[SEBI Act] Exoneration In Regulatory Proceedings Only Bars Prosecution When There Is Finding Of Innocence: Bombay High Court

The Bombay High Court has held that discharge from prosecution under the SEBI Act cannot be claimed merely on the ground that an adjudicating officer of SEBI has not imposed a penalty or passed any adverse directions. The Court ruled that exoneration in regulatory proceedings will bar criminal prosecution only when there is a clear and categorical finding of innocence on the merits, and not otherwise.Justice Amit Borkar was hearing a criminal revision application, filed challenging the rejection of the applicant's discharge application by the Special Court under the SEBI Act. The applicant argued that the adjudicating officer of SEBI, by order dated 20 April 2023, had not imposed any penalty or adverse direction against him, which amounted to exoneration on merits. The Court rejected this contention, noting that the adjudication order itself contained adverse observations against the applicant. The Adjudicating Officer had recorded that the applicant, being CEO, actively participated in the asset collection drive through which client securities were pledged without consent, failed to exercise due diligence expected of a senior official, and did not raise concerns regarding large-scale borrowing of securities. These findings, the Court held, negate any claim of complete exoneration. The absence of a penalty, it observed, cannot be equated with a declaration of innocence.“… the order does not contain any clean declaration of innocence. It does not state that the applicant had no role in the misconduct. Instead, it reflects negligence and lack of diligence on his part in discharging his duties as a person in charge of the company's affairs,” the Court observed. The Court further observed that departmental or regulatory findings do not automatically bind criminal proceedings, except where the adjudicating authority records a clear conclusion that the allegations were wholly baseless. It observed:“The Adjudicating Officer has not held that the allegations against the applicant were baseless or unsustainable. The order only refrains from imposing a penalty but does not absolve him of responsibility under the SEBI framework.”The Court further observed that under Section 27(1) of the SEBI Act, liability attaches to every person in charge of and responsible for the conduct of the company's business when the offence occurred. It was not necessary to show direct involvement in the wrongful acts. Since the applicant was CEO at the relevant time and material such as inspection reports, forensic audit, and NSE findings disclosed prima facie complicity, sufficient grounds existed to proceed against him. Accordingly, the Court dismissed the revision application and upheld the order of the Special Court.Case Title: Rajiv Ranjan Singh v. Securities and Exchange Board of India & Anr. [Criminal Revision Application No. 370 of 2024]Click Here To Read/Download Order

[SEBI Act] Exoneration In Regulatory Proceedings Only Bars Prosecution When There Is Finding Of Innocence: Bombay High Court

Saksham Vaishya

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