Prior regulatory exoneration does not bar prosecution unless innocence is clearly found on merits and the record discloses no prima facie case.

Prior regulatory exoneration bars criminal prosecution only when the earlier adjudication contains a clear, categorical finding on merits that the allegations are wholly unsustainable and the accused is innocent. A mere absence of penalty, or findings limited to narrow aspects, is not enough. Here, the adjudication order did not record a clean finding of innocence and instead referred to the applicant's participation in the company's activities and lack of due diligence as chief executive officer. At the discharge stage, the court needed only to see whether sufficient grounds existed to proceed, and the complaint material disclosed a prima facie case. Discharge was therefore refused.

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Issues: Whether the applicant was entitled to discharge on the ground that the adjudication order amounted to exoneration on merits and, consequently, whether the material disclosed sufficient grounds to proceed against him under Section 27(1) of the Securities and Exchange Board of India Act, 1992.

Analysis: Exoneration in adjudication or departmental proceedings bars criminal prosecution only in a narrow category of cases where there is a clear, categorical finding on merits that the allegations are wholly unsustainable and the person is innocent. A mere absence of penalty, or observations confined to limited aspects, does not amount to such exoneration. The adjudication order relied upon by the applicant did not contain a clean finding of innocence; instead, it recorded circumstances indicating his participation in the company's activities and a lack of diligence expected from a chief executive officer. At the stage of discharge, the court is required only to see whether there are sufficient grounds to proceed, and a strong suspicion founded on the complaint and supporting material is enough to frame charges.

Conclusion: The applicant was not entitled to discharge. The adjudication order did not bar the prosecution, and the material disclosed a prima facie case for proceeding against him under Section 27(1) of the Securities and Exchange Board of India Act, 1992.

Ratio Decidendi: Criminal prosecution is barred by prior regulatory exoneration only when the earlier adjudication records a clear finding on merits that the allegations are wholly baseless and the accused is innocent; otherwise, discharge cannot be granted if the record discloses a prima facie case or strong suspicion.

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