Mandatory Statutory Bar under Section 26 of SCR Act Precludes Police Report Cognizance for Dabba Trading

The applicant invoked the inherent jurisdiction of the High Court under Section 482 of the Code of Criminal Procedure, 1973, seeking quashing of FIR C.R.No.I-126 of 2019 registered at Satellite Police Station, Ahmedabad City, for offences under Sections 406, 420 and 120B of the IPC and Section 23(1) of the Securities Contracts (Regulation) Act, 1956 ("SCRA"), along with all consequential proceedings.

The FIR arose when police, acting on private information, apprehended one Jay Brahmbhatt and found the "META TRADER-5" application on his mobile phone, which allegedly reflected transactions of online gambling/dabba trading; his phone was seized and he was arrested.

During investigation, the applicant's name surfaced solely on the basis of the original accused's statement alleging that the applicant had provided the ID and password of the META TRADER application to the co-accused.

The applicant contended false implication and pleaded the statutory bar under Section 26 of the SCRA, which prohibits cognizance of offences under the Act except on a complaint by the Central Government, State Government, SEBI, a recognized stock exchange, or an authorized person.

1. Whether the allegations in the FIR, taken at face value, disclose the essential ingredients of criminal breach of trust under Section 406 IPC or cheating under Section 420 IPC against the applicant.

2. Whether cognizance of the offence under Section 23(1) of the SCRA could validly be taken on the basis of a police report in view of the express bar contained in Section 26 of the SCRA.

3. Whether the FIR and consequential proceedings were liable to be quashed in exercise of inherent powers under Section 482 CrPC, read with the categories laid down in State of Haryana v. Bhajan Lal.

The Court applied Section 482 CrPC governing the inherent powers of the High Court, guided by the illustrative categories in State of Haryana v. Bhajan Lal, 1992 Supp (1) SCC 335, particularly where allegations do not prima facie constitute any offence and where an express legal bar exists to the continuance of proceedings.

It relied on Section 405 IPC, which defines criminal breach of trust as requiring entrustment or dominion over property coupled with dishonest misappropriation or conversion.

For Section 420 IPC, the Court applied Rekha Jain v. State of Karnataka, 2022 LiveLaw (SC) 468, requiring dishonest inducement to deceive a person into delivering property, and Sarabjit Kaur v. State of Punjab, (2023) 5 SCC 360, holding that a breach of contract does not give rise to prosecution for cheating unless fraudulent or dishonest intention existed at the inception of the transaction.

It further relied on Delhi Race Club (1940) Ltd. v. State of Uttar Pradesh (Criminal Appeal No. 3114 of 2024), holding that offences under Sections 406 and 420 IPC are distinct and cannot be invoked together.

Finally, the Court applied Section 26 of the SCRA, which bars courts from taking cognizance of offences under the Act except on a complaint by the Central Government, State Government, SEBI, a recognized stock exchange, or an authorized person, and mandates trial only by a Court of Session.

Applying Section 405 IPC, the Court found that the applicant's name emerged only through the statement of the original accused during investigation, with no direct evidence of entrustment of property, no allegation that the applicant pocketed money, caused loss to anyone, or obtained wrongful gain.

The Court held that, at its highest, the conduct alleged constituted a mere breach of the SCRA, which had been "wrongly characterized as criminal breach of trust," rendering Section 406 IPC inapplicable.

On the SCRA charge, a plain reading of Section 26 demonstrated that the subordinate court could not have taken cognizance on a police report, as the FIR was not preceded by any complaint from the statutorily authorized entities; consequently, no case under the SCRA was made out.

Regarding Section 420 IPC, following Rekha Jain and Sarabjit Kaur, the Court found no disclosure of dishonest inducement or fraudulent intention at the inception; additionally, per Delhi Race Club, Sections 406 and 420 IPC cannot be run together, as they are distinct offences.

The cumulative deficiencies brought the case within the first and sixth Bhajan Lal categories — the allegations failed to constitute any offence and an express statutory bar operated against the proceedings.

Accordingly, FIR C.R.No.I-126 of 2019, registered with Satellite Police Station, Ahmedabad City, and all consequential proceedings initiated in pursuance thereof were quashed and set aside qua the applicant; the Rule was made absolute and direct service permitted.

The Court expressly clarified that the quashing shall leave open the right of the competent authority to take appropriate steps in accordance with law.