Supreme Court Stays Release of Funds in Securities Fraud Case: NDA Securities Ltd. vs. State (NCT of Delhi) (2025)

Introduction

Date of the Judgment: May 13, 2025

Citation: 2025 INSC 676

Judges: Justice Sudhanshu Dhulia, Justice K. Vinod Chandran

In a significant ruling concerning securities fraud, the Supreme Court of India addressed the question of whether funds withheld by a stock exchange should be released to a party under investigation. The case arose from allegations of fraudulent trading activities, where the appellant, NDA Securities Ltd., claimed to have been defrauded by an impersonator. The Supreme Court, in this judgment, overturned the High Court’s decision to release funds to the respondent, pending further investigation into their role in the alleged fraud.

The bench, comprising Justice Sudhanshu Dhulia and Justice K. Vinod Chandran, delivered the judgment, emphasizing the importance of a thorough investigation before disbursing funds that could potentially be linked to fraudulent activities.

Case Background

The case originated from a complaint filed by NDA Securities Ltd. (the appellant) alleging fraudulent trading of shares. On April 1, 2013, the appellant purportedly received a phone call from an individual impersonating their client, Brij Mohan Gagrani, instructing them to purchase 1 lakh shares of Ashutosh Paper Mills Ltd.

After executing the purchase, the appellant contacted the real Brij Mohan Gagrani, who denied making any such call. Suspecting foul play, NDA Securities Ltd. alleged that Ashish Agarwal, an agent of their company, colluded with the seller of the shares to defraud them. Consequently, the Bombay Stock Exchange Ltd. (BSE) was requested to withhold payment to the seller.

Subsequent investigations revealed that approximately 72,000 shares, valued at Rs. 15.90 lakhs, were sold by respondent no. 2. A charge sheet was filed against Amit Jain, identified as the individual who made the fraudulent phone call. While Amit Jain was named as the main accused, the charge sheet indicated that respondent no. 2 was the primary beneficiary of the transaction. The investigation into the role of respondent no. 2 was ongoing, pending the arrest and interrogation of Amit Jain, who was absconding.

Timeline

Course of Proceedings

Respondent no. 2 initially filed an application before the Magistrate Court seeking the release of the funds withheld by the BSE. This application was dismissed on September 16, 2016, on the grounds that the role of respondent no. 2 was still under investigation, and releasing the funds prematurely would not be appropriate.

Subsequently, respondent no. 2 filed a revision petition against the Magistrate Court’s order. The Revisional Court also dismissed this petition on December 8, 2016, noting that releasing the funds would impact the rights of the appellant. However, the Revisional Court directed that the investigation be expedited.

Aggrieved by the Revisional Court’s order, respondent no. 2 then filed a petition under Section 482 of the Criminal Procedure Code (CrPC) before the High Court of Delhi. The High Court allowed this petition on February 25, 2025, directing the release of the sale value of the shares in favor of respondent no. 2, leading to the appellant’s appeal before the Supreme Court.

Legal Framework

The legal framework relevant to this case includes the following provisions:

• Section 420 of the Indian Penal Code (IPC): This section deals with cheating and dishonestly inducing delivery of property.
• Section 120B of the Indian Penal Code (IPC): This section pertains to criminal conspiracy.
• Section 156(3) of the Criminal Procedure Code (CrPC): This section empowers a Magistrate to direct the police to register and investigate a cognizable offense.
• Section 482 of the Criminal Procedure Code (CrPC): This section pertains to the inherent powers of the High Court. It states: “Nothing in this Code shall be deemed to limit or affect the inherent powers of the High Court to make such orders as may be necessary to give effect to any order under this Code, or to prevent abuse of the process of any Court or otherwise to secure the ends of justice.”

Arguments

The arguments presented by both sides are crucial to understanding the context of the Supreme Court’s decision.

Appellant’s Arguments:

• The appellant contended that the High Court exceeded its inherent jurisdiction under Section 482 CrPC by directing the release of funds while the investigation was still ongoing.
• They argued that the charge sheet itself indicated that the role of respondent no. 2 could not be ruled out until the main accused, Amit Jain, was apprehended and interrogated.
• The appellant asserted that releasing the sale value of the shares to respondent no. 2 at this stage would cause irreparable loss and prejudice the ongoing investigation.
• The appellant emphasized that respondent no. 2 was the main beneficiary of the alleged fraudulent transaction, making it premature to grant them a “clean chit” before the investigation was complete.

Respondent’s Arguments:

• The respondent argued that they had genuinely put their shares on the market and were entitled to the sale value, regardless of any fraud perpetrated on the appellant.
• They contended that their role in the alleged fraud had not been conclusively established, and therefore, the funds should not be withheld from them.
• The respondent likely relied on the High Court’s observation that their involvement in the fraud could not be ascertained at that stage.

Innovativeness of the argument: The appellant’s argument was particularly strong in highlighting the premature nature of the High Court’s decision, given that the investigation was still underway and the respondent’s role was yet to be fully ascertained. This underscored the potential for irreparable harm to the investigation if the funds were released.

Submissions Table

Issues Framed by the Supreme Court

The Supreme Court did not explicitly frame specific issues in the provided text. However, the core issue before the Court can be inferred as:

1. Whether the High Court was justified in exercising its inherent powers under Section 482 CrPC to direct the release of funds to respondent no. 2, while the investigation into their role in the alleged fraud was still ongoing.

Treatment of the Issue by the Court

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

Authorities

The Supreme Court relied on the following authorities:

• Central Bureau of Investigation v. Aryan Singh & Ors. (2023) 18 SCC 399 [Supreme Court of India]: This case was cited to reinforce the settled position of law that the High Court should not conduct a mini-trial while exercising inherent jurisdiction under Section 482 CrPC.
• Dharambeer Kumar Singh v. The State of Jharkhand & Anr. (2025) 1 SCC 392 [Supreme Court of India]: This case was also cited to support the principle that the High Court should not conduct a mini-trial under Section 482 CrPC.

Authority Treatment

Judgment

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the following factors:

• Premature nature of the High Court’s order: The Court emphasized that the High Court made observations on the respondent’s role before the investigation was complete, which was deemed inappropriate.
• Potential for irreparable loss: The Court was concerned that releasing the funds to respondent no. 2 at this stage could cause irreparable loss to the appellant and prejudice the ongoing investigation.
• Ongoing investigation: The Court highlighted that the charge sheet itself indicated the need for further investigation into the respondent’s role, and it was premature to give them a “clean chit.”

Logical Reasoning

ISSUE: Whether the High Court was justified in exercising its inherent powers under Section 482 CrPC to direct the release of funds.

Flowchart:

Investigation Ongoing

↓

Role of Respondent No. 2 Not Fully Ascertained

↓

High Court Directed Release of Funds

↓

Supreme Court: High Court Exceeded Jurisdiction

↓

Order Set Aside

Key Takeaways

• The High Court should not make observations on the merits of a case while the investigation is still ongoing.
• Releasing funds or assets that are potentially linked to fraudulent activities can prejudice the investigation and cause irreparable loss.
• The inherent powers of the High Court under Section 482 CrPC should be exercised cautiously, especially in cases involving ongoing investigations.

Development of Law

The ratio decidendi of this case is that the High Court should refrain from making conclusive findings on the merits of a case while the investigation is still ongoing, and that releasing funds or assets potentially linked to fraudulent activities can prejudice the investigation. This decision reinforces the importance of allowing investigations to proceed without undue interference from the courts.

Conclusion

In summary, the Supreme Court allowed the appeal and set aside the High Court’s order, emphasizing that the sale value of the shares sold by respondent no. 2 should remain with the BSE during the pendency of the trial. The Court’s decision underscores the importance of allowing investigations to proceed without premature interference, particularly when releasing assets could prejudice the outcome.