In a significant ruling, Justice Anish Kumar Gupta of the Allahabad High Court quashed the criminal proceedings against Jitendra Kumar Keshwani, a licensed share broker, emphasizing that the Securities and Exchange Board of India (SEBI) Act takes precedence in cases of stock market misappropriation. The court ruled that the criminal courts lack jurisdiction over such matters unless a formal complaint is lodged by SEBI, reaffirming the special legal provisions provided under the SEBI Act.
Case Background
The case arose from an FIR filed by Ram Kumar Sharma and his brother, who accused Jitendra Kumar Keshwani of misappropriating funds related to the sale of shares. Keshwani, the Director of M/s LDK Share and Securities Pvt. Ltd., was accused of not transferring Rs. 9,69,450, the proceeds from shares sold through his brokerage firm. Despite repeated demands, including a legal notice, the payment was allegedly not made, leading to the lodging of a case against Keshwani under Sections 420 (Cheating) and 409 (Criminal Breach of Trust) of the IPC.
The FIR, registered at Hariparvat Police Station in Agra, initiated criminal proceedings against Keshwani, which were contested by his legal counsel.
Important Legal Issues
The court was primarily tasked with deciding whether criminal proceedings under the IPC could proceed when a matter concerns stock trading and involves licensed brokers regulated under the SEBI Act. Keshwani’s defense argued that the SEBI Act governs the issue and that the criminal courts do not have jurisdiction in the matter.
Key Observations by the Court
Justice Anish Kumar Gupta highlighted the special provisions of the SEBI Act and its clear stipulation that criminal prosecution for stock market offenses can only be initiated following a formal complaint by SEBI. The court observed:
“The SEBI Act, being a special law, overrides general criminal law provisions such as the IPC or CrPC. No criminal prosecution can be initiated unless SEBI itself lodges a complaint.”
The court further observed that allegations of cheating and misappropriation in stock trading disputes do not automatically fall under the purview of criminal law, especially when there is an accounting or financial dispute. The bench referred to the Supreme Court’s ruling in Lalit Chaturvedi v. State of U.P., where the apex court had emphasized that:
“The police cannot be used as a tool for the recovery of money in civil disputes. Such cases should be handled under the provisions of the SEBI Act or through civil litigation.”
Court’s Decision
The court quashed the criminal proceedings against Keshwani, ruling that the FIR lodged under Sections 409 and 420 of the IPC was unsustainable as it pertained to stock market trading—a domain regulated exclusively by the SEBI Act. The court stated:
“The registration of the FIR is contrary to Section 26 of the SEBI Act, which prohibits courts from taking cognizance of any offence under the SEBI Act unless a complaint is filed by the Board.”
The court further noted that any legal proceedings for misappropriation in this context must be pursued through SEBI, not the criminal justice system.
Case Details
– Case Title: Jitendra Kumar Keshwani v. State of U.P. & Anr.
– Case Number: Application under Section 482 No. 27298 of 2019
– Bench: Justice Anish Kumar Gupta
