Non-Compliance in Collective Schemes a Continuing Offence: Calcutta HC Upholds SEBI’s ₹40,000 Investor Refund [Read Order]

In a recent ruling, the Calcutta High Court has refused to quash Securities and Exchange Board of India's (SEBI) criminal proceedings for failing to refund ₹40,000 collected under an unregistered collective investment scheme (CIS), holding that such non-compliance constitutes a “continuing offence” under securities law.

The petitioners, Ahilya Sharma and others, were accused of running a Collective Investment Scheme (CIS) without SEBI registration and failing to refund about ₹40,000 collected from investors, and SEBI filed a complaint in 2004 under Sections 24(1) and 27 of the SEBI Act, 1992, alleging violation of CIS Regulations, 1999. The petitioners sought to quash this complaint, arguing it was time-barred and baseless.

The petitioners argued that the SEBI issued a press release on 18 December 1997 stating that all companies already running collective investment schemes (CIS) had to submit details of their schemes to SEBI by 15 January 1998 if they wished to continue operating under Section 12(1B) of the SEBI Act and he company complied with this requirement by filing the necessary information with SEBI, just like other similar companies (such as those issuing Agrobond plantation bonds) that were brought under the CIS framework.

They contended that the complaint filed in 2004 was beyond the one-year limitation period under CrPC Section 468, since the alleged offence occurred in 2001. Also stated that one petitioner had died and others were elderly, making continuation of proceedings an undue burden.

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On the other hand, the respondent argued that company illegally mobilized funds without registration and ignored repeated directions to wind up and refund investors, and stated that no document proofs of refunds was ever produced.

They relied on the case SEBI VS. Ajay Agarwal, which stated that the SEBI Act is a social welfare legislation meant to protect small investors. also pointed out that failure to refund investors was a continuing offence, meaning limitation did not apply. Each day of non-compliance constituted a fresh violation.

After hearing both sides, the high court observed that non-compliance with SEBI’s refund directions is a continuing offence and relied on Supreme Court judgments (Bhagirath Kanoria v. State of MP, Gogak Patel Volkart Ltd. v. Dandiyya Gurusidhayya), which established that failure to meet statutory obligations daily keeps the offence alive.

The bench, Justice Ajoy Kumar Mukherjee observed that “in the instant case none of the petitioners have ever resigned as directors prior to the initiation of the instant case and as such it cannot be said that the period of limitation would be one year in terms of section 468 of Cr.P.C.

On the contrary, the allegation levelled in the petition is that they have continued to hold on to 16 the investment of the investors and failed to make any repayment to the said investors, despite several direction passed by the SEBI and therefore it is a continuing offence.”

The high court observed that SEBI’s mandate is to protect small investors and that even modest sums like ₹40,000 deserve legal scrutiny. The Court found no merit in the petitioners’ request to quash the proceedings.

Accordingly, the petition was dismissed, and all connected applications were also disposed of.

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