2021 (4) TMI 1032 - HC - SEBI

Court Upholds Charges in Fraud Case

The court upheld the trial court's decision to frame charges against the applicants, dismissing all revision petitions. It found evidence of criminal ... Fraudulent collective investment scheme - HELD THAT:- The applicants company and their agents were engaged in promoting the scheme of the company by selling certificates with a promise of higher rate of interest on the eventuality of the plans of term, hence, it can be said that the activity of the applicants' company appears to be covered under Section 2 (c) of the Act, 1978 and therefore, promotion of such scheme, which is banned under Section 3 of the Act, 1978 is punishable under Section 4 of the same Act, 1978, regarding which, there is sufficient evidence present for framing of charge against the applicants. As regards framing of charge under Section 10 of Protection of Depositors Interest Act, 2005, report of the Competent Authority does not appear to be a condition precedent for lodging of FIR or framing of charge against the persons concerned. Section 13 of the Act, 2005 empowers the Special Court to take cognizance of the offence without being committed the case to it. As the Court of Sessions Judge is notified under Section 4 of the Act and also that there being no procedure prescribed for filing of complaint in this Act, shows that the provisions under the Code of Criminal Procedure are applicable, hence, lodging of FIR under Section 10 of the Act, 2005 is well within the law. Further there is evidence present that depositors were defrauded by the HBN Company in which the applicants are directors, which is prima-facie case for framing charge under Section 10 of the Act, 2005. Hence, after considering on all the submission and the material present in the charge-sheet against these applicants, this Court is of the opinion that prima-facie case for framing of charge against these applicants, framed by the trial Court, is present. Hence, all the revision petitions are liable to be dismissed, which are dismissed accordingly. Issues Involved:1. Legality of framing charges under Sections 409, 420 of the Indian Penal Code (IPC), Sections 3, 4, and 5 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, and Section 10 of the Protection of Depositors Interest Act, 2005.2. Prima facie existence of a case against the applicants.3. Applicability of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978.4. Applicability of the Protection of Depositors Interest Act, 2005.5. The argument of civil liability versus criminal liability.Issue-wise Detailed Analysis:1. Legality of Framing Charges:The applicants challenged the orders framing charges under Sections 409, 420 IPC, and Sections 3, 4, and 5 of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, and Section 10 of the Protection of Depositors Interest Act, 2005. The applicants argued that there was no prima facie case against them, as the FIRs did not mention their names as the individuals who cheated the complainants. They contended that their company, HBN Dairy & Allied Limited, was engaged in legitimate business and complied with SEBI directives to repay investors. However, the court found that the applicants' company had fraudulently induced numerous investors and had not refunded their money, thus justifying the framing of charges.2. Prima Facie Existence of a Case:The court examined the statements of witnesses and found that they consistently claimed to have been cheated by the applicants' company. The SEBI order dated 12.07.2013, which directed the company to cease illegal money collection, was part of the charge-sheet. The court noted that the applicants' company had taken money from investors without proper authority and had not refunded them, indicating fraudulent intent. Therefore, the court concluded that there was sufficient material to frame charges against the applicants.3. Applicability of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978:The court analyzed whether the activities of the applicants' company fell under the definition of a 'money circulation scheme' as per Section 2(c) of the Act, 1978. The court found that the company's scheme involved issuing certificates promising higher returns, which constituted a money circulation scheme. The Supreme Court's interpretation in State of West Bengal & Ors. Vs. Swapan Kumar Guha (1982) 1 SCC 561 was cited to support this conclusion. Consequently, the court held that the company's activities were in violation of Section 3 of the Act, 1978, and punishable under Section 4.4. Applicability of the Protection of Depositors Interest Act, 2005:The applicants argued that the Act, 2005, protected depositors, not investors, and that the complainants were investors. The court rejected this argument, stating that the Act did not require a report from the Competent Authority as a condition precedent for lodging an FIR or framing charges. The court found evidence that the applicants' company had defrauded depositors, justifying the framing of charges under Section 10 of the Act, 2005.5. Civil Liability vs. Criminal Liability:The applicants relied on several Supreme Court judgments to argue that their case was a civil matter and not a criminal one. They cited Binod Kumar & Ors. Vs. State of Bihar & Ors. (2014) 10 SCC 663 and Madhavrao Jiwajirao Scindia & Ors. Vs. Sambhajirao Chandrojirao Angre & Ors. (1998) 1 SCC 692, among others, to support their claim. However, the court found that the applicants' fraudulent intent and the substantial evidence against them indicated a criminal offense. The court emphasized that the presence of dishonest intention and the failure to refund investors' money justified criminal charges.Conclusion:The court dismissed all the revision petitions, upholding the trial court's decision to frame charges against the applicants. The court found prima facie evidence of criminal breach of trust and cheating under IPC, as well as violations of the Prize Chits and Money Circulation Schemes (Banning) Act, 1978, and the Protection of Depositors Interest Act, 2005. The court ruled that the applicants' arguments regarding civil liability and procedural irregularities were insufficient to quash the charges.