Vicarious liability under SEBI law requires proof of control over company affairs, and defective Section 313 questioning can vitiate conviction.

Vicarious liability under Section 27 of the SEBI Act, 1992 requires proof that the accused were in charge of and responsible for the company's business at the relevant time, or otherwise attracted the statutory deeming provision through neglect; absent evidence of any substantive role or supporting material showing responsibility for the company's affairs, liability cannot be fastened. Proper examination under Section 313 of the CrPC also requires that all material incriminating circumstances be fairly put to the accused so they can explain them; a mechanical or incomplete questioning process that leaves prejudicial evidence unaddressed can amount to serious procedural unfairness and vitiate the conviction.

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Issues: (i) Whether the appellants could be held liable under Section 27 of the SEBI Act, 1992 for the offence under Section 24(2) in the absence of proof that they were in charge of and responsible for the conduct of the company's business at the relevant time; (ii) Whether the conviction was vitiated because the material incriminating circumstances were not properly put to the accused in their examination under Section 313 of the Code of Criminal Procedure, 1973.

Issue (i): Whether the appellants could be held liable under Section 27 of the SEBI Act, 1992 for the offence under Section 24(2) in the absence of proof that they were in charge of and responsible for the conduct of the company's business at the relevant time.

Analysis: Liability under Section 27 depends on proof that, at the time of the contravention, the concerned persons were in charge of and responsible to the company for its business, or otherwise attracted the deeming provision on account of neglect. The evidence relied upon did not establish any substantive role of the appellants in the company at the relevant time, and no supporting documentary material was produced to show that they were directors or otherwise responsible for the company's affairs when the alleged default occurred.

Conclusion: The prosecution failed to prove the statutory basis for fastening liability on the appellants under Section 27, so the conviction could not stand on this ground.

Issue (ii): Whether the conviction was vitiated because the material incriminating circumstances were not properly put to the accused in their examination under Section 313 of the Code of Criminal Procedure, 1973.

Analysis: The statutory purpose of Section 313 is to confront the accused with every material piece of evidence relied on by the prosecution and to afford a fair opportunity to explain it. Where this exercise is done mechanically and the material evidence is not clearly put to the accused, the resulting prejudice amounts to serious procedural unfairness and may occasion miscarriage of justice.

Conclusion: The examination under Section 313 was defective and prejudicial, further undermining the conviction.

Final Conclusion: The conviction and sentence were unsustainable in law, and the appellants were entitled to acquittal and release from the consequences of the trial court's judgment.

Ratio Decidendi: To attract vicarious liability under Section 27 of the SEBI Act, 1992, the prosecution must prove that the accused were in charge of and responsible for the company's business at the relevant time, and any failure to confront them with the material incriminating evidence under Section 313 of the Code of Criminal Procedure, 1973 can vitiate the conviction if prejudice is caused.

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