Directors' lack of knowledge is a trial issue when a complaint alleges responsibility for company conduct and SEBI violations

At the discharge stage under section 245 CrPC, a complaint alleging that company directors were in charge of and responsible for the business was sufficient to proceed. The directors could not obtain discharge by asserting lack of knowledge or due diligence, because those defences raised disputed questions of fact that had to be tested at trial. The proviso to section 27 of the SEBI Act placed the burden on such persons to establish absence of knowledge or due diligence. Allegations of mobilisation of public funds through redeemable preference shares without statutory compliance, together with regulatory findings and complaint averments, disclosed a prima facie case against the accused.

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Issues: Whether the petitioners were entitled to discharge under section 245 of the Code of Criminal Procedure, 1973 on the ground that they were merely directors without knowledge of the company's acts and whether the complaint disclosed a prima facie case to proceed against them for alleged violations of the Securities and Exchange Board of India Act, 1992 and the Companies Act, 1956.

Analysis: The complaint contained a specific averment that the accused directors were in charge of and responsible for the conduct of the company's business. The materials before the Court showed that the company had mobilized public funds by issuing redeemable preference shares without complying with statutory requirements and had failed to comply with the directions issued by the securities regulator. The Court held that, for the purpose of framing of charge and considering discharge, the defence that the petitioners had no knowledge or that they exercised due diligence raises disputed questions of fact which cannot be decided at that stage. The proviso to section 27 of the Securities and Exchange Board of India Act, 1992 places the burden on such persons to establish lack of knowledge or due diligence, and that burden can be examined only in trial. Reliance on civil-law principles regarding board meetings and articles of association was held to be of no assistance at this criminal stage. The Court also found that the earlier regulatory findings and the complaint allegations were sufficient to show a prima facie case against the petitioners.

Conclusion: The prayer for discharge was rightly rejected and the petitioners were not entitled to quashing of the proceedings.

Final Conclusion: The revisional challenge failed because the complaint disclosed sufficient material to proceed, and the petitioners' plea of lack of knowledge was left to be tested in trial.

Ratio Decidendi: At the stage of discharge or framing of charge, a complaint containing basic averments that directors were in charge of and responsible for the company's business is sufficient to proceed, and the accused cannot secure discharge by raising disputed defences of lack of knowledge or due diligence, which must be proved at trial.

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