SEBI Special Court Must Hear Accused Before Cognizance, Rules Bombay High Court

Bombay High Court quashes a SEBI Special Court's cognizance order against a company director, holding that the mandatory pre-cognizance hearing requirement under the first proviso to Section 223(1) of the BNSS, 2023 applies with full force to prosecutions under the SEBI Act, 1992.

The Bombay High Court has quashed an order by which the Special Court (SEBI), Mumbai, took cognizance of an offence under Section 24(2) of the SEBI Act, 1992, and issued process against Neville Tuli, a director of Osian's Connoisseurs of Art Pvt Ltd. Justice N. J. Jamadar, sitting singly in the Criminal Appellate Jurisdiction, held that before taking cognizance on a complaint, the Special Court was obliged to afford the accused an opportunity of hearing under the first proviso to Section 223(1) of the Bharatiya Nagarik Suraksha Sanhita, 2023 (“BNSS, 2023”). Having taken cognizance without that hearing, the impugned order was void and could not stand. The court drew a direct parallel with settled Supreme Court rulings on PMLA prosecutions to conclude that no materially different provision exists in the SEBI Act, 1992 to displace that requirement.

The Prosecution Behind the Writ Petition

Osian's Connoisseurs of Art Pvt Ltd floated Osian's Art Fund (“OAF”), settled as a private trust under the Indian Trusts Act, 1882, pursuant to a Trust Deed dated 10 March 2006, with Oseta Investments Trustee Company Pvt Ltd as trustee. On 15 April 2013, the Whole Time Member of SEBI passed an order finding that OAF was a collective investment scheme operated without registration, in violation of Section 12(1-B) of the SEBI Act, 1992, and Regulation 3 of the SEBI (Collective Investment Schemes) Regulations, 1999.

After the company's appeals were dismissed, SEBI directed the company to refund monies to investors with 10% interest from the date the amounts first became due until the scheme's closure, under Sections 11 and 11-B read with Section 19 of the SEBI Act, 1992 and Regulation 65 of the CIS Regulations, 1999. Further appeals before the Securities Appellate Tribunal and the Supreme Court were also dismissed. When the company defaulted, prosecution notices dated 8 August 2024 were issued to the petitioner and a co-accused, who was the other director of the company.

By that stage, the Corporate Insolvency Resolution Process had been initiated against the company, and on account of the moratorium under Section 14 of the Insolvency and Bankruptcy Code, 2016, SEBI filed a complaint directly against both directors before the Special Court at Mumbai for an offence punishable under Section 24(2) of the SEBI Act, 1992, which penalises failure to pay a penalty imposed by the Adjudicating Officer or the Board, or failure to comply with any direction or order passed under the Act. The Special Court directed issue of process, finding sufficient ground to proceed. It was that order which Tuli challenged.

The Sole Question Before the Court

Although the petitioner had raised several challenges to the cognizance order, he confined the challenge at the hearing to a single point: whether a Special Court under the SEBI Act, 1992 is required, before taking cognizance on a complaint, to give the accused an opportunity of hearing under the first proviso to Section 223(1) of the BNSS, 2023.

The first proviso to Section 223(1) of the BNSS, 2023 marks a departure from the pre-existing position under Section 200 of the Code of Criminal Procedure, 1973, which did not recognise any right of audience for an accused at the pre-cognizance stage. The proviso now mandates that no cognizance of an offence on the basis of a complaint shall be taken by the Magistrate without giving the accused an opportunity of being heard. The court described this as a paradigm shift, as the right of hearing at the pre-cognizance stage was previously unrecognised in Indian criminal jurisprudence.

SEBI opposed the petition on the ground that the Special Court under the SEBI Act is constituted as, and deemed to be, a Court of Session under Section 26-D(1) of the SEBI Act, 1992, and accordingly the provisions of Chapter XVI of the BNSS, 2023, which deal with complaints to Magistrates, have no application to it. SEBI further contended that, given the detailed inquiry and investigation that precedes every complaint filed by the Board, the Special Court should be treated as empowered to take cognizance without the pre-cognizance hearing requirement.

How the Court Read the SEBI Act's Cognizance Provisions

Justice Jamadar examined Sections 26, 26-A, and 26-D of the SEBI Act, 1992 in sequence. Section 26 interdicts any court from taking cognizance of an offence under the Act save on a complaint made by SEBI. The court read this provision as governing only the mode of initiation — that is, it rules out other modes of taking cognizance available under Section 210 of the BNSS, 2023, but says nothing about the manner in which cognizance must then be taken.

Section 26-A addresses the establishment of Special Courts and the qualification for appointment as a judge of such a court (a Sessions Judge or Additional Sessions Judge), but it does not touch upon procedure for taking cognizance. Section 26-D expressly makes the provisions of the Code of Criminal Procedure, 1973 (now BNSS, 2023) applicable to proceedings before the Special Court and deems the Special Court to be a Court of Session for those purposes, subject to a saving clause (“save as otherwise provided in this Act”).

The court found that the saving clause in Section 26-D only excludes the BNSS where the SEBI Act itself contains a contrary provision. No provision in the SEBI Act, 1992 prescribes a special procedure for the manner of taking cognizance. The court pointed to a telling pattern of legislative drafting: wherever Parliament intended to give overriding effect to a provision of the SEBI Act over the Code, it used a non obstante clause. Section 24-A (composition of offences) and Section 26-B (which applies to all offences under the Act regardless of date, notwithstanding the Code) both begin with such a clause. Section 26-D does not. Applying the maxim expressio unius est exclusio alterius, the court concluded that the absence of a non obstante clause in Section 26-D was deliberate and significant: Parliament did not intend Section 26-D to displace the BNSS procedure for taking cognizance.

Distinguishing Earlier Supreme Court Precedents

SEBI relied on three Supreme Court decisions: Ajit Kumar Palit v. State of West Bengal (AIR 1963 SC 765), State of West Bengal v. Bejoy Kumar Bose (AIR 1978 SC 188), and Sanjabij Tari v. Kishore S. Borcara (2025 SCC OnLine SC 2069). The first two concerned the West Bengal Criminal Law Amendment (Special Courts) Act, 1949, which contained a non obstante clause in Section 4(1), empowering the State Government to allot cases to Special Courts; the allotment itself vested jurisdiction and was equivalent to taking cognizance. Those special provisions, Justice Jamadar held, were not present in the SEBI Act, 1992, making those decisions inapposite.

Sanjabij Tari arose under Section 138 of the Negotiable Instruments Act, 1881. Section 142 of that Act begins with a non obstante clause and specifically excludes proceedings before courts inferior to a Metropolitan Magistrate or Judicial Magistrate First Class, forming a self-contained code for cognizance of dishonoured cheque offences. The court noted that no equivalent non obstante provision exists in the SEBI Act, 1992 in the matter of manner of taking cognizance, and the rationale of Sanjabij Tari therefore did not carry over.

The PMLA Parallel That Governed the Outcome

The petitioner relied on the Supreme Court's ruling in Kushal Kumar Agarwal v. Directorate of Enforcement (2025 SCC OnLine SC 1221), which held that the provisions of Chapter XVI of the BNSS, 2023, including Section 223, apply to a complaint under Section 44 of the Prevention of Money Laundering Act, 2002. A further ruling, Parvinder Singh v. Directorate of Enforcement (2026 SCC OnLine SC 903), went further and characterised the first proviso to Section 223(1) as substantive in nature: it does not merely regulate how proceedings are conducted, but confers a right on the accused to be heard before cognizance, forming part of the right to a fair trial under Article 21 of the Constitution of India. The word “shall” in the first proviso is therefore mandatory, and cognizance taken without compliance is void ab initio.

Justice Jamadar examined the structure of the PMLA and SEBI Act side by side. Section 43 of the PMLA constitutes the Special Court as a Court of Session; Section 46 makes Code provisions applicable save as otherwise provided; Section 65 applies the Code in so far as not inconsistent with PMLA. The SEBI Act's Section 26-D mirrors this architecture closely. The court found no significant textual difference between the two statutes in the matter of the manner of taking cognizance, and held that the PMLA precedents apply with equal force to complaints under the SEBI Act, 1992.

The court recorded its conclusion plainly: the Special Court under the SEBI Act, 1992 cannot take cognizance of an offence punishable under that Act without first complying with the peremptory requirement of providing an opportunity of hearing to the accused under the first proviso to Section 223(1) of the BNSS, 2023. Having failed to do so, the impugned order was unsustainable.

Order

Justice Jamadar allowed the writ petition. The order of the Special Court (SEBI), Mumbai, taking cognizance of the offence under Section 24(2) of the SEBI Act, 1992, and issuing process against the petitioner, was quashed and set aside on the sole ground of non-compliance with the first proviso to Section 223(1) of the BNSS, 2023.

The Special Court was directed to provide an opportunity of hearing to the petitioner before passing any order on the question of taking cognizance of the offence. The petitioner was directed to appear before the Special Court on 3 August 2026; no separate notice was to be issued to him. The court expressly clarified that it had not entered into the merits of the matter and that all contentions of all parties remained open for consideration by the Special Court. Rule was made absolute with no order as to costs.