TaxTMI 
TaxTMI 
TaxTMI 
2025 (9) TMI 762
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.... circulars issued under Section 11 of the SEBI Act, 1992, and further read with Sections 193 and 200 of the Code of Criminal Procedure, 1973. 3. Accused No. 1, Karvy Stock Broking, was registered as a stockbroker and as a Depository Participant with SEBI. It was also registered with NSE, BSE, NSDL, and CDSL. Accused No. 2 was the Managing Director and promoter of the company. The present applicant, Accused No.5, was its Chief Executive Officer. All these persons were in charge of and responsible for the conduct of the business of Accused No. 1 at the relevant time when the alleged offence took place. 4. It is alleged that Accused No. 1 unauthorizedly pledged and misused its clients' securities and funds. Such acts were in clear violation of the circulars issued by SEBI from time to time. The company failed to exercise due skill, care, and fairness towards its clients, indulged in malpractices, and thereby violated statutory requirements under Clauses A(1) to A(5) of the Code of Conduct under Schedule II read with Regulation 9 of the SEBI (Stock Brokers) Regulations, 1992. The further allegation is that Accused No. 1, being an intermediary, entered into transactions including ....
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....cluding the applicant who was then serving as its Chief Executive Officer. 10. Learned Advocate for the applicant submitted that the allegations in the complaint have already been adjudicated by the Whole Time Member of SEBI by order dated 20 April 2023. In that order, no penalty was imposed and no adverse direction was issued against the applicant. According to him, this amounts to exoneration of the applicant on merits. He argued that the learned Special Judge failed to appreciate that the applicant was neither in de facto control nor a key managerial person in charge of the business of KSBL. Hence, he cannot be held liable for prosecution under Section 27(2) of the SEBI Act. He relied upon the judgment of the Supreme Court in Radheshyam Kejriwal vs. State of West Bengal & Ors., (2011) 2 SCC 943, particularly paragraph 19(vii), which states: "In case of exoneration on merits where the allegations are found to be not sustainable at all and the person is held innocent, criminal prosecution on the same set of facts and circumstances cannot be allowed to continue, the underlying principle being the higher standard of proof in criminal cases." 11. On this basis, he subm....
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.... corporate brokerage firm of KSBL's size. 13. She further submitted that the reasons assigned by the Special Court are correct. The applicant was working as Chief Executive Officer and was therefore responsible for the affairs of the company. Under Section 27(1) of the SEBI Act, every person who, at the time the offence was committed, was in charge of and responsible for the conduct of the business of the company is deemed guilty and liable for prosecution. The applicant, being CEO, was responsible for day-to-day management and cannot escape liability. 14. In support, she relied upon the judgments of the Supreme Court in Air Customs Officer, IGI New Delhi vs. Pramod Kumar Dhamija, (2016) 4 SCC 153, and Videocon Industries Limited vs. State of Maharashtra, (2016) 12 SCC 315. In Pramod Kumar Dhamija, it was held that exoneration does not bar prosecution if it is not on merits or if relevant material was not considered. The Court observed that the accused in that case was not found completely innocent. She therefore submitted that the order of the Special Court rejecting the discharge application is proper, since a prima facie case has been made out against the applicant. 15.....
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....nsustainable and the person is innocent, then criminal prosecution on the same set of facts cannot be allowed to continue. 20. It is thus clear that exoneration in departmental or regulatory proceedings will bind criminal prosecution only in very limited situations. Three conditions must be satisfied. First, the adjudicating authority must have examined all the facts and evidence in detail and given a clear finding. An order passed only on technicalities like limitation or jurisdiction cannot bar prosecution. Second, there must be a clear conclusion that the allegations were wholly baseless or not proved at all. Third, the order must contain a clean declaration of innocence, holding the person not guilty of the misconduct. A mere absence of penalty or grant of benefit of doubt does not amount to exoneration on merits. 21. Applying these principles to the present case, it is seen that the adjudication order dated 20 April 2023 does not contain any detailed finding of innocence. On the contrary, paragraphs 126 and 127 of the order note that the applicant actively participated in the asset collection drive and, as Chief Executive Officer, failed to exercise the diligence expecte....
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....er of the company, had taken part in the asset collection drive, and failed to act with the diligence expected from a person holding his position. These observations do not amount to exoneration; rather, they indicate responsibility. 25. In fact, in the present case, the applicant was the Chief Executive Officer at the relevant time. The adjudication order itself records that he actively participated in the company's activities and failed to take the caution expected from him. These findings support, and do not negate, the statutory presumption of liability under Section 27(1) of the SEBI Act. 26. Thus, the contention that the applicant stands exonerated is without any merit. Exoneration in regulatory proceedings can bar prosecution only where there is a categorical finding of innocence on merits. That is not the situation here. On the contrary, the findings point to lapses attributable to the applicant. Therefore, prima facie liability under Section 27(1) stands attracted. 27. It is also well settled that at the stage of discharge under Section 227 of the Code of Criminal Procedure, the Court is not expected to go into the details of the evidence or conduct a minitrial. T....