The Calcutta High Court has affirmed that failure to refund public funds collected under an unregistered collective investment scheme constitutes a continuing offence under the SEBI Act, rendering statutory limitation periods inapplicable. This ruling reinforces the judiciary’s commitment to investor protection and clarifies the legal consequences of persistent non-compliance with SEBI directives.
Background & Facts
The Dispute
The petitioners, Ahilya Sharma and others, were directors and promoters of a company incorporated under the Companies Act, 1956, which operated a collective investment scheme (CIS) under the name of "Agrobond Plantation Bonds". The scheme raised approximately Rs. 40,000 from the public between 1997 and 1998. Following the enactment of the Securities and Exchange Board of India (Collective Investment Schemes) Regulations, 1999, the company was legally obligated to either register with SEBI or wind up the scheme and refund investors. The company failed to do either.
Key Facts
- The company collected Rs. 35,000 from the public as investment under the Agrobond scheme by early 1998
- On 18.12.1997, SEBI issued a public notice requiring all existing CIS to submit details by 15.01.1998 to qualify for transitional provisions
- The company submitted information to SEBI on 01.04.1998, stating it had suspended further fund mobilization and refunded Rs. 35,000
- SEBI issued a show cause notice on 31.03.1998 and followed up with letters on 24.08.1998 and 25.11.1998, alleging non-compliance
- The petitioners reiterated in writing on 05.12.1998 and 10.01.1999 that the scheme had been withdrawn and funds refunded
- On 18.12.2000, SEBI directed the company to refund the amount within one month under Regulation 73
- On 02.07.2001, SEBI issued an order debarring the petitioners from accessing capital markets for five years under Section 11B of the SEBI Act
- On 30.03.2000, the company filed an application with the Registrar of Companies for winding up
- The company was struck off the register and dissolved on 15.03.2008
- The complaint under Section 24(1)/27 of the SEBI Act was filed on 15.07.2004 before the Chief Judicial Magistrate, Alipore
- Petitioner No. 3 died during pendency of proceedings
- Petitioners No. 1 and 2 are senior citizens with serious health conditions
Procedural History
- 1997 - 1998: Operation of Agrobond scheme and fund mobilization
- 18.12.1997: SEBI public notice on CIS compliance
- 01.04.1998: Company’s reply to SEBI, claiming refund of Rs. 35,000
- 31.03.1998: SEBI show cause notice issued
- 24.08.1998: SEBI letter alleging non-compliance
- 25.11.1998: Second SEBI reminder
- 18.12.2000: SEBI direction to refund within one month
- 02.07.2001: SEBI debarment order under Section 11B
- 30.03.2000: Company applied for winding up with Registrar of Companies
- 15.03.2008: Company dissolved by ROC notification
- 15.07.2004: Complaint filed under Section 24(1)/27 of SEBI Act
- 27.03.2026: Judgment delivered by Calcutta High Court
The Parties' Positions
Petitioners: Argued that the amount involved was trivial (Rs. 40,000), that they had complied with SEBI’s directives, that the funds were personal share capital, not public investment, and that the complaint was barred by limitation under Section 468 CrPC. They further contended that prosecution of elderly, ailing individuals and a dissolved company was an abuse of process.
SEBI: Contended that the company operated a CIS without registration, failed to wind it up or refund investors despite repeated directions, and that the non-refund constituted a continuing offence under Section 24(1). SEBI emphasized the social welfare nature of the SEBI Act and the need to protect small investors.
Relief Sought
The petitioners sought quashing of the criminal complaint (C-671 of 2004) on grounds of limitation, abuse of process, and lack of prima facie offence. They requested dismissal of the case with costs.
The Legal Issue
Whether the alleged failure to refund public funds collected under an unregistered collective investment scheme constitutes a continuing offence under Section 24(1) of the SEBI Act, thereby rendering the limitation period under Section 468 of the CrPC inapplicable?
Arguments Presented
For the Petitioner
Counsel for the petitioners relied on SEBI v. Gourav Vershanny to argue that since the alleged non-compliance occurred before the 2002 amendment to Section 24(1), the limitation period of one year under Section 468 CrPC applied. They asserted that the company had ceased operations, refunded the amount, and was dissolved in 2008, making prosecution futile. They further argued that the Rs. 40,000 was not public money but personal share capital, and that prosecuting elderly individuals for a trivial sum violated principles of natural justice and proportionality.
For the Respondent
SEBI’s counsel contended that the failure to refund investor funds was a continuing offence under Section 24(1), as the wrongful withholding persisted daily until repayment. They cited Bhagirath Kanoria v. State of MP and Gogak Patel v. Dandiyya Gurusidhayya to establish that non-compliance with statutory obligations to pay or refund constitutes a continuing offence. They emphasized that the SEBI Act is a social welfare statute and that Section 473 CrPC empowers courts to take cognizance beyond limitation if in the interest of justice.
The Court's Analysis
The Court undertook a detailed analysis of the statutory framework under the SEBI Act, 1992, and the Collective Investment Schemes Regulations, 1999. It noted that Regulation 73(1) mandates that any existing CIS which fails to register with SEBI must wind up the scheme and repay investors. The failure to do so is not a one-time act but a state of ongoing non-compliance.
"The concept of continuing offence does not wipe out the original guilt, but it keeps the contravention alive day by day."
The Court relied on the Supreme Court’s reasoning in Bhagirath Kanoria v. State of MP, which held that failure to pay provident fund contributions constitutes a continuing offence because the obligation persists daily until fulfilled. Similarly, the Court found that the obligation to refund investor funds under Regulation 73 is a continuing duty. Each day the funds remain unrefunded, a fresh offence is committed.
The Court rejected the petitioners’ reliance on SEBI v. Gourav Vershanny, distinguishing it on facts: in that case, the accused had resigned as director before the 2002 amendment, whereas here, the petitioners remained in charge throughout the period of non-compliance. The Court emphasized that the nature of the offence - wrongful withholding of investor funds - is analogous to wrongful possession of property under Section 630 of the Companies Act, as held in Bhagirath Kanoria.
The Court also invoked Section 473 CrPC, noting that courts must give due weight to the interest of justice in cases involving investor protection. Given the social welfare character of the SEBI Act, as affirmed in SEBI v. Ajay Agarwal, the Court held that allowing limitation to bar such proceedings would frustrate the legislative intent.
The dissolution of the company in 2008 did not extinguish the liability of the directors under Section 27 of the SEBI Act, which holds individuals in charge personally liable. The Court further observed that the petitioners had not produced any documentary evidence to substantiate their claim of refund, rendering their assertions legally insufficient.
The Verdict
The petition was dismissed. The Calcutta High Court held that the offence under Section 24(1) of the SEBI Act is a continuing one, and therefore not barred by limitation under Section 468 CrPC. The complaint filed on 15.07.2004 remains valid. The proceedings before the Chief Judicial Magistrate, Alipore, shall continue. The Court declined to quash the case on grounds of abuse of process, noting that the seriousness of investor fraud outweighs the triviality of the amount involved. Costs were not awarded.
What This Means For Similar Cases
Continuing Offences Trump Limitation in Investor Protection Cases
- Practitioners must now treat non-refund of investor funds under SEBI regulations as a continuing offence, triggering Section 472 CrPC, not Section 468
- Limitation cannot be invoked to shield entities that persistently withhold investor money, regardless of the sum involved
- The burden shifts to the accused to produce documentary proof of repayment; mere verbal assertions are insufficient
Directors Remain Liable Even After Company Dissolution
- Section 27 of the SEBI Act imposes personal liability on directors and officers responsible for the company’s conduct
- Dissolution of the company does not extinguish criminal liability of individuals under Section 27
- Prosecution can proceed against surviving directors even if the corporate entity no longer exists
Courts Will Prioritize Social Welfare Objectives Over Technical Limitations
- The SEBI Act is classified as a social welfare statute, requiring purposive interpretation
- Section 473 CrPC provides a strong judicial tool to override limitation where justice demands it
- Courts are now expected to scrutinize whether quashing would undermine investor confidence in capital markets
