Supreme Court settles the jurisdiction of trial courts under the SEBI Act: Classic Credit Ltd. vs. SEBI (21 August 2017)

Introduction

Date of the Judgment: 21 August 2017

Citation: (2017) INSC 729

Judges: Jagdish Singh Khehar, CJI, and Arun Mishra, J.

When the laws change, what happens to ongoing court cases? The Supreme Court of India recently addressed this question in a batch of cases concerning the Securities and Exchange Board of India (SEBI) Act, 1992. The core issue was whether amendments to the SEBI Act, which changed the courts that could try offenses, should apply to cases already in progress. This judgment clarifies which court has the power to hear cases under the SEBI Act, especially when the law changes mid-trial.

Case Background

The case involves several private parties who were accused of violating the SEBI Act. These alleged violations occurred before October 29, 2002. Initially, under the SEBI Act, these cases were to be tried by a Metropolitan Magistrate or a Judicial Magistrate of the first class. However, the SEBI Act was amended in 2002, changing the trial court to a Court of Session. This change led to the transfer of pending cases from the Magistrates to the Sessions Court. The private parties challenged this transfer, arguing that the amendment should not apply to cases involving offenses committed before the amendment took effect.

Some of these cases were initiated before October 29, 2002, while others were started after this date. The main contention of the private parties was that the amended provisions of the SEBI Act did not have retrospective effect. They argued that the trial for offenses committed before October 29, 2002, should only be conducted by the Metropolitan Magistrate or Judicial Magistrate of the first class.

Timeline

Course of Proceedings

After the 2002 Amendment Act, all pending cases before Metropolitan Magistrates or Judicial Magistrates of the first class were transferred to the Court of Session. This transfer was based on the assumption that the amendment had retrospective effect. Some of the private parties challenged this transfer in the Sessions Court, but their challenges failed.

The matter was then taken to the Bombay High Court, which set aside the Sessions Court’s judgment. The Bombay High Court took a view different from the Delhi High Court, which had held that the amendment to Section 26 of the SEBI Act was procedural and thus had retrospective effect. The SEBI then appealed to the Supreme Court against the Bombay High Court’s decision.

Separately, some private parties also challenged the change of forum in the Delhi High Court. The Delhi High Court upheld the change of forum, leading to further appeals to the Supreme Court.

Legal Framework

The core legal provisions in this case are Sections 24 and 26 of the SEBI Act, both before and after the 2002 Amendment Act.

Section 24 of the SEBI Act (before 2002 Amendment):

This section dealt with offenses under the SEBI Act. It stated that anyone contravening the Act or its rules would be punishable with imprisonment up to one year, a fine, or both. It also provided for penalties for failing to comply with orders of the adjudicating officer, including imprisonment from one month to three years, a fine between two thousand to ten thousand rupees, or both.

“24. Offences. -(1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to one year, or with fine, or with both .
(2) If any person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders, he shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to three years or with fine which shall not be less than two thousand rupees but which may extend to ten thousand rupees or with both.”

Section 26 of the SEBI Act (before 2002 Amendment):

This section addressed the cognizance of offenses by courts. Sub-section (2) stated that no court inferior to a Metropolitan Magistrate or a Judicial Magistrate of the first class could try offenses under the SEBI Act.

“26. Cognizance of offences by courts.- (1) No court shall take cognizance of any offence punishable under this Act or any rules or regulations made thereunder, save on a complaint made by the Board.
(2) No court inferior to that of a Metropolitan Magistrate or a Judicial Magistrate of the first class shall try an offence punishable under this Act.”

Section 24 of the SEBI Act (after 2002 Amendment):

The 2002 Amendment Act significantly increased the penalties for offenses. It stated that contraventions would be punishable with imprisonment up to ten years, a fine up to twenty-five crore rupees, or both. The penalties for non-compliance with orders were also increased to imprisonment from one month to ten years, a fine up to twenty-five crore rupees, or both.

“24.Offences. -(1) Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or with both .
(2) If any person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders, he shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to ten years or with fine, which may extend to twenty-five crore rupees or with both.”

Section 26 of the SEBI Act (after 2002 Amendment):

The 2002 Amendment Act changed the trial court to a Court of Session.

“26. Cognizance of offences by courts.- (1) No court shall take cognizance of any offence punishable under this Act or any rules or regulations made thereunder, save on a complaint made by the Board.
(2) No court inferior to that of a Court of Session shall try any offence punishable under this Act .”

Sections 26A to 26E (inserted by the 2014 Amendment Act):

The 2014 Amendment Act introduced Special Courts for speedy trials of SEBI Act offenses. It also stated that all offenses, whether committed before or after the 2014 amendment, would be tried by these Special Courts.

‘‘26A. Establishment of Special Courts.-(1) The Central Government may, for the purpose of providing speedy trial of offences under this Act, by notification, establish or designate as many Special Courts as may be necessary .
(2) A Special Court shall consist of a single judge who shall be appointed by the Central Government with the concurrence of the Chief Justice of the High Court within whose jurisdiction the judge to be appointed is working.
(3) A person shall not be qualified for appointment as a judge of a Special Court unless he is, immediately before such appointment, holding the office of a Sessions Judge or an Additional Sessions Judge, as the case may be.
26B. Offences triable by Special Courts.- Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), all offences under this Act committed prior to the date of commencement of the Securities Laws (Amendment) Act, 2014 or on or after the date of such commencement, shall be taken cognizance of and tried by the Special Court established for the area in which the offence is committed or where there are more Special Courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned .
26C. Appeal and revision.- The High Court may exercise, so far as may be applicable, all the powers conferred by Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 (2 of 1974) on a High Court, as if a Special Court within the local limits of the jurisdiction of the High Court were a Court of Session trying cases within the local limits of the jurisdiction of the High Court.
26D. Application of Code to proceedings before Special Court.-(1) Save as otherwise provided in this Act, the provisions of the Code of Criminal Procedure, 1973 (2 of 1974) shall apply to the proceedings before a Special Court and for the purposes of the said provisions, the Special Court shall be deemed to be a Court of Session and the person conducting prosecution before a Special Court shall be deemed to be a Public Prosecutor within the meaning of clause (u) of section 2 of the Code of Criminal Procedure, 1973 (2 of 1974 ).
(2) The person conducting prosecution referred to in sub-section (1) should have been in practice as an advocate for not less than seven years or should have held a post, for a period of not less than seven years, under the Union or a State, requiring special knowledge of law.
26E. Transitional provisions.- Any offence committed under this Act, which is triable by a Special Court shall, until a Special Court is established, be taken cognizance of and tried by a Court of Session exercising jurisdiction over the area, notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974):
Provided that nothing contained in this section shall affect the powers of the High Court under section 407 of the Code of Criminal Procedure, 1973 (2 of 1974) to transfer any case or class of cases taken cognizance by a Court of Session under this section.”.

Arguments

Arguments by SEBI:

• SEBI argued that changes in procedural law, including changes in the forum of trial, are generally retrospective unless the law specifies otherwise.
• They contended that the change in forum from a Metropolitan Magistrate to a Sessions Court and then to a Special Court was purely procedural and did not prejudice the accused.
• SEBI asserted that the SEBI Act is a special law that overrides general laws like the Code of Criminal Procedure, and thus, the special forum provided under the SEBI Act should prevail.
• SEBI relied on several judgments, including Union of India v. Sukumar Pyne, Ramesh Kumar Soni v. State of Madhya Pradesh, and Kamlesh Kumar v. State of Jharkhand, to support their claim that procedural laws are retrospective and that there is no vested right to be tried by a particular court or procedure.
• SEBI argued that the legislature had the power to amend the SEBI Act, including the power to alter the forum of trial.
• SEBI contended that the intent of the legislature was clear that all cases should be tried by the new forums.

Arguments by the Private Parties:

• The private parties argued that while substantive law changes are prospective, changes in the forum of trial should not always be treated as procedural. They argued that such changes should be considered prospective, especially when cases are already pending.
• They contended that the change in forum was not purely procedural, as it was consequential to substantive changes in the Act, such as changes in penalties.
• The private parties asserted that the 2002 Amendment Act did not expressly or impliedly mandate that pending cases should be transferred to the Court of Session.
• They relied on Ramesh Kumar Soni v. State of Madhya Pradesh, arguing that when a case is pending, the forum of trial remains with the original court unless expressly stated otherwise.
• The private parties argued that the insertion of Section 26B by the 2014 Amendment Act should only apply to offences committed after the amendment or to those offences where cognizance had not been taken before the amendment.
• The private parties also argued that the change in forum deprived them of the right to have their case tried as a summons case, which could have resulted in a lighter sentence.
• The private parties contended that the change of forum also took away their right to revision, which was a valuable right.

Table of Submissions:

Issues Framed by the Supreme Court

The Supreme Court framed the following key issues:

1. Whether the amendment to Section 26 of the SEBI Act by the 2002 Amendment Act, which changed the forum for trial, had retrospective effect.
2. Whether cases pending before the Metropolitan Magistrate or Judicial Magistrate of the first class should be transferred to the Court of Session.
3. Whether the insertion of Section 26B of the SEBI Act by the 2014 Amendment Act, which mandated trial by Special Courts, applied to cases pending before the Court of Session.

Treatment of the Issue by the Court

The following table demonstrates as to how the Court decided the issues:

Authorities

The Supreme Court considered the following authorities:

Cases:

Legal Provisions:

• Sections 24 and 26 of the Securities and Exchange Board of India Act, 1992 (before and after the 2002 Amendment Act)
• Sections 26A to 26E of the Securities and Exchange Board of India Act, 1992 (inserted by the 2014 Amendment Act)
• Section 6 of the General Clauses Act, 1897
• Sections 2(w), 2(x), 26, 260, 262, 374, 397, and 401 of the Code of Criminal Procedure, 1973
• Section 143 of the Negotiable Instruments Act, 1881
• Section 16A of the Food Adulteration Act, 1954

Judgment

How each submission made by the Parties was treated by the Court?

How each authority was viewed by the Court?

✓ The Supreme Court followed the principle laid down in Union of India v. Sukumar Pyne [AIR 1966 SC 1206]* that procedural laws are generally retrospective.

✓ The Supreme Court followed the principle laid down in New India Insurance Co. Ltd. v. Shanti Misra [(1975) 2 SCC 840]* that change of forum is procedural and retrospective.

✓ The Supreme Court followed the principle laid down in Hitendra Vishnu Thakur v. State of Maharashtra [(1994) 4 SCC 602]* and Ranbir Yadav v. State of Bihar [(1995) 4 SCC 392]* that procedural laws are generally retrospective.

✓ The Supreme Court followed the principle laid down in Kamlesh Kumar v. State of Jharkhand [(2013) 15 SCC 460]* that procedural laws are generally retrospective and that a revision is not a right.

✓ The Supreme Court followed the principle laid down in Ramesh Kumar Soni v. State of Madhya Pradesh [(2013) 14 SCC 696]* that procedural laws are generally retrospective.

✓ The Supreme Court followed the principle laid down in Securities and Exchange Board of India v. Ajay Agarwal [(2010) 3 SCC 765]* that procedural laws are generally retrospective.

✓ The Supreme Court followed the principle laid down in Nani Gopal Mitra v. State of Bihar [AIR 1970 SC 1636]* that procedural laws are generally retrospective but concluded proceedings under old law will not be reopened.

✓ The Supreme Court distinguished the principle laid down in Commissioner of Income Tax, Orissa v. Dhadi Sahu [1994 Supp (1) SCC 257]* and R. Kapilnath v. Krishna [(2003) 1 SCC 444]* and noted that change of forum can be substantive where proceedings have already commenced.

✓ The Supreme Court followed the principle laid down in Videocon International Limited v. Securities and Exchange Board of India [(2015) 4 SCC 33]* that change of forum can be substantive where proceedings have already commenced.

✓ The Supreme Court followed the principle laid down in Ambalal Sarabhai Enterprises Ltd. v. Amrit Lal and Co [(2001) 8 SCC 397]* that pending proceedings are saved by Section 6 of the General Clauses Act.

✓ The Supreme Court followed the principle laid down in Union of India v. A.K. Pandey [(2009) 10 SCC 552]* and Mannalal Khetan v. Kedar Nath Khetan [(1977) 2 SCC 424]* that prohibitive words indicate a mandatory nature of the provision.

✓ The Supreme Court followed the principle laid down in Devender Kumar Singla v. Baldev Krishan Singla [(2005) 9 SCC 15]* that the word “or” denotes disjunctive expressions.

✓ The Supreme Court followed the principle laid down in Pranab Kumar Mitra v. State of West Bengal [AIR 1959 SC 144]*, Shankar Ramchandra Abhyankar v. Krishnaji Dattatreya Bapat [(1969) 2 SCC 74]*, and Krishnan v. Krishnaveni [(1997) 4 SCC 241]* that revisional power does not create a right in the litigant.

✓ The Supreme Court followed the principle laid down in State of West Bengal v. Anwar All Sarkar Habib Mohamed [AIR 1952 SC 75]* that procedural law can confer valuable rights and that discrimination is not permissible.

✓ The Supreme Court approved the decisions of the High Court of Delhi in Panther Fincap and Management Services Ltd. v. Securities and Exchange Board of India (decided on 5.9.2006) and Mahender Singh v. High Court of Delhi (Writ Petition (C) No.141 of 2007, decided on 11.01.2008), which held that the amendment to Section 26 was procedural and retrospective.

✓ The Supreme Court overruled the decision of the High Court of Judicature at Bombay in M/s. Classic Credit Ltd. v. State of Maharashtra (Criminal Application No.1557 of 2007, decided on 16.01.2008), which held that the amendment to Section 26 was not retrospective.

Key Points that Influenced the Court’s Decision:

• The court emphasized the general principle that procedural laws are retrospective unless there is an express provision to the contrary.
• The court noted that the changes in the SEBI Act were meant to enhance the enforcement of securities laws and that a procedural change like the change of forum would not cause prejudice to the accused.
• The court held that the language of Section 26 of the SEBI Act, as amended, clearly indicated that the jurisdiction of the lower courts was removed, and the cases were to be tried by the Court of Session.
• The court held that the language of Section 26B of the SEBI Act, as inserted by the 2014 Amendment Act, clearly mandated that all cases, whether committed before or after the amendment, were to be tried by the Special Courts.
• The court noted that the right to revision is not a vested right and that the legislature has the power to alter the forum of trial.

Final Decision

The Supreme Court held that:

• The amendment to Section 26 of the SEBI Act by the 2002 Amendment Act, which changed the forum for trial, had retrospective effect.
• Cases pending before the Metropolitan Magistrate or Judicial Magistrate of the first class were to be transferred to the Court of Session.
• The insertion of Section 26B of the SEBI Act by the 2014 Amendment Act, which mandated trial by Special Courts, applied to cases pending before the Court of Session.

The Supreme Court directed that all pending cases under the SEBI Act were to be transferred to the Special Courts established under the 2014 Amendment Act.

Implications

The judgment in Classic Credit Ltd. vs. SEBI has significant implications for the interpretation of procedural laws and the jurisdiction of trial courts under the SEBI Act.

• Retrospective Application of Procedural Laws: The judgment reinforces the principle that procedural laws, including changes in the forum of trial, are generally retrospective. This means that changes in the court where a case is to be tried can apply to cases that were already pending when the law changed.
• Special Courts for SEBI Act Offenses: The judgment clarifies that the Special Courts established under the 2014 Amendment Act have jurisdiction over all offenses under the SEBI Act, regardless of when the offense was committed. This ensures that all cases are tried in a consistent and speedy manner.
• No Vested Right to a Particular Forum: The judgment confirms that there is no vested right to be tried by a particular court or procedure. The legislature has the power to alter the forum of trial, and such changes will generally apply to pending cases.
• Consistency in Judicial Interpretation: The judgment resolves the conflict between the Bombay High Court and the Delhi High Court on the issue of retrospective application of the amendment to Section 26 of the SEBI Act. This brings consistency in the judicial interpretation of the SEBI Act.
• Impact on Pending Cases: The judgment has a direct impact on all pending cases under the SEBI Act. All such cases will now be transferred to the Special Courts established under the 2014 Amendment Act.

Flowchart of Judicial Process