SEBI Special Court Must Hear Accused Before Taking Cognizance Of Complaint Under BNSS: Bombay High Court

The Bombay High Court on 15 July held that a Special Court constituted under the Securities and Exchange Board of India Act, 1992 cannot take cognizance of offences on a complaint filed by the Securities and Exchange Board of India (SEBI) without first providing the accused an opportunity of hearing under the first proviso to Section 223(1) of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS), which mandates a pre-cognizance hearing in complaint cases.

Justice N.J. Jamadar quashed an order of the SEBI Special Court taking cognizance of a complaint under Section 24(2) of the SEBI Act against Neville Tuli, a former director of Osian's Connoisseurs of Art Private Limited. He held:

“In the absence of any special procedure in the special statute in regard to a particular matter pertaining to the investigation, inquiry or trial of a special offence; be it the act of taking cognizance of the offence or the trial, the procedure under the BNSS, 2023 shall apply automatically as a default procedure enshrined by the general law governing the Criminal Procedure.”

SEBI had earlier held that Osian's Art Fund was an unregistered Collective Investment Scheme operating in violation of the SEBI Act and directed the company to refund investors' money with interest.

After the company's challenge to the refund direction failed before the Securities Appellate Tribunal and the Supreme Court, SEBI initiated prosecution against its directors. As the company was undergoing Corporate Insolvency Resolution Process, the complaint was filed only against the directors before the Special Court, which took cognizance and issued process against them.

Before the High Court, Tuli contended that the Special Court had violated the mandatory requirement under the first proviso to Section 223(1) of the BNSS by taking cognizance without first granting him an opportunity of hearing. SEBI argued that the requirement was not applicable to proceedings before a Special Court under the SEBI Act, as such courts are deemed to be Courts of Session.

Rejecting SEBI's contention, the Court observed that Section 4(2) of the BNSS makes the provisions of the Code applicable to offences under special statutes unless the special enactment prescribes a different procedure. It noted that while the SEBI Act provides that cognizance can be taken only on a complaint made by SEBI and provides for the constitution of Special Courts, it does not prescribe any special procedure governing the manner in which cognizance is to be taken.

It also referred to Section 26-D of the SEBI Act, and observed that the provision expressly applies the BNSS to proceedings before the Special Court unless otherwise provided under the Act. The Bench observed:

“A correct reading of Section 26-D of the SEBI Act, 1992 would indicate that, for the purpose of proceedings before a Special Court, the Special Court shall be deemed to be a Court of Session. Save the aforesaid, there is nothing in Section 26-D to suggest that, the rest of the provisions of BNSS, 2023, in regard to taking cognizance of the offences do not apply to the complaints under the SEBI Act, 1992.”

Further, the Court distinguished the judgments relied upon by SEBI under the Negotiable Instruments Act and the West Bengal Criminal Law Amendment Act, observing that those statutes contained overriding provisions that were absent in the SEBI Act.

Relying on Supreme Court decisions under the Prevention of Money Laundering Act (PMLA), it observed that the provisions governing Special Courts under the PMLA were materially similar to those under the SEBI Act. It noted that the Supreme Court had held that the first proviso to Section 223(1) of the BNSS, which requires a hearing before cognizance is taken, applies to complaints under the PMLA. The Bench stated:

“This Court does not find that, there is a significant textual difference in the provisions contained in PML Act, 2002 and SEBI Act, 1992 in the matter of the manner of taking cognizance of the offences. In the absence of any contrary intent evincible from the SEBI Act, 1992, the first proviso to Section 223(1) would also govern the complaint for the offences punishable under the SEBI Act, 1992.”

Accordingly, the High Court allowed the writ petition, quashed the order taking cognizance and issuing process, and directed the Special Court to provide Tuli an opportunity of hearing before passing a fresh order on cognizance in accordance with law.

For Petitioner: Advocates Vyapak Desai, Manish Bohra and Ansh Bohra

For Respondents: Senior Advocate Sudeep Pasbola and Advocates Rajan Gurnani, Janki Patil, Sachin Mishra, Umang Arya and D.J Haldankar, APP