Only SEBI Can Initiate Criminal Complaint For Front-Running Under SEBI Act: Bombay High Court

The Bombay High Court has reiterated that a criminal complaint for an offence under the SEBI Act can be initiated only by the Securities and Exchange Board of India (SEBI).

It ruled that a court cannot take cognizance of such an offence on the basis of an FIR lodged by a private complainant.

Justice Ranjitsinha Raja Bhonsale held that Section 26 of the SEBI Act bars a court from taking cognizance of an offence punishable under the Act unless the complaint is made by the SEBI Board.

“Considering the provisions of section 26 of the SEBI Act and the afore-noted pronouncements, it is clear that there is statutory bar against taking cognizance by the Court for the acts which are offences under the SEBI Act,” the court observed. “In a case which relates to the breach of the provisions of the SEBI Act and which is an offence under the SEBI Act, the Court can take cognizance only if the complaint is filed by the Board.”, the court ruled.

It added, "Even assuming that an ordinary citizen, who feels that an offence is committed against him or his financial interest, approaches police station for filing an FIR, it is incumbent on the police authorities in such cases to forward the said complainant/complaint to SEBI. It is then open and upto SEBI to take appropriate action in accordance with law."

The court applied this principle while quashing an FIR against Viresh Gangaram Joshi, who was the Chief Dealer at Axis Asset Management Company at the relevant time. The FIR concerned allegations that Joshi shared non-public information about impending large trades of Axis Mutual Fund to facilitate front-running.

The court did not adjudicate on the merits of the front-running allegations. It observed that the allegations prima facie related to an offence of front-running.

The FIR was quashed because the proceedings had been initiated contrary to the procedure prescribed under Section 26. The court held that the FIR in its current form was not maintainable.

The FIR was lodged by an investor who alleged that Joshi had caused financial losses through fraudulent acts while working as Chief Dealer at Axis Asset Management Company. According to the allegations recorded in the judgment, Joshi had access to non-public information about Axis Mutual Fund's trades and allegedly passed it on to other persons.

Those persons allegedly took positions before the Mutual Fund's large orders were executed. They later squared off those positions after the orders were placed, allegedly making wrongful gains.

The investigating agency's affidavit recorded trading patterns of “Buy-Buy-Sell” on the buy side and “Sell-Sell-Buy” on the sell side. The investigation compared the trades with 34 Axis Mutual Fund transactions identified through Deloitte's spike trade analysis.

SEBI had also issued an interim order-cum-show cause notice against Joshi on February 28, 2023, in connection with the alleged front-running transactions.

Joshi approached the high court seeking quashing of the FIR. He argued that the allegations essentially concerned front-running under the SEBI Act. His contention was that Section 26 required any criminal prosecution for such an offence to be initiated through a complaint by SEBI.

The Enforcement Directorate and the State opposed the plea. They contended that the investigation had disclosed prima facie material for offences under Sections 408, 420, 120B, and 34 of the IPC.

The court acknowledged the seriousness of the allegations. It observed that the possibility of the alleged conduct adversely affecting investors and the securities market could not be ruled out.

The court also observed that front-running involves the use of non-public information to make personal gains at the expense of investors. It described the alleged offence as being against the securities market mechanism and the system as a whole.

The court, however, held that the statutory procedure under the SEBI Act could not be bypassed.

“The SEBI Act being a Special Act shall prevail over the IPC (now BNS). The provisions of Special Law will take precedence,” the court observed.

It added that the general principle that anybody can set the criminal law in motion would have to give way to the procedure prescribed by the special law.

The court further held that if a person approaches the police alleging an offence under the SEBI Act, the police authorities should forward the complaint to SEBI. It would then be for SEBI to take appropriate action in accordance with law.

The court also clarified that it was not deciding whether independent offences under the general criminal law were made out. That question would have to be considered separately.

The court noted that although the FIR invoked several IPC provisions, the investigating agency had stated that Sections 408, 420, 120B, and 34 were made out. It did not examine those contentions at this stage because the immediate issue before it was the maintainability of the FIR under Section 26 of the SEBI Act.

The court also noted that Axis Mutual Fund had separately complained against Joshi on October 12, 2025, over his alleged misconduct as an employee. The investigating agencies had merged that complaint with the FIR.

The court said the possibility of an independent offence by Joshi against his employer could not be ruled out at that stage. It therefore permitted Axis Mutual Fund to take appropriate action in accordance with the law.

It also made clear that none of its observations amounted to an adjudication, or even a prima facie finding, on the merits of Axis Mutual Fund's complaint.

The court ultimately quashed the FIR registered at Sion Police Station. It left SEBI free to independently consider whether the allegations against Joshi, including those referred to in its February 28, 2023, interim order-cum-show cause notice, made out a criminal offence under the SEBI Act.

The court directed that necessary steps be taken in accordance with law within 12 weeks of SEBI receiving the order.

Axis Mutual Fund was also given liberty to file an independent complaint before SEBI or the appropriate forum. If it approaches SEBI, the regulator has been directed to take an appropriate decision within 12 weeks of receiving the complaint.

For Applicant: Senior Advocate S Nagmuthu, Advocates Shreyas Kaushal, Y Soma Srinath Reddy, Supriya Nair, Sakshi Kadam and Sunny Udasi

For State: Advocate S.V Walve, APP

For ED: Advocates Amit Munde and Jai Vohra