Settlement With SEBI Doesn't Shield Accused From Criminal Liability For Serious Economic Offences: Bombay High Court

The Bombay High Court on Friday held that settlement of adjudication proceedings with the Securities and Exchange Board of India (SEBI) cannot absolve an accused from criminal liability in cases involving serious economic offences. The Court said that paying disgorgement or settlement fees under SEBI's consent mechanism cannot be a basis for quashing criminal proceedings launched by the CBI for alleged IPO manipulation.

A Division Bench of Justice A S Gadkari and Justice Ranjitsinha Raja Bhonsale dismissed two writ petitions filed by Manoj Gokulchand Seksaria, who had sought quashing of CBI prosecutions arising from alleged manipulation in the IPOs of Yes Bank and IDFC between 2003 to 2004.

It said, "We are of the firm view that only because money has been paid, an accused cannot be exonerated from the criminal liability. To quash the criminal proceedings, exonerating the Petitioner from the criminal liability, on the ground that monies have been paid to the SEBI, under a consent Order, would be misplaced and set wrong precedent. This cannot and should not be allowed"

The court emphasized that serious economic offences affecting market integrity and retail investors cannot be treated as private disputes capable of settlement.

It observed “The facts of the case, the intent, criminality, the nature and gravity of the crime are all aspects which need to be considered. Heinous/serious offences, offences against the society, economic offences against the financial system cannot be quashed even if there is a settlement or a victim has been compensated.”

The CBI alleged that Seksaria and others created fictitious bank and demat accounts to corner shares meant for retail investors and later transferred the allotments to themselves for profit, with certain public sector bank employees allegedly aiding the scheme.

Seksaria argued that SEBI, being the original complainant, had already closed proceedings against him under a 2009 consent order, and he had paid over Rs 2.25 crore in disgorgement and settlement charges, rendering the criminal prosecutions redundant.

The CBI opposed the petitions, contending that the offences involved forgery, conspiracy, and systemic abuse of the IPO process, affecting the market and the investing public.

Dismissing Seskaria's plea, the court held that the SEBI consent order had no bearing on the criminal prosecution, which had already been instituted.

“The Consent Order dated 7th December, 2009 and the payments made by the Petitioner thereunder towards disgorgement and/or settlement charges do not in any manner whatsoever affect or impact the present criminal prosecution/proceedings,” the court said.

It said that in cases involving manipulation of this extent, the impact on society at large also needs to be kept in mind.“It cannot be that we are swayed away by the fact that a consent Order is passed and amounts are paid to SEBI. We also need to keep in mind the society at large and the impact thereon.”

Characterizing the conduct as deliberate and profit-driven, the court observed, “The acts have been committed with a deliberate design with an eye of personal profit or unjust enrichment regardless of the consequence on society at large.”

The court further warned against letting economic offenders escape scrutiny through settlements, “To quash the proceeding merely because payments are made to SEBI would be nothing short of unwarranted and misplaced sympathy. If the prosecution against the economic offenders are not allowed to continue, the entire community is aggrieved. Quashing the present criminal prosecutions would in fact tantamount to an absolute abuse of process of law.”

Finding no merit in the petitions, the court dismissed bothCase Title: Manoj Gokulchand Seksaria vs The State of Maharashtra

Case Number: Criminal Writ Petition No. 245 OF 2020

For Petitioners: Senior Advocate Aabad Ponda along with Advocates Jugal Kanani along with Rahul Pandey instructed by Advocate Alok Singh

For Respondents: Public Prosecutor M M Deshmukh aling with Additional Public Prosecutor Vinod Chate for State; Advocate Kuldeep Patil for CBI. 

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