Part 4: Criminal Prosecution | CSL Module 8

4.1 Section 24 SEBI Act Offences

Section 24 of the SEBI Act criminalizes violations of the Act, rules, and regulations. Understanding the scope of criminal liability is essential for advising clients on both compliance and defense strategies.

24 - Offences

Without prejudice to any award of penalty by the adjudicating officer, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or with both.

Key Elements of S.24 Offences

Contravention: Violation of any provision of SEBI Act, Rules, or Regulations
Attempt: Attempting to contravene is also punishable
Abetment: Aiding, instigating, or abetting contravention attracts liability
Mens Rea: Criminal intent required - negligence alone insufficient
Corporate Liability: Officers in default can be prosecuted under S.27

Offence Category	Typical Violations	Punishment
Market Manipulation	Price rigging, circular trading, spoofing	Up to 10 years + Rs. 25 Cr fine
Insider Trading	Trading on UPSI, tipping	Up to 10 years + Rs. 25 Cr fine
Fraudulent Practices	Misstatements, inducing investors fraudulently	Up to 10 years + Rs. 25 Cr fine
Registration Violations	Operating without registration	Up to 10 years + Rs. 25 Cr fine
Obstruction	Failure to comply with summons, providing false info	Up to 1 year + Rs. 1 Cr fine

⚠Double Jeopardy Clarification

Section 24 expressly states "without prejudice to any award of penalty" - meaning civil penalties (adjudication) and criminal prosecution can proceed simultaneously. This is NOT double jeopardy as civil and criminal are distinct proceedings.

Section 27 - Corporate Liability

27 - Offences by Companies

Where an offence under this Act has been committed by a company, every person who at the time was in charge of and responsible for the conduct of business, as well as the company, shall be deemed guilty. However, such person can escape liability by proving the offence was committed without their knowledge or they exercised due diligence.

4.2 Compounding Mechanism

Section 24A allows compounding of certain offences, providing an exit mechanism from criminal proceedings. Understanding the compounding framework is crucial for advising clients facing prosecution.

24A - Compounding of Offences

Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence punishable under this Act, not being an offence punishable with imprisonment only, may either before or after the institution of any proceeding, be compounded by a Securities Appellate Tribunal or a court before which such proceedings are pending.

Compounding Process

Application: File compounding application before SAT or court where proceeding is pending
SEBI Consultation: Tribunal/Court seeks SEBI's views on compounding
Assessment: SEBI recommends compounding sum based on guidelines
Hearing: Applicant heard on quantum and conditions
Order: If accepted, compounding order passed; prosecution abates

SEBI Compounding Guidelines

Factor	Consideration	Impact on Amount
Nature of Violation	Gravity, market impact, investor harm	Higher for serious violations
Monetary Benefit	Profits made or losses avoided	Minimum 1.5-3x benefit
Repeat Offender	Past violations record	Significantly higher
Cooperation	During investigation	May reduce amount
Time Factor	How old the violation is	Generally increases with delay

⚖Non-Compoundable Offences

Offences punishable with "imprisonment only" (without alternative of fine) cannot be compounded. Currently, most SEBI Act offences provide for imprisonment OR fine, making them compoundable. However, check specific provision carefully.

✓Compounding Strategy

Timing: Early compounding typically results in lower amounts | Civil Settlement: Settling civil proceedings first may help | Cooperation: Demonstrating cooperation can be a mitigating factor | Ability to Pay: Document financial capacity honestly

4.3 SEBI Complaint Process

SEBI initiates criminal prosecution by filing complaints before designated courts. Understanding this process helps in preparing defense strategy from the earliest stage.

Initiation of Criminal Prosecution

SEBI Decision: Board/WTM decides to initiate criminal prosecution based on investigation
Complaint Filing: SEBI files complaint under S.26 before designated Special Court
Cognizance: Court takes cognizance of offence based on SEBI complaint
No Police Investigation: SEBI directly presents evidence; no FIR required
Exclusive Jurisdiction: Only designated courts can try SEBI Act offences

26 - Cognizance of Offences

No court shall take cognizance of any offence punishable under this Act or any rules or regulations made thereunder, save on a complaint made by the Board or any officer authorised by it in this behalf.

Designated Courts

Court Type	Jurisdiction	Appeal From
Special Court (Sessions)	Offences punishable 3+ years	High Court
Magistrate Court	Offences up to 3 years	Sessions Court
Designated Court	As notified by State Govt	As per CrPC hierarchy

⚖Defense at Cognizance Stage

Challenge Cognizance: File application under S.482 CrPC if complaint discloses no offence | Quashing: Seek quashing if prosecution is abuse of process | Limitation: Check if prosecution is time-barred | Territorial Jurisdiction: Verify proper court

4.4 Coordination with EOW/Police

While SEBI has primary jurisdiction over securities law violations, overlapping cases may involve Economic Offences Wing (EOW) or regular police, particularly when crimes also fall under IPC/BNS.

Overlapping Jurisdictions

SEBI Complaints: For SEBI Act/Regulation violations - filed directly by SEBI
EOW/Police FIR: For IPC offences (cheating, fraud, criminal breach of trust)
MCA Complaints: For Companies Act violations by corporate entities
ED Investigation: If proceeds of crime/money laundering involved (PMLA)

Agency	Primary Law	Typical Cases
SEBI	SEBI Act, SCRA	Market manipulation, insider trading, intermediary violations
EOW	IPC/BNS	Cheating investors, misappropriation, ponzi schemes
SFIO	Companies Act	Corporate fraud, false prospectus
ED	PMLA	Money laundering through securities
CBI	Prevention of Corruption Act	If public servants involved

⚠Multiple Proceedings Risk

Same conduct may trigger SEBI adjudication, SEBI criminal complaint, EOW FIR, and ED proceedings simultaneously. Each has different standards, forums, and consequences. Coordinate defense strategy across all forums.

Information Sharing Between Agencies

Agencies share information through:

MoUs: Formal agreements between SEBI, MCA, ED, RBI
FIU-IND: Financial Intelligence Unit reports suspicious transactions
Referrals: SEBI refers matters to EOW/ED when IPC/PMLA offences indicated
Joint Investigations: In major cases, agencies may conduct coordinated probes

4.5 Parallel Proceedings

Managing multiple simultaneous proceedings requires careful strategy. Statements, admissions, and positions taken in one forum can impact others.

Types of Parallel Proceedings

Civil + Criminal (SEBI): Adjudication and S.24 prosecution by SEBI simultaneously
SEBI + Police: SEBI proceedings and EOW/police investigation for same facts
SEBI + Company Law: SEBI action and NCLT/SFIO proceedings
Multiple Agency: SEBI + ED + EOW in major fraud cases
Civil Suit + Regulatory: Private investor suit alongside SEBI action

⚖Stay of Civil Proceedings

Criminal proceedings do NOT automatically stay civil/regulatory proceedings. The principle from M.S. Sheriff v. State of Madras allows stay only in exceptional cases. Generally, both proceed parallelly, but statements in criminal proceedings have higher privilege protection.

Strategic Considerations

Issue	Criminal Proceeding	Civil/Regulatory Proceeding
Standard of Proof	Beyond reasonable doubt	Preponderance of probability
Self-Incrimination	Right to silence (Art. 20(3))	Adverse inference possible
Admission Impact	Can be used in civil	Cannot be used in criminal
Settlement	Compounding with permission	Consent orders possible
Burden	On prosecution throughout	May shift to noticee

"While civil and criminal proceedings can proceed simultaneously, care must be taken to ensure that positions taken in one do not prejudice the other. The right against self-incrimination is a fundamental safeguard." State of Rajasthan v. Kalyan Sundaram Cement Industries

⚖Defense Coordination Tips

Common Counsel: Ideally same legal team across forums | Position Consistency: Ensure factual positions are consistent | Art. 20(3): In criminal, invoke right against self-incrimination where applicable | Document Control: Track what documents produced where | Settlement Timing: Consider settling civil before criminal trial

Key Takeaways - Part 4

Section 24 criminalizes SEBI Act violations with up to 10 years imprisonment and Rs. 25 crore fine
Mens rea (criminal intent) is essential - negligence alone does not constitute criminal offence
Section 27 makes officers in charge liable unless they prove lack of knowledge or due diligence
Compounding under S.24A provides exit from criminal prosecution - SEBI guidelines govern quantum
SEBI files complaints directly; no FIR - only designated courts have jurisdiction
Same conduct may attract multiple agency action - coordinate defense strategy
Civil and criminal proceedings proceed simultaneously - manage statements carefully