Hearing Accused Under Section 223 BNSS Proviso is Mandatory Before Taking Cognizance Under SEBI Act

The Petitioner was a director of Osian’s Connoisseurs of Art Pvt Ltd, which floated the Osian’s Art Fund (OAF)

SEBI determined OAF was an unregistered collective investment scheme and ordered a refund of investor monies

Following defaults and the initiation of Corporate Insolvency Resolution Process against the company, SEBI filed a complaint against the Petitioner for offences under Section 24(2) of the SEBI Act, 1992

On taking cognizance, the Special Court (SEBI) issued process against the Petitioner without affording him a prior hearing

The Petitioner challenged this order, alleging a violation of the mandatory pre-cognizance hearing requirement under the first proviso to Section 223 of the Bharatiya Nagarik Suraksha Sanhita (BNSS), 2023

The Court applied Section 4(2) of the BNSS, 2023, which mandates that all offences under other laws be investigated and tried according to BNSS unless a special enactment regulates the manner otherwise

It prioritized the first proviso to Section 223(1) of the BNSS, 2023, which requires a Magistrate to hear the accused before taking cognizance on a complaint

The Court also interpreted Section 26-D of the SEBI Act, 1992, which applies the Code of Criminal Procedure (now BNSS) to Special Court proceedings

Key precedents included Kushal Kumar Agarwal v. Directorate of Enforcement and Parvinder Singh v. Directorate of Enforcement, which established that pre-cognizance hearings are mandatory for complaints under the PMLA and similar special statutes unless expressly excluded.

The Court reasoned that Section 4(2) of the BNSS creates a default procedural application unless the SEBI Act provides a contrary mechanism

While SEBI argued that the Special Court is a Deemed Court of Session under Section 26-D and thus exempt from Section 223 (which refers to "Magistrates"), the Court held that the SEBI Act lacks a specific provision overriding the BNSS's requirement for a pre-cognizance hearing

The Court contrasted the SEBI Act with the Negotiable Instruments Act, noting the latter contains a non-obstante clause in Section 142 that excludes general procedural rules, whereas the SEBI Act does not

Drawing a parallel to the PMLA—where the Supreme Court held the right to a hearing is a substantive part of a fair trial under Article 21—the Court concluded that the word "shall" in the proviso to Section 223(1) is mandatory and applies to the Special Court when taking cognizance of SEBI complaints

The order taking cognizance and issuing process was quashed as being void ab initio for lack of compliance with this peremptory requirement. The Court directed the Special Court to provide the Petitioner an opportunity to be heard on August 3, 2026, before passing a fresh order on cognizance