Criminal Court Can't Deal With Allegations Of Misappropriation Of Investor's Money By Share Broker, SEBI Act Prevails: Allahabad High Court
The Allahabad High Court has held that that by virtue of Section 26 of Securities and Exchange Board of India Act, 1992, which bars Court from taking cognizance regarding offences under the Act, the Trial Court cannot take cognizance of a case where broker is alleged to have misappropriated money of the investor. It was held that the SEBI Act being a special act will override IPC and...
The Allahabad High Court has held that that by virtue of Section 26 of Securities and Exchange Board of India Act, 1992, which bars Court from taking cognizance regarding offences under the Act, the Trial Court cannot take cognizance of a case where broker is alleged to have misappropriated money of the investor. It was held that the SEBI Act being a special act will override IPC and CrPC.
Justice Anish Kumar Gupta held,
“The SEBI Act is an Special Act, which shall prevail over the general act, such as I.P.C. or Cr.P.C. It is settled position of law that once a special Act holds the field, the provisions of general law would not apply and only the prosecution can be lodged in accordance with the provisions of such special law and the provisions of Section 26 of the SEBI Act, specifically.”
The Court also held that a person cannot be charged with the offence of criminal breach of trust under Section 409 IPC and the offence of cheating under Section 420 based on the same allegations as they operate in different fields.
Applicant is the Director/proprietor of M/s LDK Share and Securities Pvt. Ltd. An FIR was lodged against him both under Section 409 and 420 of IPC. It was alleged that applicant, being a share broker, had asked the opposite party to invest and trade in shares through his company and in return certain facilities would be provided to him. It was alleged that the applicant had not returned an amount of Rs. 9,69,450/- to the opposite party despite several demands. Subsequently, the FIR was lodged.
The criminal prosecution was challenged on grounds that the dispute between broker and an investor was covered under Section 15-F of Securities and Exchange Board of India Act, 1992 and therefore, must be proceeded as per SEBI Act. It was argued that criminal prosecution in such cases was not maintainable.
The Court observed that the opposite party entered into the investments knowing the risks involved and therefore, the offence of cheating was not made out against the applicant. It was held that the opposite party could not recover any money in criminal prosecution.
In Lalit Chaturvedi & Others vs. State of U.P. and Another, the Supreme Court had held that police cannot recover money or act as a civil court to recover money in criminal proceedings. The Apex Court highlighted the difference between Sections 420 and 406 IPC and held that same act cannot lead to both cheating and criminal breach of trust.
Relying on the decision of the Supreme Court in Lalit Chaturvedi & Others vs. State of U.P. and Another and Mohammed Ibrahim and Others vs. State of Bihar and Another, the Court held
“a person cannot be held responsible for the offence under Section 409 I.P.C. as well as Section 420 I.P.C. on the basis on the same allegations as both the offences are contradictory and operate in different fields altogether. In the case of cheating, dishonest intention must be present from the inception of the transaction, which is categorically missing in the instant case.”
It was held that the precondition for constituting the offence of criminal breach of trust, there has to be valid entrustment and subsequent misappropriation.
After holding that no case for cheating was made out, the Court held that no determined sum had been entrusted on the applicant by the opposite party. Since share market has its own risks, the Court held that there was no entrustment so as to constitute offence under Section 409/406 IPC.
“Thus, from the aforesaid judgement it is crystal clear that a person cannot claim to have entrusted any property to someone and at the same time he can also not say that he has been cheated by dishonest inducement to deliver the property. It can either be the entrustment or the cheating, however, it cannot be both.”
Accordingly, the entire criminal proceedings against the applicant were quashed.
Case Title: Jitendra Kumar Keshwani v. State Of U.P. And Anr [APPLICATION under Section 482 No. - 27298 of 2019]