2020 (1) TMI 1365 - HC - SEBI

Dismissal of Criminal Petition Allows Compounding, Emphasizes Evidence & Legal Procedures

The court dismissed the Criminal Original Petition, permitting the petitioners to seek compounding of the offense before the Principal Judge, City Civil ... Collective Investment Scheme - As per petitioner he have settled the amount to the investors i.e., even before the respondent filed the private complaint before Magistrate under section 200 Cr.P.C., and hence, the process of repayment commenced - HELD THAT:- XIX Additional Judge, City Civil Court, has got the jurisdiction to try the case. Though the petitioners have stated that they settled the money, the respondent has subsequently disputed the fact that the petitioners have not produced any documentary proof to show that the amount was settled. In these circumstances, prima facie, whether the petitioners have complied with SEBI Regulations on or before the date mentioned in the Regulation and therefore, the complaint is subsequently filed and thereafter the matter has been settled or not and whether the offence is compoundable or not are the questions to be decided in the trial by putting forth evidence. Under these circumstances, this court did not find any ground to quash the proceedings. Accordingly, this Crl.O.P., is liable to be dismissed, granting liberty to the petitioners to take all their defence before the trial court. Petitioners would further submit that the matter is already settled and the petitioners filed a memo and affidavit to compound the offence before Additional Judge XIX City Civil Court, Chennai, and so far, the learned Judge has not passed any order in the said memo. Neither the memo was rejected nor the order passed therein. It is understood that the trial court will normally not pass any speaking order in the memo; either it would record or reject the memo. Whereas in this case, no order is passed by the learned Judge in the said memo. If memo is still pending, the petitioner is at liberty to file a petition for compounding the offence. It is further informed that now the matter is pending before Principal Judge, City Civil Court, Chennai. Therefore, in case, the petitioner file any petition for compounding the offence, learned Principal Judge, City Civil Court, is directed to receive the petition for compounding the offence and dispose of the same in accordance with law Issues:1. Compliance with SEBI Regulations for Collective Investment Schemes2. Jurisdiction of the Court for the Private Complaint3. Settlement of the Investment Scheme and Repayment to InvestorsCompliance with SEBI Regulations for Collective Investment Schemes:The petitioners, a company and its directors, were involved in a collective investment scheme related to developing agricultural land through plantations. The company invited investors, collected funds, and invested in interest-bearing deposits. However, the company failed to meet the minimum net worth requirement as per SEBI regulations. Consequently, the company decided to wind up the scheme and repay investors by registering land or cash repayment. Despite settling the repayment between May 2000 and July 2005, a private complaint was filed by SEBI for non-compliance with SEBI regulations. The court noted that the petitioners admitted their inability to comply with SEBI regulations and that the repayment process had commenced before the complaint was filed.Jurisdiction of the Court for the Private Complaint:The petitioners argued that the court where the complaint was filed lacked jurisdiction as the transactions did not occur in Chennai, where the complaint was lodged. Citing Supreme Court decisions, the petitioners contended that the court without a cause of action could not handle the matter. However, SEBI's standing counsel referenced a Supreme Court judgment involving a similar scenario and argued that the court in Chennai had jurisdiction as the regional office of SEBI was located there. The court agreed with SEBI's stance, emphasizing that jurisdiction was valid based on the location of the SEBI office, where the complaint originated.Settlement of the Investment Scheme and Repayment to Investors:While the petitioners claimed to have settled the investment scheme and repaid investors, SEBI disputed this assertion, citing a lack of documentary evidence. The court noted that the petitioners failed to provide proof of settlement, leading to a dispute between the parties. As the matter required further investigation to determine compliance with SEBI regulations and the compoundability of the offense, the court declined to quash the proceedings. The court directed the petitioners to present their defense in the trial court, emphasizing the need for evidence to resolve the outstanding issues.In conclusion, the court dismissed the Criminal Original Petition, allowing the petitioners to pursue the compounding of the offense before the Principal Judge, City Civil Court, Chennai. The court instructed the completion of proceedings by a specified date and requested a compliance report. The judgment highlighted the importance of evidence and legal procedures in addressing the complexities of the case related to SEBI regulations, jurisdiction, and settlement of the investment scheme.