Share Broker Payment Dispute Cannot Sustain Cheating or Criminal Breach of Trust Charges: Allahabad High Court

Case Overview

Case Name: Jitendra Kumar Keshwani Vs State of U.P. And Anr (Allahabad High Court)
Application: Application under Section 482 No. 27298 of 2019
Date of Order: 24/09/2024
Forum: Allahabad High Court

Background and Facts

The Allahabad High Court, in an application filed under Section 482 of the Code of Criminal Procedure, was called upon to decide whether criminal proceedings initiated against a registered share broker under Sections 420 and 409 of the Indian Penal Code could be sustained where the underlying dispute was essentially one of accounting between a broker and his clients.

The applicant, Jitendra Kumar Keshwani, was the Director/proprietor of M/s LDK Share and Securities Pvt. Ltd., a licensed share broker. The opposite party no. 2 and his younger brother Ram Kumar Sharma maintained Demat Accounts with the Stock Holding Corporation of the applicant and had traded in equity shares through him. The grievance of opposite party no. 2, as set out in the FIR registered as Case Crime No. 160 of 2018, was that after shares were sold, the applicant failed to remit the proceeds amounting to Rs. 9,69,450/- despite repeated demands and a legal notice dated 30.11.2017.

The FIR alleged criminal breach of trust and misappropriation and expressly sought recovery of the amount through criminal proceedings. Following police investigation, a charge-sheet dated 06.09.2018 was filed, and the Chief Judicial Magistrate, Agra took cognizance on 12.04.2019 in Case No. 21421 of 2019. The applicant approached the High Court seeking quashing of the charge-sheet, the cognizance order, and all related criminal proceedings.

Arguments Raised by the Parties

Applicant's Submissions

Counsel for the applicant advanced two distinct lines of argument:

  1. On IPC Offences: Placing reliance on the Supreme Court's judgment dated 06.02.2024 in Lalit Chaturvedi & Others vs. State of U.P. and Another, Criminal Appeal arising out of SLP (Crl.) No. 13485 of 2023, it was submitted that the FIR allegations, even if taken at face value, did not disclose the commission of any offence under Sections 420 or 409 IPC. The dispute was purely one of outstanding payment between a broker and an investor.

  2. On SEBI Act Jurisdiction: Since the applicant was a broker registered under the Securities and Exchange Board of India Act, 1992, the alleged conduct — failure to remit sale proceeds to an investor — at best attracted Section 15-F of the SEBI Act. Relying on Section 26 of the SEBI Act, it was contended that no FIR could be registered by a private individual for offences punishable under that Act, and that cognizance could only be taken on a complaint filed by the Board itself.

Opposite Party's Submissions

Counsel for opposite party no. 2 countered on two grounds:

  • Section 26B of the SEBI Act was cited to argue that prosecution before Special Courts was permissible.
  • It was further argued that the FIR did not allege any offence under the SEBI Act; the charges were specifically under Sections 409 and 420 IPC, and prosecution under the IPC was therefore independently maintainable.
  • Alternatively, if the Court found the FIR unsustainable under the SEBI Act framework, liberty was sought to approach SEBI with an appropriate complaint, with the delay condoned on account of the pendency of the present application.

The learned Additional Government Advocate supported the submissions made on behalf of opposite party no. 2.

Statutory Provisions Examined

The Court reproduced and examined the relevant provisions of the IPC and the SEBI Act:

Indian Penal Code Provisions

Section 405 IPC — Criminal Breach of Trust:
"Whoever, being in any manner entrusted with property, or with any dominion over property, dishonestly misappropriates or converts to his own use that property, or dishonestly uses or disposes of that property in violation of any direction of law prescribing the mode in which such trust is to be discharged, or of any legal contract, express or implied, which he has made touching the discharge of such trust, or wilfully suffers any other person so to do, commits 'criminal breach of trust'."