SEBI regulatory bar on FIR-based prosecution for investment advisory violations led to quashing of proceedings.

Allegations against a SEBI-registered investment adviser were held to fall within the special statutory regime of the SEBI Act, where cognizance of offences is controlled by the Act and, for the relevant offences, must be founded on a complaint by the SEBI Board before the competent Special Court. On the material placed, the Court treated the complaint as one concerning regulatory violations arising from investment advisory activity rather than a direct private case of cheating or criminal breach of trust, and held that police investigation on the FIR was beyond the permissible sphere. The FIR and all subsequent proceedings were quashed.

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Issues: Whether the FIR and subsequent proceedings registered against a SEBI-registered investment adviser, alleging cheating, breach of trust and violations connected with investment advisory activity, were liable to be quashed in view of the statutory bar under the SEBI Act and the nature of the alleged misconduct.

Analysis: The alleged conduct arose out of an investment advisory business already registered with SEBI. The Court found that, on the material placed, the allegations principally concerned breach of SEBI regulations and the SEBI Act rather than a direct case of cheating or criminal breach of trust by a private complainant. The Court also noted that the SEBI Act creates a specific regime for cognizance of offences, including a bar that only a complaint by SEBI Board can found cognizance before the competent Special Court. In that setting, continuation of police investigation on the basis of the FIR was held to be beyond the permissible sphere where the matter fell within the statutory SEBI framework. The Court further held that the police ought to have placed the alleged violations before SEBI instead of proceeding by FIR in a case governed by the special statute.

Conclusion: The FIR and all subsequent proceedings were quashed, and the petition was allowed.

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