SECURITIES AND EXCHANGE BOARD OF INDIA v. GAURAV VARSHNEY & ANR.

The Judgment of the Court was delivered by JAGDISH SINGH KHEHAR, J. c Criminal Appeal nos. 827-830 of 2012

1Copy pinpoint1. Sub-Section (I B) was inserted into Section 12 of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as, the SEBI Act), on 25.1.1995. Section 12( I B) is extracted hereunder:- D "12. Registration of stock-brokers, sub-brokers, share transfer agents, etc. - (1 B) No person shall sponsor or cause to be sponsored or carry on or cause to be carried on any venture capital funds or collective investment scheme including mutual funds, unless he obtains a certificate of registration from the Board in accordance with the E regulations: Provided that any person sponsoring or cause to be sponsored, carrying or causing to be carried on any venture capital funds or collective investment scheme operating in the securities market immediately before the commencement of the Securities Laws F (Amendment) Act, 1995 for which no certificate of registration was required prior to such commencement, may continue to operate till such time regulations are made under clause (d) of sub-section (2) of section 30. Explanation.- For the removal of doubts, it is hereby declared that, forthe purposes of this section, a collective investment scheme G or mutual fund shall not include any unit linked insurance policy or scrips or any such instrument or unit, by whatever name called, which provides a component of investment besides the component of insurance issued by an insurer." H

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A The question that arises for consideration in the present criminal appeals is, whether respondent nos. I and 2-Gaurav Varshney and Vinod Kumar Varshney, had violated Section 12(1 B), by incorporating M/s. Gaurav Agrigenetics Ltd., under the provisions of the Companies Act, 1956, on

3. 7.1995, in the capacity ofits first directors and promoters. This position emerges, because it is not a matter of dispute, that Mis. Gaurav B Agrigenetics Ltd. commenced a collective investment scheme, immediately on its incorporation.

2Copy pinpoint2. In order to highlight the implications of the amendment, made on 25.1.1995, the Government of India issued a press release dated 18.11.1997. The text of the same is extracted hereunder:- c "The matter relating to regulating entities which issue instruments such as agro bonds, plantation bonds etc. has been receiving Government's attention. While the instruments may be funding agro based investment activity, it is observed that they often offer very high rates of return not consistent with normal returns in such activities. There is, therefore, a high element of risk associated with such schemes. In order to ensure that investors make investment decisions with the full knowledge of the risks involved in such schemes, Government has felt it necessary to put in place an appropriate regulatory framework for such schemes. Government after detailed consultation with the regulatory authorities concerned has decided to treat such schemes as "Collective Investment Schemes" coming under the provisions of the Section 11(2)(c) of the SEBI Act. In order to regulate such Collective Investment Schemes, both from the aspect of investor protection as well as allowing legitimate investment activity to take place, SEBI would first formulate draft regulations for this purpose. These draft regulations would be made available for public discussion. The investors who have invested in such schemes as well as entities running such schemes will be requested to give their comments on pertinent matters to SEBI for enabling SEBI to formulate appropriate regulations for such Collective G Investment Schemes. Once these regulations come into force, it is expected that they will promote legitimate investment activity on plantation and other agriculture based business, while at the same time give investors an adequate degree of protection for their investments." I-I

SECURITIES AND EXCHANGE BOARD OF INDIA v. 13 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

For the same purpose, as stated above, the Securities and Exchange A Board of India (hereinafter referred to as, 'the Board') also issued a separate press release, dated 26.11.1997. The text of the above press release, is reproduced below:- "The Central Government has by a press release dated 18.11.1997 decided that an appropriate regulatory framework for regulating B entities which issued instruments such as agro bonds, plantation bontls, etc. has to be put in place. The Government has decided that schemes through which such instruments are issued would be treated as collective investment schemes coming under the provisions of the SEBI Act. In terms of the press release, SEBI has initiated action for drafting regulations for such collective c investment schemes. The provisions of section 12(1 B) of the SEBI Act prohibit collective investment schemes including mutual funds from sponsoring any new scheme till the regulations are notified. While the regulations for mutual fund schemes have been notified by SEBI, regulations for collective investment schemes including plantations schemes require to be notified in view of the press release issued by the Central Government. These regulations are under preparation and will be issued in due course. first in draft form for the public discussion and later in the final form. Till these regulations are notified, as a result of the provisions of section 12(1 B) of the SEBI Act, no person can sponsor or cause to be sponsored any new collective investment scheme and raise further funds. The provisions of section 12(1 B) provides that till regulations are notified all collective investment schemes which are operating can continue with their activities till the regulations are notified. F Any collective investment scheme which is desirous of taking benefit of the proviso to section 12( 1B) of the SEB I Act is directed to send to SEBI information within 21 days from today containing details such as:- - Ternis and conditions of the schemes launched G - Funds raised through all the schemes - Promises or assurances or assured returns made in the scheme - Copies of offer document of the scheme - Names, details and background of promoters/sponsors H

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A All collective investment schemes which want to take benefit of the proviso of Section 12(18) are also directed to make an advertisement only in accordance with the advertisement code already prescribed by SEBI under the Disclosure and investors protection guidelines." B In addition to the above, 'the Board' also issued a public notice, on 18.12.1997. The instant public notice also related to, the implications of Section 12(1 B). The contents of the public notice, are reproduced below:- "The Central Government has by a press release dated 18.11.1997 decided that an appropriate regulatory framework for regulating c entities which issued instruments such as agro bonds, plantation bonds, etc. has to be put in place. The Government has decided that schemes through which such instruments are issued would be treated as collective investment schemes coming under the provisions of the SEBI Act. In terms of the press release, SEBI has initiated action for drafting regulations for such collective investment schemes. A committee under the chairmanship of Dr. S.A. Dave has already been constituted. The provisions of section 12(1 B) of the SEBI Act prohibit collective investment schemes including mutual funds from sponsoring any new scheme till the regulations are notified. While the regulations for mutual fund schemes have been notified by SEBI. regulations for collective investment schemes including plantations schemes require to be notified in view of the press release issued by the Central Government. These regulations are under preparation and will be issued in due course, first in draft form for the public discussion and later in the final form. Till these regulations are notified, it is hereby brought to the notice of the public that as a result of the provisions of section 12(18) of the SEBI Act. no· person can sponsor or cause to be sponsored any new collective investment scheme and raise further funds.

G Further, the provisions of section 12( I B) provides that till regulations are notified all collective investment schemes which are in existence can continue with their operations ti II the regulations are notified. It is hereby brought to the notice of the public that existing collective investment schemes which are desirous of taking benefit of the proviso to section 12( 18) of the SEBI Act and continue their operations are directed to send to SEBI. by 15!!!

SECURITIES AND EXCHANGE BOARD OF INDIA v. 15 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

January 1998 information containing details such as: Terms and conditions of the schemes launched, Funds raised through all the schemes, Promises or assurances or assured returns made in the scheme, Copies of offer document of the scheme and Names, details and background of promoters/sponsors. Note: The above information regarding existing collective 8 investment schemes in northern, southern and eastern region mayb<' ti led with the respective regional office of SEBI. In further exercise of the powers under section 11 read with section 11 (B) all collective investment schemes which want to take benefit of the proviso of section 12(1 B) are also directed to make an c advertisement only in accordance with the advertisement code already pre.scribed by SEBI under the Disclosure and investors protection guidelines."

3Copy pinpoint3. In order to appreciate the stance adopted on behalf of respondent nos. I and 2, it is essential to point out, that in consonance with Section 12(1B) of the SEBI Act, and in furtherance of the power vested with 'the Board', under Section 30 of the SEBI Act, 'the Board' framed regulations - the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999 (hereinafter referred to as, the Collective Investment Regulations). The Collective Investment Regulations, were to come into force, on the date of their publication in the official gazette. It is not a matter of dispute, that the same were brought into force, on 15.10.1999.

4Copy pinpoint4. Respondent nos. 1 and 2 - Gaurav Varshney and Vi nod Kumar Varshney, were aggrieved by the criminal proceedings initiated against them, on the basis of a complaint filed by 'the Board', under Section 200 F of the Code of Criminal Procedure, 1973 (hereinafter referred to as, the Cr.P.C.), read with Sections 24(1) and 27 of the SEBI Act, alleging, that they had breached the bar created by Section 12( 1B), which had forbidden the sponsoring or carrying on of a collective investment initiative, without obtaining a certificate ofregistration from 'the Board'. Respondent nos. G I and 2 approached the High Court of Delhi (hereinafter referred to, as the High Court), by tiling Criminal Miscellaneous Case nos. 7468-7471 of 2006 and Criminal Miscellaneous no. 951 of 2007, for quashing Complaint Case no. 1241 of 2003, pending in the Court of the Chief Metropolitan Magistrate, Tis Hazari Courts, Delhi, titled as "SEBI vs. Gaurav Agrigenetics Ltd. and others", as well as, the order dated H

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A 15.12.2003, by which the Chief Metropolitan Magistrate had summoned them (in the aforementioned complaint case).

5Copy pinpoint5. The simple contention advanced at the hands of respondent nos. l and 2 was, that the bar against sponsoring or carrying on a collective investment scheme, without obtaining a certificate of B registration from 'the Board' under the Collective Investment Regulations, could arise only after the Collective Investment Regulations were brought into existence. In this behalf it was pointed out, that the Collective Investment Regulations were admittedly brought into force from 15.10.1999. To exculpate their involvement in the proceedings initiated against them, the main assertion advanced on behalf of c respondent nos. 1 and 2 was, that respondent no. 1 - Gaurav Varshney had submitted Form-32 with the Registrar of Companies, communicating the factum of his resignation from the directorship of Mis. Gaurav Agrigenetics Ltd., on I0.5.1996. Since the aforesaid Form-32 had been submitted with the Registrar of Companies on 30.7.1998, it was contended on behalfofrespondent no. I, that he had no objection ifit was assumed (for determination of the present controversy), that respondent no. I had resigned from the directorship of the concerned company on

30. 7.1998. Likewise, it was pointed out, that respondent no. 2 - Vinod Kumar Varshney, had submitted Form-32 with the Registrar of Companies, communicating the factum of his resignation from the directorship of the company, on 15.9.1998. It was however acknowledged, that Form-32 with respect to his resignation, was submitted with the Registrar of Companies, on 23.12.1998. It was contended on behalfofrespondent no. 2, that he had no objection to this Court assuming, that respondent no, 2 had severed his relationship with Mis. Gaurav F Agrigenetics Ltd. on 23 .12.1998, i.e. the date when Form-32 was submitted with the Registrar of Companies.

6Copy pinpoint6. In the background of the fact situation noticed hereinabove, it was urged, that if the date of resignation of respondent no. I - Gaurav Varshney from the directorship of Mis. Gaurav Agrigenetics Ltd. is taken G as 30.7.1998, and that of respondent no. 2- Vinod Kumar Varshney, is taken as 23.12.1998, both of them had admittedly resigned from the directorship of Mis. Gaurav Agrigenetics Ltd., prior to the coming into existence of the Collective Investment Regulations (with effect from

15. l 0.1999). The High Court, by its impugned order dated 13.5.2010, had agreed with the proposition canvassed on behalf of respondent nos. H

SECURITIES AND EXCHANGE BOARD OF INDIA v. 17 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

1 and 2, and had quashed Complaint Case no. 1241 of2003 (pending in A the Court of Chief Metropolitan Magistrate, Tis Hazari Courts, Delhi), as well as, the order dated 15.12.2003 issued by the said Chief Metropolitan Magistrate, summoning respondent nos. I and 2 in the above noted complaint case.

7Copy pinpoint7. Dissatisfied with the determination rendered by the High Court B (vi de the impugned order dated 13.5.20 I 0), 'the Board' approached this Court, through Criminal Appeal nos. 827-830of2012, to raise a challenge to the order passed by the High Court.

8Copy pinpoint8. The primary contention advanced on behalf of 'the Board' was, that the High Court misunderstood and misconstrued the bar created by c Section 12(1B) of the SEBI Act. It was submitted on behalf of the appellant, that the bar contemplated under Section I 2( I B), came into effect on the very date Section 12( 18) was inserted into the SEBI Act (i.e. from 25.1.1995). It was asserted, that the said bar restrained everyone, from sponsoring or carrying on any collective investment activity, without obtaining a certificate ofregistration from 'the Board', D under the Collective Investment Regulations. And as_ such, any act of sponsoring or commencement of a collective investment venture, without obtaining a certificate ofregistration, on or after 25.1.1995, was absolutely forbidden. It was submitted on behalf of the appellant, that the proviso under Section 12( 1B), made the position absolutely clear and E unambiguous. It was pointed out, that the proviso authorized all persons who had sponsored or were carrying on a collective investment scheme " ... immediately before the commencement of the Securities Law (Amendment) Act, 1995, for which no certificate of registration was required prior to such commencement...", to continue to operate, till regulations were framed under clause (d) of sub-Section (2) of Section F

30. Therefore, relying on the proviso under Section 12(1B), it was submitted, that actions of sponsoring or carrying on an enterprise of collective investment, were permitted to only such persons, who had commenced such activities prior to the commencement of the Securities Law (Amendment) Act, 1995 (i.e., prior to 25.1.1995). G

9Copy pinpoint9. In order to substantiate the afore-noted contention, and also, in order to demonstrate, that the action of 'the Board' in not framing the Collective Investment Regulations, would have no bearing, to the bar created under Section 12( I B), learned counsel pla.:ed reliance on Orissa State (Prevention & Control of Pollution) Board vs. Orient Paper Mills, H

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A (2003) 10 SCC 421, and invited our attention to the following observations recorded therein:-

5. We may at this stage peruse the relevant provisions of the law. Section 21 of the Act provides that subject to the provisions of the said section no person shall establish or operate any industrial B plant in an air pollution control area without previous consent of the State Government. An industry which is functioning since before the declaration of the area as air pollution control area shall apply to the Board for consent within the period prescribed for the purpose. Section 22 provides as under: c "22. Persons carrying on industry etc. not to allow emission of air pollutants in excess of the standards laid down by State Board.-No person operating any industrial plant in any air pollution control area shall discharge or cause or permit to be discharged the emission of any air pollutant in excess of the standards laid down by the State Board under clause (g) of D sub-section(!) of Section 17." Section 19 empowers the State Government to declare an area as air pollution control area. The relevant part of Section 19 reads as follows:

E "19. Power to declare air pollution control areas.-{ 1) The State Government may, after consultation with the State Board. by notification in the Official Gazette, declare in such manner as may be prescribed, any area or areas within the State as air pollution control area or areas for the purposes of this Act.

F (2) The State Government may. after consultation with the State Board, by notification in the Official Gazette,- (a) alter any air pollution control area whether by way of extension or reduction; (b) declare a new air pollution control area in which may G be merged one or more existing air pollution control areas or any part or parts thereof. (3)-(5)***" *** *** ***

10Copy pinpoint10. The question for consideration is, as to whether, as long the

SECURITIES AND EXCHANGE BOARD OF INDIA v. 19 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

manner is not prescribed under the rules for declaration of an area as air pollution control area, a valid notification under Section 19( I) of the Act can be published in the Official Gazette or not.

11Copy pinpoint11. So far as the statutory provision is concerned, the Act under Section 19 vests the State Government with power to notify any area, in an Official Gazette, as air pollution control area, but to say that exercise of such power is solely dependent upon framing of the ;·des prescribing the manner in which an area may be declared as air pollution control area, does not seem to be correct. Section 19 of the Act would read as follows by omitting the words "in such manner as may be prescribed" which part we put into bracket as follows: c "19. Power to declare air pollution control areas.-{ I) The State Government may, after consultation with the State Board, hv notification in the Official Gazette, declare (in such manner as may be prescribed), any area or areas within the State as air pollution control area or areas for the purposes of this Act. D (2)-(4)***"

12Copy pinpoint12. Section 19 says " ... such manner as may be prescribed'' and not "in the manner prescribed" or " ... in the prescribed manner". The expression used leaves some lever or play in the E working of the provision. We would like to lay emphasis on the use of the word "as" which is significant. The manner is dependent upon "as" may be prescribed, if it is not prescribed, there is no manner available such as to be followed. The meaning of the word "as" has been indicated in Concise Oxford English Dictionary, I 0th Edn., 2002 amongst others to mean as follows: F *** *** *** In one of the cases decided by this Court, to be referred later in this judgment "as may be prescribed" has been held to mean "if any". It is thus clear that such expression leaves the scope for G some play for the workability of the provision under the law. The meaning of the word "as" takes colour in context with which it is used and the manner of its use as prefix or suffix etc. There is no rigidity about it and it may have the meaning of a situation of being in existence during a particular time or contingent, and so on and so forth. That is to say, something to happen in a manner, H

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A if such a manner is in being or exists, if it does not, it may not happen in that manner. Therefore, the reading of the provision under consideration makes it clear that manner of declaration is to be followed "as may be prescribed" i.e. "if any" prescribed.

13Copy pinpoint13. Thus, in case manner is not prescribed under the rules. there B is no obligation or requirement to follow any. except whatever the provision itself provides viz. Section 19 in the instant case which is also complete in itself even without any manner being prescribed as indicated shortly before to read the provision omitting this part "in such manner as may be prescribed". Merely by absence of rules, the State would not be divested of its powers to notify in the c Official Gazette any area declaring it to be an air pollution control area. In case. however, the ru Jes have been framed prescribing the manner, undoubtedly, the declaration must be in accordance with such rules.

14Copy pinpoint14. On the proposition indicated above, a decision reported in T. D Cajee v. U. Jormanik Siem, AIR 1961 SC 276, would be relevant. The matter pertained to removal of Seim from the office, namely, the Chief Headman of the area in the District Council governed by Schedule VI of the Constitution. The High Court took the view that the District Council could act only by making a law with the assent of the Governor. So far as the appointment and removal from the office of a Seim is concerned, provision contained in para 3( 1)(g) of the Schedule was referred to, which empowered the District Council to make laws in respect of the appointment and succession of office of Chiefs Headmen. The High Court took the view that in absence of framing of such a law, there would be no power of appointment of a Chief or Sei111 nor for his removal either. This Court negated the view taken by the High Court observing that: (AIR p. 281, para 10) "[l]t seems to us that the High Court has read far more into para 3( l)(g) than is justified by its language. Para 3( I) is in fact something like a legislative list and enumerates the subjects on which the District Council is competent to make laws .... But it does not follow from this that the appointment or removal of a Chief is a legislative act or that no appointment or removal_ can be made without there being first a law to that effect." H

SECURITIES AND EXCHANGE BOARD OF INDIA v. 21 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

This Court found that para 2(4) relating to administration of an A autonomous district, vested in the District Council such powers and further observed as under: (AIR p. 281, para I 0) "The Constitution could not have intended that all administration in the autonomous districts should come to a stop till the Governor made regulations under para 19( 1)(b) or ti 11 District B Council passed laws under para 3( 1)(g) .... Doubtless when regulations are made ... the administrative authorities would be bound to follow the regulations so made or the laws so passed."

15Copy pinpoint15. It is thus clear from the decision referred to in the preceding c paragraph that the power which vests in an authority would not cease to exist simply for the reason that the rules have not been framed or the manner_ of exercise of the power has not been prescribed. So far as Section 54 of the Act is concerned, it only enumerates the subjects on which the State Government is entitled to frame rules. D

20. We feel that so far as the point relating to the meaning of the word "may" used under Section I 9 of the Act is concerned, it is not relevant for resolving the controversy we are concerned with. E Once the manner is prescribed under the rules undoubtedly, the declaration of the area has to be only in accordance with the manner prescribed but absence of rules will not render the Act inoperative. The power vested under Section 19 of the Act, would still be exercisable as provided under the provision i.e. by declaring an area as air pollution control area by publication of notification in the Official Gazette. Non-framing of rules does not curtail the power of the State Government to declare any area as air pollution control area by means of a notification published in the Official Gazette. The part of the provision "in such manner as may be prescribed" would spring into operation only after such manner is prescribed by framing the rules under Section 54(2)(k) of the Act. This view as indicated earlier, is amply supported by the decision of this Court referred to above in the case ofT. Cajee, AIR 1961 SC 276, which is a decision by a Constitution Bench of this Court. It has been followed in a subsequent decision of this Court reported H

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A in Surinder Singh v.Central Govt., (1986) 4 SCC 667. The Central Government had not framed rules in respect of disposal of property forming part of the compensation pool as contemplated under the provisions of the relevant Act. It was claimed by one of the parties that the authority constituted under the Act had no jurisdiction to dispose ofurban agricultural property by auction-sale in absence B of rules. The contention was repelled with the following observations: (SCC p. 673, para 6) "Where a statute confers powers on an authority to do certain acts or exercise power in respect of certain matters, subject to rules, the exercise of power conferred by the statute does not c depend on the existence of rules unless the statute expressly provides for the same. In other words framing of the rules is not condition precedent to the exercise of the power expressly and unconditionally conferred by the statute. The expression 'subject to the rules' only means, in accordance with the rules, ifany. lfrules are framed, the powers so conferred on authority could be exercised in accordance with these rules. But if no rules are framed there is no void and the authority is not precluded from exercising the power conferred by the statute." A reference was also made to the decisions of this Court in the cases reported in B.N. Nagarajan v. State of Mysore, AIR 1966 SC 1942, and Mysore SRTC v. Gopinath Gundachar Char, AIR 1968 SC 464. Reliance was also placed on U.P.SEB v. City Board, Mussoorie, (1985) 2 SCC 16.

21. In view of the discussion held above, in our view it would not be correct to say that simply because the rules have not been framed prescribing the manner it wou Id render the Act inoperative. The area was notified as air pollution control area by the State Government as authorized and provided by virtue of the powers conferred under Section 19 of the Act. The declaration is provided to be made by means of a notification pub Iished in the Official G Gazette. No other manner is prescribed nor exists. The relevant notifications issued by the Government cannot be said to be contrarv to any rules in existence as framed by the Government. The respondent had knowledge of the notification and had also applied for consent of the Board which was granted to the respondent. H But it may be clarified that this is not the reason for taking the

SECURITIES AND EXCHANGE BOARD OF INDIA v. 23 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

view that we have taken, it is mentioned only by way of an additional fact and nothing more. The whole working and functioning ofthe Act which is meant for controlling the air pollution cannot be withheld and rendered nugatory only for the reason of absence of the rules prescribing the manner declaring an air pollution control area which otherwise is provided to be notified by publication in an Official Gazette which has been done in this case." Reliance was also placed on U.P. State Electricity Board, Lucknow vs. City Board, Mussoorie, (1985) 2 SCC 16, wherefrom, emphasis was placed on the observations extracted hereunder:- c

6. The material part of Section 46 of the Act reads thus: "46. (I) A tariff to be known as the Grid Tariff shall. in accordance with any regulations made in this behalf, be fixed from time to time by the Board in respect of each area for which a scheme is in force, and tariffs fixed under this section may, ifthe Board thinks fit. differ for different areas. (2) Without prejudice to the provisions of Section 4 7, the Grid Tariff shall apply to sales of electricity by the Board to licensees were so required under any of the First, Second and Third Schedules, and shall, subject as hereinafter provided, also be applicable to sales of electricity by the Board to licensees in other cases: Provided that if in any such other case it appears to the Board that, having regard to the extent of the supply required, the transmission expenses involved in affording the supply are higher than those allowed in fixing the Grid Tariff, the Board may make such additional charges as it considers appropriate.

7. The first contention urged before us by the Citv Board is that in the absence of any regulations framed by the Electricity Board G under Section 79 of the Act regarding the principles governing the fixing of Grid Tariffs, it was not open to the Electricity Board to issue the impugned notifications. This contention is based on sub- section (I) of Section 46 of the Act which provides that a tariff to be known as the Grid Tariff shall in accordance with any H

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A regulations made in this behalf, be fixed from time to time by the Electricity Board. It is urged that in the absence of any regulations laying down the principles for fixing the tariff, the impugned notifications were void as they had been issued without any guidelines and were, therefore, arbitrary. It is admitted that no such regulations had been made by the Electricitv Board by the B time the impugned notifications were issued. The Division Bench has negatived the above plea and according to us, rightly. It is true that Section 79(h) of the Act authorises the Electricity Board to make regulations laying down the principles governing the fixing of Grid Tariffs. But Section 46(1) of the Act does not say that no c Grid Tariff can be fixed until such regulations are made. It only provides that the Grid Tariff shall be in accordance with any regulations made in this behalf. That means that if there were any regulations, the Grid Tariff should be fixed in accordance with such regulations and nothing more. We are of the view that the framing ofregulations under Section 70 (h) of the Act cannot be a condition precedent for fixing the Grid Tariff.... " I 0. It was also the contention of learned counsel for 'the Board', that the bar created by Section 12(1 B), forbidding everyone not already engaged in the activity of collective investment (before 25.1.1995), to so engage himself, was absolutely mandatory. Such person (not already engaged in a collective investment scheme before 25.1.1995), it was contended, could commence such activities (of sponsoring or carrying on of a collective investment scheme), only after obtaining a certificate of registration, from 'the Board'. For an effective interpretation of Section 12( IB), learned counsel placed reliance on Union of India vs. F A.K. Pandey, (2009) I 0 SCC 552, and the Court's attention was drawn to the fol lowing observations recorded therein:-

8. Rule 34 of the Army Rules, 1954 with which we are concerned reads as follows: "34. Warning of accused for trial.-( I) The accused before he is arraigned shal I be informed by an officer of every charge for which he is to be tried and also that, on his giving the names of witnesses whom he desires to cal I in his defence, reasonable steps will be taken for procuring their attendance, and those steps shall be taken accordingly. The interval between his being so informed and his arraignment shall not be less than ninety-

SECURITIES AND EXCHANGE BOARD OF INDIA v. 25 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

six hours or where the accused 1:1erson is on active service less tlian twenty-four hours. (2) The officer at the time of so informing the accused shall give him a copy of the charge-sheet and shall, if necessary, read and explain to him the charges brought against him. If the accused desires to have it in a language which he understands, B a translation thereof shall also be given to him. (3) The officer shall also deliver to the accused a list of the names, rank and corps (ifany) of the officers who are to form the court, and where officers in waiting are named, also of those officers in court-ma11ial other than summary cou11- c martial. (4) If it appears to the court that the accused is liable to be prejudiced at his trial by any non-compliance with this Rule, the court shall take steps and, if necessary, adjourn to avoid the accused being so prejudiced." D The key words used in Rule 34 from which the intendment is to be found are "shall not be less than ninety-six hours". As the respondent was not in active service at the relevant time, we are not concerned with the later part of that rule which provides for interval of twenty-four hours for the accused in active service. E

9. In his classic work, Principles of Statutory Interpretation (7th Edn.), Justice G.P. Singh has quoted a passage of Lord Campbell in Liverpool Borough Bank v. Turner, [( 1860) 30 LJ Ch 3 79], that reads: "No universal rule can be laid down as to whether mandatory F enactments shall be considered directory only or obligato1y whether implied nullification for disobedience. It is the duty of courts of justice to try to get atthe real intention of the legislature by carefully attending to the whole scope of the statute to bi< considered." G *** *** ***

14. In Mannalal Khetan v. Kedar Nath Khetan, (1977) 2 SCC 424, while dealing with Section I 08 of the Companies Act, 1956 a three-Judge Bench of this Court held: (SCC pp. 429-31, paras 17- n) H

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A "17. In Raza Buland Sugar Co. Ltd. v. Municipal Board, Rampur, AIR 1965 SC 895, this Court referred to various tests for finding out when a provision is mandatory or directory. The purpose for which the provision has been made, its nature, the intention of the legislature in making the provision. the general inconvenience or injustice which may result to the person from B reading the provision one way or the other, the relation of the particular provision to other provisions dealing with the same subject and the language of the provision are all to be considered. Prohibition and negative words can rarely be directory. It has been aptly stated that there is one way to obey the command and c that is completely to refrain from doing the forbidden act. Therefore, negative, prohibitory and exclusive words are indicative of the legislative intent when the statute is mandatory. (See Maxwell on Interpretation of Statutes, 11th Edn., pp. 362 et seq.; Crawford: Statutory Construction, Interpretation of Laws, p. 523 and Bhikraj Jaipuria v. Union oflndia, AIR 1962 SC 113. D

18. The High Court said that the provisions contained in_ Section I 08 of the Act are directory because non-compliance with Section I 08 of the Act is not declared an offence. The reason given by the High Court is that when the law does not prescribe the consequences or does not Jay down penalty for non-compliance with the provision contained in Section I 08 of the Act the provision is to be considered as directory. The High Court failed to consider the provision contained in Section 629(a) of the Act. Section 629(a) of the Act prescribes the penalty where no specific penalty is provided elsewhere in the Act. It is a question of construction in each case whether the legislature intended to prohibit the doing of the act altogether, or merely to make the person who did it liable to pay the penalty.

19. Where a contract. express or implied. is expressly or by implication forbidden by statute. no court will lend its assistance to give it effect. (See Melliss v. Shirley Local Board, [( 1885) 16 QBD 446]. A contract is void if prohibited by a statute under a penalty, even without express declaration that the contract is void, because such a penalty implies a prohibition. The penalty may be imposed with intent merely to deter persons from entering into the contract or for the purposes of revenue or that the contract H

SECURITIES AND EXCHANGE BOARD OF INDIA v. 27 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

shall not be entered into so as to be valid at law. A distinction is sometimes made between contracts entered into with the object of committing an illegal act and contracts expressly or impliedly prohibited by statute. The distinction is that in the former class one has only to look and see what acts the statute prohibits; it does not matter whether or not it prohibits a contract: ifa contract is made to do a prohibited act, that contract will be unenforceable. In the latter class, one has to consider not what act the statute prohibits, but what contracts it prohibits. One is not concerned at all with the intent of the parties, ifthe parties enter into a prohibited contract, that contract is unenforceable. (See St. John Shipping Corpn. v. Joseph Rank Ltd. (1957) I QB 267) (See also Halsbury's c Laws of England, 3rd Edn., Vol. 8, p. 141.)

20. It is well established that a contract which involves in its fulfilment the doing of an act prohibited by statute is void. The legal maxim a pactis privatorum publico juri non derogatur means that private agreements cannot alter the general law. Where a D contract, express or implied, is expressly or by implication forbidden by statute, no court can lend its assistance to give it effect. (See Melliss v. Shirley Local Board, (1885) 16 QBD 446). What is done in contravention of the provisions of an Act of the legislature cannot be made the subject of an action. E

21. ff anything is against law though it is not prohibited in the statute but only a penalty is annexed the agreement is void. In every case where a statute inflicts a penalty for doing an act, though the act be not prohibited, yet the thing is unlawful, because it is not intended that a statute would inflict a penalty for a lawful act. F

22. Penalties are imposed by statute for two distinct purposes: (I) for the protection of the public against fraud, or for some other object of public policy; (2) for the purpose of securing certain sources of revenue G either to the State or to certain pub Iic bodies. If it is clear that a penalty is imposed by statute for the purpose of preventing something from being done on some ground of public policy, the thing prohibited, if done, will be treated as void, even though the penalty if imposed is not enforceable. H

28 SUPREME COURT REPORTS · [2016] 7 S.C.R.

A 23. The provisions contained in Section I 08 of the Act are for the reasons indicated earlier mandatory. The High Court erred in holding that the provisions are directory." l 5. The principle seems to be fairly well settled that prohibitive or negative words are ordinarily indicative of mandatory nature of B the provision; although not conclusive. The Court has to examine carefully the purpose of such provision and the consequences that may follow from non-observance thereof. If the context does not show nor demands otherwise, the text of a statutory provision couched in a negative form ordinarily has to be read in the form of command. When the word "'shall" is followed by prohibitive or c negative words, the legislative intention of making the provision absolute, peremptory and imperative becomes loud and clear and ordinarily has to be inferred as such. There being nothing in the context otherwise, in our judgment, there has to be clear ninety- six hours' interval between the accused being charged for which he is to be tried and his arraignment and interval time in Rule 34 must be read as absolute. There is a purpose behind this provision: that purpose is that before the accused is called upon for trial, he must be given adequate time to give a cool thought to the charge or charges :or which he is to be tried, decide about his defence and ask the authorities, if necessary, to take reasonable steps in procuring the attendance of his witnesses. He may even decide not to defend the charge(s) but before he decides his line of action, he must be given clear ninety-six hours." It was submitted, on the basis of the legal position declared by this Court in the above judgments, that the bar created through Section 12( l B), F forbidding new entrepreneurs from commencing activities concerning collective investment, without obtaining a certificate of registration, was strict and mandatory.

11. Based on the asse11ions noticed above, as also, the legal position declared by this Court, it was sought to be canvassed, that by G incorporating Mis. Gaurav Agrigenetics Ltd. on 3.7. l 995, and immediately on its incorporation, by sponsoring or carrying on a collective investment enterprise, without obtaining a certificate ofregistration from 'the Board', in accordance with the Collective Investment Regulations, the respondents had clearly breached the bar created by Section 12(1 B) of the SEBI H Act. On account of the fact, that respondent nos. l and 2 had even on

SECURITIES AND EXCHANGE BOARD OF INDIA v. 29 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.)

their own showing, continued to be the promoter-directors ofM/s. Gaurav A Agrigenetics Ltd. upto 30. 7 .1998 (with reference to the respondent no. I -Gaurav Varshney), and 23.12.1998 (with reference to the respondent no. 2 - Vinod Kumar Varshney) respectively, they were obviously in breach of the bar, contemplated under Section 12(1 B) of the SEBI Act.

12. Mr. Jatin Zaveri, learned counsel representing respondent nos. B I and 2, seriously disputed the above interpretation placed by learned counsel fo1 the appellant, on Section 12( I B) of the SEBI Act. First and foremost, learned counsel for the respondents, referred to the press releases dated 18.11.1997 and 26.11.1997 issued by the Government of India and 'the Board', respectively, as also, the public notice dated 18.12.1997 issued by 'the Board'. We have already extracted the c aforesaid press releases and the public notice above. We have also highlighted the portions thereof, relied upon by learned counsel for the respondents, to contend that in the understanding of the Government of India, as also, 'the Board' itself, there was no bar on sponsoring or commencing or carrying on a collective investment scheme, even after the insertion of Section 12( I B) into the SEBI Act. It was submitted, that the aforementioned press releases and public notice merely highlighted the requirement of obtaining a certificate of registration from 'the Board', consequent upon the framing of the Collective Investment Regulations, contemplated under Section 12(1 B) of the SEBI Act. It was, therefore the submission of learned counsel for the respondents, that the action of the respondents, in merely commencing the activity of sponsoring or carrying on a collective investment scheme, should not be treated as a violation of Section 12( I B), at their hands. It was also contended on behalf of the respondents, that a breach of Section 12( I B) could have arisen, only ifM/s. Gaurav Agrigenetics Ltd., could be blamed ofhaving carried on activities concerning collective investment, without obtaining a certificate of registration from 'the Board', in accordance with the Collective Investment Regulations. But that, according to learned counsel, was possible, only after the said regulations were framed, and the respondents had continued their activity, in breach of the said regulations. Since the Collective Investment Regulations were admittedly brought into force with effect from 15. l 0.1999, according to learned counsel for the respondents, carrying on such activity after 15.10.1999 would be unauthorized, if the persons concerned did not obtain a certificate of registration from 'the Board', in accordance with the notified regulations. It was submitted, that both the respondents had exited from the affairs H

30 SUPREME COURT REPORTS [2016] 7 S.C.R.

A of Mis. Gaurav Agrigenetics Ltd. (surely with effect from 30.7.1998 and 23.12.1998 respectively), well before the Collective Investment Regulations came into existence (-on 15. I 0.1999). And therefore, nt:ither of the respondents could be accused of violating Section 12( 1B) of the SEBI Act, or of not complying with the provisions of the Collective Investment Regulations. B

13. In order to controvert the submissions advanced at the hands of learned counsel for the appellant, based on the judgments rendered by this Court, emphatic reliance was placed on the decision in Vasu Dev Singh vs. Union oflndia, (2006) 12 SCC 753, wherefrom, the following observations, were sought to be highlighted:- c "Conditional legislation and delegated legislation

16Copy pinpoint16. We, at the outset, would like to express our disagreement with the contentions raised before us by the learned counsel appearing on behalf of the respondents that the impugned D notification is in effect and substance a conditional legislation and not a delegated legislation. The distinction between conditional legislation and delegated legislation is clear and unambiguous. In a conditional legislation the delegatee has to apply the law to an area or to determine the time and manner of carrying it into effect or at such time, as it decides or to understand the rule oflegislation. E it would be a conditional legislation. The legislature in such a case makes the law, which is complete in all respects but the same is not brought into operation immediately. The enforcement of the law would depend upon the fulfillment of a condition and what is delegated to the executive is the authority to determine by exercising its own judgment as to whether such conditions have been fulfilled and/or the time has come when such legislation should be brought into force. The taking effect of a legislation, therefore, is made dependent upon the determination of such fact or condition by the executive organ of the Government. Delegated legislation, however, involves delegation ofrule-making power oflegislation and authorises an executive authority to bring in force such an area by reason thereof. The discretion conferred on the executive by way of delegated legislation is much wider. Such power to make rules or regulations, however, must be exercised within the four corners of the Act. Delegated legislation, thus, is a device which has been fashioned by the legislature to be exercised in the

SECURITIES AND EXCHANGE BOARD OF INDIA v. 31 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

manner laid down in the legislation itself. By reason ofSection 3 A of the Act, the Administrator, however, has been empowered to issue a notification whereby and whereunder, an exemption is granted for application of the Act itself.

17Copy pinpoint17. In Hamdard Dawakhana v. Union oflndia, AIR 1960 SC 554, this Court stated: (AIR p. 566, para 29) B "The distinction between conditional legislation and delegated l~islation is this that in the former the delegate's power is that of detennining when a legislative declared rule of conduct shall become effective; Hampton & Co. v. U.S .. 276 US 394, and the latter involves delegation of rule-making power which c constitutionally may be exercised by the administrative agent. This means that the legislature having laid down the broad principles of its policy in the legislation can then leave the details to be supplied by the administrative authority. In other words by delegated legislation the delegate completes the legislation by supplying details within the limits prescribed by the statute D and in the case of conditional legislation the power oflegislation is exercised by the legislature conditionally leaving to the discretion of an external authority the time and manner of carrying its legislation into effect as also the determination of the area to which it is to extend;" E (See also M.P. High Court Bar Assn. v. Union oflndia, (2004) 11 SCC 766; State of T.N. v. K. Sabanayagam, (1998) I SCC 318, and Orient Paper and Industries Ltd. v. State ofOrissa, 1991 Supp (1) sec 81.)"

14. We have heard learned counsel for the rival parties. We are F of the considered view, that it would be appropriate in the first instance, to interpret sub-Section (IB) of Section 12 of the SEBI Act. And only thereafter, proceed to deal with the other issues canvassed by learned counsel.

15. In our considered view, an effective interpretation of Section G 12( IB) can be rendered, only upon understanding the intent behind Section 12( I B), and the exception created through the proviso thereunder. On being so considered it is apparent, that on the insertion of Section 12(1 B) in the SEBI Act on 25.1.1995, two classes of persons were created. The first class comprised of such person(s) who had commenced the H

32 SUPREME COURT REPORTS (2016] 7 S.C.R.

A activity of sponsoring or carrying on a collective investment sch1;:me prior to 25.1.1995 (this category will be referred to hereinafter as, the proviso category). This category would be governed by the p:oviso under Section 12(1B). The second category created by Section 12(1B) was constituted of persons who had not commenced the activity of sponsoring or carrying on a collective investment scheme prior to B 25.1.1995 (this category will be referred to hereinafter as, the non-proviso category).

16. The persons covered by the proviso category, referred to hereinabove, were permitted to continue their existing collective investment activities, till the framing of the Collective Investment c Regulations. On the framing of the Collective Investment Regulations, the said persons covered by the proviso category, were required to obtain a certificate of registration, which would enable them to continue to operate their existing collective investment scheme(s).

17. Insofar as the non-proviso category is concerned, the same D was barred from sponsoring or carrying on a collective investment initiative, without first obtaining a certificate of registration from 'the Board', in accordance with the Collective Investment Regulations. The non-proviso category, comprised of persons who had not commenced any activity in the nature of a collective investment, prior to 25.1.1995. E In other words, Section 12(1 B) introduced a clear bar, prohibiting any action of sponsoring or initiating a collective investment scheme after 25.1.1995, without obtaining a certificate ofregistration from 'the Board', under the Collective Investment Regulations. Stated differently, a new entrepreneur desirous of sponsoring or carrying on any activity in the nature of collective investment for the first time after 25.1.1995, could do so only after he/it had obtained a certificate of registration from 'the Board', in accordance with the Collective Investment Regulations. Therefore, till such time the Collective Investment Regulations were framed by 'the Board' under Section 12(1 B), and a certificate of registration was obtained, no fresh entry could be made in the field of collective investment, by a person/entity not already carrying on such activity.

18Copy pinpoint18. A perusal of the conclusions drawn by us in the foregoing two paragraphs, wherein we have interpreted Section 12(1 B) of the SEBI Act would reveal, that persons governed by the substantive provision (the non-proviso category) were permitted to "commence"

SECURITIES AND EXCHANGE BOARD OF INDIA v. 33 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

activities concerning collective investment, only after obtaining a A certificate ofregistration; and persons covered under the proviso category (-who were already carrying on such activities), were permitted to "continue" their activities (concerning collective investment), and after the concerned regulations were framed, they could continue the said activities only after obtaining a certificate of registration. B

19Copy pinpoint19. The Collective Investment Regulations came into force on 15.10. I 999. A person falling in the proviso category, namely, an individual who had commenced the activity of sponsoring or carrying on a collective investment initiative prior to 25. I .1995, was liable to move an application for registration under Regulation 5 of the Collective Investment Regulations. Regulation 5, is extracted hereunder:- c "Application by existing Collective Investment Schemes

5. (I) Any person who immediately prior to the commencement of these regulations was operating a scheme, shall subject to the provisions of Chapter IX of these regulations make an application to the Board for the grant of a certificate within a period of two months from such date. (2) An application under sub-regulation (I) shall contain such particulars as are specified in Form A and shall be treated as an application made in pursuance of regulation 4 and dealt with accordingly." An application under Regulation 5 could not have been made by an individual falling under the non-proviso category, for the simple reason, that an activity of sponsoring or carrying on a collective investment scheme by the said individual could not be termed as an "existing" F collective investment scheme. An "existing" collective investment scheme (-as the heading of Regulation 5, suggests) within the meaning of Section 12(18) read with the Collective Investment Regulations, could only be one which had commenced prior to 25. I. I 995, i.e. prior to the insertion of Section 12(18) in the SEBI Act. A collective investment scheme, which commenced after 25.1.1995, could not be described as an G "existing" collective investment scheme, because the same was statutorily barred, and therefore, wholly impermissible in law. This has been the clear and unambiguous stance even of the learned counsel representing 'the Board'. We may venture a different course, of reaching the same conclusion. What a statute bars, cannot be authorized through regulations. H

34 SUPREME COURT REPORTS [2016] 7 S.C.R.

A Any person/entity not falling in the proviso category (an "existing" operator, of a collective investment scheme) was barred from commencing to sponsor or carry on any collective investment activity, after the insertion of Section 12(1 B) into the SEBI Act, till such time as he/it had obtained a certificate of registration from 'the Board', in accordance with the Collective Investment Regulations. Therefore, an B "existing" collective investment scheme, at the time of notification of the regulations, could only be one which had commenced its activities prior to 25.1.1995. We may also notice, that the procedural details for obtaining a certificate of registration from 'the Board'; have been enumerated in Regulations 68 to 72 of the Collective Investment c Regulations (these regulations are not being extracted herein, for reason of brevity).

20Copy pinpoint20. Insofar as persons falling in the non-proviso category (namely, those desirous of commencing activities concerning collective investment, after 25 .1.1995) are concerned, such persons could commence an activity D in the nature of collective investment, after seeking a certificate of registration under the Collective Investment Regulations. For which purpose, they were required to apply under Regulation 4 of the Collective Investment Regulations. Regulation 4 aforementioned is reprodu·ced below:- E " Application for grant of certificate

4. Any person proposing to carry any activity as a Collective . Investment Management Company on or after the commencement of these regulations shall make an application to the Board for the grant of registration in Form A." F A perusal of Regulation 4 extracted above, leaves no room fur any doubt, that the same is applicable to a person " ... proposing to carry any activity ... " in the nature of a collective investment. On the analogy of the interpretation placed by us on Section 12(1 B), all persons who had not commenced to sponsor or carry on a collective investment scheme G before 25.1.1995, would fall in this category. In the above view of the matter, we are satisfied, that persons who were desirous to sponsor or carry on the activity in the nature ofcollective investment after 25.1.1995, were clearly and unambiguously barred from doing so, unless they were possessed of a certificate of registration, issued by 'the Board' under the Collective Investment Regulations. · H

SECURITIES AND EXCHANGE BOARD OF INDIA v. 35 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

21Copy pinpoint21. In view of the above, we have no hesitation in holding, thatan A "existing" collective investment scheme within the meaning of Section 12(1B), as also, within the meaning of the Collective Investment Regulations, comprised only of such collective investment scheme(s), which had come into existence prior to 25.1.1995. And therefore, it was impermissible for a person who had not commenced a collective B investment scheme prior to 25 .1.1995, to do so thereafter, till the Collective • Investment Regulations were framed. Thereafter, -such new entrepreneur, had to obtain a certificate of registration from 'the Board' under Regulation 4 of the Collective Investment Regulations, before he could legally commence activities concerning collective investment operations. Our inevitable conclusion is, that sponsoring or carrying on c any collective investment activity, for the firsttime, on or after 25.1.1995, was a complete bar, in the absence of a certificate of registration from 'the Board'. It accordingly follows, that ifa person/entity had commenced to sponsor or carry on a collective investment scheme after 25.Ll 995, without obtaining a certificate ofregistration from 'the Board', it would D tantamount to breaching the express mandate contained in Section 12( 1B) of the SEBI Act.

22Copy pinpoint22. In our considered view, there can be no doubt, that the date when the Collective Investment Regulations came into force (-15.10.1999), has no relevance, insofar as the breach of Section 12( I B) of the SEBIAct, with reference t<:> such new entrepreneurs, is concerned. E The bar to sponsor or cause to be sponsored, or carry on or cause to be carried on any collective investment activity by a new entrepreneur (-who had not commenced the concerned activities, before 25.1.1995) under Section 12(1B) of the SEBI Act, was not dependent on the framing of the regulations. The above bar was absolute and unconditional, till the new entrepreneur (described above) obtained a certificate ofregistration, in accordance with the regulations. The said bar would, therefore, undoubtedly extend till the framing of the regulations. The above bar, would further extend, even beyond the framing of the above regulations, till the concerned new entrepreneur was successful in obtaining a_ certificate of registration. Therefore, the period during which the concerned activities were barred (for the non-proviso category) under Section 12(1 B)- commenced from the date ofinsertion of Section 12(1 B) into the SEHI Act (-25 .1.1995), and subsisted upto, the actual date when the new entrepreneur obtained a certificate of registration. We hold so accordingly. H

36 SUPREME COURT REPORTS [2016] 7 S.C.R.

23Copy pinpoint23. In view of the above, we have no hesitation in accepting the contention advanced by learned counsel for 'the Board', that the bar created under Section 12(1 B), forbidding persons who had not engaged themselves, in an activity of collective investment before 25.1.1995, continued till the concerned persons/entities successfully obtained the required certificate of registration, under the Collective Investment B Regulations. Our conclusion hereinabove emerges from, inter alia, the following salient features. Firstly because, the Statement of Objects and Reasons of the Securities Laws (Amendment) Act, 1995, which resulted in the insertion of sub-Section (IB) in Section 12 of the SEBI Act, reveals that the same was brought in, on account of past experience c of 'the Board', and the dire need to protect the interests of investors. Secondly because, the language of sub-Section (I B) of Section 12 of the SEBI Act is clear and unambiguous - it allowed existing collective investment scheme(s) entrepreneurs, to continue with the same by creating an exception in their favour, through the proviso under Section 12(1 B). And it barred new operators from commencing collective D investment scheme(s), till after they had obtained a certificate of registration. Thirdly because, of the use of negative words in sub-Sectio1; (1 B)- "No person shall. .. ", denotes mandatory intent, with reference to those not already engaged in collective investment operations. Fourthly because, of the use of negative words in conjunction with the word E "shall", further makes the legislative intent absolutely clear, and also, mandatory, with reference to those not already engaged in collective investment operations. And. fifthly because, contravention of Section 12(1B) entails penal consequences, and therefore, cannot be construed as directory. We therefore hereby accept the submission advanced on behalf of learned counsel for 'the Board', and hold, that the bar created F fornew operators, ofa collective investment initiative, was absolute and mandatory. The bar under Section 12( 1B), restrained persons (who were not engaged in any collective investment venture upto 25.1.1995), from commencing activities concerning collective investment, till they had obtained a certificate ofregistration, in consonance with the Collective G ·Investment Regulations.

24Copy pinpoint24. We are also of the view, that the judgments relied upon by learned counsel forthe appellant, namely, Orient Papers Mills, U.P. State Electricity Board, Lucknow, and A.K. Pandey (supra), have no relevanc;; to the controversy in hand. In the above cases, the question which came up for consideration was, whether the authority concerned could have

SECURITIES AND EXCHANGE BOARD OF INDIA v. 37 GAURAVVARSHNEY & ANR. [JAGDJSH SINGH KHEHAR, J.]

acted in the manner provided under the concerned statute, before the regulations were framed. The issue considered was the jurisdiction of the concerned authority, and nothing more. No such question, arises in the present case. Herein, a bar has been created, preventing a new entrepreneur from commencing a defined activity. No question of jurisdiction (of the competent authority), arise in the present controversy. B

25Copy pinpoint25. In spite of the position expressed hereinabove, it was the contention of learned counsel for the respondent nos. 1 and 2, that the aforementioned determination would not adversely affect the private respondents, because the complaint filed by 'the Board' under Section 200 of the Cr.P.C. read with Sections 24(1) and 27 of the SEBI Act, did not accuse the respondents, of having committed a breach of the bar c expressed with reference to new entrepreneurs, under Section 12(1 B) of the SEBI Act. It was submitted, that the only accusation levelled at the respondents was, for a bl°each of the Collective Investment Regulations, framed under Section 12( 18). In order to substantiate his aforesaid contention, learned counsel for the respondents invited our attention to the complaint dated 15.12.2003. In order to appreciate the contention of learned counsel, an extract of the aforesaid complaint, including all the paragraphs relied upon by him, is reproduced below:- "7. The accused no. 1 is a company registered under the provisions of the Companies Act and the accused nos. 2 to 11 are the directors of the accused no. I company. The accused nos. 2 to 11 are the persons incharge and responsible for the day to day affairs of the company and all of them were actively connived with each other for the commission of offences.

8. The accused no. I is operating collective investment schemes and raised an aggregate amount ofRs.14,63,279/- (Rupees fourteen lakhs sixty three thousand two hundred seventy nine only) from the general public.

9. The accused no. 1 company filed information/details with SEBI regarding its collective investment schemes pursuant to SEBI press release dated November 26. 1997. and/or public notice dated December 18, 1997. IO. In terms of Chapter IX of the said regulations, any person who had been operating a.COiiective investment schemes at the time of commencement of the said regulations shall be deemed to H

38 SUPREME COURT REPORTS [2016] 7 S.C.R.

A be an existing collective investment scheme and shall comply with the provisions of the said Chapter IX. Further, in terms of the said Chapter IX any person who immediately prior to the commencement of the said regulations was operating a collective investment scheme shall make an apolication to SEBI for grant of registration within a period of two months from the date of B notification of the said regulations.

11. SEBI vide its letters dated December 15, 1999/December

29. 1999 and also by way of a public notice dated December I 0, 1999 gave intimation to the accused no. I directing it to send an information memorandum to all the investors detailing the state of c affairs of the schemes, the amount repayable to each investor and the manner in which such amount is determined. As per the aforesaid letters of SEBI, the information memorandum to the investors was required to be sent latest by February 28, 2000. ·12. SEBI having regard to the interest of investors and request received from various persons operating collective investment schemes extended the last date of submitting the application by existing entities upto March 31, 2000 and the same was declared by SEBI vide a press release and a public notice.

13. However, the accused no. I failed to make any application with SEBI for registration of the collective investment schemes being operated by it as per the said regulations.

14. It is submitted that in terms of Regulations 73(1) of the said regulations, an existing collective investment schemes which failed to make an application for registration with SEBI, shall wind up the existing collective investment schemes and repay the amounts collected from the investors. Further, in terms of Regulation 74 of the said regulations. an existing collective investment scheme which is not desirous of obtaining provisional registration from SEBI shall formulate a scheme of repayment and make such repa~ment to the existing investors in the manner specified in G Regulation 73.

15. However. the accused no. 1 neither applied for registration under the said regulations nor took any steps for winding up of the schemes and repayment to the investors as provided under the. regulations and as such had violated the provisions of Section H

SECURITIES AND EXCHANGE BOARD OF INDfA v. 39 · GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

12(1 B) of Securities and Exchange Board oflndia Act. 1992 and A Regulation 5(1) read with Regulation 68(1), 68(2), 73 and 74 of the said regulations.

16. On December 7, 2000 SEBI by exercising its powers conferred upon it under Section 118 of Securities and Exchange Board of India Act, 1992 directed the accused no. 1 to refund the B money collected under the aforesaid collective investment schemes of the accused no. 1 to the persons who invested therein within a period of one month from the date of the said directions.

17. However, despite repeated directions by SEBI, the accused no. 1 did not comply with the said regulations and from this, it is c clear that the accused no. 1 is intentionally and with dishonest intentions evading the repayment of the amounts collected by it from the investors.

18. The accused no. I raised a total amount of Rs.14,63.279/- (Rupees fourteen lakhs sixty three thousand two hundred seventy nine only) by its own admission and its failure to refund the amounts to the general public who invested their hard-earned money in the schemes operated by the accused no. 1. caused huge pecuniarv damage to them.

19. In view of the above, it is charged that the accused no. 1 has committed the violation of Section 1I B. 12( I B) of Securities and Exchange Board oflndia Act, 1992 and Regulation 5(1) read with Regulations 68(1), 68(2), 73 and 74 of the Securities and Exchange Board oflndia (Collective Investment Schemes) Regulations. 1999 which is punished under Section 24( I) of Securities and Exchange Board oflndia Act. 1992. F

20. The accused nos. 2 to 11 are the Directors of the accused no. I, and as such persons in charge of and responsible to the accused no. 1 for the conduct of its business and are liable for the violations of the accused no. I, as provided under Section 27 of Securities and Exchange Board oflndia Act, 1992. G

21. The violation of the aforesaid Jaws by the accused were the acts of omission and were occurred within the jurisdiction of this Hon'ble Court and as such this Hon'ble Court has got jurisdiction to try punish the accused. This complaint is within the limitation. The complainant craves the leave of this Hon 'ble Court to produce H

40 SUPREME COURT REPORTS [2016] 7 S.C.R.

A the documents referred to hereinabove as and when required. PRAYER It is, therefore, most respectfully prayed to this Hon'ble Court to summon the accused and punish them in strictest terms as provided by law in the interest of justice." B

26Copy pinpoint26. Having given our thoughtful consideration to the accusations levelled by 'the Board' against the respondents (in the complaint dated 15.12.2003), there is absolutely no room for any doubt, that the private respondents were being treated as operating, an "existing" collective investment scheme. They were accused inter alia, for having not complied c with Regulation 5 of the Collective Investment Regulations. Regulation 5, allows an "existing" enterprise operating a collective investment scheme, to apply for registration. We have already interpreted Regulation 5, more particularly, the term "existing", used in conjunction with collective investment schemes, in paragraph 19 above. The accusations D levelled against the respondents, will have to be understood in the context of Regulation 5, on account of the express stance adopted by 'the Board' in paragraph 10 of the complaint, wherein, having treated the respondents as persons who had commenced the activity of a collective investment, they were accused of not having made an application to 'the Board' for the grant of registration in terms of Chapter IX (of the Collective E Investment Regulations).

27Copy pinpoint27. It would be relevant to mention that Chapter IX bears the heading "Existing Collective Investment Schemes", whereunder Regulations 68 to 72 delineate procedural details, for obtaining a certification of registration. The connotation of the term "existing" with F reference to collective investment schemes, in Chapter IX, would be the same, as has been interpreted by us, in paragraph 19 above. It was, therefore, submitted on behalf of the respondents, that they were not accused of having unauthorisedly commenced a collective investment scheme. It was contended, that the violation of Section 12(JB) of the G SEBI Act, alleged against the respondents, had to be understood in the manner expressed in the complaint. The complaint described the respondents, as operating an "existing" collective investment venture. It was pointed out, that the respondents were proceeded against, only fortheir failure to obtain a certificate ofregistration under Regulation 5 of the Collective Investment Regulations, read with Chapter IX of the H said regulations, and more particularly, Regulations 68, 73 and 74 (refer

SECURITIES AND EXCHANGE BOARD OF INDIA v. 41 GAURAVVARSHNEY & ANR. [JAGDISH SINGH KHEHAR, J.]

to paragraphs 8, I 0, 11, 13 to 15, 18 and 19 of the complaint). Therefore, A according to learned counsel for the respondents, the appellant had expressly treated the respondents as persons falling in the proviso category of Section 12( I B), namely, those who had commenced a collective investment undertaking prior to insertion of Section 12( I B) into the SEBI Act (-on 25 .1.1995). It was, therefore submitted, that the B respondents could not be proceeded against by treating them as belonging to the non-proviso category (-who had not commenced any activity associated with collective investment, before 25.1.1995) of Section 12( I B), by considering them as new entrepreneurs, who have commenced operating a collective investment scheme after 25.1.1995.

28Copy pinpoint28. We express our complete agreement, with the stance adopted c at the hands of learned counsel for the private respondents. The respondents were only accused of having not comp! ied with, the provisions of the Collective Investment Regulations, pertaining to "existing" collective investment operators (those who had commenced the activity before 25.1.1995). Thus viewed, the fact that the respondents commenced D the activity of collective investment after the insertion of sub-Section (I B) of Section 12 of the SEBI Act (-25.1.1995), cannot be gone into, to determine whether or not the said activity was in breach of the bar contemplated under Section 12( I 8) ofthe SEBI Act. Having so concluded it emerges, that the continuation of the activity of sponsoring or carrying on a collective investment scheme by the respondents, after 25.1.1995 E (when Section 12(1 B) was inserted into the SEBI Act), and in continuing therewith, without obtaining a certificate of registration, cannot be the basis for proceeding against the respondents. For the simple reason, that the respondents had not been so accused, in the complaint filed by 'the Board'. In this behalf, reference may be made to P.B. Desai vs. F State of Maharashtra, (2013) 15 SCC 481, wherein this Court held as under:- "51. We would also like to make another aspect very explicit. The appellant was levelled a specific charge which was framed against him. The prosecution was required to prove that particular charge G and not to go beyond that and attribute "rash and negligent" acts which are not the part of the charge. Culpability is specifically related to the "act" committed on 22.12.1987 at about 9 a.m. in the hospital viz. the act of performing surgical procedure. It is, thus, this act alone, and nothing more, for which the appellant and H

42 SUPREME COURT REPORTS [201 ~] 7 S.C.R.

A Dr. Mukherjee were charged and the appellant is supposed to meet this charge alone." The fact that the respondents had actually commenced a collective investment undertaking after 25.1.1995, without obtaining a certificate of registration, in our considered view, is of no relevance whatsoever, B with reference to the complaint filed by 'the Board' against the respondents (dated 15.12.2003).

29Copy pinpoint29. A significant question which arises for consideration is, whether the respondents against whom the above complaint dated 15.12.2003 was filed, could be punished for violating Section 12(1 B) of the SEBI c Act. We may clarify, that proceedings are permissible, against both categories. Against the non-proviso category, for having commenced the barred activity after 25.1.1995, without registration. And also against the proviso category, for having continued the concerned activity without obtaining registration, after the notification ofthe Collective Investment Regulations. It needs to be understood, that in the present case, the instant submission is canvassed before us on behalf of 'the Board', by describing the respondents as belonging to the non-proviso category, wherein persons not already engaged in an "existing" ~ollective investment venture as on 25.1.1995, were precluded from activities concerning collective investment, till the time they obtain a certificate of registration from 'the Board' in accordance with the Collective Investment Regulations. As already concluded above, this course could not be pursued against the respondents, because they were not so accused, in the complaint dated 15.12.2003. The question posed, is answered accordingly.