The Bombay High Court has held that a Special Court constituted under the Securities and Exchange Board of India (SEBI) Act, 1992 is required to provide an accused an opportunity of hearing under the first proviso to Section 223(1) of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) before taking cognizance of offences on a complaint filed by SEBI. The Court ruled that non-compliance with the mandatory statutory requirement renders the order taking cognizance unsustainable.
Justice N.J. Jamadar allowed the writ petition filed a former director of Osian’s Connoisseurs of Art Pvt. Ltd., who challenged the Special SEBI Court’s order taking cognizance of an offence under Section 24(2) of the SEBI Act without first granting him an opportunity of being heard. The prosecution arose from SEBI’s allegation that the company failed to comply with directions requiring the refund of monies collected under the Osian’s Art Fund, which SEBI had held to be an unregistered collective investment scheme.
The principal question before the High Court was whether the mandatory pre-cognizance hearing introduced by the first proviso to Section 223(1) BNSS applies to prosecutions initiated before Special Courts under the SEBI Act. The petitioner argued that while the SEBI Act prescribes that cognizance can only be taken on a complaint made by SEBI, it does not contain any special procedure excluding the operation of Section 223 BNSS. Consequently, the Special Court was obliged to hear the proposed accused before taking cognizance.
SEBI, on the other hand, contended that the Special Court under the SEBI Act functions as a Court of Session and that the provisions of Section 223 BNSS, which appear in the chapter dealing with complaints before Magistrates, were inapplicable. It also argued that the complaint is preceded by extensive regulatory investigations under the SEBI Act and that insisting upon a pre-cognizance hearing would frustrate the objective of ensuring speedy prosecution of securities law violations.
Rejecting SEBI’s submissions, the High Court observed that Section 26-D of the SEBI Act expressly provides that the provisions of the Code of Criminal Procedure (now BNSS) apply to proceedings before Special Courts unless the Act contains a contrary provision. The Court found that while the SEBI Act specifies the mode by which cognizance can be taken namely, only upon a complaint by the Board, it does not prescribe any distinct procedure governing the manner of taking cognizance so as to exclude the application of Section 223 BNSS.
The Court extensively relied upon the Supreme Court’s decisions in Parvinder Singh v. Directorate of Enforcement, 2026 SCC OnLine SC 903, and Tarsem Lal v. Directorate of Enforcement, (2024) 7 SCC 61, where it was held that the first proviso to Section 223(1) BNSS applies to complaints filed under the Prevention of Money Laundering Act, 2002 (PMLA). Observing that the statutory framework governing Special Courts under the SEBI Act is substantially similar to that under the PMLA, the Court held that the same principle would apply to prosecutions under the SEBI Act as well.
The Court further noted that the introduction of the first proviso to Section 223(1) BNSS marked a significant departure from the earlier criminal law by conferring upon an accused a substantive right to be heard before cognizance is taken on a complaint. The Court observed that the provision is mandatory in nature and forms an integral part of the accused’s right to a fair trial under Article 21 of the Constitution. Once it is found that Section 223 governs the proceedings, there can be no departure from its mandatory requirement.
Accordingly, the High Court quashed the Special Court’s order taking cognizance and issuing process against the petitioner solely on the ground that no opportunity of hearing had been afforded under the first proviso to Section 223(1) BNSS. The matter has been remitted to the Special SEBI Court, which has been directed to hear the petitioner before deciding afresh whether cognizance ought to be taken. The High Court clarified that it had not examined the merits of the allegations and kept all contentions open for consideration by the Special Court.
