Telangana High Court Refuses To Quash FIR Against Vikram Limaye & Priya Subbaraman In Anugrah Stock & Broking Case

Brief Facts of the case

The petitioners were the Managing Director & CEO and Chief Regulatory Officer of the National Stock Exchange. The de facto complainant, who was the Respondent in Criminal Petition alleged commission of a large scale fraud involving a conspiracy between the Petitioners and other entities to defraud investors like him. A complaint dated 30.12.2021 was filed with the Joint Commissioner of Police, Central Crime Station by defacto complainant. The said complaint came to be registered as FIR under Section 409 and 420 of the Indian Penal Code.

In the said FIR, the Petitioners were arraigned as Accused along with other Accused M/s. Anugrah Stock Broking Pvt. Ltd. (ASBPL), Mr. Paresh Kariya, Mr. Anil Gandhi, Edelweiss Custodial Services Ltd., and Central Depository Services Ltd.

The genesis of the alleged fraud revolved around the scheme run by ASBPL and its directors in which the complainant and his wife were induced to open a trading account with ASBPL and promised good profits and returns. Allegedly, a Power of attorney was obtained to let ASBPL to operate the trading and demat account of complainant. Subsequently, all their funds and securities were transferred to the demat account of the ASBPL.

It was alleged that the funds and securities deposited by complainant and his wife were misused by ASBPL. It owed a certain amount of money to its clearing agent Edelweiss and therefore, transferred the funds and shares of complainant to Edelweiss which in turn without the consent of complainant sold the shares in the open market.

With regards to the Petitioners (National Stock Exchange), it was alleged that they were aware of the fraud being committed by ASBPL and by failing to take action against ASBPL, Edelweiss, the Petitioners had conspired to commit the fraud.

The present criminal petition was filed seeking to quash FIR registered under Section 409 and 420 of the Indian Penal Code, 1860.

Contention of the Petitioners

The petitioners denied the allegations made in the impugned FIR stating that they were not involved in the day-to day activity and micro level management of the NSE relating to broker supervision and inspection. They did not interact with the brokers and were not involved in the trades done. Furthermore, it had taken timely action against the violations committed by ASBPL and TMAPL. The Petitioner NSE had ordered an external forensic audit of ASBPL based on information from SEBI. It also initiated disciplinary proceedings and issued a show cause notice regarding violations. In August 2020, ASBPL was also disabled from trading on the securities market. In September 2020, NSE had directed the banks to freeze all the bank accounts of ASBPL.

The petitioner contended that in absence of any specific role attributed to the Petitioners, no criminal liability could be attracted. No prima facie case was made out against petitioners as the ingredients of Sections 409 (criminal breach of trust by public servant, or by banker, merchant or agent) and 420 (cheating and dishonestly inducing delivery of property) of IPC were not satisfied.

Contention of the Respondent

The Respondent/defacto complainant contended that the petitioner dishonestly failed to protect the interests of the investors and concealed vital facts about the violations committed by ASBPL and other accused. Under the byelaws, the NSE/petitioners was required to regulate the activities of trading members by inspecting their books and accounts, client fund mechanism, issue early warning alerts for client securities, etc. Further, all the trades done by ASBPL incentivized the Petitioners as they earned huge revenues through the trading of ASBPL. ASBPL was involved in illegal activities and committed violations since 2013 and NSE was aware of the same as it had been levying penalties for numerous violations. Despite the knowledge of such shortfalls as observed in inspection in 2018, no action was taken by the NSE till 2020. Only nominal penalties were levied time and again till 2020. The Petitioner NSE failing to take action induced innocent investors to invest in the fraudulent scheme run by ASBPL. Therefore, at the stage of investigation, proceedings against the Petitioners could not be quashed.

Findings of the Court

The court on perusal of pleadings and materials noted that there was prima facie large scale fraud involving many entities including NSE and their key managerial personnel. According to the Court, serious lapses were committed by the NSE in regulating trading activities of ASBPL. A case involving several factual issues which were supported by one side and disputed by another could be only decided during trial. The Court could not at the stage of investigation determine the existence of mens rea. It relied on Supreme Court decision in CBI v. Tapan Kumar Singh, 2003 to observe as:

"It is relevant to note that FIR is not an encyclopedia of facts. It only discloses commission of the offence. It might not include all the details of the accused and the modus operandi of the crime. It is only after the investigation is completed that the facts come to light."

The court held that the power to quash proceedings at the stage of FIR under Section 482 should be exercised very cautiously. It placed reliance on Skoda Auto Volkswagen India Private Limited v. The State of Uttar Pradesh, 2021 in which the Supreme Court held that the High Courts in exercise of its inherent powers under Section 482 of CrPC had to quash proceedings in criminal cases in rarest of rate cases with extreme caution.

Furthermore, the Justice K. Lakshman held that the proceedings against directors cannot be quashed if the role played by them in the commission of the offence is unclear and the investigation is not completed.

Thus, on the aforementioned basis, the Court dismissed the Criminal Petition as it was inclined to interfere with the proceedings at the stage of investigation.

Case Title: The National Stock Exchange of India Limited and 2 others v. The State of Telangana and another

Citation: 2022 LiveLaw (Tel) 37

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