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Securities and Exchange Board of India v. Gaurav Varshney & Anr.

Criminal Appeal · Neutral citation not assigned (Criminal Appeal Nos. 827-830 of 2012)Decided 15 Jul 2016
Criminal Appeal Nos. 827-830 of 2012
Justice J.S. Khehar · Justice C. Nagappan

Background

Gaurav Varshney and Vinod Kumar Varshney were directors of a company, M/s. Gaurav Agrigenetics Ltd., that ran a "collective investment scheme" (an agro-investment scheme) without registering with SEBI. SEBI prosecuted them under Section 12(1B) of the SEBI Act, which bars running such schemes without a certificate of registration. The two directors had resigned from the company in 1998, before SEBI's Collective Investment Schemes Regulations actually came into force on 15 October 1999. The Delhi High Court quashed the criminal complaint against them, and SEBI appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that the obligation to register under the Collective Investment Regulations, and the consequent criminal liability for failing to do so, could only bite once those regulations actually came into force on 15 October 1999: a person could not be prosecuted for failing to comply with a registration regime that did not yet exist. Since both respondents had undisputedly resigned as directors well before that date, they could not be held criminally responsible for the company's later non-compliance. The Court distinguished this from cases where a company continued operating after the regulations took effect. Applying the same reasoning, it also dismissed the connected appeals involving other directors/co-accused (Parvesh Varshney, and in a separate but similarly-reasoned appeal, Major P.C. Thakur) whose resignations likewise preceded the regulations.

Lesson Learnt

A person cannot be held criminally liable for failing to comply with a regulatory registration requirement that did not yet exist at the time they were involved with the business: criminal liability under a regulation generally cannot be applied retroactively to conduct before that regulation came into force, and a director who has genuinely resigned before a new compliance obligation arises is not liable for the company's later lapses.

Official source (sci.gov.in)View Judgment (PDF)

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