Case Note & Summary
The High Court of Karnataka heard two criminal petitions filed under Section 482 CrPC seeking quashing of proceedings in C.C.No.116/2016 pending before the Special Court for Economic Offences, Bengaluru. The petitioners were accused in a complaint filed by the Securities and Exchange Board of India (SEBI) for alleged violations of the SEBI (Prohibition of Insider Trading) Regulations, 1992. The complaint alleged that the company and its directors had engaged in insider trading. The petitioners argued that the complaint was not maintainable as it was not filed by an authorized officer and lacked the requisite sanction under Section 195 CrPC. They also contended that there were no specific allegations against the directors to attract vicarious liability. The court examined the provisions of the SEBI Act, 1992, particularly Sections 24(1) and 27, and the SEBI (Prohibition of Insider Trading) Regulations, 1992, specifically Regulations 13(2) and 13(3). The court held that the complaint was not filed by an officer duly authorized by SEBI, and the sanction required under Section 195 CrPC was not obtained. Consequently, the proceedings were quashed as an abuse of the process of law. The court also noted that the directors could not be held vicariously liable without specific averments of their involvement. The petitions were allowed, and the criminal proceedings were quashed.
Headnote
A) Criminal Procedure Code - Quashing of Proceedings - Section 482 CrPC - Abuse of Process - Complaint filed by SEBI for insider trading violations - Held that proceedings are liable to be quashed as the complaint was not filed by an authorized officer and lacked valid sanction under Section 195 CrPC (Paras 10-15). B) Securities Law - Insider Trading - SEBI (Prohibition of Insider Trading) Regulations, 1992 - Regulations 13(2), 13(3) - Vicarious Liability - Directors cannot be held liable without specific averments of their role in the alleged violation - Held that the complaint did not disclose any specific role of the directors (Paras 16-20). C) Securities Law - Prosecution - SEBI Act, 1992 - Sections 24(1), 27 - Sanction for Prosecution - Section 195 CrPC - Complaint must be filed by an officer authorized by SEBI - Held that the complaint was not validly instituted (Paras 10-15).
Issue of Consideration
Whether the criminal proceedings against the petitioners for alleged violation of SEBI (Prohibition of Insider Trading) Regulations, 1992 are liable to be quashed for want of valid sanction under Section 195 CrPC and for lack of specific allegations against the directors.
Final Decision
The criminal petitions are allowed. The entire proceedings in C.C.No.116/2016 pending on the file of the Special Judge, Economic Offences Court, Bengaluru, are quashed.
Law Points
- Sanction under Section 195 CrPC is mandatory for prosecution under SEBI Act
- 1992
- Complaint by SEBI must be filed by an authorized officer
- Directors cannot be vicariously liable without specific averments
- Quashing under Section 482 CrPC for abuse of process
