Cognizance of SCRA offences requires a formal written complaint by a competent authority, not a police report.

In brief

The question

1. Whether a Court can take cognizance of offenses under the Securities Contracts (Regulation) Act, 1956, based on a police report/FIR rather than a formal complaint

The court held

The Court held that the legal bar under Section 26 SCRA prevented the court from taking cognizance of those specific statutory offenses via FIR

It also directed

The Court partially allowed the application, quashing the FIR and consequential proceedings only in respect of Sections 406 and 420 of the IPC and all sections of the Securities Contracts (Regulation) Act, 1956

The investigating agency was permitted to proceed with the remaining IPC offenses (forgery, etc.) and the IT Act charge

the relevant authorities were granted liberty to file a fresh complaint under the SCRA in accordance with legal procedures

01Facts

The applicants were accused of running an illegal "dabba trading" operation from a private residence using "Market Plus" applications, dummy SIM cards, and mobile phones to provide trading tips without a SEBI license

p. 2

Following a police raid, an FIR was registered under Sections 406, 420, 465, 467, 468, 471, 474, 114, and 120B of the IPC; Sections 13, 14, 19, and 23 of the Securities Contracts (Regulation) Act, 1956 (SCRA); and Section 66D of the IT Act

pp. 1-2

The applicants moved the High Court to quash the FIR, arguing that the court cannot take cognizance of SCRA offenses via a police report and that IPC sections for cheating and breach of trust were not attracted

p. 3

02Issues

i.1. Whether a Court can take cognizance of offenses under the Securities Contracts (Regulation) Act, 1956, based on a police report/FIR rather than a formal complaint

p. 4 / para. 7.1

ii.2. Whether the allegations in the FIR prima facie constitute offenses of criminal breach of trust (Section 406 IPC) and cheating (Section 420 IPC)

p. 6 / para. 8

03Law Applied

Section 26 of the Securities Contracts (Regulation) Act, 1956, which mandates that cognizance of any offense under the Act can only be taken upon a written complaint by the Central/State Government, SEBI, or a recognized Stock Exchange

p. 4

Definition of "complaint" under Section 2(d) of the CrPC, distinguishing it from a police report

p. 5

Section 405 (Criminal Breach of Trust), requiring "entrustment" of property

p. 7

Section 420 (Cheating), requiring "dishonest inducement"

p. 8

State of Haryana v. Bhajan Lal regarding the quashing of proceedings where there is an express legal bar

p. 10

Delhi Race Club (1940) Ltd. v. State of UP regarding the mutual exclusivity of Sections 406 and 420 IPC

p. 8

Provisions in the judgment · 14 · Linked ones open on LawLens

Code of Criminal Procedure, 1973 Section 2 Section 155 Section 156 Section 482

Indian Penal Code, 1860 9 provisions

Section 114 Section 405 Section 406 Section 420 Section 465 Section 467 Section 468 Section 471 Section 474

Securities and Exchange Board of India Act, 1992 Section 26

04Reasoning

The Court reasoned that Section 26 of the SCRA creates a specific jurisdictional bar; while police may investigate cognizable offenses under Section 23 of the SCRA, the trial court lacks the power to take cognizance based on a police charge-sheet, as the statute requires a formal "complaint" by a specialized authority

¶ 7.3-7.6

Regarding IPC Sections 406 and 420, the Court found that the prosecution failed to show any "entrustment" of property or that the applicants had pocketed money causing actual financial loss to any specific person

¶ 8.1

The Court noted that even if the allegations were true, they constituted a breach of regulatory law (SCRA) rather than criminal misappropriation or cheating

¶ 8.1

Additionally, it held that Sections 406 and 420 cannot coexist in the same transaction as they are distinct offenses

¶ 8.2