INTRODUCTION
The Bombay High Court in Manoj Gokulchand Seksaria vs The State of Maharashtra, Crl WP No. 245 of 2020 held explicitly that in cases involving serious economic offences, settlement of adjudication proceedings with the Securities and Exchange Board of India (SEBI) cannot absolve an accused from criminal liability. The Court reiterated that payment of settlement fees under SEBI’s consent mechanism cannot be a basis for quashing criminal proceedings launched by the CBI for alleged IPO manipulation. The Division Bench of Justice A.S. Gadkari and Justice Ranjitsinha Raja Bhonsale reiterated that serious offences affecting market integrity can no longer be considered as a private dispute and the Court held that even its regulatory settlement by SEBI cannot by itself put an end to the criminal proceedings.
BACKGROUND
The origin of the instant case could be traced back to the complaint filed by the SEBI to the CBI with respect of certain illegal acts/offences which had been committed in respect of the Initial Public Offerings (IPO’s) of Yes Bank Limited (YBL) and Infrastructure Development Finance Corporation (IDFC). Two criminal complaints were registered in which the accused was the Petitioner herein. The prosecution story was that the Petitioner along with several others pursuant to a criminal conspiracy, opened accounts in the name of fictitious persons and applied for shares. The said illegally cornered shares were then transferred to the accounts of some the accused including the Petitioner and then sold in the market at substantial higher prices. The said illegal acts ensured unjust profit and wrongful gain for the Petitioner and other accused at the cost of the retail investors and by abusing the IPO process/system. The alleged acts involved forgery, conspiracy, market manipulation, and misuse of the IPO allotment system, with assistance from certain public-sector bank officials.
Subsequently, SEBI initiated civil and administrative proceedings against the Petitioner, issuing several notices and interim orders. In 2009, the Petitioner’ consent application was considered by the High Powered Advisory Committee, of SEBI, which recommended for settlement and directed the Petitioner to disgorge a sum of Rs.2,25,70,864/- and the same was remitted by him. The Petitioner has approached the Hon’ble High Court by way of a Writ Petition for the quashing of CBI prosecutions arising from alleged manipulation in the IPOs of Yes Bank and IDFC.
KEY POINTS
- The Bombay High Court upon considering the facts stated and arguments advanced, observed that the present case deals with the accused including the Petitioner who have sought to enrich themselves by depriving the small investors of their opportunity to invest in the IPO. The acts of the accused are actual public wrongs or offences committed against society. There is a clear element of criminality, illegal self-gratification at the cost of the small investor/public, done by way of a planned conspiracy to defeat the system, the IPO mechanism. Fictitious loan applications were made, monies availed and used.
- It was observed that this is a crime against the society and societal well-being. The facts of the present case amount to and are akin to a financial fraud and fall within the ambit of social wrong and having an adverse societal impact. The role attributed to the petitioner cannot be put in the category of an individual or personal wrong. Prima facie, it is a conspiracy, to get personal gain at the cost of society, the victim being the small retail investor who lost their opportunity to invest in an IPO.
- Further, 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 set a wrong precedent. The reason being that criminal prosecution can be classified into 2 categories, first a criminal prosecution subsequently arises out of a pure civil dispute/civil litigation and the second category which is a criminal offence having the criminality or criminal intent since its inception. The present case clearly falls in the second category which ought not to be quashed.
- The Bombay High Court premised its judgment upon the Supreme Court’s precedents including Anil Bhavarlal Jain & Anr. Vs. The State of Maharashtra & Ors., 2024 SCC OnLine 3823 and Dinesh Sharma V/s. Emgee Cables and Communications Ltd. & Anr, 2025 LiveLaw (SC) 492 which held that the unfettered powers conferred by CrPC under Section 482 is expected to be used very sparingly and only in exceptional circumstances. Each case is required to be dealt with on its own merits. As the present case also invokes certain sections of the Prevention of Corruption Act, 1988 and sections of the Indian Penal Code including section 120B i.e criminal conspiracy, To quash the proceedings in the instant case would let the entire community be aggrieved.
RECENT DEVELOPMENTS
The Division Bench of the Bombay High Court held that 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 gravity and magnitude attached to these offences is concentrated on the public at large. The Court reiterated that quashing the present criminal prosecutions would in fact tantamount to an absolute abuse of process of law.
CONCLUSION
It could be concluded that this judgment is undeniably a glaring example that warns against letting economic offenders escape scrutiny through settlements. The judgement is in line with the broader public interest in prosecuting crimes that undermine financial markets, distort investor rights, and involve systemic abuse of regulatory processes.
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WRITTEN BY : AMYUKTA RAJAGOPAL
