Recently, on July 2, 2022, the Indian Judiciary made history of good jurisprudence in the field of Indian Securities Law. This was done through a 20-year long pending petition against Balaji and Co., i.e., the accused in the instant matter, by the Securities Exchange Board of India (SEBI), i.e., the complainant in the instant matter. The contention of the complainant was that the accused had been dealing in the securities market as an unregistered sub-broker, i.e., without rightfully obtaining a registration certificate from the Securities and Exchange Board of India (SEBI). It was considered to be a grave offence when it was pointed out that the accused had played a hideous role in duping innocent people who were dealing in the securities market by providing them with a couple of fake shares. The article explains the judicial development and its significance.
SEBI Regulations on Stock Brokers
Before the article proceeds to get on to the result of the case against the accused, i.e., Balaji and Co., it is important for one to be able to understand the contention of the complainant. As according to Rule 3 of the SEBI (Stock Brokers and Sub-brokers) Regulations of 1992, a stock broker is particularly mandated to make an application to the Securities and Exchange Board of India (SEBI) for the grant of the registration certificate. It is imperative to understand in the instant context that without the proper grant of a certificate to the stock broker, it is not eligible to act as such. Thus, in this manner, the certificate granted by the Securities and Exchange Board of India (SEBI) acts as a form of an authorisation for such a stock broker.
The presence of this rule alone makes it clear that the intention of drafting it was to specify the eligibility of the person who may be eligible to act as a stock broker. Since in the instant matter, Balaji and Co., was not an eligible entity to do so, the subsequent acts conducted by it were considered to be against the rules mentioned under the SEBI (Stock Brokers and Sub-brokers) Regulations of 1992.
Thus, based on this contention, the complainant filed an application under the SEBI as soon as it was able to under Section 24 of the SEBI Act of 1992, contending that the accused was in violation of Section 12 of the SEBI Act of 1992, Regulation 3 of the SEBI (Stock Brokers and Sub-brokers) Regulations of 1992, and Section 17 of the Securities Contracts (Regulation) F of 1956 on 24th September 2002, all of which sum up to the same violation more or less, i.e., acting without a proper grant of certificate.
It was, however, observed that the complainant had delayed in filing the complaint against the accused in the present petition, bringing out an important issue in today’s discussion about the development of the jurisprudence in regards to the Indian Securities Law, i.e., whether a delay in the filing of a complaint against an unregistered sub-broker can be condoned by the court or not, and whether the Economic Offences (Inapplicability of Limitation) Act of 1974 can be applied or not.
The Balaji and Co. Case and its Significance
To be more specific in layman’s terms, the court needed a valid explanation in terms of Section 473 of the Criminal Procedure Code of 1973 in regards to why there was a delay of a total of 106 days, i.e., approximately three months and fourteen days in the filing the complaint against Balaji and Co., i.e., the accused in the present matter. Moreover, in addition to the above, the counsel for the accused also contended in front of the just court that the complainant had brought forth the present application after twenty years after the court had already taken cognizance of the fact that the schedule of the Economic Offences (Inapplicability of Limitation) Act, 1974 does not include the SEBI Act of 1992; thus, highlighting the legislative intent to exclude the same. Thus, it was pointed out by the counsel for the accused that it would be completely unreasonable on the part of the court to condone a delay after such cognisance has been taken, while it additionally has not satisfied itself in regards to why such delay in filing the application took place in the first place.
The analysis of the jurisprudence that marks the first few pages in the advent of the Indian Securities Law took place when the counsel for the accused, based on the aforementioned contentions submitted in front of the court that the application was not maintainable. The story takes an even more interesting turn when the court interprets the language of the legislature in Section 473 of the Criminal Procedure Code of 1973 to carve out the sweet-smelling honey of justice.
To quote the words delivered by the Supreme Court of India,
“Section 473, CrPC does not in any clear terms lay down that the application should be filed at the time of filing challan itself. The words ‘so to do in the interest of justice' are wide enough.”
To understand this part by part, one must first understand the contents of Section 473 of the Criminal Procedure Code, which states that any court has the power to take cognisance in regards to an offence after the limitation period associated with it has ended if it is able to satisfy itself based on the facts and circumstances of the case that such delay has been properly explained, or if taking such an action is necessary for the court in order to aid the hands of justice in accordance with the law of the land.
In the present matter in relation to the matter of Balaji and Co., i.e., the accused, the court has exceptionally exercised its inherent powers that have been vested upon it by a part of Section 473 of the Criminal Procedure Code of 1973 (implicated through a thorough interpretation of the provision) by pronouncing that since the accused had played a role in imposing fraudulent behaviour upon the public, the court found it necessary to intervene and condone such a delay of 106 days in filing a complaint against the accused.
However, although on one hand, the counsel for the complainant won the battle in being able to help the hands of justice meet, it erred in understanding certain parts of the way the law of the land essentially works, thus marking a possibly dangerous precedent that the Indian judiciary could not have accepted.
To explain why it faced a delay in filing the complaint against the accused under Section 473 of the Criminal Procedure Code, the complainant had claimed that since the SEBI Act of 1992 had replaced the Capital Issues (Control) Act of 1947, the Economic Offences (Inapplicability of Limitation) Act of 1974 should apply to the SEBI Act of 1992 by way of simple interpretation of the legislature after the repeal of the Capital Issues (Control) Act of 1947. However, the court while analysing what both the parties had to say claimed that the contention of the complainant is ‘unacceptable,’ since the schedule in the Economic Offences (Inapplicability of Limitation) Act of 1974 never got amended and never explicitly mentioned the SEBI Act of 1992, thus, stripping off the power granted by the Economic Offences (Inapplicability of Limitation) Act of 1974 that was quoted by the complainant. Hence, it cannot be said that the SEBI Act of 1992 is subsequently devoid of the provisions of Chapter XXXVI of the Criminal Procedure Code of 1973 on the abovementioned ground.
Based on the abovementioned explanation, the just court of law presiding over the instant matter rejected the argument of the complainant and held that since a delay has in fact occurred in the process of filing the complaint against the accused, the complainant should seek condonation. However, it is also interestingly observed that despite the failure of the complainant on a major ground, the court accepted its explanation for such a delay in filing the complaint based on the ground that since the SEBI Act of 1992 in itself is considered to be a legislation that promotes the core value of social welfare and growth of the securities market. Moreover, it is one of the paramount duties of the court of law to be able to adopt an interpretation which is able to further the purpose of such a law, thus promoting the actual intent of it.
Hence, in this manner, the court made significant history in regards to the field of the Indian Securities Law by filling in the gaps that were present in the subject matter in relation to understanding the legislative intent of the proposed laws in relation to the limitation period of offences that come under the SEBI Act of 1992.