2014 (10) TMI 1079 - HC - SEBI

Charges Dismissed as Petitioner No Longer Director When Regulations Enforced; Prosecution Deemed Unsustainable.

The HC quashed the proceedings against the petitioner in C.C.No.37 of 2004, finding the prosecution unsustainable due to the respondent's failure to ... Quashing of criminal proceedings - proof of directorship - verification with Registrar of Companies - prosecution sustainability - SEBI (Collective Investment Schemes) Regulations, 1999 - offence under Section 24(1) of the Securities and Exchange Board of India Act, 1992Proof of directorship - verification with Registrar of Companies - prosecution sustainability - Whether the prosecution against the petitioner, as a director of the first accused company for offences under the SEBI Act and the Collective Investment Schemes Regulations, 1999, is sustainable when records show he resigned before the Regulations came into force and the respondent did not verify directorship with the Registrar of Companies. - HELD THAT: - The Court accepted the petitioner's documentary proof from the Assistant Registrar of Companies showing resignation as Director on 18.11.1998. The Regulations complained of came into force in 1999; therefore, the petitioner was not a director during the relevant period. The respondent relied on the first accused company's reply that included the petitioner's name but did not issue any individual notice to the petitioner nor verify the company's statement with the Registrar of Companies before launching prosecution. Given the official record disproving directorship at the relevant time and the respondent's failure to verify that record, the prosecution against the petitioner was held to be unsustainable and liable to be quashed insofar as it related to him. [Paras 4, 6, 7, 8]Prosecution quashed as against the petitioner because he ceased to be a Director on 18.11.1998 and the respondent failed to verify directorship with the Registrar of Companies before initiating proceedings.Final Conclusion: The criminal proceedings in C.C.No.37 of 2004 are quashed insofar as they relate to the petitioner/third accused because contemporaneous Registrar of Companies records establish he was not a director when the relevant Regulations came into force and the prosecuting authority failed to verify the position prior to instituting prosecution. Issues:Alleged violation of Section 24(1) of the Securities and Exchange Board of India Act, 1992; Petitioner's resignation as Director before the Regulations came into force; Failure to verify Directorship status before prosecution.Analysis:The judgment pertains to a petition filed by the third accused seeking to quash proceedings in a case alleging an offense under Section 24(1) of the Securities and Exchange Board of India Act, 1992. The case was based on a private complaint regarding the operation of a collective investment scheme without proper registration. The petitioner contended that he had resigned as a Director of the company before the relevant Regulations came into force in 1999. The petitioner presented evidence from the Assistant Registrar of Companies confirming his resignation on 18.11.1998, prior to the enforcement of the Regulations.The respondent opposed the petition, stating that the company had informed them that the petitioner was a Director during the relevant period. However, it was revealed that no individual notice was issued to the petitioner to verify his Directorship status. The Court noted that while the company's information was considered, the respondent failed to verify with the Registrar of Companies before initiating prosecution. The records from the Assistant Registrar of Companies confirmed that the petitioner ceased to be a Director from 18.11.1998, which was before the Regulations came into effect in 1999.The Court held that the respondent's failure to verify the petitioner's Directorship status before prosecution rendered the case unsustainable. It was emphasized that the respondent should have independently verified the Directorship information instead of solely relying on the company's response. Consequently, the criminal original petition was allowed, and the case against the petitioner was quashed in C.C.No.37 of 2004.