Prima facie director liability in SEBI prosecutions survives quashing where complaint pleads responsibility at the relevant time.

Complaints alleging violations relating to collective investment schemes were held to disclose a prima facie case where they contained foundational averments that the company and its officers were in charge of and responsible for the company's business at the relevant time. Section 27 of the Securities and Exchange Board of India Act, 1992 was applied to fasten officer liability subject to proof at trial, while disputes about whether a director had ceased office, or lacked actual responsibility, were treated as evidentiary issues not suitable for quashing under section 482 of the Code of Criminal Procedure, 1973. Form 32 was noted as relevant but not ative on its own.

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Issues: (i) Whether the complaints under the Securities and Exchange Board of India Act, 1992 disclosed a prima facie case against the company and its directors so as to justify prosecution; (ii) Whether the criminal complaints were liable to be quashed under section 482 of the Code of Criminal Procedure, 1973 on the ground that the directors were not shown to be in charge of and responsible for the company at the relevant time, including where a director claimed to have ceased to hold office.

Issue (i): Whether the complaints under the Securities and Exchange Board of India Act, 1992 disclosed a prima facie case against the company and its directors so as to justify prosecution.

Analysis: The complaints alleged violation of the statutory prohibitions governing collective investment schemes, including failure to seek registration, failure to wind up the schemes, and failure to refund investors. The liability of officers of the company was examined with reference to section 27 of the Securities and Exchange Board of India Act, 1992, which fastens responsibility on persons who were in charge of and responsible to the company for its business when the offence was committed. Applying the principle recognised in comparable prosecutions against company officials, the complaint must contain averments sufficient to show such responsibility at the relevant time. The pleadings in the present matters were held to contain enough allegations to make out a prima facie case, leaving defences based on the actual role of individual directors to be tested at trial.

Conclusion: The complaints disclosed a prima facie case and were sustainable against the company and its directors at the stage of cognizance.

Issue (ii): Whether the criminal complaints were liable to be quashed under section 482 of the Code of Criminal Procedure, 1973 on the ground that the directors were not shown to be in charge of and responsible for the company at the relevant time, including where a director claimed to have ceased to hold office.

Analysis: The inherent power to quash is not exercised where the complaint contains the necessary foundational averments and the question whether a particular accused had ceased to be a director, or was otherwise not concerned with the conduct of the business, depends on evidence. The filing of Form 32 was treated as potentially relevant, but not as an automatic ground for quashing in every case; its effect would depend on the facts and on whether it showed cessation before the offence. A plea of mistaken identity was also declined in view of the stage of the trial and the absence of a basis for interference in the pending proceedings.

Conclusion: The complaints were not liable to be quashed under section 482 of the Code of Criminal Procedure, 1973.

Final Conclusion: The petitions failed because the complaints disclosed the requisite statutory averments and the disputed questions about individual responsibility or cessation of directorship had to be decided on evidence at trial.

Ratio Decidendi: In prosecutions against companies and their officers, a criminal complaint is not quashed when it contains the foundational averment that the accused were in charge of and responsible for the company at the relevant time; challenges based on cessation of office or absence of actual responsibility are ordinarily matters for trial unless conclusively shown from undisputed material.

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