The Bombay High Court has affirmed a fundamental procedural safeguard in securities prosecutions: no Special Court under the SEBI Act, 1992 may take cognizance of an offence on a complaint without first giving the accused an opportunity to be heard. This ruling reinforces the mandatory nature of the first proviso to Section 223 of the Bharatiya Nagarik Suraksha Sanhita, 2023, and aligns SEBI prosecutions with constitutional guarantees of fair trial.
Background & Facts
The Dispute
The petitioner, Neville Tuli, a director of Osian's Connoisseurs of Art Pvt Ltd, faces criminal prosecution under Section 24(2) of the Securities and Exchange Board of India Act, 1992, for failure to comply with SEBI’s direction to refund investor monies. The prosecution was initiated after SEBI’s adjudicatory order, upheld by the Securities Appellate Tribunal and the Supreme Court, mandated refund of amounts with 10% interest. The Corporate Insolvency Resolution Process (CIRP) against Osian’s was ongoing, prompting SEBI to file a complaint directly with the Special Court at Mumbai.
Key Facts
- Osian’s floated Osian’s Art Fund (OAF) as a private trust on 10.03.2006 under the Indian Trusts Act, 1882.
- On 15.04.2013, SEBI declared OAF an unregistered collective investment scheme in violation of Section 12(1-B) of the SEBI Act and Regulation 3 of the CIS Regulations, 1999.
- On 28.05.2021, SEBI issued a final order directing refund of investor amounts with 10% interest from the date due until closure.
- Appeals against the order were dismissed by the Securities Appellate Tribunal and the Supreme Court.
- On 08.08.2024, prosecution notices were issued to the petitioner and co-accused.
- A complaint was filed before the Special Court (SEBI), Mumbai, on the basis of the above, invoking Section 24(2) of the SEBI Act, 1992.
- The Special Court, without affording the petitioner any hearing, took cognizance and issued process on 05.04.2025.
Procedural History
- 08.08.2024: Prosecution notices issued to petitioner and co-accused.
- 05.04.2025: Special Court (SEBI), Mumbai, took cognizance and issued process without hearing the accused.
- 15.04.2025: Writ Petition No. 5242 of 2025 filed before the Bombay High Court under Article 227 and Section 528 of BNSS, 2023.
- 09.04.2026: Case reserved for judgment.
- 15.07.2026: Judgment pronounced.
The Parties' Positions
Petitioner (Neville Tuli): Argued that the Special Court violated the mandatory requirement under the first proviso to Section 223(1) of BNSS, 2023, which mandates an opportunity of hearing before cognizance is taken on a complaint. He contended that the absence of such hearing renders the order null and void.
Respondent (SEBI): Contended that the Special Court under the SEBI Act, 1992, is a Court of Session and not a Magistrate’s Court, and therefore Section 223 of BNSS, 2023 does not apply. Relied on Section 26-D(1) of the SEBI Act, which deems the Special Court a Court of Session, and argued that the provisions of Chapter XVI of BNSS, 2023 (governing complaints to Magistrates) are inapplicable.
Relief Sought
The petitioner sought quashing of the order dated 05.04.2025 taking cognizance and issuance of process, on the sole ground of non-compliance with Section 223(1) proviso of BNSS, 2023. He sought no other relief, including no challenge to the merits of the complaint.
The Legal Issue
Is it mandatory for a Special Court under the SEBI Act, 1992, to afford an opportunity of hearing to the accused under the first proviso to Section 223(1) of the Bharatiya Nagarik Suraksha Sanhita, 2023, before taking cognizance of an offence on a complaint?
Arguments Presented
For the Petitioner
The petitioner’s counsel, Mr. Vyapak Desai, argued that Section 26-D(1) of the SEBI Act, 1992, expressly subjects proceedings before the Special Court to the provisions of BNSS, 2023, save as otherwise provided. He emphasized that no provision in the SEBI Act derogates from the requirement of pre-cognizance hearing. He relied on Kushal Kumar Agarwal v. Directorate of Enforcement and Parvinder Singh v. Directorate of Enforcement, where the Supreme Court held that the first proviso to Section 223(1) of BNSS, 2023 applies to complaints under the PML Act, 2002, which shares nearly identical structural provisions with the SEBI Act. He further contended that the proviso is substantive, not merely procedural, and protects the right to fair trial under Article 21.
For the Respondent
Mr. Sudeep Pasbola, Senior Advocate for SEBI, argued that Section 26 of the SEBI Act restricts cognizance to complaints filed by SEBI alone, and Section 26-D(1) deems the Special Court a Court of Session, thereby excluding the applicability of Chapter XVI of BNSS, 2023, which governs Magistrates. He relied on Ajit Kumar Palit v. State of West Bengal and State of West Bengal v. Bejoy Kumar Bose, where Special Courts under state enactments were held not bound by Section 200 CrPC. He also cited Sanjabij Tari v. Kishore S. Borcar, where the Supreme Court held that Section 142 of the NI Act overrides Section 200 CrPC, and argued that SEBI’s detailed pre-complaint investigation negates the need for pre-cognizance hearing.
The Court's Analysis
The Court undertook a detailed textual and structural analysis of the SEBI Act, 1992, and BNSS, 2023. It began by noting Section 4(2) of BNSS, 2023, which provides that general criminal procedure applies to offences under special laws unless a contrary provision exists. The Court held that the SEBI Act does not contain any provision that explicitly excludes the application of Section 223(1) proviso.
"The first proviso to Section 223(1) of the BNSS, 2023 is not a mere procedural formality; it is a substantive right conferred upon the accused to be heard before the Court assumes jurisdiction. The word 'shall' leaves no room for discretion."
The Court distinguished Ajit Kumar Palit and State of West Bengal v. Bejoy Kumar Bose, noting that those cases involved statutes with non-obstante clauses explicitly overriding the CrPC. In contrast, Section 26-D(1) of the SEBI Act uses only a saving clause - "save as otherwise provided" - without any non-obstante language. The Court emphasized that where Parliament intended to override the CrPC, it did so explicitly, as seen in Sections 24-A and 26-B of the SEBI Act.
The Court further rejected the reliance on Sanjabij Tari, noting that Section 142 of the NI Act contains a non-obstante clause and a specific bar on jurisdiction, which is absent in the SEBI Act. The Court found the SEBI Act’s structure - particularly Section 26-D - to be materially identical to the PML Act, 2002, which the Supreme Court in Kushal Kumar Agarwal and Parvinder Singh held to be governed by Section 223(1) proviso.
"The absence of a non-obstante clause in Section 26-D, coupled with the express application of the Code, indicates legislative intent to incorporate the procedural safeguards of BNSS, 2023, including the right to be heard before cognizance."
The Court concluded that the Special Court, though deemed a Court of Session, is not exempt from the mandatory pre-cognizance hearing requirement. The right to be heard is integral to Article 21, and the proviso is not a mere formality but a constitutional safeguard.
The Verdict
The writ petition is allowed. The impugned order dated 05.04.2025, taking cognizance and issuing process against the petitioner under Section 24(2) of the SEBI Act, 1992, is quashed and set aside on the ground of non-compliance with the first proviso to Section 223(1) of the BNSS, 2023. The Special Court is directed to afford the petitioner an opportunity of hearing before taking cognizance afresh. The petitioner shall appear before the Special Court on 03.08.2026. No separate notice shall be issued. The Court clarified that this order does not prejudge the merits of the complaint.
What This Means For Similar Cases
Pre-Cognizance Hearing Is Non-Negotiable
- Practitioners must now insist on compliance with Section 223(1) proviso in all prosecutions under special statutes where no explicit override exists.
- Any order taking cognizance without hearing the accused is void ab initio, regardless of the nature of the offence or the authority filing the complaint.
Special Courts Are Not Exempt from BNSS, 2023
- The mere designation of a court as a "Special Court" or its deeming as a "Court of Session" does not automatically exclude Chapter XVI of BNSS, 2023.
- Courts must examine whether the special statute contains an express non-obstante clause excluding BNSS provisions - silence or a saving clause is insufficient.
PML Act Precedent Is Directly Applicable
- Prosecutions under SEBI Act, PML Act, and similar statutes with parallel provisions (e.g., Section 26-D equivalent) must now uniformly follow the same procedural standard.
- Advocates may cite Kushal Kumar Agarwal and Parvinder Singh as binding authority in any case involving pre-cognizance hearing under a special law.
Strategic Takeaway
- In defending against SEBI-initiated prosecutions, the first procedural challenge should be to the absence of pre-cognizance hearing.
- If the Special Court has already taken cognizance without hearing, file a writ petition under Article 227 immediately - the defect is incurable by mere remand.
