Bombay HC Quashes FIR Against Ex-Axis Mutual Fund Chief

The Bombay High Court has quashed a First Information Report (FIR) against former Axis Mutual Fund chief dealer Viresh Joshi in an alleged front-running case.

The court held that such a prosecution under the Securities and Exchange Board of India (SEBI) Act can only be initiated on a complaint by SEBI.

The FIR, registered by the Sion police station and later transferred to the Economic Offences Wing (EOW), primarily concerned allegations of front-running, an offence governed by the special provisions of the SEBI Act.

The court found that the FIR in its present form was essentially about front-running and noted that Section 26 of the SEBI Act clearly provides that no court can take cognisance of an offence under the Act except on a complaint made by the SEBI Board.

The court said that SEBI is an expert body created to protect investors and regulate the securities market, and starting proceedings contrary to the special law would amount to “circumvention of the Special Act”.

The allegations against Joshi were that he, while working as chief dealer with Axis Mutual Fund, had access to confidential information about large orders placed by the fund and allegedly shared this information with co-accused persons, who traded ahead of the fund's orders and later squared off their positions to make profits.

The prosecution alleged that the activities caused losses to investors, while the Enforcement Directorate (ED) claimed that the proceeds were subsequently routed through different entities and accounts.

The court, however, found that the proper legal route had to be followed and urged SEBI to take “prompt, swift and effective steps” if the allegations warranted action, given their potential impact on investors and market integrity.

While quashing the FIR, the court clarified that it had not ruled out other independent offences under general criminal law and left open the right of Axis Mutual Fund to pursue its separate complaint against Joshi.

The court said the allegations were serious and that there was a “strong prima facie case” of front-running.

The decision highlights the importance of following the proper legal procedure in cases related to SEBI offences.

It also underscores the role of SEBI as a regulator and expert body in protecting investors and maintaining market integrity.

In the context of the Indian securities market, the decision is significant as it emphasizes the need for SEBI to take the lead in investigating and prosecuting offences under the SEBI Act.

The case also raises questions about the effectiveness of the current regulatory framework in preventing front-running and other forms of market abuse.

Overall, the decision of the Bombay High Court is a reminder of the importance of upholding the rule of law and following proper procedures in cases related to SEBI offences.