[Amarpal Singh Dua is an Advocate practising before the Supreme Court of India]
In the Union Budget 2021–22, Finance Minister Nirmala Sitharaman proposed a unified Securities Markets Code (“Code“) aimed at consolidating all existing securities laws into a rationalized and updated framework. In July 2023, she announced that the groundwork was complete and that the Code would soon become a reality.
While the forthcoming Code is expected to streamline compliance and regulatory mechanisms, there is an urgent need for the Central Government to also reconsider provisions governing criminal prosecution under the Securities and Exchange Board of India Act, 1992 (“SEBI Act“). Under the current framework, an accused may face multiple criminal trials under different statutes and by different investigating agencies for offences arising from the same transaction or act. This post proposes the creation of a cohesive framework to rationalize such overlaps.
Status Quo
Under the SEBI Act, a court may take cognizance of offences relating to SEBI violations or non-payment of penalties only upon a complaint filed by SEBI. All such offences are tried exclusively by special courts constituted under the SEBI Act. These courts are equivalent to sessions courts and follow procedures prescribed under the Code of Criminal Procedure, 1973 (“CrPC“) or the Bharatiya Nagarik Suraksha Sanhita, 2023 (“BNSS“), with the prosecuting authority deemed to be a public prosecutor.
The interplay between the SEBI Act and other penal statutes was clarified by the Punjab and Haryana High Court in Pippal Singh v. State of Haryana. To illustrate: a person incorporates a company that operates a chit fund business without registering under the Chit Funds Act, 1982, and without obtaining SEBI registration to operate a collective investment scheme (“CIS“) under the SEBI (Collective Investment Schemes) Regulations, 1999. Further, the individual misappropriates public funds. In such a case, both the individual and the company may face liability under the SEBI Act, the Chit Funds Act, and general penal provisions such as cheating under the Indian Penal Code, 1860 (“IPC“) or the Bharatiya Nyaya Sanhita, 2023 (“BNS“).
In such scenarios, SEBI may independently file a criminal complaint for offences under its jurisdiction to be tried by the special court. Simultaneously, state police authorities may initiate prosecution under the Chit Funds Act and IPC/BNS provisions, resulting in parallel proceedings.
In Kanwarpal Singh v. State of Uttar Pradesh, the Supreme Court held that section 26 of the General Clauses Act, 1897 permits prosecution under multiple laws for the same act, and that such prosecution is not barred by the doctrine of double jeopardy.
Challenges in the Current Framework
Despite these legal provisions, the SEBI Act in its present form suffers from significant limitations:
- It lacks mechanisms for coordination between various investigating agencies.
- It does not empower special courts constituted under the SEBI Act to try offences beyond those specified under the Act itself.
This fragmented approach often leads to multiple parallel investigations and proceedings based on the same set of facts. Such duplication not only creates procedural confusion and the risk of contradictory findings but also leads to unnecessary wastage of public resources.
In T.T. Antony v. State of Kerala, the Supreme Court held that multiple first information reports (“FIRs”) for the same incident are impermissible and that the High Court may quash any subsequent FIR to prevent duplicative proceedings. The Court emphasized the need to avoid parallel investigations arising out of the same transaction or act to maintain judicial clarity and efficiency.
However, this principle is not readily applicable when multiple FIRs are initiated by different agencies established under special enactments, as clarified by the Supreme Court in Abhishek Singh Chauhan v. Union of India. The Court observed that offences under general criminal laws can be tried separately from offences under specialized statutes by distinct agencies unless specific legislative coordination mechanisms are provided.
The Way Forward : A Comparative Approach
To resolve these issues, the SEBI Act should adopt a framework akin to that under the Companies Act, 2013, specifically relating to investigations by the Serious Fraud Investigation Office (“SFIO“) under sections 212 and 436 thereof.
Under Section 212 of the Companies Act:
- Once the SFIO is directed to investigate the affairs of a company, no other investigative agency is permitted to initiate or continue an investigation into offences under the Companies Act, or any offence directly or indirectly related to such offences.
- Ongoing investigations by other agencies concerning such matters must be transferred to the SFIO.
- Section 17(a) requires any agency, before which a related case emerges, to transfer all information and documents to the SFIO.
- Section 17(b) mandates the SFIO to share evidence of any offence under other laws with the appropriate agencies.
In Ashish Bhalla v. State (NCT of Delhi), the Delhi High Court interpreted section 212 to hold that once the SFIO assumes jurisdiction, parallel proceedings by other agencies such as the Economic Offences Wing (EOW) are impermissible, even if the offences fall under general criminal law like the IPC. The Court also emphasized that the SFIO could investigate IPC offences arising from the same transaction. Section 436 further empowers the special court to try offences under other statutes if they are connected to the facts under investigation.
If a similar framework were incorporated into the SEBI Act:
- SEBI would be empowered to investigate offences under the IPC/BNS that arise from the same set of facts.
- The special courts under the SEBI Act would be vested with jurisdiction to try related offences under other laws.
- This would ensure procedural efficiency, prevent duplication of proceedings, and promote judicial clarity.
Divergence in Judicial Interpretation
While the Companies Act model provides an effective solution, a contrary view has been taken by the Securities Appellate Tribunal (“SAT“) in Seashore Securities Ltd. v. SEBI. The SAT observed that the bar under section 212 does not apply to SEBI because SEBI is a regulator, not an investigative agency. This interpretation, however, warrants serious reconsideration. It undermines the broader legislative intent of streamlining proceedings to avoid multiplicity and conflicts.
Conclusion
The interpretation rendered by the SAT should not hinder the adoption of a more unified and coherent enforcement mechanism under the SEBI Act. With the judicial system already burdened by systemic delays and procedural complexities, the introduction of the Securities Markets Code presents an invaluable opportunity to redefine SEBI’s procedural and enforcement powers.
A streamlined approach, modelled on the Companies Act’s SFIO provisions, would enhance regulatory effectiveness, prevent wastage of judicial resources, and ensure that justice is administered efficiently and consistently. It is, therefore, imperative for the legislature to seize this moment to bring about these much-needed reforms.
– Amarpal Singh Dua
