TaxTMI 
TaxTMI 
2025 (11) TMI 189
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....iation of prosecution in violation of the provisions contained in the Securities Contract (Regulation) Act, 1956. 3. The background facts can be stated, in brief, as under : 3.1 On 6 October 2025, DCB, CID Police, pursuant to an intimation that illegal trading in securities, without authorization of the NSE/BSE, was being carried out at Room No.4, Dwarkesh Co-op. Hsg. Soc. Ltd., Kandivali (W), Mumbai, called the officers of the NSE, including the first informant. Accompanied by the officers of the NSE and panch witnesses, a raid was conducted at the aforementioned premises. It was found that the Petitioner Nos. 2 and 3 were engaged in trading in securities on a website Vertexexch.net on the instructions of Petitioner No. 1. 3.2 It further transpired that, one Jack @ Raju was the Admin of the said website. The Petitioner No. 1 had subscribed to the said website. The Petitioner No. 1 was made a sub-broker. Username and password were given to the Petitioner No. 1. On the strength of the said username and password, the Petitioner No. 1 was engaging in unauthorized trading in stocks. There were around 22 clients of the Petitioners. Brokerage @ 0.33% was charged on the transacti....
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....ble under Section 318(4) of BNSS of 2023 entails punishment which may extend to seven years. In this view of the matter, it was incumbent upon the Investigation Officer to comply with the mandate contained in Section 35(3) of BNSS of 2023. Admittedly, no notice as envisaged by Section 35(3) of the BNSS of 2023, was issued to the Petitioners. On the contrary, the material on record would indicate that, post haste the Petitioners were arrested and produced before the learned Magistrate. 6. Ms. Kulkarni would urge, in view of the decisions of the Supreme Court in the cases of Arnesh Kumar (supra) and Satender Kumar Antil (supra), it is the duty of the Magistrate while authorizing detention of the accused to examine whether there is compliance of the provisions contained in Section 35(3) of BNSS of 2023 (Section 41-A of the Code, 1973). The Magistrate is not expected to authorize the detention of the accused casually and mechanically. 7. Secondly, Ms. Kulkarni submitted that the initiation of the prosecution itself suffered from manifest illegality. A very strong reliance was placed by Ms. Kulkarni on a judgment of this Court in the case of Khanhaiya Ramchand Thawrani V/s. State ....
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....ukh would urge, the judgment of this Court in the case of Khanhaiya R. Thawrani (supra), has been assailed before the Supreme Court and the Petition is pending. 13. The gravamen of indictment against the Petitioners is that the Petitioners entered into transactions in securities without being a member of the recognized stock exchange and without authorization envisaged by the provisions of the Act, 1956. In effect, the Petitioners indulged in illegal trading in securities. Section 23 of the Act, 1956, provides for penalties for acts or omission in relation to trading in securities in breach of the provisions of the said Act and the rules or bye-laws of the stock exchange. 14. In the case at hand, FIR does not refer to any of the offences allegedly committed by the Petitioners in contravention of the provisions of the Act, 1956, though the FIR was lodged by the legal officer of NSE. Instead, FIR proceeds on the premise that the accused have committed criminal breach of trust and cheating. 15. It is trite, the offences of criminal breach of trust and cheating may not be attracted in the same set of facts. The ingredients of the offences of criminal breach of trust and cheati....
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....the indictment against the Petitioners is that they were trading in securities, unauthorizedly. The Securities Contracts (Regulation) Act, 1956, was enacted to prevent the undesirable transactions in securities, by regulating business of dealings therein and to regulate the securities market. Section 23 of the Act, 1956, provides for penalties for the contravention of the provisions of the Act, Rules and Bye-laws of the stock exchange. 20. Relevant part of Section 23 reads as under : "23. Penalties.-(1) Any person who- .......... (e) owns or keeps a place other than that of a recognised stock exchange which is used for the purpose of entering into or performing any contracts in contravention of any of the provisions of this Act and knowingly permits such place to be used for such purposes; or (f) manages, controls, or assists in keeping any place other than that of a recognised stock exchange which is used for the purpose of entering into or performing any contracts in contravention of any of the provisions of this Act or at which contracts are recorded or adjusted or rights or liabilities arising out of contracts are adjusted, regulated or en....
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.... Special Courts as may be necessary. (2) A Special Court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working. (3) A person shall not be qualified for appointment as a judge of a Special Court unless he is, immediately before such appointment, holding the office of a Sessions Judge or an Additional Sessions Judge, as the case may be. 26-B. Offences triable by Special Courts.- Notwithstanding anything contained in the Code of Criminal Procedure, 1973(2 of 1974), all offences under this Act committed prior to the date of commencement of the Securities Laws (Amendment) Act, 2014 or on or after the date of such commencement, shall be taken cognizance of and tried by the Special Court established for the area in which the offence is committed or where there are more Special Courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned. 26-D. Application of Code to proceedings before Special Court.-(1) Save as otherwise provided in this Act, the provisi....
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....ecurities Act ?" 25. After an extensive analysis of the provisions contained in the Act, 1956 and the Code of Criminal Procedure, 1973 and the provisions analogous to the provisions contained in the Act, 1956, the learned Single Judge answered the questions as under : "39. The result of the above discussion would lead to the following conclusions, which answer the questions formulated in this order thus: (a) Complaint alleging commission of any offence punishable under Section 23 of the Securities Act can be filed only by the Central Government or the State Government or the SEBI or recognized stock exchange or by any person, who falls in the same category as the category of the authorities mentioned in Section 26 or who is a person affected by contravention of the provisions of the Securities Act. (b) Filing of a complaint by an authority or a person contemplated by Section 26 of the Securities Act, is sine qua non for setting the law in motion. (c) No authority has been given under the Securities Act, to a police Officer of any rank to file a complaint under Section 26 of the Securities Act. (d) A Police Officer can neither make inv....
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....n to the offences under this Act. Section 25 of the Securities Act, however, is not on the procedure but on the nature of offences, with which we shall deal later on. But Sections 26A and 26D are about procedure only. They lay down that offences under the Securities Act shall be triable only by Special Courts and restrict applicability of provisions of the Cr.P.C. only to the extent that they are not inconsistent with the provisions of the Securities Act. 14. So, this procedure being special in nature would prevail upon the procedure prescribed under the provisions of the Cr.P.C. Section 26D of the Securities Act clearly lays down that except as otherwise provided in the Act, the provisions of the Cr.P.C. shall apply to the proceedings before the Special Court. Section 4(2) of the Cr.P.C. also lays down that generally all offences under any other law shall be investigated, inquired into, tried and otherwise dealt with, according to the provisions of the Cr.P.C., but subject to any enactment for the time being in force regulating the manner or place of investigating, inquiring into, trying or otherwise dealing such offences. These two provisions are enough for one to unders....
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....ase of any offence under the Securities Act would not arise. It would then follow that filing of a complaint by a competent authority or a person in terms of Section 26 of the Securities Act first is a sine quo non for setting the law in motion and making inquiry or investigation into the offences alleged to be committed under the provisions of this Act." (emphasis supplied) 28. In the backdrop of the aforesaid enunciation of law, when all the acts attributed to the Petitioners, taken at their face value, fall within the tentacles of the offences defined and punishable under Section 23 of the Act, 1956, the initiation of the prosecution for those very acts under the provisions of Sections 318(4) and 316(2) of the BNSS, 2023, on the premise that those acts amount to criminal breach of trust and cheating, prima facie, appears clearly unsustainable. 29. A useful reference in this context can be made to a judgment in the case of Ram Nath V/s. State of Uttar Pradesh and Ors. (2024) 3 SCC 502, wherein in the context of the provisions contained in Food Safety and Standards Act, 2006, the Supreme Court examined the interplay between the provisions of Chapter IX of FSSA and Sections 2....