned, it is not relevant  for
resolving the  controversy  we  are  concerned  with.  Once  the  manner  is
prescribed under the rules undoubtedly, the declaration of the area  has  to
be only in accordance with the manner prescribed but absence of  rules  will
not render the Act inoperative. The power vested under  Section  19  of  the
Act, would still be exercisable as provided  under  the  provision  i.e.  by
declaring  an  area  as  air  pollution  control  area  by  publication   of
notification in the Official Gazette. Non-framing of rules does not  curtail
the power of the State Government to  declare  any  area  as  air  pollution
control area by means of a notification published in the  Official  Gazette.
The part of the provision “in  such  manner  as  may  be  prescribed”  would
spring into operation only after such manner is prescribed  by  framing  the
rules under Section 54(2)(k) of the Act. This view as indicated earlier,  is
amply supported by the decision of this Court referred to above in the  case
of T. Cajee, AIR 1961 SC 276, which is a decision by  a  Constitution  Bench
of this Court. It has been followed in a subsequent decision of  this  Court
reported in Surinder Singh v.Central Govt., (1986) 4 SCC  667.  The  Central
Government had not framed rules in respect of disposal of  property  forming
part of the compensation pool as contemplated under the  provisions  of  the
relevant Act. It was claimed by  one  of  the  parties  that  the  authority
constituted  under  the  Act  had  no  jurisdiction  to  dispose  of   urban
agricultural property by auction-sale in absence of  rules.  The  contention
was repelled with the following observations: (SCC p. 673, para 6)

“Where a statute confers powers on  an  authority  to  do  certain  acts  or
exercise power  in  respect  of  certain  matters,  subject  to  rules,  the
exercise of power conferred by the statute does not depend on the  existence
of rules unless the statute expressly provides for the same. In other  words
framing of the rules is not condition  precedent  to  the  exercise  of  the
power  expressly  and  unconditionally  conferred  by   the   statute.   The
expression ‘subject to the rules’ only means, in accordance with the  rules,
if any. If rules are framed, the powers so conferred on authority  could  be
exercised in accordance with these rules. But if no rules are  framed  there
is no void and the authority is not  precluded  from  exercising  the  power
conferred by the statute.”

A reference was also made to the  decisions  of  this  Court  in  the  cases
reported in B.N. Nagarajan v. State of Mysore, AIR 1966 SC 1942,  and Mysore
SRTC v. Gopinath Gundachar Char, AIR 1968 SC 464. Reliance was  also  placed
on U.P.SEB v. City Board, Mussoorie, (1985) 2 SCC 16.

21.   In view of the discussion held above, in our  view  it  would  not  be
correct  to  say  that  simply  because  the  rules  have  not  been  framed
prescribing the manner it would render the Act  inoperative.  The  area  was
notified  as  air  pollution  control  area  by  the  State  Government   as
authorized and provided by virtue of the powers conferred under  Section  19
of the  Act.  The  declaration  is  provided  to  be  made  by  means  of  a
notification  published  in  the  Official  Gazette.  No  other  manner   is
prescribed nor exists. The relevant notifications issued by  the  Government
cannot be said to be contrary to any rules in existence  as  framed  by  the
Government. The respondent had knowledge of the notification  and  had  also
applied for consent of the Board which was granted to  the  respondent.  But
it may be clarified that this is not the reason for taking the view that  we
have taken, it is mentioned only by way of an additional  fact  and  nothing
more. The whole working and functioning  of  the  Act  which  is  meant  for
controlling the air pollution cannot be withheld and rendered nugatory  only
for the reason of absence of the rules prescribing the manner  declaring  an
air pollution control area which otherwise is provided  to  be  notified  by
publication in an Official Gazette which has been done in this case.”

Reliance was also placed on U.P. State Electricity Board, Lucknow  vs.  City
Board, Mussoorie, (1985) 2 SCC 16, wherefrom, emphasis  was  placed  on  the
observations extracted hereunder:-
      6.    The material part of Section 46 of the Act reads thus:

“46. (1) A tariff to be known as the Grid Tariff shall, in  accordance  with
any regulations made in this behalf, be fixed  from  time  to  time  by  the
Board in respect of each area for which a scheme is in  force,  and  tariffs
fixed under this section may, if the Board thinks fit, differ for  different
areas.

(2)   Without prejudice to the provisions of Section  47,  the  Grid  Tariff
shall apply to sales of electricity  by  the  Board  to  licensees  were  so
required under any of the First, Second  and  Third  Schedules,  and  shall,
subject as hereinafter provided, also be applicable to sales of  electricity
by the Board to licensees in other cases:

Provided that if in any such other  case  it  appears  to  the  Board  that,
having regard to  the  extent  of  the  supply  required,  the  transmission
expenses involved in affording the supply are higher than those  allowed  in
fixing the Grid Tariff, the Board may make such  additional  charges  as  it
considers appropriate.
                                   * * *”
7.    The first contention urged before us by the City Board is that in  the
absence of any regulations framed by the Electricity Board under Section  79
of the Act regarding the principles governing the fixing  of  Grid  Tariffs,
it  was  not  open  to  the  Electricity  Board  to   issue   the   impugned
notifications. This contention is based on sub-section (1) of Section 46  of
the Act which provides that a tariff to be known as the  Grid  Tariff  shall
in accordance with any regulations made in this behalf, be fixed  from  time
to time by the Electricity Board. It is urged that in  the  absence  of  any
regulations laying down the principles for fixing the tariff,  the  impugned
notifications were void as they had been issued without any  guidelines  and
were, therefore, arbitrary. It is admitted  that  no  such  regulations  had
been made by the Electricity Board by the time  the  impugned  notifications
were issued. The Division Bench has negatived the above plea  and  according
to us, rightly. It is true that Section 79(h)  of  the  Act  authorises  the
Electricity Board to make regulations laying down the  principles  governing
the fixing of Grid Tariffs. But Section 46(1) of the Act does not  say  that
no Grid Tariff can be  fixed  until  such  regulations  are  made.  It  only
provides that the Grid Tariff shall be  in  accordance  with any regulations
made in this behalf. That means that if  there  were  any  regulations,  the
Grid Tariff should be fixed in accordance with such regulations and  nothing
more. We are of the view that the framing of regulations  under  Section  79
(h) of the  Act  cannot  be  a  condition  precedent  for  fixing  the  Grid
Tariff….”

10.   It was also the contention of learned counsel for  ‘the  Board’,  that
the bar created by Section 12(1B), forbidding everyone not  already  engaged
in the activity of collective investment (before 25.1.1995),  to  so  engage
himself, was absolutely mandatory.  Such person (not already  engaged  in  a
collective investment scheme before  25.1.1995),  it  was  contended,  could
commence such activities (of sponsoring  or  carrying  on  of  a  collective
investment scheme), only after  obtaining  a  certificate  of  registration,
from ‘the Board’.   For  an  effective  interpretation  of  Section  12(1B),
learned counsel placed reliance on Union of India vs.  A.K.  Pandey,  (2009)
10  SCC  552,  and  the  Court’s  attention  was  drawn  to  the   following
observations recorded therein:-
8.    Rule 34 of the Army Rules, 1954 with which we are concerned  reads  as
follows:

“34.  Warning of accused for trial.—(1) The accused before he  is  arraigned
shall be informed by an officer of every charge for which he is to be  tried
and also that, on his giving the names of witnesses whom he desires to  call
in  his  defence,  reasonable  steps  will  be  taken  for  procuring  their
attendance, and  those  steps  shall  be  taken  accordingly.  The  interval
between his being so informed and his arraignment shall  not  be  less  than
ninety-six hours or where the accused person is on active service less  than
twenty-four hours.

(2)   The officer at the time of so informing the accused shall give  him  a
copy of the charge-sheet and shall, if necessary, read and  explain  to  him
the charges brought against him. If the accused desires  to  have  it  in  a
language which he understands, a translation thereof shall also be given  to
him.

(3)   The officer shall also deliver to the accused a  list  of  the  names,
rank and corps (if any) of the officers who  are  to  form  the  court,  and
where officers in waiting are  named,  also  of  those  officers  in  court-
martial other than summary court-martial.

(4)   If it  appears  to  the  court  that  the  accused  is  liable  to  be
prejudiced at his trial by any non-compliance  with  this  Rule,  the  court
shall take steps and, if necessary, adjourn to avoid the  accused  being  so
prejudiced.”

The key words used in Rule 34 from which the intendment is to be  found  are
“shall not be less than ninety-six hours”. As  the  respondent  was  not  in
active service at the relevant time, we are not  concerned  with  the  later
part of that rule which provides for interval of twenty-four hours  for  the
accused in active service.

9.    In  his  classic  work, Principles  of  Statutory  Interpretation (7th
Edn.),  Justice  G.P.  Singh  has  quoted  a  passage   of   Lord   Campbell
in Liverpool Borough Bank v. Turner, [(1860) 30 LJ Ch 379], that reads:

“No universal rule can be laid  down  as  to  whether  mandatory  enactments
shall  be  considered  directory  only   or   obligatory   whether   implied
nullification for disobedience. It is the duty of courts of justice  to  try
to get at the real intention of the legislature by  carefully  attending  to
the whole scope of the statute to be considered.”

***              ***              ***

14.   In Mannalal Khetan v. Kedar  Nath  Khetan, (1977)  2  SCC  424,  while
dealing with Section 108 of the Companies Act, 1956 a three-Judge  Bench  of
this Court held: (SCC pp. 429-31, paras 17-23)

“17. In Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur, AIR  1965  SC
895, this Court referred to various tests for finding out when  a  provision
is mandatory or directory. The purpose for  which  the  provision  has  been
made, its nature, the intention of the legislature in making the  provision,
the general inconvenience or injustice which may result to the  person  from
reading the provision one way or the other, the relation of  the  particular
provision to  other  provisions  dealing  with  the  same  subject  and  the
language of  the  provision  are  all  to  be  considered.  Prohibition  and
negative words can rarely be directory. It has been aptly stated that  there
is one way to obey the command and that is completely to refrain from  doing
the forbidden act. Therefore, negative, prohibitory and exclusive words  are
indicative  of  the  legislative  intent  when  the  statute  is  mandatory.
(See Maxwell on Interpretation of Statutes, 11th  Edn.,  pp.  362  et  seq.;
Crawford: Statutory   Construction,   Interpretation   of   Laws,   p.   523
and Bhikraj Jaipuria v. Union of India, AIR 1962 SC 113.

18.   The High Court said that the provisions contained in  Section  108  of
the Act are directory because non-compliance with Section 108 of the Act  is
not declared an offence. The reason given by the High  Court  is  that  when
the law does not prescribe the consequences or does  not  lay  down  penalty
for non-compliance with the provision contained in Section 108  of  the  Act
the provision is to be considered as directory. The  High  Court  failed  to
consider the provision contained in  Section  629(a)  of  the  Act.  Section
629(a) of the Act prescribes  the  penalty  where  no  specific  penalty  is
provided elsewhere in the Act. It is a  question  of  construction  in  each
case whether the legislature intended to  prohibit  the  doing  of  the  act
altogether, or merely to make the person  who  did  it  liable  to  pay  the
penalty.

19.   Where a contract, express or implied, is expressly or  by  implication
forbidden by statute, no court will lend its assistance to give  it  effect.
(See Melliss v. Shirley Local Board, [(1885) 16  QBD  446].  A  contract  is
void if prohibited by a  statute  under  a  penalty,  even  without  express
declaration that the contract is void, because  such  a  penalty  implies  a
prohibition. The penalty may be imposed with intent merely to deter  persons
from entering into the contract or for the purposes of revenue or  that  the
contract shall not be entered into so as to be valid at law.  A  distinction
is sometimes  made  between  contracts  entered  into  with  the  object  of
committing an illegal act and contracts expressly  or  impliedly  prohibited
by statute. The distinction is that in the former  class  one  has  only  to
look and see what acts the statute prohibits; it does not matter whether  or
not it prohibits a contract: if a contract is made to do a  prohibited  act,
that contract will be  unenforceable.  In  the  latter  class,  one  has  to
consider  not  what  act  the  statute  prohibits,  but  what  contracts  it
prohibits. One is not concerned at all with the intent of  the  parties,  if
the  parties  enter  into  a   prohibited   contract,   that   contract   is
unenforceable. (See St. John Shipping Corpn. v. Joseph  Rank  Ltd. (1957)  1
QB 267) (See also Halsbury's Laws of England, 3rd Edn., Vol. 8, p. 141.)

20.   It  is  well  established  that  a  contract  which  involves  in  its
fulfilment the doing of an act prohibited by  statute  is  void.  The  legal
maxim a pactis privatorum publico  juri  non  derogatur means  that  private
agreements cannot alter the  general  law.  Where  a  contract,  express  or
implied, is expressly or by implication forbidden by statute, no  court  can
lend  its  assistance  to  give  it  effect.  (See Melliss v. Shirley  Local
Board, (1885) 16 QBD 446). What is done in contravention of  the  provisions
of an Act of the legislature cannot be made the subject of an action.

21.   If anything is against law though it is not prohibited in the  statute
but only a penalty is annexed the agreement is void. In every case  where  a
statute inflicts a  penalty  for  doing  an  act,  though  the  act  be  not
prohibited, yet the thing is unlawful, because it is  not  intended  that  a
statute would inflict a penalty for a lawful act.

22.   Penalties are imposed by statute for two distinct purposes:

(1)   for the protection of the public against  fraud,  or  for  some  other
object of public policy;

(2)   for the purpose of securing certain sources of revenue either  to  the
State or to certain public bodies. If it is clear that a penalty is  imposed
by statute for the purpose of preventing something from being done  on  some
ground of public policy, the thing prohibited, if done, will be  treated  as
void, even though the penalty if imposed is not enforceable.

23.   The provisions contained in  Section  108  of  the  Act  are  for  the
reasons indicated earlier mandatory. The High Court erred  in  holding  that
the provisions are directory.”

15.   The principle seems to be fairly  well  settled  that  prohibitive  or
negative  words  are  ordinarily  indicative  of  mandatory  nature  of  the
provision; although not conclusive. The Court has to examine  carefully  the
purpose of such provision and the consequences that  may  follow  from  non-
observance thereof. If the context does not show nor demands otherwise,  the
text of a statutory provision couched in a negative form ordinarily  has  to
be read in the form of  command.  When  the  word  “shall”  is  followed  by
prohibitive or negative words,  the  legislative  intention  of  making  the
provision absolute, peremptory and imperative becomes  loud  and  clear  and
ordinarily has to be inferred as such. There being nothing  in  the  context
otherwise, in  our  judgment,  there  has  to  be  clear  ninety-six  hours'
interval between the accused being charged for which he is to be  tried  and
his arraignment and interval time in Rule  34  must  be  read  as  absolute.
There is a purpose behind this provision: that purpose is  that  before  the
accused is called upon for trial, he must be given adequate time to  give  a
cool thought to the charge or charges for which he is to  be  tried,  decide
about his defence and ask the authorities, if necessary, to take  reasonable
steps in procuring the attendance of his witnesses. He may even  decide  not
to defend the charge(s) but before he decides his line of  action,  he  must
be given clear ninety-six hours.”

It was submitted, on the basis of the legal position declared by this  Court
in the above  judgments,  that  the  bar  created  through  Section  12(1B),
forbidding  new  entrepreneurs   from   commencing   activities   concerning
collective investment, without obtaining a certificate of registration,  was
strict and mandatory.

11.   Based on the assertions noticed above, as  also,  the  legal  position
declared  by  this  Court,  it  was  sought  to  be   canvassed,   that   by
incorporating M/s. Gaurav Agrigenetics Ltd. on 3.7.1995, and immediately  on
its incorporation, by sponsoring or  carrying  on  a  collective  investment
enterprise, without  obtaining  a  certificate  of  registration  from  ‘the
Board’, in  accordance  with  the  Collective  Investment  Regulations,  the
respondents had clearly breached the bar created by Section  12(1B)  of  the
SEBI Act.  On account of the fact, that respondent nos. 1 and 2 had even  on
their own showing, continued to be the  promoter-directors  of  M/s.  Gaurav
Agrigenetics Ltd. upto 30.7.1998 (with reference to the respondent no.  1  –
Gaurav Varshney), and 23.12.1998 (with reference to the respondent no.  2  –
Vinod Kumar Varshney) respectively, they were obviously  in  breach  of  the
bar, contemplated under Section 12(1B) of the SEBI Act.

12.   Mr. Jatin Zaveri, learned counsel representing respondent nos.  1  and
2, seriously disputed the above interpretation  placed  by  learned  counsel
for the appellant, on Section 12(1B) of the SEBI Act.  First  and  foremost,
learned counsel for the respondents, referred to the  press  releases  dated
18.11.1997 and 26.11.1997  issued  by  the  Government  of  India  and  ‘the
Board’, respectively, as also, the public notice dated 18.12.1997 issued  by
‘the Board’.  We have already extracted the  aforesaid  press  releases  and
the public notice above.  We have also  highlighted  the  portions  thereof,
relied upon by learned counsel for the respondents, to contend that  in  the
understanding of the Government of  India,  as  also,  ‘the  Board’  itself,
there was no bar on sponsoring or commencing or  carrying  on  a  collective
investment scheme, even after the insertion of Section 12(1B) into the  SEBI
Act.  It was submitted, that the aforementioned press  releases  and  public
notice merely highlighted the requirement  of  obtaining  a  certificate  of
registration  from  ‘the  Board’,  consequent  upon  the  framing   of   the
Collective Investment Regulations, contemplated under Section 12(1B) of  the
SEBI Act.  It was, therefore the  submission  of  learned  counsel  for  the
respondents, that the action of the respondents, in  merely  commencing  the
activity of sponsoring  or  carrying  on  a  collective  investment  scheme,
should not be treated as a violation of Section 12(1B), at their hands.   It
was also contended on behalf of the respondents, that a  breach  of  Section
12(1B) could have arisen, only if M/s. Gaurav Agrigenetics  Ltd.,  could  be
blamed of having carried on  activities  concerning  collective  investment,
without obtaining  a  certificate  of  registration  from  ‘the  Board’,  in
accordance with the Collective Investment Regulations.  But that,  according
to learned counsel, was possible,  only  after  the  said  regulations  were
framed, and the respondents had continued their activity, in breach  of  the
said  regulations.   Since  the  Collective  Investment   Regulations   were
admittedly brought into force with  effect  from  15.10.1999,  according  to
learned counsel  for  the  respondents,  carrying  on  such  activity  after
15.10.1999 would be unauthorized, if the persons concerned did not obtain  a
certificate of  registration  from  ‘the  Board’,  in  accordance  with  the
notified regulations.  It was  submitted,  that  both  the  respondents  had
exited from the affairs  of  M/s.  Gaurav  Agrigenetics  Ltd.  (surely  with
effect  from  30.7.1998  and  23.12.1998  respectively),  well  before   the
Collective Investment Regulations  came  into  existence  (-on  15.10.1999).
And therefore, neither of the respondents  could  be  accused  of  violating
Section 12(1B) of the SEBI Act, or of not complying with the  provisions  of
the Collective Investment Regulations.

13.   In order to controvert  the  submissions  advanced  at  the  hands  of
learned counsel for the appellant, based on the judgments rendered  by  this
Court, emphatic reliance was placed on the decision in Vasu  Dev  Singh  vs.
Union of India, (2006) 12 SCC 753, wherefrom,  the  following  observations,
were sought to be highlighted:-
“Conditional legislation and delegated legislation

16.   We, at the outset, would like to express  our  disagreement  with  the
contentions raised before us by the learned counsel appearing on  behalf  of
the respondents that the impugned notification is in effect and substance  a
conditional legislation and not a  delegated  legislation.  The  distinction
between conditional legislation  and  delegated  legislation  is  clear  and
unambiguous. In a conditional legislation the delegatee  has  to  apply  the
law to an area or to determine the time  and  manner  of  carrying  it  into
effect or at such  time,  as  it  decides  or  to  understand  the  rule  of
legislation, it would be a conditional legislation. The legislature in  such
a case makes the law, which is complete in all respects but the same is  not
brought into operation immediately. The enforcement of the law would  depend
upon the fulfillment of a condition and what is delegated to  the  executive
is the authority to determine by exercising its own judgment as  to  whether
such conditions have been fulfilled and/or  the  time  has  come  when  such
legislation  should  be  brought  into  force.  The  taking  effect   of   a
legislation, therefore, is made dependent upon  the  determination  of  such
fact or condition by  the  executive  organ  of  the  Government.  Delegated
legislation,  however,  involves  delegation   of   rule-making   power   of
legislation and authorises an executive authority to bring in force such  an
area by reason thereof. The discretion conferred on the executive by way  of
delegated  legislation  is  much  wider.  Such  power  to  make   rules   or
regulations, however, must be exercised within the four corners of the  Act.
Delegated legislation, thus, is a device which has  been  fashioned  by  the
legislature to be exercised in the  manner  laid  down  in  the  legislation
itself. By reason of Section 3 of the Act, the Administrator,  however,  has
been empowered to issue a notification whereby and whereunder, an  exemption
is granted for application of the Act itself.

17.   In Hamdard Dawakhana v. Union of India, AIR 1960 SC  554,  this  Court
stated: (AIR p. 566, para 29)

“The distinction between conditional legislation and  delegated  legislation
is this that in the former the delegate's power is that of determining  when
a legislative declared rule of conduct  shall  become  effective; Hampton  &
Co. v. U.S., 276 US 394, and the latter involves delegation  of  rule-making
power which constitutionally may be exercised by the  administrative  agent.
This means that the legislature having laid down  the  broad  principles  of
its policy in the legislation can then leave the details to be  supplied  by
the administrative authority. In other words by  delegated  legislation  the
delegate completes the legislation by supplying details  within  the  limits
prescribed by the statute and in the case  of  conditional  legislation  the
power of legislation is exercised by the legislature  conditionally  leaving
to the discretion of an external authority the time and manner  of  carrying
its legislation into effect as also the determination of the area  to  which
it is to extend;”

(See also M.P. High  Court  Bar  Assn. v. Union  of  India,  (2004)  11  SCC
766; State of T.N. v. K. Sabanayagam, (1998) 1  SCC  318,  and Orient  Paper
and Industries Ltd. v. State of Orissa, 1991 Supp (1) SCC 81.)”

14.   We have heard learned counsel for the rival parties.  We  are  of  the
considered view, that it would be appropriate  in  the  first  instance,  to
interpret sub-Section (1B)  of  Section  12  of  the  SEBI  Act.   And  only
thereafter, proceed to deal with  the  other  issues  canvassed  by  learned
counsel.

15.   In our considered view, an effective interpretation of Section  12(1B)
can be rendered, only upon understanding the intent behind  Section  12(1B),
and the exception created through  the  proviso  thereunder.   On  being  so
considered it is apparent, that on the insertion of Section  12(1B)  in  the
SEBI Act on 25.1.1995, two classes  of  persons  were  created.   The  first
class comprised  of  such  person(s)  who  had  commenced  the  activity  of
sponsoring or carrying on a collective investment scheme prior to  25.1.1995
(this category will be referred to hereinafter as,  the  proviso  category).
This category would be governed by the proviso under  Section  12(1B).   The
second category created by Section 12(1B) was  constituted  of  persons  who
had not commenced the activity of sponsoring or  carrying  on  a  collective
investment scheme prior to 25.1.1995 (this  category  will  be  referred  to
hereinafter as, the non-proviso category).

16.   The persons covered by the proviso category, referred to  hereinabove,
were permitted to continue their existing collective investment  activities,
till the framing of the Collective Investment Regulations.  On  the  framing
of the Collective Investment Regulations, the said persons  covered  by  the
proviso category, were required to obtain  a  certificate  of  registration,
which would enable them to continue to  operate  their  existing  collective
investment scheme(s).

17.   Insofar as the non-proviso category is concerned, the same was  barred
from sponsoring or carrying on a collective investment  initiative,  without
first  obtaining  a  certificate  of  registration  from  ‘the  Board’,   in
accordance with the  Collective  Investment  Regulations.   The  non-proviso
category, comprised of persons who had not commenced  any  activity  in  the
nature of a collective investment, prior  to  25.1.1995.   In  other  words,
Section 12(1B) introduced a clear bar, prohibiting any action of  sponsoring
or initiating  a  collective  investment  scheme  after  25.1.1995,  without
obtaining  a  certificate  of  registration  from  ‘the  Board’,  under  the
Collective Investment Regulations.  Stated differently, a  new  entrepreneur
desirous of sponsoring  or  carrying  on  any  activity  in  the  nature  of
collective investment for the first time after 25.1.1995, could do  so  only
after he/it had obtained a certificate of registration from ‘the Board’,  in
accordance with the  Collective  Investment  Regulations.   Therefore,  till
such time the Collective Investment Regulations were framed by  ‘the  Board’
under Section 12(1B), and a certificate of  registration  was  obtained,  no
fresh entry could be made in  the  field  of  collective  investment,  by  a
person/entity not already carrying on such activity.

18.   A perusal of  the  conclusions  drawn  by  us  in  the  foregoing  two
paragraphs, wherein we have interpreted  Section  12(1B)  of  the  SEBI  Act
would reveal, that persons governed by the substantive provision  (the  non-
proviso  category)  were  permitted  to  “commence”  activities   concerning
collective investment, only after obtaining a certificate  of  registration;
and persons covered under the proviso category (-who were  already  carrying
on  such  activities),  were  permitted  to  “continue”   their   activities
(concerning collective investment),  and  after  the  concerned  regulations
were framed, they could continue the said activities only after obtaining  a
certificate of registration.

19.   The Collective Investment Regulations came into force  on  15.10.1999.
A person falling in the proviso category,  namely,  an  individual  who  had
commenced the activity of sponsoring or carrying on a collective  investment
initiative prior to  25.1.1995,  was  liable  to  move  an  application  for
registration under Regulation 5 of the  Collective  Investment  Regulations.
Regulation 5, is extracted hereunder:-
      “Application by existing Collective Investment Schemes

5.    (1)   Any person who immediately prior to the  commencement  of  these
regulations was operating a scheme,  shall  subject  to  the  provisions  of
Chapter IX of these regulations make an application to  the  Board  for  the
grant of a certificate within a period of two months from such date.

(2)    An  application  under  sub-regulation   (1)   shall   contain   such
particulars as  are  specified  in  Form  A  and  shall  be  treated  as  an
application made in pursuance of regulation 4 and dealt with accordingly.”

An application under Regulation 5 could not have been made by an  individual
falling under the non-proviso category,  for  the  simple  reason,  that  an
activity of sponsoring or carrying on a collective investment scheme by  the
said individual could not be termed as an “existing”  collective  investment
scheme.  An “existing” collective investment scheme (-  as  the  heading  of
Regulation 5, suggests) within the meaning of Section 12(1B) read  with  the
Collective Investment Regulations, could only be  one  which  had  commenced
prior to 25.1.1995, i.e. prior to the insertion of  Section  12(1B)  in  the
SEBI Act.  A collective investment scheme, which commenced after  25.1.1995,
could not be  described  as  an  “existing”  collective  investment  scheme,
because  the  same   was   statutorily   barred,   and   therefore,   wholly
impermissible in law.  This has been the clear and unambiguous  stance  even
of  the  learned  counsel  representing  ‘the  Board’.   We  may  venture  a
different course, of reaching the same conclusion.   What  a  statute  bars,
cannot be authorized through regulations.  Any person/entity not falling  in
the proviso category (an “existing” operator,  of  a  collective  investment
scheme) was barred from commencing to sponsor or  carry  on  any  collective
investment activity, after the insertion of Section  12(1B)  into  the  SEBI
Act, till such time as he/it had  obtained  a  certificate  of  registration
from ‘the Board’, in accordance with the Collective Investment  Regulations.
 Therefore, an “existing” collective  investment  scheme,  at  the  time  of
notification of the regulations, could only be one which had  commenced  its
activities prior to 25.1.1995.  We may  also  notice,  that  the  procedural
details for obtaining a certificate of registration from ‘the  Board’,  have
been enumerated in  Regulations  68  to  72  of  the  Collective  Investment
Regulations (these regulations are not being extracted  herein,  for  reason
of brevity).

20.   Insofar as persons falling in the non-proviso category (namely,  those
desirous of commencing activities concerning  collective  investment,  after
25.1.1995) are concerned, such persons could commence  an  activity  in  the
nature  of  collective  investment,   after   seeking   a   certificate   of
registration  under  the  Collective  Investment  Regulations.   For   which
purpose, they were required to apply under Regulation 4  of  the  Collective
Investment Regulations.  Regulation 4 aforementioned is reproduced below:-
      “Application for grant of certificate

      4.    Any person proposing to  carry  any  activity  as  a  Collective
Investment  Management  Company  on  or  after  the  commencement  of  these
regulations shall make  an  application  to  the  Board  for  the  grant  of
registration in Form A.”

A perusal of Regulation 4 extracted above, leaves no  room  for  any  doubt,
that the  same  is  applicable  to  a  person  “…  proposing  to  carry  any
activity…” in the nature of a collective investment.  On the analogy of  the
interpretation placed by us on Section  12(1B),  all  persons  who  had  not
commenced to sponsor or carry  on  a  collective  investment  scheme  before
25.1.1995, would fall in this category.  In the above view  of  the  matter,
we are satisfied, that persons who were desirous to sponsor or carry on  the
activity in the  nature  of  collective  investment  after  25.1.1995,  were
clearly and unambiguously barred from doing so, unless they  were  possessed
of  a  certificate  of  registration,  issued  by  ‘the  Board’  under   the
Collective Investment Regulations.

21.   In view of the above, we  have  no  hesitation  in  holding,  that  an
“existing” collective  investment  scheme  within  the  meaning  of  Section
12(1B),  as  also,  within  the  meaning  of   the   Collective   Investment
Regulations, comprised only of such collective investment  scheme(s),  which
had  come  into  existence  prior  to  25.1.1995.   And  therefore,  it  was
impermissible for a person who had not  commenced  a  collective  investment
scheme prior  to  25.1.1995,  to  do  so  thereafter,  till  the  Collective
Investment Regulations were framed.  Thereafter, such new entrepreneur,  had
to obtain a certificate of registration from ‘the Board’ under Regulation  4
of the Collective Investment Regulations, before he could  legally  commence
activities concerning  collective  investment  operations.   Our  inevitable
conclusion is, that sponsoring or  carrying  on  any  collective  investment
activity, for the first time, on or after 25.1.1995, was a complete bar,  in
the  absence  of  a  certificate  of  registration  from  ‘the  Board’.   It
accordingly follows, that if a person/entity had  commenced  to  sponsor  or
carry on a collective investment scheme after 25.1.1995,  without  obtaining
a certificate of registration from  ‘the  Board’,  it  would  tantamount  to
breaching the express mandate contained in Section 12(1B) of the SEBI Act.

22.   In our considered view, there can be no doubt, that the date when  the
Collective Investment Regulations came  into  force  (-15.10.1999),  has  no
relevance, insofar as the breach of Section 12(1B) of  the  SEBI  Act,  with
reference to such new entrepreneurs, is concerned.  The bar  to  sponsor  or
cause to be sponsored, or carry on or cause to be carried on any  collective
investment activity by a  new  entrepreneur  (-who  had  not  commenced  the
concerned activities, before 25.1.1995) under Section  12(1B)  of  the  SEBI
Act, was not dependent on the framing of the  regulations.   The  above  bar
was absolute and unconditional, till the new entrepreneur (described  above)
obtained a certificate of registration, in accordance with the  regulations.
 The said bar would, therefore, undoubtedly extend till the framing  of  the
regulations.  The above bar, would further extend, even beyond  the  framing
of  the  above  regulations,  till  the  concerned  new   entrepreneur   was
successful in obtaining  a  certificate  of  registration.   Therefore,  the
period during which the concerned  activities  were  barred  (for  the  non-
proviso category)  under  Section  12(1B)  -  commenced  from  the  date  of
insertion of Section 12(1B) into the SEBI Act  (-25.1.1995),  and  subsisted
upto, the actual date when the new entrepreneur obtained  a  certificate  of
registration.  We hold so accordingly.

23.   In view  of  the  above,  we  have  no  hesitation  in  accepting  the
contention advanced by  learned  counsel  for  ‘the  Board’,  that  the  bar
created under  Section  12(1B),  forbidding  persons  who  had  not  engaged
themselves, in  an  activity  of  collective  investment  before  25.1.1995,
continued till the  concerned  persons/entities  successfully  obtained  the
required  certificate  of  registration,  under  the  Collective  Investment
Regulations.  Our conclusion  hereinabove  emerges  from,  inter  alia,  the
following salient features.  Firstly because, the Statement of  Objects  and
Reasons of the Securities Laws (Amendment) Act, 1995, which resulted in  the
insertion of sub-Section (1B) in Section 12 of the SEBI  Act,  reveals  that
the same was brought in, on account of past experience of ‘the  Board’,  and
the dire need to protect the interests of investors.  Secondly because,  the
language of sub-Section (1B) of Section 12 of the  SEBI  Act  is  clear  and
unambiguous  –  it  allowed   existing   collective   investment   scheme(s)
entrepreneurs, to continue with the same by creating an exception  in  their
favour, through the  proviso  under  Section  12(1B).   And  it  barred  new
operators from commencing collective investment scheme(s), till  after  they
had obtained a certificate of registration.  Thirdly because, of the use  of
negative words in sub-Section (1B) – “No person shall…”,  denotes  mandatory
intent,  with  reference  to  those  not  already  engaged   in   collective
investment operations.  Fourthly because, of the use of  negative  words  in
conjunction with the word “shall”,  further  makes  the  legislative  intent
absolutely clear, and also, mandatory, with reference to those  not  already
engaged  in  collective  investment  operations.    And   fifthly   because,
contravention of Section 12(1B) entails penal consequences,  and  therefore,
cannot  be  construed  as  directory.   We  therefore  hereby   accept   the
submission advanced on behalf of learned counsel for ‘the Board’, and  hold,
that  the  bar  created  for  new  operators,  of  a  collective  investment
initiative, was absolute and  mandatory.   The  bar  under  Section  12(1B),
restrained persons (who  were  not  engaged  in  any  collective  investment
venture upto 25.1.1995), from commencing  activities  concerning  collective
investment, till  they  had  obtained  a  certificate  of  registration,  in
consonance with the Collective Investment Regulations.

24.   We are also of the view, that the judgments  relied  upon  by  learned
counsel  for  the  appellant,  namely,  Orient  Papers  Mills,  U.P.   State
Electricity Board, Lucknow, and A.K. Pandey (supra), have  no  relevance  to
the controversy in hand.  In the above cases, the  question  which  came  up
for consideration was, whether the authority concerned could have  acted  in
the manner provided under the  concerned  statute,  before  the  regulations
were framed.  The issue considered was the  jurisdiction  of  the  concerned
authority, and nothing more.  No such question, arises in the present  case.
 Herein, a  bar  has  been  created,  preventing  a  new  entrepreneur  from
commencing  a  defined  activity.   No  question  of  jurisdiction  (of  the
competent authority), arise in the present controversy.

25.   In spite of the position expressed hereinabove, it was the  contention
of learned counsel for the respondent nos. 1 and 2, that the  aforementioned
determination would not adversely affect the  private  respondents,  because
the complaint filed by ‘the Board’ under Section 200  of  the  Cr.P.C.  read
with Sections 24(1) and 27 of the SEBI Act, did not accuse the  respondents,
of having committed a breach of the bar  expressed  with  reference  to  new
entrepreneurs, under Section 12(1B) of the  SEBI  Act.   It  was  submitted,
that the only accusation levelled at the respondents was, for  a  breach  of
the Collective Investment Regulations,  framed  under  Section  12(1B).   In
order to substantiate his aforesaid  contention,  learned  counsel  for  the
respondents invited our attention to the  complaint  dated  15.12.2003.   In
order to appreciate the contention of learned counsel,  an  extract  of  the
aforesaid complaint, including all the paragraphs relied  upon  by  him,  is
reproduced below:-
“7.   The accused no. 1 is a company registered under the provisions of  the
Companies Act and the accused nos. 2 to 11 are the directors of the  accused
no. 1 company.  The accused nos. 2  to  11  are  the  persons  incharge  and
responsible for the day to day affairs of the company and all of  them  were
actively connived with each other for the commission of offences.

8.    The accused no. 1  is  operating  collective  investment  schemes  and
raised an aggregate amount of Rs.14,63,279/- (Rupees  fourteen  lakhs  sixty
three thousand two hundred seventy nine only) from the general public.

9.     The  accused  no.  1  company  filed  information/details  with  SEBI
regarding its collective investment schemes pursuant to SEBI  press  release
dated November 26, 1997, and/or public notice dated December 18, 1997.

10.   In terms of Chapter IX of the said regulations,  any  person  who  had
been operating a collective investment schemes at the time  of  commencement
of the said regulations  shall  be  deemed  to  be  an  existing  collective
investment scheme and shall comply with the provisions of the  said  Chapter
IX.  Further, in terms of the said Chapter IX  any  person  who  immediately
prior  to  the  commencement  of  the  said  regulations  was  operating   a
collective investment scheme shall make an application to SEBI for grant  of
registration within a period of two months from the date of notification  of
the said regulations.

11.   SEBI vide its letters dated December 15, 1999/December  29,  1999  and
also by way of a public notice dated December 10, 1999  gave  intimation  to
the accused no. 1 directing it to send an information memorandum to all  the
investors detailing  the  state  of  affairs  of  the  schemes,  the  amount
repayable  to  each  investor  and  the  manner  in  which  such  amount  is
determined.   As  per  the  aforesaid  letters  of  SEBI,  the   information
memorandum to the investors was required to be sent latest by  February  28,
2000.

12.   SEBI having regard to the interest of investors and  request  received
from various persons operating collective investment  schemes  extended  the
last date of submitting the application by existing entities upto March  31,
2000 and the same was declared by SEBI vide a press  release  and  a  public
notice.

13.   However, the accused no. 1 failed to make any  application  with  SEBI
for registration of the collective investment schemes being operated  by  it
as per the said regulations.

14.   It is submitted that  in  terms  of  Regulations  73(1)  of  the  said
regulations, an existing collective investment schemes which failed to  make
an application for registration  with  SEBI,  shall  wind  up  the  existing
collective investment schemes and  repay  the  amounts  collected  from  the
investors.  Further, in terms of Regulation 74 of the said  regulations,  an
existing collective investment scheme which is  not  desirous  of  obtaining
provisional registration from SEBI shall formulate  a  scheme  of  repayment
and make such repayment to the existing investors in  the  manner  specified
in Regulation 73.

15.   However, the accused no. 1 neither applied for registration under  the
said regulations nor took any steps  for  winding  up  of  the  schemes  and
repayment to the investors as provided under the  regulations  and  as  such
had violated the provisions of Section 12(1B)  of  Securities  and  Exchange
Board of India Act, 1992 and Regulation 5(1)  read  with  Regulation  68(1),
68(2), 73 and 74 of the said regulations.

16.   On December 7, 2000 SEBI by exercising its powers  conferred  upon  it
under Section 11B of Securities  and  Exchange  Board  of  India  Act,  1992
directed the  accused  no.  1  to  refund  the  money  collected  under  the
aforesaid collective investment schemes of the accused no. 1 to the  persons
who invested therein within a period of one month from the date of the  said
directions.

17.   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 amounts collected by it from the investors.

18.   The accused no. 1 raised a  total  amount  of  Rs.14,63,279/-  (Rupees
fourteen lakhs sixty three thousand two hundred seventy nine  only)  by  its
own admission and its failure to refund the amounts to  the  general  public
who invested their hard-earned money in the schemes operated by the  accused
no. 1, caused huge pecuniary damage to them.

19.   In view of the above, it  is  charged  that  the  accused  no.  1  has
committed the violation of Section 11B, 12(1B) of  Securities  and  Exchange
Board of India Act, 1992 and Regulation 5(1) read  with  Regulations  68(1),
68(2), 73 and 74 of the Securities and Exchange Board of  India  (Collective
Investment Schemes) Regulations, 1999 which is punished under Section  24(1)
of Securities and Exchange Board of India Act, 1992.

20.   The accused nos. 2 to 11 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  violations  of  the  accused
no. 1, as provided under Section 27 of  Securities  and  Exchange  Board  of
India Act, 1992.

21.   The violation of the aforesaid laws by the accused were  the  acts  of
omission and were occurred within the jurisdiction  of  this  Hon’ble  Court
and as such this Hon’ble Court  has  got  jurisdiction  to  try  punish  the
accused.  This complaint is within the limitation.  The  complainant  craves
the leave of this  Hon’ble  Court  to  produce  the  documents  referred  to
hereinabove as and when required.

                                   PRAYER

It is, therefore, most respectfully prayed to this Hon’ble Court  to  summon
the accused and punish them in strictest terms as provided  by  law  in  the
interest of justice.”

26.   Having given our thoughtful consideration to the accusations  levelled
by ‘the Board’ against the respondents (in the complaint dated  15.12.2003),
there is absolutely no room for any  doubt,  that  the  private  respondents
were  being  treated  as  operating,  an  “existing”  collective  investment
scheme.  They  were  accused  inter  alia,  for  having  not  complied  with
Regulation 5  of  the  Collective  Investment  Regulations.   Regulation  5,
allows an “existing” enterprise operating a  collective  investment  scheme,
to apply for registration.  We have already interpreted Regulation  5,  more
particularly, the term  “existing”,  used  in  conjunction  with  collective
investment  schemes,  in  paragraph  19  above.   The  accusations  levelled
against the respondents, will have  to  be  understood  in  the  context  of
Regulation 5, on account of the express stance adopted  by  ‘the  Board’  in
paragraph 10 of the complaint, wherein, having treated  the  respondents  as
persons who had commenced the activity  of  a  collective  investment,  they
were accused of not having made an application to ‘the Board’ for the  grant
of registration in  terms  of  Chapter  IX  (of  the  Collective  Investment
Regulations).

27.   It would be relevant to mention that  Chapter  IX  bears  the  heading
“Existing Collective Investment Schemes”, whereunder Regulations  68  to  72
delineate   procedural   details,   for   obtaining   a   certification   of
registration.  The connotation of the  term  “existing”  with  reference  to
collective investment schemes, in Chapter IX, would  be  the  same,  as  has
been  interpreted  by  us,  in  paragraph  19  above.   It  was,  therefore,
submitted on behalf of the  respondents,  that  they  were  not  accused  of
having unauthorisedly commenced a  collective  investment  scheme.   It  was
contended, that the violation of Section 12(1B) of  the  SEBI  Act,  alleged
against the respondents, had to be understood in  the  manner  expressed  in
the complaint.  The complaint described the  respondents,  as  operating  an
“existing” collective investment venture.  It  was  pointed  out,  that  the
respondents were proceeded against, only  for  their  failure  to  obtain  a
certificate of registration under Regulation 5 of the Collective  Investment
Regulations, read  with  Chapter  IX  of  the  said  regulations,  and  more
particularly, Regulations 68, 73 and 74 (refer to paragraphs 8, 10,  11,  13
to 15, 18 and  19  of  the  complaint).   Therefore,  according  to  learned
counsel for  the  respondents,  the  appellant  had  expressly  treated  the
respondents as persons falling in the proviso category  of  Section  12(1B),
namely, those who had commenced a collective  investment  undertaking  prior
to insertion of Section 12(1B) into the SEBI Act (-on 25.1.1995).   It  was,
therefore submitted, that the respondents could not be proceeded against  by
treating them as  belonging  to  the  non-proviso  category  (-who  had  not
commenced  any  activity  associated  with  collective  investment,   before
25.1.1995) of Section 12(1B), by considering them as new entrepreneurs,  who
have commenced operating a collective investment scheme after 25.1.1995.

28.   We express our complete agreement, with  the  stance  adopted  at  the
hands of learned counsel for the private respondents.  The respondents  were
only accused of having not complied with, the provisions of  the  Collective
Investment  Regulations,  pertaining  to  “existing”  collective  investment
operators (those who had commenced the  activity  before  25.1.1995).   Thus
viewed, the fact that the respondents commenced the activity  of  collective
investment after the insertion of sub-Section (1B)  of  Section  12  of  the
SEBI Act (-25.1.1995), cannot be gone into, to determine whether or not  the
said activity was in breach of the bar contemplated under Section 12(1B)  of
the SEBI Act.  Having so concluded it emerges, that the continuation of  the
activity of sponsoring or carrying on a collective investment scheme by  the
respondents, after 25.1.1995 (when Section  12(1B)  was  inserted  into  the
SEBI Act), and in continuing therewith, without obtaining a  certificate  of
registration, cannot be the basis for proceeding  against  the  respondents.
For the simple reason, that the respondents had not been so accused, in  the
complaint filed by ‘the Board’.  In this behalf, reference may  be  made  to
P.B. Desai vs. State of Maharashtra, (2013) 15 SCC 481, wherein  this  Court
held as under:-
“51.  We would  also  like  to  make  another  aspect  very  explicit.   The
appellant was levelled a specific charge which was framed against him.   The
prosecution was required to prove that  particular  charge  and  not  to  go
beyond that and attribute “rash and negligent” acts which are not  the  part
of the charge.  Culpability is specifically related to the  “act”  committed
on 22.12.1987 at about 9 a.m. in the hospital viz.  the  act  of  performing
surgical procedure.  It is, thus, this act  alone,  and  nothing  more,  for
which the appellant and Dr. Mukherjee were  charged  and  the  appellant  is
supposed to meet this charge alone.”

The  fact  that  the  respondents  had  actually  commenced   a   collective
investment undertaking after 25.1.1995, without obtaining a  certificate  of
registration, in our considered view, is of no  relevance  whatsoever,  with
reference to the complaint filed by  ‘the  Board’  against  the  respondents
(dated 15.12.2003).

29.   A significant question which arises for consideration is, whether  the
respondents against whom the above complaint  dated  15.12.2003  was  filed,
could be punished for violating Section 12(1B) of  the  SEBI  Act.   We  may
clarify,  that  proceedings  are  permissible,  against   both   categories.
Against the non-proviso category, for having commenced the  barred  activity
after  25.1.1995,  without  registration.   And  also  against  the  proviso
category, for having continued  the  concerned  activity  without  obtaining
registration,  after  the  notification   of   the   Collective   Investment
Regulations.  It needs to be understood,  that  in  the  present  case,  the
instant submission is canvassed before us  on  behalf  of  ‘the  Board’,  by
describing  the  respondents  as  belonging  to  the  non-proviso  category,
wherein persons not already engaged in an “existing”  collective  investment
venture  as  on  25.1.1995,  were  precluded  from   activities   concerning
collective  investment,  till  the  time  they  obtain  a   certificate   of
registration from ‘the Board’ in accordance with the  Collective  Investment
Regulations.  As already concluded above, this course could not  be  pursued
against the respondents, because they were not so accused, in the  complaint
dated 15.12.2003.  The question posed, is answered accordingly.

30.   The sequence of facts narrated hereinabove reveals,  incorporation  of
M/s. Gaurav Agrigenetics Ltd. after 25.1.1995, and also, that  it  commenced
a collective investment scheme prior  to  15.10.1999  (the  date,  when  the
Collective  Investment  Regulations,  were  notified).   Undoubtedly,   M/s.
Gaurav Agrigenetics Ltd., could have  been  proceeded  against,  for  having
violated Section 12(1B).  And it would have been fully  justified  for  ‘the
Board’, to  proceed  against  M/s.  Gaurav  Agrigenetics  Ltd.,  for  having
violated the said provision.  The issue which has emerged for  consideration
is, whether the complaint filed by ‘the Board’  against  the  company  under
reference,  as  also,  its  directors,   factually   accused   M/s.   Gaurav
Agrigenetics Ltd. and its directors, of having violated  Section  12(1B)  of
the SEBI Act?  Were the accused described  as  falling  in  the  non-proviso
category?  Were the accused, proceeded against on the ground, that they  had
commenced  activities  concerning  collective   investment   schemes   after
25.1.1995, without seeking a certificate of registration?   Answers  to  the
aforesaid queries, by the erstwhile directors of  M/s.  Gaurav  Agrigenetics
Ltd., are in the negative.  The above response of the accused, is  seriously
contested by Mr. Arvind Datar,  learned  senior  counsel  representing  ‘the
Board’.  We shall  endeavour,  in  the  first  instance,  to  determine  the
veracity of the submissions advanced at the hands of  ‘the  Board’,  namely,
whether the accused were proceeded against, as belonging to the  non-proviso
category.

31.   The contentions advanced at the hands of ‘the Board’ comprise of  four
independent submissions.  First of all  it  was  urged,  that  a  collective
perusal of paragraphs 8 and 15 of  the  complaint  dated  15.12.2003,  would
leave no room for any doubt, that the directors  of  the  company  concerned
were pointedly accused of having violated Section 12(1B) of  the  SEBI  Act.
The said paragraphs 8 and 15 are reproduced herein below:-
“8.   The accused no. 1  is  operating  collective  investment  schemes  and
raised an aggregate amount of  Rs.14,63,279  (Rupees  fourteen  lakhs  sixty
three thousand two hundred seventy nine only) from the general public.
***              ***              ***
15.   However, the accused no. 1 neither applied for registration under  the
said regulations nor took any steps  for  winding  up  of  the  schemes  and
repayment to the investors as provided under the  regulations  and  as  such
had violated the provisions of Section 12(1B)  of  Securities  and  Exchange
Board of India Act, 1992 and Regulation 5(1) r/w Regulations  68(1),  68(2),
73 and 74 of the said regulations.”

32.   Having given our thoughtful consideration to  the  factual  assertions
contained in the complaint, it is not possible for  us  to  agree  with  the
learned senior counsel representing ‘the  Board’,  for  the  simple  reason,
that a perusal of the  above  factual  assertions,  reveal  two  accusations
against  the  accused.   Firstly,  that  the  accused  did  not  apply   for
registration under the Collective  Investment  Regulations.   And  secondly,
the accused did not  take  any  steps  for  winding  up  of  the  collective
investment scheme(s) being operated by them, refunding deposits made by  the
investors, as per the provisions of the Collective  Investment  Regulations.
The basis of the accusations levelled against  the  accused  was  not,  that
they had no right to commence a collective investment  venture,  during  the
period between 25.1.1995 when Section 12(1B) of the  SEBI  Act  came  to  be
inserted, till the requisite certificate of registration  was  sought.   The
complaint did not include any  direct  or  indirect  insinuation,  that  the
accused had unauthorisedly commenced operations of a  collective  investment
scheme, after 25.1.1995.  Even the date of commencement  of  the  collective
investment operations, by the accused, was not expressed in  the  complaint.
It was imperative for ‘the Board’, to lay the above charge, through  express
assertions, for proceeding against the accused, for violation  of  the  non-
proviso mandate, under Section 12(1B).

33.   We are mindful of the fact that, paragraph 15 of the complaint  relied
upon by the learned senior counsel, does make a reference to  the  violation
of Section 12(1B), but the violation alleged is on  account  of  having  not
applied for registration, for carrying on the collective investment  scheme,
and alternatively, for not having taken steps  to  wind  up  the  collective
investment undertaking by making refunds to the investors, as  provided  for
under the  Collective  Investment  Regulations.   In  our  considered  view,
reliance  placed  on  the  two  paragraphs  of  the  complaint  is   clearly
insufficient, for the  purpose  canvassed  by  the  learned  senior  counsel
representing ‘the Board’.  We are of the view, that the above assertions  in
the complaint, assumed that the respondents  were  “existing”  operators  (-
prior to 25.1.1995).  Because in our view, only  “existing”  operators,  had
to wind up, if they choose not to conform  with  the  Collective  Investment
Regulations (after their notification).

34.   There can  be  no  doubt  whatsoever,  that  the  particulars  of  the
offence, of which an accused is charged, have to be clearly stated  to  him.
In case the accused in the present  case  were  to  be  charged  for  having
violated Section 12(1B) as new operators under the non-proviso category,  it
was imperative to inform them of all the relevant particulars, namely,  that
they had unauthorisedly commenced a  collective  investment  scheme,  during
the period when there was a complete bar, against commencing to  sponsor  or
carry on a collective investment  scheme.   In  the  absence  of  the  above
particulars of the offence, they could not have been tried or  punished  for
the same.  No amount of evidence can be looked into, for an  accusation  not
levelled or made out, in a complaint.  This is one of the  basic  tenets  of
the criminal jurisprudence.

35.   We will now proceed to deal with the second  submission,  advanced  at
the hands of the learned senior counsel, for ‘the  Board’.   In  support  of
his second submission, the learned senior counsel relied on Section  251  of
the Cr.P.C.  The said provision is reproduced hereunder:-
“251. Substance of accusation to be stated.-  When  in  a  summons-case  the
accused appears or is brought before the Magistrate, the particulars of  the
offence of which he is accused shall be stated  to  him,  and  he  shall  be
asked whether he pleads guilty or has any defence to make, but it shall  not
be necessary to frame a formal charge.”

A perusal of Section  251  leaves  no  room  for  any  doubt,  that  “…  the
particulars of the offence of which he is accused shall be stated to  him…”.
 The particulars for an offence postulated for the non-proviso  category  (-
where the activity of a collective investment  scheme,  is  commenced  after
25.1.1995), under Section 12(1B) of the SEBI  Act,  would  be  the  date  on
which  the  accused  commenced  sponsoring  or  carrying  on  a   collective
investment scheme.  If such date fell within the period when the  initiation
of a new collective investment endeavour stood barred under Section  12(1B),
the accused had to be  accosted  of  the  same.   And  only  thereupon,  the
accused would have understood, what charge was being levelled  against  him.
Merely mention of the statutory provision, namely,  Section  12(1B)  of  the
SEBI Act, would not amount to disclosing to the accused, the particulars  of
the offence of which they were accused.  One cannot lose sight of the  fact,
that implications for the proviso category (-those who commenced  operations
before  25.1.1995)  and  the  non-proviso  category  (-those  who  commenced
operations after 25.1.1995) are different.  A  perusal  of  the  chargesheet
reveals, that the respondents herein were being treated as belonging to  the
proviso category.  But learned counsel for ‘the Board’ desires us  to  treat
them as belonging to the non-proviso category, and to proceed  against  them
for  having  engaged  themselves   in   activities   concerning   collective
investment, on the basis of the material available  on  the  record  of  the
case.  This, in our considered view is clearly impermissible.  We  are  also
of the view, that Section 251 of the  Cr.P.C.  will  not  remedy  the  above
defect and deficiency in the complaint.  In the above view  of  the  matter,
for the reasons recorded hereinabove,  and  additionally,  for  the  reasons
recorded while rejecting the first contention advanced at the hands  of  the
learned senior counsel for ‘the Board’, we find no merit in  the  submission
founded on Section 251 of the Cr.P.C.

36.   The third submission advanced on behalf of ‘the Board’, was  based  on
the determination  rendered  by  the  trial  Court,  that  the  accused  had
violated Section 12(1B) of the SEBI Act.   Learned  senior  counsel  pointed
out, that the date of incorporation of  M/s.  Gaurav  Agrigenetics  Ltd.  (-
3.7.1995), of which the  respondents/accused  were  directors,  was  clearly
brought out by way of concrete  evidence,  before  the  trial  Court.   M/s.
Gaurav Agrigenetics was undisputedly incorporated after 25.1.1995.   It  was
further urged, that neither of the accused directors disputed the fact  that
the company of which they were promoter-directors, was actually carrying  on
a  collective  investment  scheme.   Such  being  the   undisputed   factual
position, it was asserted, that a breach of Section  12(1B),  as  applicable
to the non-proviso category, was clearly  established.   And  further,  that
such breach was affirmed  by  the  trial  Court.   It  was,  therefore,  the
contention of the learned senior counsel representing ‘the Board’,  that  it
was no longer open to the accused to canvass, that the  particulars  of  the
offence under Section 12 (1B) were not clearly disclosed, in  the  complaint
filed by ‘the Board’.

37.    We  have  given  our  thoughtful  consideration  to  the  contentions
advanced at the hands of the learned  senior  counsel,  in  support  of  his
third submission.  We are,  however,  inclined  to  accept  the  submissions
advanced at the hands of the accused.  Neither the complaint nor the charge-
sheet filed against the accused before the trial  Court  demonstrates,  that
the company in question commenced its collective  investment  activities  on
its own for the first time after 25.1.1995.   It  could  well  be,  that  an
existing collective investment scheme covered by the proviso category  under
Section 12(1B), came  to  be  purchased  or  taken  over  by  the  concerned
company,  after  its  incorporation.   There  is  no  bar  against  a  newly
incorporated company, restraining it from taking over an existing  business.
 If that was the case, there would be no violation of Section 12(1B),  since
an existing collective investment scheme, which came  into  existence  prior
to 25.1.1995, could legitimately continue its operations under  the  proviso
to Section 12(1B), without a certificate of registration, till  the  framing
of the Collective Investment Regulations.  Therefore, merely the  fact  that
the company under consideration was incorporated  after  25.1.1995,  in  our
view, would  not  be  sufficient  to  demonstrate  the  culpability  of  the
accused, insofar as, the restraint against fresh commencement of  collective
investment activities under Section 12(1B) of the  SEBI  Act  is  concerned.
In the above view of the  matter,  we  find  no  merit  even  in  the  third
submission advanced on behalf of ‘the Board’.

38.   The last submission advanced  at  the  hands  of  the  learned  senior
counsel for ‘the Board’, was based on Section 465 of the Cr.P.C.   The  said
provision is extracted hereunder:-
“465. Finding or sentence when reversible by reason of  error,  omission  or
irregularity.- (1)     Subject to the provisions hereinbefore contained,  no
finding, sentence or order passed  by  a  Court  of  competent  jurisdiction
shall be reversed or altered by a Court of appeal, confirmation or  revision
on account  of  any  error,  omission  or  irregularity  in  the  complaint,
summons, warrant, proclamation, order, judgment or other proceedings  before
or during trial or in any inquiry or other proceedings under this  Code,  or
any error, or irregularity in any sanction for the  prosecution,  unless  in
the opinion of that Court, a failure of justice has in fact been  occasioned
thereby.

(2)   In determining whether any error,  omission  or  irregularity  in  any
proceeding under this Code, or any error, or irregularity  in  any  sanction
for the prosecution has occasioned a failure of  justice,  the  Court  shall
have regard to the fact whether the objection could  and  should  have  been
raised at an earlier stage in the proceedings.”

Relying on Section 465 of the Cr.P.C.  it  was  contended,  that  after  the
conclusion  of  a  criminal  case,  resulting  in  recording  an  order   of
conviction, and also, the imposition of sentence, neither the  findings  nor
the sentence were open to be revised or altered, merely  “…  on  account  of
any error, omission or irregularity  in  the  complaint,  summons,  warrant,
proclamation, order, judgment or other proceedings before  or  during  trial
or  in  any  inquiry  or  other  proceedings  under  this  Code…”.   It  was
accordingly urged, that the mention of Section 12(1B) of  the  SEBI  Act  in
the complaint, should be taken as sufficient to understand the  particulars,
on the basis whereof, the accused were  being  proceeded  against.   It  was
accordingly submitted, that there was no justification whatsoever,  in  view
of the clear mandate contained in Section 465 of the Cr.P.C.,  to  interfere
in the findings recorded by the trial Court, and/or to  interfere  with  the
sentence imposed.  In addition to the aforesaid contention it was  pointedly
urged, that sub-Section (2) of Section  465  of  the  Cr.P.C.  provided  the
benchmark,  for  interfering  with  such  findings  and  sentence.   It  was
submitted, that interference would only be permissible, in situations  where
the omission or irregularity would result in “failure of justice”.

39.   It was submitted, that the  entire  factual  scenario  was  clear  and
transparent, and known to one and all.  The date  of  incorporation  of  the
concerned company, wherein the  accused  were  directors,  is  a  matter  of
record, substantiated through cogent  evidence  produced  before  the  trial
Court.   The  fact  that  the  accused  were  directors   of   M/s.   Gaurav
Agrigenetics Ltd., was also undisputed.  Neither the company  concerned  nor
the accused, had contested the fact, that they had  sponsored  or  had  been
carrying on a  collective  investment  scheme,  which  was  initiated  after
25.1.1995.  Based on the undisputed  and  clear  factual  position  narrated
above, it was asserted, that no one could arrive at the conclusion,  in  the
facts and circumstances of the case,  that  the  findings  recorded  by  the
trial Court, had occasioned a “failure of justice”.

40.   In order to support the above contention, the learned  senior  counsel
for ‘the Board’, placed reliance on State of M.P.  vs.  Bhooraji,  (2001)  7
SCC 679,  wherefrom  the  Court’s  attention  was  drawn  to  the  following
observations:-
“8.   The real question is whether the High Court  necessarily  should  have
quashed the trial proceedings to be repeated again only on  account  of  the
declaration of the legal position made by the Supreme Court  concerning  the
procedural aspect about the cases involving offences under the SC/ST Act.  A
de novo trial should be the last resort  and  that  too  only  when  such  a
course becomes so desperately indispensable. It should  be  limited  to  the
extreme exigency to avert “a failure of justice”. Any omission or  even  the
illegality in the procedure which does not affect the core of  the  case  is
not a ground for ordering a de novo trial. This  is  because  the  appellate
court has plenary powers for revaluating and reappraising the  evidence  and
even to take additional evidence by the appellate court itself or to  direct
such additional evidence to be collected by the trial court. But  to  replay
the whole laborious exercise after erasing the  bulky  records  relating  to
the earlier proceedings, by bringing down all the persons to the court  once
again for repeating the whole depositions would be a sheer  waste  of  time,
energy and costs unless there is miscarriage  of  justice  otherwise.  Hence
the said course can be resorted to when it  becomes  unpreventable  for  the
purpose of averting “a failure of justice”. The superior court which  orders
a de novo trial cannot afford to overlook  the  realities  and  the  serious
impact on the pending cases in trial courts which are crammed with  dockets,
and how much that order would inflict hardship on many innocent persons  who
once took all the trouble to reach the court and deposed their  versions  in
the very same case. To them and the public the  re-enactment  of  the  whole
labour might give the impression that law is more pedantic  than  pragmatic.
Law is not an instrument to be used for inflicting sufferings on the  people
but for the process of justice dispensation.
***              ***              ***
12.   Section 465 of the Code falls within Chapter XXXV  under  the  caption
“Irregular Proceedings”. The Chapter consists  of  seven  sections  starting
with  Section  460  containing  a  catalogue  of  irregularities  which  the
legislature thought were not enough to axe  down  concluded  proceedings  in
trials or enquiries. Section 461 of the Code contains another  catalogue  of
irregularities which in the legislative perception would render  the  entire
proceedings null and void. It is pertinent to  point  out  that  the  former
catalogue contains the instance of a Magistrate, who  is  not  empowered  to
take cognizance of  offence,  taking  cognizance  erroneously  and  in  good
faith. The provision says that the  proceedings  adopted  in  such  a  case,
though based on such erroneous order, “shall not be set aside merely on  the
ground of his not being so empowered”.

13.   It is useful to refer to Section 462 of the Code which says that  even
proceedings conducted in a wrong sessions division are not liable to be  set
at naught merely on that ground. However, an exception is provided  in  that
section  that  if  the  court  is  satisfied  that   proceedings   conducted
erroneously in a wrong sessions division “has in fact occasioned  a  failure
of justice” it is open to  the  higher  court  to  interfere.  While  it  is
provided that all the instances enumerated in Section 461 would  render  the
proceedings void, no other proceedings would get vitiated ipso facto  merely
on the ground that the proceedings were erroneous. The court  of  appeal  or
revision has to examine specifically whether such  erroneous  steps  had  in
fact occasioned a failure of justice. Then alone the proceedings can be  set
aside. Thus the entire purport of the provisions subsumed  in  Chapter  XXXV
is to save the proceedings linked with  such  erroneous  steps,  unless  the
error is of such a nature that it had occasioned a failure of justice.

14.   We have to examine Section 465(1) of the Code in  the  above  context.
It is extracted below:
“465. (1) Subject to the  provisions  hereinbefore  contained,  no  finding,
sentence or order passed by a  court  of  competent  jurisdiction  shall  be
reversed or altered by a  court  of  appeal,  confirmation  or  revision  on
account of any error, omission or irregularity in  the  complaint,  summons,
warrant, proclamation,  order,  judgment  or  other  proceedings  before  or
during trial or in any enquiry or other proceedings under this Code, or  any
error, or irregularity in any sanction for the prosecution,  unless  in  the
opinion of that court, a failure of justice  has  in  fact  been  occasioned
thereby.”

15.   A reading of the section makes it clear that the  error,  omission  or
irregularity in the proceedings held before or during the trial  or  in  any
enquiry  were  reckoned  by  the  legislature  as  possible  occurrences  in
criminal courts. Yet the legislature disfavoured axing down the  proceedings
or to  direct  repetition  of  the  whole  proceedings  afresh.  Hence,  the
legislature imposed a  prohibition  that  unless  such  error,  omission  or
irregularity has occasioned “a failure of justice” the superior court  shall
not quash the proceedings merely on the ground of such  error,  omission  or
irregularity.

16.   What is meant by “a failure of justice” occasioned on account of  such
error, omission or irregularity? This Court has observed  in  Shamnsaheb  M.
Multtani v. State of Karnataka, (2001) 2 SCC 577, thus: (SCC  p.  585,  para
23):
“23.  We  often  hear  about  ‘failure  of  justice’  and  quite  often  the
submission in a criminal court is  accentuated  with  the  said  expression.
Perhaps it is too pliable or facile an expression which could be  fitted  in
any situation of a case. The expression ‘failure of justice’  would  appear,
sometimes, as an etymological chameleon (the simile is  borrowed  from  Lord
Diplock in Town Investments Ltd. v. Deptt. of  the  Environment),  (1977)  1
All ER 813. The criminal court, particularly the superior court should  make
a close examination to ascertain whether  there  was  really  a  failure  of
justice or whether it is only a camouflage.”
***              ***              ***

23.   We conclude that the trial held by the  Sessions  Court  reaching  the
judgment impugned before the High Court in appeal was conducted by  a  court
of competent jurisdiction and the same cannot be erased  merely  on  account
of a procedural lapse, particularly when the same happened at  a  time  when
the law which held the field in the State of Madhya Pradesh was governed  by
the decision of the Full Bench of the Madhya Pradesh High  Court.  The  High
Court should have dealt with the appeal on merits and on the  basis  of  the
evidence already on record. To facilitate the said course, we set aside  the
judgment of the High Court impugned in this appeal. We remit the  case  back
to the High Court for disposal of the appeal afresh on merits in  accordance
with law and subject to the observations made above.”

41.   We have given our thoughtful  consideration  to  the  last  submission
advanced at the hands of the learned senior counsel  for  ‘the  Board’.   It
is, however, not possible for  us  to  accept  the  same.   We  are  of  the
considered view, which clearly emerges from  the  observations  rendered  in
Bhooraji’s case (supra),  that  Section  465  of  the  Cr.P.C.  pertains  to
omissions or irregularities in matters  of  procedure.   It  is,  therefore,
that both the sub-Sections of Section 465, pointedly  refer  to  proceedings
under the Cr.P.C.  Added to the above  it  is  of  some  significance,  that
Chapter XXXV of the Cr.P.C. include Sections 460 to  466.   The  heading  of
the instant Chapter is “Irregular Proceedings”.  Not only that, each one  of
the Sections in Chapter XXXV of the Cr.P.C. make pointed reference  only  to
matters of procedure.  There can be  no  doubt,  therefore,  that  omissions
and/or irregularities in matters of procedure can be overlooked, subject  to
the condition, that such an  omission  or  irregularity  does  not  occasion
“failure of justice”.  This is our  understanding  of  Section  465  of  the
Cr.P.C.

42.   Having so  interpreted  Section  465  of  the  Cr.P.C.,  we  may  also
indicate, that  material  facts  constituting  the  offence,  for  which  an
accused is being charged, must mandatorily be put to the accused.   Lack  of
material facts, which are vital to establish the ingredients of an  offence,
cannot be viewed as a procedural omission.  The  above  requirement  is  not
procedural, but substantive.  Accordingly, it is  not  possible  for  us  to
accept that the lapse which the appellant desires  this  Court  to  overlook
and exempt, can be overlooked  under  Section  465.   We  are  also  of  the
considered view, that irregularity and omission in the present case, in  not
disclosing to the accused, the particulars of the  offence  for  which  they
were being proceeded against, would occasion  “failure  of  justice”.   Thus
viewed, it is not possible for us to accept the contention advanced  at  the
hands of the learned senior counsel, that  the  pending  proceedings  before
the trial Court, should not be interfered with.

43.   The sole allegation levelled against the respondents  was,  that  they
were guilty of having breached the provisions of the  Collective  Investment
Regulations,  by  failing  to  make  any  application  to  ‘the  Board’  for
registration of the collective investment scheme(s) being operated by  them,
and by failing to wind up their existing  collective  investment  scheme(s),
and/or in repaying the amounts collected from  the  investors.   That  alone
constituted the  factual  foundation  of  the  complaint  made  against  the
respondents.  Insofar as the  instant  charge  against  the  respondents  is
concerned, it was the contention of learned  counsel  for  the  respondents,
that the Collective Investment  Regulations  were  notified  on  15.10.1999.
The said regulations,  therefore,  could  not  have  been  breached  by  the
respondents, prior to 15.10.1999.  It was  submitted,  that  the  respondent
no. 1 – Gaurav Varshney, can indisputably be taken  to  have  resigned  from
the  directorship  of  M/s.  Gaurav  Agrigenetics  Ltd.  with  effect   from
30.7.1998, and respondent no. 2 –  Vinod  Kumar  Varshney  can  likewise  be
taken to have resigned from  the  directorship  of  the  said  company  with
effect from 23.12.1998.  Both respondent nos. 1 and 2, according to  learned
counsel representing them, ceased  to  have  any  concern/relationship  with
M/s. Gaurav Agrigenetics Ltd., well before 15.10.1999 (when  the  Collective
Investment Regulations were  enforced).   It  was,  therefore  contended  on
behalf of the respondents, that this Court should  not  interfere  with  the
impugned order passed by  the  High  Court  dated  13.5.2010,  quashing  the
complaint preferred by ‘the Board’, as there were legally valid reasons  for
doing so.

44.   Having given our thoughtful consideration to the contentions  advanced
at the hands of learned counsel for the respondents, we are satisfied,  that
the  quashing  of  the  proceedings  initiated  by  ‘the   Board’,   against
respondent nos. 1 and 2, calls for no interference, for the  simple  reason,
that they relate to an alleged breach by M/s. Gaurav Agrigenetics  Ltd.,  of
the  Collective  Investment  Regulations,  by  treating  them  as   existing
collective  investment  undertaking.   Those  belonging   to   the   proviso
category, could  only  be  proceeded  against  for  having  continued  their
activities   relating   to   collective   investment,   without    obtaining
registration,  after  the  notification   of   the   Collective   Investment
Regulations (see paragraph  29  above).   The  said  regulations  came  into
existence  with  effect  from  15.10.1999.   By  the  time  the   Collective
Investment Regulations were notified, respondent  nos.  1  and  2  –  Gaurav
Varshney and Vinod Kumar Varshney, had already  severed  their  relationship
with M/s. Gaurav Agrigenetics Ltd.  In view of  the  uncontroverted  factual
position expressed by learned  counsel  for  the  respondents,  we  find  no
difficulty in concluding, that  proceedings  which  were  initiated  against
respondent nos. 1 and 2, and were quashed by the High  Court,  call  for  no
interference.  Ordered accordingly.

45.   In the result, the appeals stand dismissed.

                    Criminal Appeal nos. 833-836 of 2012

46.    It is not a matter of dispute, that  the  respondent  herein  –  Mrs.
Parvesh Varshney was one of the directors of M/s. Gaurav Agrigenetics  Ltd.,
i.e. the same company involved in criminal appeal nos. 827-830 of 2012.   We
have, in our conclusions with reference to criminal appeal nos.  827-830  of
2012, upheld the order dated 13.5.2010 passed by the High Court in  Criminal
Miscellaneous Case nos. 7468-7471 of 2006  and  Criminal  Miscellaneous  no.
951  of  2007,  quashing  the  proceedings  initiated  against  two  of  the
directors of the above company, namely,  Gaurav  Varshney  and  Vinod  Kumar
Varshney.  The High Court  in  the  above  judgment  (pertaining  to  Gaurav
Varshney and Vinod Kumar Varshney) had  quashed  the  proceedings  initiated
against the  co-directors  of  the  respondent  herein,  arising  out  of  a
complaint  dated  15.12.2003  filed  by  ‘the  Board’   before   the   Chief
Metropolitan Magistrate, Tis  Hazari  Courts,  Delhi,  in  exercise  of  its
jurisdiction under  Section  482  of  the  Cr.P.C..   The  said  proceedings
against the co-directors were initiated on the basis of a complaint made  by
‘the Board’ in the Court of the Chief Metropolitan  Magistrate,  Tis  Hazari
Courts, Delhi  against  M/s.  Gaurav  Agrigenetics  Ltd.,  and  ten  of  its
directors.  In the above complaint, Gaurav Varshney was arrayed  as  accused
no. 5 and Vinod Kumar Varshney was impleaded as accused no. 8.
47.   Insofar as the instant criminal appeal  is  concerned,  the  same  has
been  filed  against  the  impugned  judgment  and  order  dated  12.8.2010,
rendered by the High Court in Criminal Miscellaneous Case nos. 7468-7471  of
2006 and Criminal Miscellaneous no. 951 of 2007.  It would  be  relevant  to
mention, that the  respondent  herein  –  Mrs.  Parvesh  Varshney  had  also
assailed the same complaint dated 15.12.2003 filed  by  ‘the  Board’  before
the Chief Metropolitan Magistrate, Tis Hazari  Courts,  Delhi,  wherein  she
was arrayed as accused no. 6.  The High Court  by  its  judgment  and  order
dated 12.8.2010, had quashed the  complaint  filed  against  the  respondent
herein, in exercise of its jurisdiction under Section 482 of the Cr.P.C.
48.   The commonness of the factual  position  in  the  appeals  adjudicated
upon by us (Criminal Appeal nos. 827-830 of 2012), and the present  criminal
appeals is, that whilst Gaurav Varshney – accused no. 5,  had  tendered  his
resignation from the position of director of M/s. Gaurav  Agrigenetics  Ltd.
on 30.7.1998, and Vinod Kumar Varshney – accused no.  8,  had  tendered  his
resignation from the above company on 23.12.1998, the  respondent  herein  –
Mrs. Parvesh Varshney – accused no. 6, had  tendered  her  resignation  from
the position of director of M/s. Gaurav Agrigenetics Ltd. with  effect  from
6.4.1998.  The resignation  of  the  respondent  herein,  had  taken  effect
before the Collective Investment Regulations were notified – on  15.10.1999.
 The said regulations, therefore, could  not  have  been  breached,  by  the
respondent herein.   Therefore,  for  exactly  the  same  consideration  and
reasons as have weighed with us, for not accepting the pleas raised by  ‘the
Board’ in Criminal Appeal nos. 827-830 of 2012 against the other  co-accused
in the same complaint dated 15.12.2003, we decline  to  interfere  with  the
impugned order passed by the High Court, dated 12.8.2010, with reference  to
the respondent – Mrs. Parvesh Varshney – accused no. 6, as well.
49.   In the result, the instant appeals are dismissed.

                       Criminal Appeal no. 252 of 2015

50.   Only a word of caution.  In the  connected  earlier  criminal  appeals
(nos. 827-830 of 2012, and 833-836 of 2012), ‘the Board’ was the  appellant,
and the accused were the respondents.  Herein,  the  accused  –  Major  P.C.
Thakur is the appellant, and ‘the Board’ is the respondent.

51.   The instant appeal relates to M/s. Accord Plantation Ltd.,  a  company
incorporated  under  the  provisions  of  the  Companies   Act,   1956,   on
16.10.1996.  Even though the list of dates describes the appellant  -  Major
P.C. Thakur, as a promoter-director of the  said  company,  learned  counsel
for the appellant was  at  pains  to  point  out,  that  the  appellant  was
inducted as director only in 1998.  It was submitted, that  the  appellant’s
involvement in the functioning of M/s. Accord Plantation Ltd.,  was  limited
to tendering advice with  reference  to  its  agricultural  activities,  and
that, the appellant – Major P.C.  Thakur,  was  neither  in  charge  of  nor
responsible to the company, for the conduct of its business activities.

52.   In addition to the submissions noticed with reference to  the  earlier
appeals (Criminal  Appeal  nos.  827-830  of  2012),  it  was  the  vehement
contention of learned counsel for the appellant, that it was  not  open  for
‘the Board’ to proceed against the appellant under Section 27  of  the  SEBI
Act, which is extracted hereunder:-
“27.  Offences by Companies. - (1)     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:

Provided that nothing contained in this sub-section shall  render  any  such
person liable to any punishment provided in this Act, if he proves that  the
offence was committed without his knowledge or that  he  had  exercised  all
due diligence to prevent the commission of such offence.

(2)   Notwithstanding  anything  contained  in  sub-section  (1),  where  an
offence under this Act has been committed by a  company  and  it  is  proved
that the offence has been committed with the consent or  connivance  of,  or
is attributable to any neglect  on  the  part  of,  any  director,  manager,
secretary  or  other  officer  of  the  company,  such  director,   manager,
secretary or other officer shall also be deemed to be guilty of the  offence
and shall be liable to be proceeded against and punished accordingly.

Explanation.- For the purposes of this section, -

(a)   "company" means any body  corporate  and  includes  a  firm  or  other
association of individuals; and

(b)   "director", in relation to a firm, means a partner in the firm.”

Based on Section 27 of the SEBI Act, it was contended, that besides  a  bald
statement made by ‘the Board’, in the  show-cause  notice  dated  12.5.2000,
and the complaint dated 21.1.2003, there was no material on  the  record  of
the case to demonstrate, that the appellant was in any  manner  “…in  charge
of, and was responsible to…”  the company for the conduct of  its  business.
It was, therefore submitted, that it was not open to ‘the Board’ to  proceed
against the appellant.  In order to  substantiate  the  instant  contention,
learned counsel placed reliance on S.M.S.  Pharmaceuticals  Ltd.  vs.  Neeta
Bhalla, (2005) 8  SCC  89,  wherefrom  our  attention  was  invited  to  the
following observations:-
“4.   In the present case, we  are  concerned  with  criminal  liability  on
account of dishonour of a cheque. It primarily falls on the  drawer  company
and is extended to officers of the company. The normal  rule  in  the  cases
involving criminal liability is against vicarious  liability,  that  is,  no
one is to be held criminally liable for an act of another. This normal  rule
is, however, subject to exception on account  of  specific  provision  being
made in the statutes extending liability to others. Section 141 of  the  Act
is an instance of specific provision which in case an offence under  Section
138 is committed by a company, extends criminal liability for  dishonour  of
a cheque to officers of the company. Section 141 contains  conditions  which
have to be satisfied before the liability can be extended to officers  of  a
company. Since the provision  creates  criminal  liability,  the  conditions
have to be strictly complied with. The conditions  are  intended  to  ensure
that a person who is sought to be made vicariously liable for an offence  of
which the principal accused is the company, had a role to play  in  relation
to the incriminating act and further that such a person should know what  is
attributed to him to make him  liable.  In  other  words,  persons  who  had
nothing to do with the matter need not  be  roped  in.  A  company  being  a
juristic person, all its deeds and functions  are  the  result  of  acts  of
others. Therefore, officers of a company who are responsible for  acts  done
in the name of the company are sought to be made personally liable for  acts
which result in criminal action being taken against the  company.  It  makes
every person who, at the time the offence was committed, was in  charge  of,
and was responsible to the company  for  the  conduct  of  business  of  the
company, as well as the company, liable for the offence. The proviso to  the
sub-section contains an escape route for persons who are able to prove  that
the  offence  was  committed  without  their  knowledge  or  that  they  had
exercised all due diligence to prevent commission of the offence.
***              ***              ***

10.   While analysing Section 141 of the  Act,  it  will  be  seen  that  it
operates in cases where an offence under  Section  138  is  committed  by  a
company. The key words which occur in the section are “every person”.  These
are general words and take every person  connected  with  a  company  within
their sweep. Therefore, these words have been rightly qualified  by  use  of
the words:

“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, etc.”

What is required is that the persons who are sought to  be  made  criminally
liable under Section 141 should be, at the time the offence  was  committed,
in charge of and responsible to the company for the conduct of the  business
of the company. Every person connected  with  the  company  shall  not  fall
within the ambit of the provision. It is only  those  persons  who  were  in
charge of and responsible for the conduct of business of the company at  the
time of commission of an offence, who will be liable  for  criminal  action.
It follows from this that if a director of a company who was not  in  charge
of and was not responsible for the conduct of the business  of  the  company
at the relevant time, will not be liable under the provision. The  liability
arises from being in charge of and responsible for the conduct  of  business
of the company at the relevant time when the offence was committed  and  not
on the basis of merely  holding  a  designation  or  office  in  a  company.
Conversely, a person not holding any office or designation in a company  may
be liable if he satisfies the main requirement of being  in  charge  of  and
responsible for the conduct of business of a company at the  relevant  time.
Liability depends on the role one plays in the affairs of a company and  not
on designation or status. If being a director or manager  or  secretary  was
enough to cast criminal liability, the section would have said  so.  Instead
of “every person” the section would have said “every  director,  manager  or
secretary in a company is liable”…, etc. The legislature is  aware  that  it
is a case of criminal liability which means serious consequences so  far  as
the person sought to be made liable is concerned.  Therefore,  only  persons
who can be said to be connected with  the  commission  of  a  crime  at  the
relevant time have been subjected to action.
***              ***              ***

12.   The conclusion is inevitable that the liability arises on  account  of
conduct, act or omission on the part of a person and not merely  on  account
of holding an office or a position in a  company.  Therefore,  in  order  to
bring a case within Section 141 of the Act the complaint must  disclose  the
necessary facts which make a person liable.

***              ***              ***

15.   Cases have arisen  under  other  Acts  where  similar  provisions  are
contained creating vicarious liability for officers of a  company  in  cases
where primary liability is that of a company.  State of  Karnataka v. Pratap
Chand, (1981) 2 SCC 335, was a case  under  the  Drugs  and  Cosmetics  Act,
1940. Section 34 contains a similar provision making every person in  charge
of and responsible to the company for the conduct  of  its  business  liable
for offence committed by a company. It was held that  a  person  liable  for
criminal action under that provision should be a person in  overall  control
of the day-to-day affairs of the company or a firm. This was  a  case  of  a
partner in a firm and it was held  that  a  partner  who  was  not  in  such
overall control of the firm could not be held  liable.  In Municipal  Corpn.
of Delhi v. Ram Kishan Rohtagi, (1983) 1 SCC  1,  the  case  was  under  the
Prevention of Food  Adulteration  Act.  It  was  first  noticed  that  under
Section 482 of the Criminal Procedure Code in a complaint, the  order  of  a
Magistrate issuing process against the accused can be quashed or  set  aside
in a case where the allegation made in the complaint or  the  statements  of
the witnesses recorded in support of the same  taken  at  their  face  value
make out absolutely no case against the accused or the  complaint  does  not
disclose the essential ingredients  of  an  offence  which  are  arrived  at
against the accused. This emphasises the need  for  proper  averments  in  a
complaint before a person can be  tried  for  the  offence  alleged  in  the
complaint.

16.   In State of Haryana v. Brij Lal Mittal, (1998) 5 SCC 343, it was  held
that vicarious liability of a person for being  prosecuted  for  an  offence
committed under the Act by a company arises if at the material time  he  was
in charge of and was also responsible to the company for the conduct of  its
business. Simply because a person is a director of a company,  it  does  not
necessarily mean that he fulfils both the above requirements so as  to  make
him liable. Conversely, without being a director a person can be  in  charge
of and responsible to the company for the conduct of its business.

For the same purpose, reliance  was  placed  on  National  Small  Industries
Corporation Ltd. vs. Harmeet Singh Paintal,  (2010)  3  SCC  330,  and  this
Court’s attention was drawn to the following observations recorded therein:-

“12.  It is very clear from the above provision that  what  is  required  is
that the  persons  who  are  sought  to  be  made vicariously  liable for  a
criminal offence under Section 141 should be, 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.  Every  person  connected  with  the
company shall not fall  within  the  ambit  of  the  provision.  Only  those
persons who were in charge  of  and  responsible  for  the  conduct  of  the
business of the company at the time of commission  of  an  offence  will  be
liable for criminal action. It follows from the fact that if a  Director  of
a company who was not in charge of and was not responsible for  the  conduct
of the business of the company at the relevant time, will not be liable  for
a criminal offence under the provisions. The liability arises from being  in
charge of and responsible for the conduct of the business of the company  at
the relevant time when the offence was committed and not  on  the  basis  of
merely holding a designation or office in a company.

13.   Section 141 is a penal provision  creating  vicarious  liability,  and
which, as per settled law, must be strictly construed. It is therefore,  not
sufficient to make  a  bald  cursory  statement  in  a  complaint  that  the
Director (arrayed as an accused) is in charge  of  and  responsible  to  the
company for the conduct of the  business  of  the  company without  anything
more as to the role of the Director. But the complaint should spell  out  as
to how and in what manner Respondent 1 was in charge of or  was  responsible
to the accused  Company  for  the  conduct  of  its  business.  This  is  in
consonance with strict interpretation of penal statutes,  especially,  where
such statutes create vicarious liability.

***              ***              ***
22.   Therefore, this Court has distinguished the case of  persons  who  are
in charge of and responsible for the conduct of the business of the  company
at the time of the offence and the persons who are merely holding  the  post
in a company and are not in charge of and responsible  for  the  conduct  of
the business of the company. Further,  in  order  to  fasten  the  vicarious
liability in accordance with Section 141, the averment as  to  the  role  of
the Directors concerned should be specific. The description should be  clear
and there should be some unambiguous allegations as  to  how  the  Directors
concerned were alleged to be in charge  of  and  were  responsible  for  the
conduct and affairs of the company.”

Last of all, learned counsel invited our attention to Gunmala Sales  Private
Limited vs. Anu Mehta, (2015) 1 SCC 103, wherefrom reliance  was  placed  on
the following observations:-
“22.  In National Small Industries  Corpn.  Ltd. v. Harmeet  Singh  Paintal,
(2010) 3 SCC 330, this Court was  dealing  with  the  same  question.  After
referring to S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (1), (2005)  8  SCC
89, S.M.S. Pharmaceuticals Ltd. v. Neeta Bhalla (2), (2007) 4 SCC  70, Saroj
Kumar   Poddar v. State   (NCT   of   Delhi),   (2007)   3   SCC   693, N.K.
Wahi v. Shekhar Singh, (2007) 9 SCC  481, N.  Rangachari v. BSNL,  (2007)  5
SCC 108, Paresh P. Rajda v. State of Maharashtra,  (2008)  7  SCC  442, K.K.
Ahuja v. V.K. Vora, (2009) 10 SCC 48, and  other  relevant  judgments,  this
Court laid down the following principles: (National Small Industries  Corpn.
Ltd. case (supra), SCC pp. 345-46, para 39)

“(i)  The primary responsibility is on  the  complainant  to  make  specific
averments as are required under the law in the complaint so as to  make  the
accused vicariously liable. For fastening the criminal liability,  there  is
no presumption that every Director knows about the transaction.

(ii)  Section 141 does not make all the Directors liable  for  the  offence.
The criminal liability can be fastened only on those who,  at  the  time  of
the commission of the offence, were in charge of and  were  responsible  for
the conduct of the business of the company.

(iii) Vicarious liability can be inferred against a  company  registered  or
incorporated  under  the  Companies  Act,  1956  only   if   the   requisite
statements, which are required to be averred in the complaint/petition,  are
made so as to make  the  accused  therein  vicariously  liable  for  offence
committed by the company along with averments  in  the  petition  containing
that accused were in charge of and  responsible  for  the  business  of  the
company and by virtue of their position they  are  liable  to  be  proceeded
with.

(iv)  Vicarious liability on the part  of  a  person  must  be  pleaded  and
proved and not inferred.

(v)   If the accused is a Managing Director or  a  Joint  Managing  Director
then it is not necessary to make specific averment in the complaint  and  by
virtue of their position they are liable to be proceeded with.

(vi)  If the accused is a Director or an officer of  a  company  who  signed
the cheques on behalf of the company then also it is not necessary  to  make
specific averment in complaint.

(vii) The person sought to be  made  liable  should  be  in  charge  of  and
responsible for the conduct of the business of the company at  the  relevant
time. This has to be averred as a fact as there is no deemed liability of  a
Director in such cases.”

***              ***              ***
28.   We are concerned in this case with Directors who are  not  signatories
to the cheques. So far as Directors who are not signatories to  the  cheques
or  who  are  not  Managing  Directors  or  Joint  Managing  Directors   are
concerned, it is clear from the  conclusions  drawn  in  the  abovementioned
cases that it is necessary to aver in the complaint filed under Section  138
read with Section 141 of the NI Act that  at  the  relevant  time  when  the
offence was committed, the Directors were in charge of and were  responsible
for  the  conduct  of  the  business  of  the  company.  This  is  a   basic
requirement. There is no deemed liability of such Directors.  This  averment
assumes importance because it is the  basic  and  essential  averment  which
persuades the Magistrate to issue process against the Director. That is  why
this  Court  in SMS  Pharma  (1) (supra),  observed  that  the  question  of
requirement of averments in a complaint has to be considered  on  the  basis
of provisions contained in Sections 138 and 141 of the NI Act  read  in  the
light of the powers of a Magistrate referred to in Sections 200  to  204  of
the  Code  which  recognise  the  Magistrate's  discretion  to  reject   the
complaint at the threshold if he finds that there is  no  sufficient  ground
for proceeding…..”

***              ***              ***
34.   We may summarise our conclusions as follows:

34.1.       Once in a complaint filed under Section 138  read  with  Section
141 of the NI Act the basic averment  is  made  that  the  Director  was  in
charge of and responsible for the conduct of the business of the company  at
the relevant time when the offence was committed, the Magistrate  can  issue
process against such Director.

34.2.       If a petition is  filed  under  Section  482  of  the  Code  for
quashing of such a complaint by the Director, the High  Court  may,  in  the
facts of a particular case, on an overall reading of the  complaint,  refuse
to quash the complaint because the complaint  contains  the  basic  averment
which is sufficient to make out a case against the Director.

34.3.       In the facts of a given case,  on  an  overall  reading  of  the
complaint, the High Court may, despite the presence of the  basic  averment,
quash the complaint because of the absence of  more  particulars  about  the
role of the Director in the complaint. It may do so having come across  some
unimpeachable, incontrovertible evidence which is beyond suspicion or  doubt
or totally acceptable circumstances which  may  clearly  indicate  that  the
Director could not have been concerned with  the  issuance  of  cheques  and
asking him to stand the trial would be abuse of process  of  court.  Despite
the presence of basic averment, it may come to a conclusion that no case  is
made out against the Director. Take  for  instance  a  case  of  a  Director
suffering from a terminal illness who was bedridden at the relevant time  or
a Director who had resigned long before issuance of cheques. In such  cases,
if the High Court is convinced that prosecuting such a  Director  is  merely
an arm-twisting tactics, the High Court may quash the proceedings. It  bears
repetition  to  state   that   to   establish   such   case   unimpeachable,
incontrovertible evidence  which  is  beyond  suspicion  or  doubt  or  some
totally acceptable circumstances will have to be brought to  the  notice  of
the High Court. Such cases may be few and far between  but  the  possibility
of such a case being there cannot be ruled  out.  In  the  absence  of  such
evidence or circumstances, complaint cannot be quashed.
34.4.       No restriction can be placed on the High  Court's  powers  under
Section 482 of the Code. The High Court always uses and must use this  power
sparingly and with great circumspection to prevent inter alia the  abuse  of
the process of the court. There are no fixed formulae to be followed by  the
High Court in this regard and the exercise of this power  depends  upon  the
facts and circumstances of each case. The High Court at that stage does  not
conduct a mini trial or roving inquiry, but nothing prevents it from  taking
unimpeachable evidence or  totally  acceptable  circumstances  into  account
which may lead it to conclude that no trial is necessary  qua  a  particular
Director.”

It was pointed out, that even though the judgments relied upon and  referred
to hereinabove, were  with  reference  to  Section  138  of  the  Negotiable
Instruments Act, yet Section 141 thereof is exactly similar  to  Section  27
of  the  SEBI  Act.   And,  therefore,  insofar  as  the  present  issue  is
concerned, the cited judgments would be fully applicable  to  interpret  and
construe Section 27 of the SEBI Act.  It was  therefore  asserted,  that  in
the absence of any clear and firm assertion or material  on  the  record  of
the case, to establish that the appellant was  “…  in  charge  of,  and  was
responsible to…” the company for the conduct of its business, he  could  not
be proceeded against.

53.   It is not necessary for us to deal with the pointed issue at hand,  on
account of the clear findings recorded by the High  Court  in  the  impugned
order dated 29.1.2014, depicting the role and involvement of  the  appellant
in the activities of M/s. Accord Plantation Ltd.  The conclusions  drawn  by
the High Court in the impugned order, are extracted hereunder:-
“18.  … As  would  be  evident  from  the  balance  sheet  of  the  company,
remuneration was being paid by it to Mr. P.C. Thakur.  It has also  come  in
the deposition of DW2, an  official  from  Punjab  and  Sind  Bank  that  an
authority letter from the company was received stating  therein  that  Major
P.C. Thakur was its director as  on  24.2.1998  and  he  was  authorized  to
operate the accounts of the company with the aforesaid bank.  A copy of  the
account opening form is Ex. DW2/B, whereas a copy of the  extract  from  the
minutes of the meeting of Board of Directors of the company  is  Ex.  DW2/C.
A copy of the authority letter is Ex. DW2/D.  The fact that Mr. P.C.  Thakur
was getting remuneration  from  the  company  and  was  also  authorized  to
operate its bank accounts clearly shows that he was also a  person  incharge
and responsible to the company for  conduct  of  its  business,  during  the
period he was its director.”

In view of the fact, that the above factual position has not  been  disputed
by learned  counsel  for  the  appellant,  we  are  therefore  satisfied  in
concluding, that the appellant – Major P.C. Thakur was in  charge,  and  was
responsible to the company, for the conduct of  its  business.   It  is  not
possible for us  to  accept,  that  the  appellant  –  Major  P.C.  Thakur’s
activities  concerning  M/s.  Accord  Plantation  Ltd.,  were  confined   to
tendering advice with reference to its agricultural  activities  alone.   In
the  above  view  of  the  matter,  we  find  no  difficulty  whatsoever  in
affirming, that the appellant was liable to  shoulder  the  responsibilities
of the company relatable to its  business  activities,  and  therefore,  was
justifiably proceeded against, under Section 27 of the SEBI Act.

54.   Insofar as the present appeal is concerned, a show cause notice  dated
12.5.2000 was issued by the SEBI to M/s. Accord Plantation Ltd.   A  few  of
the relevant paragraphs  of  the  show  cause  notice  dated  12.5.2000  are
extracted hereunder:-
“As you are aware, SEBI (Collective  Investment  Scheme)  Regulations,  1999
(hereinafter referred to as Regulations) came  into  force  on  October  15,
1999.  As per regulation 5(1), any  person  who  immediately  prior  to  the
commencement of these Regulations  was  operating  a  Collective  Investment
Scheme, shall subject to the provisions of Chapter IX of  these  Regulations
make an application to SEBI for grant of certificate of registration  within
a period of two months from the  date  of  notification  (i.e.  October  15,
1999).  Subsequently, having  regard  to  the  interests  of  investors  and
requests received from  entities,  SEBI  had  extended  the  last  date  for
submitting application by existing entities upto  March  31,  2000  and  the
same was intimated by SEBI by a Press Release and Public Notice.  Thus,  you
as  an  existing  Collective  Investment  Scheme  entity,  subject  to   the
provisions of Chapter IX of these Regulations, were required  to  apply  for
registration by March 31, 2000.

As per Regulation 73(1)  an  existing  Collective  Investment  Scheme  (CIS)
which has failed to make an application  for  registration  to  SEBI,  shall
wind up the existing scheme  and  repay  the  investors.   Further,  as  per
Regulation  74,  an  existing  CIS  which  is  not  desirous  of   obtaining
provisional registration from SEBI shall formulate  a  scheme  of  repayment
and make such repayment to the existing investors in  the  manner  specified
in Regulation 73(2).  The existing Collective Investment Scheme to be  wound
up  shall  send  an  information  memorandum  to  the  investors  who   have
subscribed to the schemes, within two months from the  date  of  receipt  of
intimation from SEBI.

Vide our letter dated December 15/29, 1999 and  also  by  way  of  a  public
notice dated December  10,  1999  all  the  existing  Collective  Investment
Schemes, including you, which were not  desirous  of  obtaining  provisional
registration  from  SEBI  or  had  failed  to  make   an   application   for
registration  from  SEBI  were  given  individual  intimation  in  terms  of
regulation 73(2) that casts an obligation on  you  to  send  an  information
memorandum to the investors detailing the sate of  affairs  of  the  scheme,
the amount repayable to each investors and the manner in which  such  amount
is determined.  Accordingly  you  were  required  to  send  the  information
memorandum to the investors by February 28, 2000.

It is noted that you have not applied for registration  by  March  31,  2000
and also appear to  have  failed  to  take  steps  for  winding  up  of  the
scheme(s) in  terms  of  Regulations.   You  have,  therefore,  prima  facie
violated the provisions of Section 12(1B) of SEBI Act, 1992  and  regulation
5(1) read with regulations 68(1), 68(2),  73  and  74  of  SEBI  (Collective
Investment Schemes) Regulations, 1999.”

55.   Even in the complaint filed by ‘the Board’ under Section  200  of  the
Cr.P.C. read with Sections 24(1) and 27 of the  SEBI  Act,  the  accusations
levelled against  M/s.  Accord  Plantation  Ltd.,  as  also,  the  appellant
herein, were similar.  Relevant paragraphs of the complaint dated  21.1.2003
are being extracted hereunder:-
“7.    The  accused  no.  1  company  filed  information/details  with  SEBI
regarding the collective investment schemes pursuant to SEBI  press  release
dated November 26, 1997 and/or public notice dated December 18, 1997.

8.    In terms of Chapter IX of the said regulations,  any  person  who  had
been operating a collective investment scheme at the  time  of  commencement
of the said regulations  shall  be  deemed  to  be  an  existing  collective
investment scheme and shall comply with the provisions of the  said  Chapter
IX.  Further, in terms of the said Chapter IX  any  person  who  immediately
prior  to  the  commencement  of  the  said  regulations  was  operating   a
collective investment scheme shall make an application to SEBI for grant  of
registration within a period of two months from the date of notification  of
the said regulations.

9.    SEBI having regard to the interest of investors and  request  received
from various persons operating collective investment  schemes  extended  the
last date of submitting the application by existing entities upto March  31,
2000 and the same was declared by SEBI vide a press  release  and  a  public
notice.

10.   However, the accused no. 1 failed to make any  application  with  SEBI
for registration of the collective investments schemes being operated by  it
as per the said regulations.

11.   It is submitted  that  in  terms  of  regulation  73(1)  of  the  said
regulations an existing collective investment scheme which  failed  to  make
an application for registration  with  SEBI,  shall  wind  up  the  existing
collective investment schemes and  repay  the  amounts  collected  from  the
investors.  Further, in terms of regulation 74 of the said  regulations,  an
existing collective investment scheme which is  not  desirous  of  obtaining
provisional registration from SEBI shall formulate  a  scheme  of  repayment
and make such repayment to the existing investors in  the  manner  specified
in regulation 73.

12.   SEBI vide its letter dated December 10, 1999  and  December  29,  1999
and also by way of a public notice dated December 10, 1999  gave  intimation
in terms of regulation 73(2) to the accused no. 1 which casts an  obligation
on the accused no. 1 to send an information memorandum to all the  investors
detailing the state of affairs of the schemes, the amount repayable to  each
investor and the manner in which such amount  is  determined.   As  per  the
aforesaid letters of SEBI, the information memorandum to the  investors  was
required to be sent latest by February 28, 2000.  SEBI vide  another  public
notice published in newspapers on February 22, 2000 informed to the  company
that all the companies carrying out collective investment  schemes  who  had
not made any application for grant of registration or were not  desirous  of
obtaining provisional registration  were  required  to  compulsorily  windup
their existing schemes as per the provisions  of  regulation  73(1)  of  the
said regulations.

13.   However, the accused no. 1 neither applied for registration under  the
said regulations nor took any steps  for  winding  up  of  the  schemes  and
repayment to the investors as provided under the  regulations  and  as  such
had violated the  provisions  of  section  11B,  12(1B)  of  Securities  and
Exchange Board of India  Act,  1992  and  regulation  5(1)  r/w  regulations
68(1), 68(2), 73 and 74 of the said regulations.”

56.   Based on the above show-cause notice and  complaint  (dated  12.5.2000
and 21.1.2003, respectively), it was the contention of learned  counsel  for
the appellant, that ‘the Board’ treated M/s. Accord Plantation  Ltd.  as  an
“existing”  collective   investment   enterprise,   namely,   a   collective
investment scheme falling within the meaning of the  proviso  under  Section
12(1B) of the SEBI Act.  Referring to the show-cause notice it  was  pointed
out, that ‘the Board’ had accused the  appellant  for  not  having  made  an
application under Regulation 5 of  the  Collective  Investment  Regulations,
upto  31.3.2000.   It  was  pointed  out  that  Regulation  5,  pertains  to
“existing” collective investment  schemes.   It  was  contended,  that  even
though under the Collective Investment Regulations  originally  drawn,  such
an application had to be preferred by 15.12.1999 (i.e. within the period  of
two months from the  date  of  commencement  of  the  Collective  Investment
Regulations), the said date was subsequently extended to 31.3.2000.  It  was
submitted, that the imputations contained  in  the  show-cause  notice  were
clearly misconceived, as the appellant had ceased to have any  concern  with
the company, with effect from 20.2.2000.  The instant factual  position  was
sought to be demonstrated by placing reliance  on  Form-32,  submitted  with
the Registrar of Companies.  Our attention was also drawn to  the  statement
of DW6 – Vikram, Senior Dealing Assistant of the office of the Registrar  of
Companies, Jalandhar, who  in  his  examination-in-chief,  had  acknowledged
that in Form-32 (exhibited as DW6/1), Major P.C. Thakur was  shown  to  have
resigned from the directorship of M/s. Accord Plantation Ltd.,  with  effect
from 20.2.2000.  Premised on the above factual position, it  was  submitted,
that the appellant cannot be implicated for not  having  complied  with  the
Collective Investment Regulations, because  he  had  already  resigned  (-on
20.2.2000),  before  the  cause  of  disobedience  could  have  arisen  (-on
31.3.2000,  the  extended  last  date  for   submitting   applications   for
registration, by “existing” entities).  We  find  merit  in  the  contention
advanced by learned counsel for  the  appellant,  that  since  it  has  been
effectively established, that the appellant  ceased  to  be  a  director  on
20.2.2000, and culpability, if at all, would arise only  on  31.3.2000,  the
proceedings initiated against the appellant were not sustainable, and  would
be liable to be quashed.

57.   Learned counsel for ‘the Board’ however seriously contested, that  the
appellant – Major P.C. Thakur had resigned from M/s. Accord Plantation  Ltd.
on 20.2.2000.  In this behalf, he placed reliance on the statement of DW6  –
Vikram,  Senior  Dealing  Assistant  of  the  office  of  the  Registrar  of
Companies, Jalandhar.   Even  though  in  his  examination-in-chief,  DW6  –
Vikram had clearly affirmed, that in terms of Form-32 (exhibited as  DW6/1),
Major P.C. Thakur was shown to have resigned from the directorship  of  M/s.
Accord Plantation Ltd.  with  effect  from  20.2.2000,  yet  in  his  cross-
examination, he acknowledged “….. as per my record,  the  persons  named  as
members of the Board of directors in the annual return  of  20th  September,
2002 – Exhibit DW6/4 and 5 are Sh. Ajay Vohra, Tejinder Singh, P.C.  Thakur,
Rajan Rana and Rajkumar Sharma.  These returns have been  submitted  by  the
company…..”.  It was the contention of learned counsel, that annual  returns
are filed by a company under Section 159 of the Companies Act,  1956.   Sub-
Section (1) of Section 159 is extracted below:-
“159. Annual return to be made by company having a share capital.-
(1)  Every company having a share capital shall within sixty days  from  the
day on which each of the annual general meetings referred to in section  166
is held, prepare and  file  with  the  Registrar  a  return  containing  the
particulars specified in Part I of Schedule V, as they stood  on  that  day,
regarding -

      (a)   its registered office,
      (b)   the register of its members,
      (c)   the register of its debenture-holders,
      (d)   its shares and debentures,
      (e)   its indebtedness,
      (f)   its members and debenture-holders, past and present, and
      (g)   its directors, managing  directors,  managers  and  secretaries,
past and present:

Provided that any of the five immediately preceding returns has given as  at
the date of the annual general  meeting  with  reference  to  which  it  was
submitted, the full particulars required as to past and present members  and
the shares held and transferred by them, the return in question may  contain
only such of the particulars as relate to persons ceasing to be or  becoming
members since that date and to shares transferred  since  that  date  or  to
changes as compared with that date  in  the  number  of  shares  held  by  a
member.

Explanation.-  Any reference in this section or in section 160 or 161 or  in
any other section or in Schedule V to the day on  which  an  annual  general
meeting is held or to the date of the annual general  meeting  shall,  where
the annual general meeting for any year has not been held, be  construed  as
a reference to the latest day on or before which that  meeting  should  have
been held in accordance with the provisions of this Act.”

Relying on Section 159(1) extracted above, it  was  submitted,  that  annual
returns filed by a company are submitted on a prescribed  proforma,  and  as
such, the same being a statutory requirement, will have to  be  accepted  as
correct, unless it was shown otherwise.

58.   It was also submitted, that the  aforesaid  statutory  requirement  is
akin to the statutory requirement under Section 303 of  the  Companies  Act,
1956, inter alia, pertaining  to  the  details  of  the  existing  directors
and/or any change among  the  directors,  managing  directors,  managers  or
secretaries of a company.  Insofar as the instant aspect of  the  matter  is
concerned, section 303(2) of the Companies Act, 1956, which was also  relied
upon, is extracted hereunder:-
      “303. Register of directors etc. - (1)      ***   ***  ***

      (2)   The company shall, within the periods respectively mentioned  in
this sub-section, send to the Registrar a  return  in  the  prescribed  form
containing  the  particulars  specified  in  the   said   register   and   a
notification in the prescribed  form  of  any  change  among  its  directors
managing directors, managers or secretaries,  specifying  the  date  of  the
change.

            The period within which the said return is to be sent  shall  be
a period of thirty days from the appointment of the first directors  of  the
company and the period within which the said notification of a change is  to
be sent shall be thirty days from the happening thereof;”

59.   It was contended, that while it cannot be disputed that  the  name  of
Major P.C. Thakur existed on Form-32 sent to  the  Registrar  of  Companies,
and DW6 – Vikram in his statement duly brought out, that as per  the  record
of the Registrar of Companies, Major  P.C.  Thakur  had  resigned  from  the
directorship of the company with  effect  from  20.2.2000,  yet  an  equally
significant fact is,  that  in  the  annual  return  filed  by  M/s.  Accord
Plantation Ltd. on 30.9.2002, Major P.C. Thakur was  shown  as  one  of  the
directors.  It was, therefore submitted  on  behalf  of  ‘the  Board’,  that
Major P.C. Thakur had not been in a  position  to  clearly  and  effectively
establish, that he had resigned from  the  concerned  company,  with  effect
from 20.2.2000.

60.    In  order  to  repudiate  the  above  contention,   learned   counsel
representing the appellant - Major  P.C.  Thakur,  placed  reliance  on  the
decision of this Court in Harshendra Kumar D. vs. Rebatilata  Koley,  (2011)
3 SCC 351, and highlighted the issue under consideration, by emphasizing  on
the following observations recorded therein:-
“16.  Every company is required to keep at its registered office a  register
of its Directors, Managing Director, manager and  secretary  containing  the
particulars with respect to each of them as set out in clauses  (a)  to  (e)
of sub-section (1) of Section 303 of the Companies  Act,  1956.  Sub-section
(2) of Section 303 mandates every company to send to the Registrar a  return
in duplicate containing the  particulars  specified  in  the  register.  Any
change among its Directors,  Managing  Directors,  managers  or  secretaries
specifying the date of change is  also  required  to  be  furnished  to  the
Registrar of Companies in  the  prescribed  form  within  30  days  of  such
change. There is, thus, statutory requirement of informing the Registrar  of
Companies about change among Directors of the company.

17.   In this view of the matter, in our opinion, it must  be  held  that  a
Director, whose resignation has been accepted by the company  and  that  has
been  duly  notified  to  the  Registrar  of  Companies,  cannot   be   made
accountable and fastened with liability for anything  done  by  the  company
after the acceptance of his resignation. The words  “every  person  who,  at
the time the offence was committed”, occurring in Section 141(1) of  the  NI
Act are not without significance and  these  words  indicate  that  criminal
liability of a Director must be  determined  on  the  date  the  offence  is
alleged to have been committed.”

Based on the above, it was submitted, that no  one  could  be  permitted  to
dispute the fact that the appellant – Major P.C. Thakur, had  resigned  from
M/s. Accord Plantation Ltd. with effect from 20.2.2000.

61.   We  have  given  our  thoughtful  consideration  to  the  afore-stated
contention, pertaining to the  date  when  Major  P.C.  Thakur  severed  his
relationship with M/s. Accord Plantation Ltd., by tendering his  resignation
and submitting the same with the Registrar of Companies in  Form-32.   Based
on the judgment rendered by this Court in  the  Harshendra  Kumar  D’s  case
(supra), there can be no doubt, that the submissions advanced on  behalf  of
the appellant have to be  accepted,  unless  the  same  can  be  effectively
repudiated.  The mere mention of the  name  of  Major  P.C.  Thakur  in  the
annual return filed on 30.9.2002, in our  considered  view,  cannot  per  se
lead to the inference, that Major P.C. Thakur, was still  on  the  Board  of
directors of M/s. Accord  Plantation  Ltd..   We  say  so  because,  Section
159(1)(g) of the Companies Act, 1956, requires  that  alongwith  the  annual
return, the particulars of the directors, managing directors,  managers  and
secretaries, “… past and present…”, have to be indicated.   That  being  the
mandate of Section 159, the assertion made at the hands of  learned  counsel
for ‘the Board’ could only be justified if the name  of  Major  P.C.  Thakur
(in the annual return submitted on 30.9.2002) projected him as  a  “present”
director.  It is, therefore, that  we  examined  photocopies  of  DW6/4  and
DW6/5, (referred to in the statement of DW6 – Vikram).  DW6/5 was a part  of
the annual return of the concerned company.  Details were  provided  therein
by the said  company,  in  the  format  prescribed  in  Schedule  V  of  the
Companies Act, 1956.  At S.No. IV of  the  format,  information  was  to  be
provided pertaining to the  past  and  present  directors/manager/secretary.
In the information so provided by the concerned company  at  S.No.  IV,  the
names of Ajay Vohra, Tejinder Singh, PC  Thakur,  Rajan  Rana  and  Rajkumar
Sharma  were  admittedly  depicted.   The  dates  of  their  appointment  as
directors were also mentioned.  Exhibit DW6/5 is silent, as to  whether  the
names reflected in the annual return were of the past directors, or  of  the
present directors.  Since information of the past directors was also  to  be
reflected at S.No. IV, in our considered view, no  clear  inference  can  be
drawn from Exhibit DW6/5, that Major P.C. Thakur, was a  “present”  director
at the time of filing of the above return.  We are therefore  of  the  view,
that in the present case, there is no material  to  contradict  the  factual
position depicted in Form-32,  namely,  that  the  appellant  –  Major  P.C.
Thakur had resigned from the company on 20.2.2000.

62.   In addition to above, it is also relevant to mention, that a  copy  of
Form-32, relating to the resignation of Major P.C. Thakur from  M/s.  Accord
Plantation Ltd. on 20.2.2000, was placed on  the  record  of  the  case  (as
Annexure P-3).  The same was produced by DW7 – Ajay  Vohra,  while  deposing
before the trial Court in  the  case  on  hand.   The  veracity  of  Form-32
depicting the resignation of Major P.C. Thakur, was not  contested  by  ‘the
Board’, before the trial Court.   Thus  viewed,  we  find  no  justification
whatsoever, in permitting ‘the Board’  to  contest  the  same,  before  this
Court.  We, therefore,  hereby  affirm  that  Major  P.C.  Thakur  had  duly
resigned from the directorship of M/s. Accord Plantation Ltd. on 20.2.2000.

63.   On the issue of liability of the appellant –  Major  P.C.  Thakur,  we
also consider it appropriate to make a reference to Section 27 of  the  SEBI
Act.  The above provision has already been extracted above, and  the  debate
with reference thereto, and its conclusion, have also been recorded  by  us.
The reference which we wish to make to Section 27 at the  instant  juncture,
is for a different purpose.  Section 27 makes every person, who at the  time
when the offence was committed, was in charge of, and responsible  for,  the
conduct  of  the  company’s  business,  guilty  of  the  offence   allegedly
committed by the company.  There can be no dispute about the  fact,  that  a
director of a company, may well be in charge of,  and  responsible  for  the
conduct of the business of the company (though the above position would  not
emerge ipso facto, by holding the position of a director).  Yet,  after  the
concerned individual has resigned from the  position  of  director,  in  our
view, he cannot be considered to be responsible  to  the  company,  for  the
conduct of its business.  Any  action  of  omission  or  commission  of  the
company, after the date on which the concerned director has resigned,  would
not affect him, insofar as, his culpability under Section  27  of  the  SEBI
Act is concerned.  Thus viewed, there can  be  no  doubt,  that  Major  P.C.
Thakur ceased to be in a position,  as  would  make  him  in  charge  of  or
responsible  for  the  conduct  of  the  business  of  the  company,   after
20.2.2000.

64.   Based on the factual position noticed in the preceding  paragraph,  we
are of the view, that for exactly the same reasons as have been recorded  by
us in Criminal Appeal nos. 827-830 of 2012, the  appellant  herein  was  not
accused of having violated the substantive provision of  Section  12(1B)  of
the SEBI Act, by commencing a collective investment  undertaking  as  a  new
operator belonging to the non-proviso category (-who had not  commenced  the
above activity before 25.1.1995).  The appellant was only accused of  having
breached Regulation 5 of the Collective Investment  Regulations,  read  with
Chapter IX of the said regulations, and more  particularly  Regulations  68,
73 and 74 (see extracts of show cause notice dated 12.5.2000, and  paragraph
13 of the complaint dated 21.1.2003).  We are satisfied that the  last  date
for moving an  appropriate  application  under  Regulation  5,  having  been
extended from 15.12.1999 to 31.3.2000, the aforesaid  regulations  could  be
deemed to have been breached by M/s. Accord Plantation  Ltd.,  as  also,  by
the appellant herein, in case such an application had not been  filed  under
Regulation 5 on or before 31.3.2000.  The instant conclusion drawn by us  is
sufficient to exculpate the appellant, who  had  severed  his  relationship,
with M/s. Accord Plantation Ltd. with effect from 20.2.2000, and  to  accept
his plea that proceedings initiated against him,  were  not  permissible  in
law.

65.   We will be failing in effectively discharging our  responsibility,  if
we do not examine  another  legal  contention  advanced  on  behalf  of  the
appellant.  It was also pointed out, that  the  question  of  initiation  of
proceedings against  M/s.  Accord  Plantation  Ltd.  or  the  appellant,  on
account of a breach of Regulation 5 and Regulations 68 to 72  under  Chapter
IX of the Collective Investment Regulations, did not arise at all.   Insofar
as the instant aspect of the matter is concerned,  learned  counsel  invited
our attention to a communication dated  7.2.2000,  which  was  addressed  by
M/s. Accord  Plantation  Ltd.  to  SEBI.   The  aforesaid  communication  is
extracted hereunder:-
      “ACCORD PLANTATION LTD.
HO Blue Peak Office Complex (Near Gainda Mull Stairs)
The Mall Shimla 171 001
Corp Office 19A Swastik Vihar Panchkula HR
Phone No. 172-552962
                                                           Date Feb 07, 2000
Ref. No. HO/101/775/00

Shri Suresh Gupta
Division Chief
SEBI
Earnest House, 194, Nariman Point
Mumbai 400 021

Kind Attn.: Mr. Suresh Gupta, Divisional Chief

Dear Sir,

This is with  reference  to  plantation  schemes  of  the  Company  and  its
registration with SEBI as per latest guidelines on  registration.   We  wish
to inform you that we are no more interested in operating  this  scheme  due
to stringent guidelines of SEBI.

However, the company intends to pay all the deposits from sale  of  tree  on
due date for year wise  detail  of  income  and  payment  of  maturities  is
enclosed.

We are ready to provide any other information required at your end.

Thanking you.

Yours faithfully,
Sd/-
Managing Director”

Based on the aforesaid letter dated 7.2.2000, it was  contended,  that  M/s.
Accord Plantation Ltd. had decided to wind up its operations on  account  of
the fact, that it  was  not  possible  for  it  to  continue  its  erstwhile
activities, because of the stringent conditions imposed  in  the  Collective
Investment Regulations.  In the instant view  of  the  matter,  it  was  the
contention of learned counsel  for  the  appellant,  that  the  question  of
making an application for registration under Regulation 5 of the  Collective
Investment Regulations, or for M/s. Accord Plantation  Ltd.  to  follow  the
procedure  stipulated  under  the  Collective  Investment  Regulations,  for
seeking a certificate of registration, did not arise.

66.   In the aforesaid context,  learned  counsel  for  the  appellant  also
placed reliance on Regulations 73  and  74  to  contend,  that  M/s.  Accord
Plantation Ltd. was required to repay to the investors the deposits made  by
them “… within two months from the date of receipt of  intimation  from  the
respondent-Board, detailing the state of affairs of the scheme,  the  amount
repayable  to  each  investor  and  the  manner  in  which  such  amount  is
determined…”.  Regulations 73 and 74 are reproduced hereunder:-
      “Manner of repayment and winding up

73.   (1)   An existing collective investment scheme which:

(a)   has failed to make an application for registration to the Board; or

(b)   has not been granted provisional registration by the Board; or

(c)   having obtained provisional registration  fails  to  comply  with  the
provisions of regulation 71;

shall wind up the existing scheme.

(2)   The existing Collective Investment Scheme to be wound  up  under  sub-
regulation (1) shall send an information memorandum  to  the  investors  who
have subscribed to the schemes, within two months from the date  of  receipt
of intimation from the Board, detailing the state of affairs of the  scheme,
the amount repayable to each investor and the manner in  which  such  amount
is determined.

(3)   The information memorandum referred to in sub-regulation (2) shall  be
dated and signed by all the directors of the scheme.

(4)   The Board may specify  such  other  disclosures  to  be  made  in  the
information memorandum, as it deems fit.

(5)   The information memorandum shall be sent to the investors  within  one
week from the date of the information memorandum.

(6)   The information  memorandum  shall  explicitly  state  that  investors
desirous of continuing with  the  scheme  shall  have  to  give  a  positive
consent within one month from the date  of  the  information  memorandum  to
continue with the scheme.

(7) The investors who give positive consent under sub-regulation (6),  shall
continue with the scheme at their risk and responsibility

: Provided that if the positive consent to  continue  with  the  scheme,  is
received from only twenty-five per cent or  less  of  the  total  number  of
existing investors, the scheme shall be wound up.

(8)   The payment to the investors, shall be made  within  three  months  of
the date of the information memorandum.

(9)   On completion of the winding up, the  existing  collective  investment
scheme shall file with the Board such reports, as may be  specified  by  the
Board.

Existing scheme not desirous of obtaining registration to repay

74.   An existing collective investment scheme  which  is  not  desirous  of
obtaining provisional registration from the Board shall formulate  a  scheme
of repayment and make such  repayment  to  the  existing  investors  in  the
manner specified in regulation 73.”

It was submitted, that intimation as was required to be  furnished  by  ‘the
Board’ under Regulation 73(2), was never furnished by the  respondent-Board,
either to M/s. Accord Plantation Ltd. or to the  appellant  herein,  and  as
such, no question of repayment of the deposits made by the investors  arose,
by the time the appellant relinquished  his  position  as  director  of  the
company (with effect from 20.2.2000).

67.   Since the respondent-Board had not denied the fact, that  M/s.  Accord
Plantation Ltd. did address the letter dated 7.2.2000 (extracted above),  to
the respondent-Board, making its intentions clear, that it was not  desirous
of  continuing  its  activities  any  further,  because  of  the   stringent
conditions postulated under the Collective Investment  Regulations  notified
on 25.1.1995, the question of refund would arise only after  intimation  was
furnished by ‘the Board’ under Regulation 73(2) to  M/s.  Accord  Plantation
Ltd., or to the appellant.  Since details of such intimation by ‘the  Board’
were not brought to the notice of this Court on behalf of  ‘the  Board’,  we
are of the view, that it was not open to  ‘the  Board’  to  initiate  action
against M/s. Accord Plantation Ltd. or its directors,  till  the  expiry  of
two months from the date of receipt of intimation from ‘the Board’.

68.   In view of the conclusions  recorded  hereinabove  we  are  satisfied,
that  the  proceedings  initiated  against   the   appellant   were   wholly
misconceived, as it has not been  established,  that  the  appellant  either
violated Regulation 5 read with Regulations 68 to 72, or Regulations 73  and
74 of the Collective Investment Regulations.

69.   The  instant  appeal  is  accordingly  allowed.   The  conviction  and
sentence imposed on the appellant – Major P.C. Thakur  are  set  aside,  and
the complaint stands dismissed.

                       Criminal Appeal no. 251 of 2015

70.   The instant appeal has been preferred by Sunita Bhagat, an accused  in
a complaint filed by ‘the Board’.  Obviously, therefore, ‘the Board’ is  the
respondent herein.

71.   A complaint of the nature referred to  in  the  earlier  matters,  was
filed by the respondent-Board on 21.1.2003 under Section 200 of the  Cr.P.C.
read with Sections 24(1) and  27  of  the  SEBI  Act,  against  M/s.  Accord
Plantation Ltd., and five of its directors.  Sunita Bhagat, wife  of  Vinodh
Bhagat was arrayed as accused no.  4.   The  charges  levelled  against  the
appellant – Sunita Bhagat emerge from  paragraphs  13,  15  and  18  of  the
complaint, which are extracted hereunder:-
“13.  However, the accused no. 1 neither applied for registration under  the
said regulations nor took any steps  for  winding  up  of  the  schemes  and
repayment to the investors as provided under the  regulations  and  as  such
had violated the  provisions  of  Section  11B,  12(1B)  of  Securities  and
Exchange Board of India  Act,  1992  and  Regulation  5(1)  r/w  Regulations
68(1), 68(2), 73 and 74 of the said regulations.
***              ***              ***
15.   On January 31, 2001, SEBI by exercising its powers conferred  upon  it
under Section 118 of Securities  and  Exchange  Board  of  India  Act,  1992
directed the  accused  no.  1  to  refund  the  money  collected  under  the
aforesaid collective investment schemes of the accused no. 1 to the  persons
who invested therein within a period of one month from the date of the  said
directions…
***              ***              ***
18.   In view of the above, it  is  charged  that  the  accused  no.  1  has
committed the violations of Section 11B, 12(1B) of Securities  and  Exchange
Board of India Act, 1992 r/w Regulation 5(1) r/w Regulations  68(1),  68(2),
73 and 74  of  the  Securities  and  Exchange  Board  of  India  (Collective
Investment Schemes) Regulations, 1999  which  is  punishable  under  Section
24(1) of Securities and Exchange Board of  India  Act,  1992.   The  accused
nos. 2 to 5 are the directors and/or persons in charge  of  and  responsible
to the accused no. 1 for the conduct of its business and are liable for  the
violations of the accused no. 1, in terms of Section 27  of  Securities  and
Exchange Board of India Act, 1992.”

It is apparent from the complaint, that the appellant –  Sunita  Bhagat  was
accused, firstly, of not applying for a certificate  of  registration  under
the Collective Investment Regulations, and secondly, for  not  having  taken
steps for winding up the collective investment business being carried on  by
M/s. Accord Plantation Ltd., by  way  of  repayment  to  the  investors,  as
provided under the Collective Investment Regulations.  After  the  complaint
was preferred before  the  Additional  Chief  Metropolitan  Magistrate,  Tis
Hazari Court, Delhi, the concerned Magistrate summoned  the  appellant  vide
an order dated 21.1.2003.  On  her  appearance,  the  accused  was  given  a
notice of  the  accusations,  alongwith  the  complaint  preferred  by  ‘the
Board’.  On 5.8.2005, the accused pleaded  not  guilty  and  claimed  trial.
The trial was conducted  by  the  Additional  Sessions  Judge  (Central-01),
Delhi.  After recording the evidence furnished by the complainant,  as  also
the evidence produced in defence, the trial Court vide  its  judgment  dated
25.3.2010 arrived at the conclusion, that the guilt of  the  accused-company
– M/s. Accord Plantation Ltd., as also, of accused  numbers  2  to  5  (-who
were its directors), had been duly established.

72.   The trial Court held,  that  the  accused  had  floated  a  collective
investment scheme, and mobilized funds  from  the  general  public,  without
obtaining a certificate of registration, as required  under  Section  12(1B)
of the  SEBI  Act.   The  trial  Court  also  concluded,  that  despite  the
notification of the Collective Investment  Regulations  on  15.10.1999,  the
accused-company had failed to apply for the registration of  its  collective
investment scheme.  Further, M/s. Accord Plantation Ltd. was found  to  have
neither wound up its collective investment scheme, nor repaid its  investors
as per Regulations 73 and 74 of the Collective Investment Regulations.   The
accused were accordingly held guilty  of  violating  Regulations  5(1)  read
with Regulations 68(1), 68(2),  73  and  74  of  the  Collective  Investment
Regulations read with Sections 26 and 27 of the SEBI  Act.   By  a  separate
order passed on 26.3.2010, the trial Court sentenced accused numbers 2 to  5
to rigorous imprisonment for  six  months  each.   The  accused-company  and
accused nos. 2 to 5 were ordered to pay a fine of Rs.10 lakhs each,  and  in
default thereof, accused nos.  2  to  5  were  required  to  undergo  simple
imprisonment for a further period of three months each.

73.   Dissatisfied  with  the  orders  of  conviction  and  sentence,  dated
25.3.2010 and 26.3.2010 respectively, the present appellant – Sunita  Bhagat
filed Criminal Appeal no. 442 of 2010 before the  High  Court.   The  appeal
preferred by the appellant – Sunita Bhagat alongwith  the  appeal  preferred
by Major P.C. Thakur (Criminal  Appeal  no.  464  of  2010)  and  the  other
appeals filed on behalf of the directors of  M/s.  Accord  Plantation  Ltd.,
were dismissed by the High Court on 29.1.2014.  The instant criminal  appeal
arises from the said common judgment and order  of  the  High  Court,  dated
29.1.2014.

74.   During the course of  hearing  it  was  submitted,  that  M/s.  Accord
Plantation  Ltd.  was  incorporated  under  the  Companies  Act,  1956,   on
16.10.1996.  The appellant herein – Sunita Bhagat was admittedly one of  the
promoter-directors of the said company.  It was asserted that the  appellant
– Sunita Bhagat had resigned from the company on  31.8.1999  with  immediate
effect.  It is  not  a  matter  of  dispute,  that  Form-32,  depicting  the
resignation of the appellant, was submitted and received in  the  office  of
the Registrar of Companies on 20.9.1999.  The above factual position  stands
affirmed in the narration  recorded  by  the  High  Court  in  the  impugned
judgment and order dated 29.1.2014.  Paragraph 17 of the impugned  judgment,
is extracted hereunder:-
“17.  As far as the appellant, Sunita Bhagat is  concerned,  admittedly  she
was a Director of the appellant Company on 25.1.1995 when  sub-section  (1B)
of Section 12 of the Act came to be notified, she having  resigned  only  on
20.9.1999.  She has also been operating the bank  account  of  the  Company.
Therefore, the offence to the extent of contravention of  sub  section  (1B)
of Section 12 by the Company was committed during the  period  she  was  its
Director.  The first letter sent to SEBI on 9.12.1997, stating  therein  the
main objects of the Company and  giving  information  with  respect  to  the
funds mobilized from the investors and also  enclosing  returns,  copies  of
offer documents and bio datas of Promoters was sent by her.  She was also  a
Promoter of the Company and one of its first directors,  as  stated  by  DW6
Vikram besides being a Director in another company, Blue Peeks  Floriculture
Limited.  A perusal of the balance sheet of the Company would show that  she
was also paid remuneration by the Company during the  financial  year  1997-
1998.  All these documents leave no reasonable doubt that  she  also  was  a
person in-charge of and responsible  to  the  Company  for  conduct  of  its
business.  No evidence has been led by her to prove that  the  contravention
of sub-section (1B) of Section 12 of  the  Act  was  committed  without  her
knowledge or that she  had  exercised  all  due  diligence  to  prevent  the
commission of the aforesaid offence by the Company.”

75.   On the issue of resignation of the appellant – Sunita Bhagat from  the
company, our attention was invited to the statement of DW3 –  Yashpal,  JTA,
Registrar of Companies, Jalandhar.  The same is extracted hereunder:-
“I have  brought  the  summoned  records  relating  to  the  company  Accord
Plantation Ltd.  The certified copy  of  Form  32  placed  in  the  judicial
record had been issued by our office.  The same is Ex. DW3/A.  The  Form  32
reflects that as on 31.8.1999, the accused no. 4 Sunita Bhagat had  resigned
as Director of the Accord Plantation Ltd.  The resignation letter is  on  my
record.  Copy of the same is Ex. DW3/B.

XXXX by counsel Sh. Sachit Setia for the SEBI

      We have received the resignation letter on 20.9.1999.  It  is  correct
that no date of receipt had been mentioned on  the  resignation  letter  Ex.
DW3/B.  On receipt of the resignation  letter  we  have  placed  it  on  the
record, being accepted.

XXXX by counsel Sh. Neeraj Tiwari for A-5, Rajan Rai

      We  did  not  prepare  any  list  of  directors  after  accepting  the
resignation of Smt. Sunita Bhagat.  However, the modified list of  directors
would have been furnished by the company alongwith the annual returns  filed
by the company.  As per the record, the directors of the  company  prior  to
the resignation of Smt. Sunita Bhagat  were  Sh.  Ajay  Vora,  Sh.  Tejender
Singh, Sh. P.C. Thakur, Sh. Pradeep Dewan and  Mrs.  Sunita  Bhagat  as  per
annual return dated 28.9.99.  The copy of the same is Ex. DW3/C (OSR).

XXXX by counsel for accused no. 2.

      It is correct that fees have to be deposited by  the  person  applying
for change in Board of  Directors  on  the  basis  of  resignation  and  the
receipt No. 21181 dated 20.9.99.  The copy  of  the  receipt  is  Ex.  DW3/D
(OSR)…..”

Learned counsel for the appellant reiterated the legal submissions  advanced
before this Court in the connected appeals, and submitted, that for  exactly
the reasons mentioned by a co-accused – Major P.C. Thakur,  the  proceedings
initiated against the appellant herein,  were  also  unsustainable,  because
the appellant herein had also resigned as director (-on 31.8.1999)  just  as
Major P.C. Thakur had resigned (-on 20.2.2000).

76.   Without going into the details of the matter, we  have  no  hesitation
in concluding, for exactly the same reasons as have been recorded by  us  in
Criminal Appeal no. 252 of  2015  (Major  P.C.  Thakur  vs.  Securities  and
Exchange Board  of  India),  that  the  proceedings  initiated  against  the
appellant – Sunita  Bhagat,  were  wholly  misconceived,  as  there  was  no
occasion whatsoever for the appellant to have violated  Regulation  5,  read
with Regulations 68 to 72, or in the alternative, Regulations 73 and  74  of
the Collective Investment Regulations.

77.   Learned counsel for the appellant herein, had emphatically raised  the
plea of limitation, also.   Since  the  contention  was  pressed,  and  also
responded to, we consider it just and appropriate to  deal  with  the  same.
It was the contention  of  learned  counsel  for  the  appellant,  that  the
complaint preferred by ‘the Board’ on 21.1.2003 before the Additional  Chief
Metropolitan Magistrate, was incompetent in law, in view of  the  period  of
limitation stipulated under the provisions  of  the  Cr.P.C.   In  order  to
support his claim under Section 468 of the Cr.P.C., learned counsel, in  the
first instance, placed reliance on Section 32 of  the  SEBI  Act,  which  is
reproduced below:-
“32.  Application of other laws not barred.-  The  provisions  of  this  Act
shall be in addition to, and not in derogation of,  the  provisions  of  any
other law for the time being in force.”

Relying on Section 32 it was contended, that the provisions under  the  SEBI
Act were in addition to, and not in derogation of,  the  provisions  of  any
other law for the time being in force, including the Cr.P.C.  This  position
was  not  repudiated  on  behalf  of  ‘the  Board’.   We  are  satisfied  in
recording, that the above contention, advanced on behalf of  the  appellant,
is fully justified.

78.   With reference to the provisions of the Cr.P.C., and  to  substantiate
the plea of limitation,  reliance  was  placed  on  Section  468,  which  is
reproduced below:-
“468. Bar to taking cognizance after lapse of  the  period  of  limitation.-
(1) Except as otherwise provided elsewhere in this  Code,  no  Court,  shall
take cognizance of an offence of the category specified in sub-section  (2),
after the expiry of the period of limitation.

(2)   The period of limitation shall be –

      (a)   six months, if the offence is punishable with fine only;
      (b)   one year, if the offence is punishable with imprisonment  for  a
term not exceeding one year;
      (c)   three years, if the offence is punishable with imprisonment  for
a term exceeding one year but not exceeding three years.”

79.   For invoking the plea of  limitation,  learned  counsel  also  pointed
out, that under Section  24  of  the  SEBI  Act,  before  its  amendment  on
29.10.2002, a punishment of imprisonment of one year or fine  or  both,  was
postulated.  Since the punishment contemplated under Section 24 of the  SEBI
Act was not in excess of one year, for the  violation  alleged  against  the
appellant, it was submitted,  that  the  competence  to  taking  cognizance,
would lapse after a period of one year, on account of  the  bar  created  by
Section 468(2)(b) of the Cr.P.C (extracted above).

80.   Referring to the factual position in the present controversy,  it  was
asserted, that the appellant had ceased to be  a  director  of  M/s.  Accord
Plantation Ltd., with effect from 20.9.1999, and as such, her liability  for
any alleged act of omission or commission, with  reference  to  M/s.  Accord
Plantation Ltd., could not legally  extended  beyond  20.9.1999.   As  such,
according to learned counsel for the  appellant,  in  view  of  the  mandate
contained in Section 468 of  the  Cr.P.C.,  the  period  of  limitation  for
filing a complaint by ‘the Board’ against  the  appellant  –  Sunita  Bhagat
would expire one year after she severed her relationship  with  M/s.  Accord
Plantation Ltd., i.e. on 20.9.2000.  It  was  asserted,  that  the  admitted
factual position is, that the complaint in  the  instant  case  came  to  be
filed on 21.1.2003.  In the above view of the matter it was  asserted,  that
besides the other legal pleas raised at the  hands  of  the  appellant,  the
complaint  filed  by  ‘the  Board’  against  the  appellant  was  barred  by
limitation.

81.    We  have,  during  the  course   of   recording   our   consideration
hereinabove, upheld the contention advanced on behalf  of  the  appellant  –
Sunita Bhagat, that Section 468 of the Cr.P.C.  could  be  relied  upon,  in
criminal proceedings  initiated  under  the  provisions  of  the  SEBI  Act.
Having  so  concluded  we  are  of  the  view,  that  since  the  punishment
contemplated under Section 24 of the SEBI Act at the relevant juncture,  did
not exceed one year, the period of limitation for  taking  cognizance  under
Section 468 of the Cr.P.C. would be one  year.   We  are  also  inclined  to
accept the contention advanced at the  hands  of  learned  counsel  for  the
appellant, that the period of limitation in the present case would  commence
to run with effect from the date the appellant – Sunita Bhagat tendered  her
resignation from the position of director of M/s.  Accord  Plantation  Ltd.,
namely, with  effect  from  20.9.1999.   Thus  viewed,  the  bar  of  taking
cognizance against the appellant – Sunita Bhagat, would operate with  effect
from  20.9.2000.   Admittedly,  the  complaint  in  the  present  case   was
preferred  by  ‘the  Board’  before  the   Additional   Chief   Metropolitan
Magistrate, Tis Hazari Courts, Delhi, on 21.1.2003.  The trial  Court  could
not  have  taken  cognizance  of  the  same,  in  view  of  the  clear   bar
contemplated under Section 468 of the Cr.P.C.

82.   For the reasons recorded hereinabove,  not  only  on  account  of  the
legal position expressed  above,  but  also,  on  account  of  the  plea  of
limitation,  the  proceedings  initiated  against  the  appellant  were  not
sustainable in law.  The instant appeal  is  accordingly  allowed,  and  the
conviction and sentence imposed on the appellant  –  Sunita  Bhagat  is  set
aside, and the complaint filed against the appellant, stands dismissed.

                       Criminal Appeal no. 832 of 2012

83.   The position stands reversed again.  ‘The Board’ is the  appellant  in
this matter and Raj Chawla, accused no. 10 before the trial  Court,  is  the
respondent.

84.   The instant appeal has been  preferred  by  ‘the  Board’  against  the
respondent – Raj Chawla,  who  had  approached  the  High  Court  by  filing
Criminal Miscellaneous Case 3937 of 2009, under Section 482 of the  Cr.P.C.,
seeking quashing of the complaint filed by ‘the Board’, dated 15.12.2003  in
the Court of Chief Metropolitan Magistrate, Tis Hazari Court,  Delhi,  under
Section 200 of the Cr.P.C. read with Sections 24(1) and 27 of the SEBI  Act.
 On the receipt of the above complaint, the Chief  Judicial  Magistrate  had
summoned the accused on 15.12.2003 for 21.2.2004.  The High  Court,  through
the impugned order dated 12.1.2010, quashed the criminal complaint filed  by
‘the Board’ against Raj Chawla.  ‘The Board’ has approached  this  Court  by
filing the instant criminal appeal, to assail the order of the  High  Court,
dated 12.1.2010.

85.   In order to effectively adjudicate upon the  cause  which  has  arisen
with reference to the respondent – Raj Chawla,  it  would  be  essential  to
notice that the respondent – Raj Chawla  was  a  promoter-director  of  M/s.
Fair Deal Forests Ltd..  M/s. Fair Deal Forests Ltd. was incorporated  under
the Companies Act,  1956,  on  16.10.1996.   The  respondent  –  Raj  Chawla
resigned from the directorship of the said company  on  30.3.1997.   On  his
resignation, he submitted Form-32 with the Registrar of Companies.   It  was
pointed out, that M/s. Fair Deal Forests Ltd.  was  operating  a  collective
investment scheme, and had raised a sum of Rs.5,20,000/-  from  the  general
public, for the  said  purpose.   M/s.  Fair  Deal  Forests  Ltd.  had  also
submitted to ‘the Board’, an information  memorandum,  in  response  to  the
general public notice issued by ‘the Board’, detailing  the  particulars  of
the investors, including the  amount  payable  to  each  investor,  and  the
manner in which such amount was determined.

86.   Dissatisfied with response received,  ‘the  Board’  filed  a  criminal
complaint against M/s. Fair Deal  Forests  Ltd.  and  9  of  its  directors,
wherein the respondent – Raj Chawla  was  arrayed  as  accused  no.  10.   A
relevant extract of the complaint is reproduced below:-
“7.   The accused no. 1 is a company  registered  under  the  provisions  of
Companies Act and the accused nos. 2 to 11 are the Directors of the  accused
no. 1 company.  The accused nos. 2  to  11  are  the  persons  incharge  and
responsible for the day to day affairs of the company and all of  them  were
actively connived with each other for the commission of offences.

8.    The accused no. 1  is  operating  collective  investment  schemes  and
raised an aggregate amount of nearly Rs.5,20,000/- from the general public.

9.     The  accused  no.  1  company  filed  information/details  with  SEBI
regarding its collective investment schemes pursuant to SEBI  press  release
dated November 26, 1997, and/or public notice dated December 18, 1997.
***              ***              ***

12.   SEBI having regard to the interest of investors and  request  received
from various persons operating collective investment schemes,  extended  the
last date of submitting the application by existing entities upto March  31,
2000 and the same was declared by SEBI vide a press  release  and  a  public
notice.

13.   However, the accused no. 1 failed to make any  application  with  SEBI
for registration of the collective investment schemes being operated  by  it
as per the said regulations.

14.   It is submitted that  in  terms  of  Regulations  73(1)  of  the  said
regulations, an existing collective investment scheme which failed  to  make
an application for registration  with  SEBI,  shall  wind  up  the  existing
collective investment scheme  and  repay  the  amounts  collected  from  the
investors.  Further, in terms of Regulation 74 of the said  regulations,  an
existing collective investment scheme which is  not  desirous  of  obtaining
provisional registration from SEBI shall formulate  a  scheme  of  repayment
and make such repayment to the existing investors in  the  manner  specified
in Regulation 73.

15.   However, the accused no. 1 neither applied for registration under  the
said regulations nor took any steps  for  winding  up  of  the  schemes  and
repayment to the investors as provided under the  regulations  and  as  such
had violated the provisions of Section 12(1B)  of  Securities  and  Exchange
Board of India Act, 1992, and Regulation 5(1) read with  Regulations  68(2),
73 and 74 of the said regulations.
***              ***              ***

18.   The accused no. 1 raised a total amount  of  nearly  Rs.5,20,000/-  by
its own admission and its failure to  refund  the  amounts  to  the  general
public who invested  hard-earned  money  in  the  schemes  operated  by  the
accused no. 1, caused pecuniary damage to them.

19.   In view of the above, it  is  charged  that  the  accused  no.  1  has
committed the violation of  Sections  11B,  12(1B)  of  the  Securities  and
Exchange Board of India Act, 1992 and regulation 5(1) read with  regulations
68(1), 68(2), 73 and 74 of  the  Securities  and  Exchange  Board  of  India
(Collective investment  schemes)  Regulations,  1999,  which  is  punishable
under Section 24(1) of the Securities  and  Exchange  Board  of  India  Act,
1992.”


87.   We are satisfied, that the controversy raised in  the  instant  appeal
is exactly similar to the one decided in Criminal  Appeal  nos.  827-830  of
2012 (Securities and  Exchange  Board  of  India  vs.  Gaurav  Varshney  and
another), for the reason that the respondent herein had  resigned  from  the
position of director of M/s. Fair Deal Forests Ltd., on 30.3.1997.   We  are
also satisfied, that the controversy raised in the instant  appeal  is  also
similar to the one decided in  Criminal  Appeal  no.  251  of  2015  (Sunita
Bhagat vs. Securities and Exchange Board of India) for the reason, that  the
complaint  in  the  present  case  was  filed  against  the  respondent   on
15.12.2003 i.e., well after the period of  one  year,  calculated  from  the
date of the respondent’s resignation.  For the reasons recorded in  the  two
similar cases referred to above,


the instant appeal deserves to be rejected.  Accordingly this appeal  stands
dismissed.

                                                           ……………………………………J.
                                                 (Jagdish Singh Khehar)


                                                            …………………………………J.
                                                        (C. Nagappan)
New Delhi;
July 15, 2016.

Note: The emphases supplied in all the quotations in the  instant  judgment,
are ours.