Justice Prevails! Bombay High Court Rules SEBI Settlements CAN'T Block Criminal Cases – What This Means for Investors!

Author

Satyam Jha | Whalesbook News Team

Detailed Coverage:

The Bombay High Court has clarified that settlements agreed upon with the Securities and Exchange Board of India (SEBI) under its consent mechanism cannot extinguish or prevent independent criminal prosecutions. This significant judgment was delivered while dismissing writ petitions filed by Manoj Gokulchand Seksaria, a stock-market intermediary. Seksaria had sought to terminate two Central Bureau of Investigation (CBI) cases stemming from alleged irregularities in the 2005 Initial Public Offerings (IPOs) of Yes Bank and Infrastructure Development Finance Company (IDFC).

The prosecution alleged that Seksaria, acting as a sub-broker, used forged bank and demat accounts in fictitious names to corner shares meant for genuine retail investors. The CBI subsequently filed chargesheets for offenses including forgery and criminal conspiracy. While these cases were pending, Seksaria obtained a consent order from SEBI in December 2009, involving disgorgement of ₹2.05 crore. However, the High Court ruled that this SEBI consent order was confined to SEBI's administrative and civil proceedings and did not extend to the CBI's ongoing criminal prosecutions. The court highlighted that the settlement expressly excluded SEBI Act prosecutions and did not mention the existing criminal cases.

Impact: This ruling is a critical development for market integrity and investor protection in India. It ensures that individuals or entities involved in severe market fraud cannot evade criminal accountability simply by settling with a regulator. The decision reinforces the robustness of the criminal justice system and acts as a deterrent against fraudulent activities in the securities market, safeguarding the rights of retail investors. Rating: 9/10

Difficult Terms: * SEBI (Securities and Exchange Board of India): India's capital market regulator, tasked with protecting investors and developing the market. * Consent Order: An agreement where a party settles a regulatory case with SEBI by undertaking certain actions, such as paying a penalty, without admitting guilt. * Quash: To annul or invalidate a legal order or proceeding. * Criminal Prosecution: The legal process of bringing charges against someone accused of a crime. * IPO (Initial Public Offering): The process by which a private company offers its shares to the public for the first time. * Stock-market Intermediary: A person or entity that facilitates transactions in financial markets, like a broker. * CBI (Central Bureau of Investigation): India's premier investigation agency for serious crimes. * First Information Report (FIR): The initial police report filed when information about a cognizable offense is received. * Chargesheet: A formal document filed by the investigating agency detailing the charges against an accused person. * Disgorgement: The act of giving up profits or assets obtained through illegal or unethical means. * Cognizance: The formal acknowledgment by a court that it is taking up a case.