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Securities & Exchange Board of India v. Arihant Jain and Ors.(2023/DHC/003975)

Hon'ble Judges: Subramonium Prasad, J.


Numerous cases of buyback of shares have developed in recent times along with the price fluctuation in the market. The Securities & Exchange Board of India (“SEBI”) aims to monitor the operations of financial intermediaries and effectively control the securities market.

This case highlights the settled principle in law that a director cannot be prosecuted only by virtue of his position in the company. The director or officer of the company needs to have played a role in the functioning of the company or in the commission of an offence.


In the following case, an appeal was filed by SEBI under Section 401 of the Code of Criminal Procedure, 1973 (“CrPC”), which highlights the High Court’s power of revision, to set aside the order of Lower Court dated March 24, 2009.

It was purported that through its own group companies, friends and family, Ideal Hotels and Industries (“IHIL”) had bought back shares, artificially inflating the price of IHIL Securities and Respondent was acting as the director of IHIL at that period of time. Pursuant to this, SEBI filed a complaint under Sections 24 and 27 of the Securities & Exchange Board of India Act, 1992 (“Act”), which deals with the imposition of punishment upon contravening with rules and regulations of the Act and where an offence under this act has been committed by a company, every person who at the time of the commission of an offence was responsible for the company and its conduct of business shall be liable and punished, respectively against the Respondent.

Summons were issued by the Lower Court to all the accused persons, including the Respondent, to which the Respondent filed a revision petition to set aside the summoning order. The Learned Court set aside the order observing that the complaint entails no such material to imply that the Respondent was responsible for executing the business of IHIL.

As a result, a revision petition was filed by SEBI along with the initiation of a preliminary investigation into the purchase of IHIL shares. Investigation disclosed high fluctuation in the price of shares during the period of January 30, 1996 to February 29, 1996 and subsequently, SEBI obtained information regarding the buyers and sellers of the IHIL shares, which divulged that certain companies were either directly or indirectly the group companies of IHIL. Their directors and respective registered addresses were also found to be common. Further, one Mr. Prakash Gupta was found to be handling the affairs of these companies.


Whether or not holding a position in a company can be sufficient ground to hold a person liable for the contravention.


The Appellant alleged that IHIL had bought back its shares through its own group companies, family, and friends, artificially raising the price of its securities and at the relevant time, Respondent was holding the position of director of IHIL. However, the Appellant failed to place on record any information which proved that the Respondent was at the helm of affairs at the relevant point in time.

The Court observed that the Respondent has found his way into the array of parties simply because he was the Director of IHIL at the relevant time. And through the statement of Mr. Prakash Gupta, it was implicated that all the affairs of the group companies were handled by him.

The Court noted the judgment of SEBI v. Gaurav Varshney​1 , wherein the Supreme Court observed that a director cannot ipso facto, simply by virtue of being the director of a Company, be arraigned as an Accused by the SEBI. Further, the Court laid emphasis upon the provision of Section 27 of the Act to ensure that no person shall be liable to any punishment provided in this Act if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such contravention.


The Court dismissed the instant petition and other pending applications on the ground that there is no evidence against the Respondent, incriminating him for the allegation of price manipulation of IHILs stock.


The Hon’ble High Court of Delhi has rightly decided on the present case that a director cannot by the very fact, simply by virtue of being director of a company, be put on trial as an accused by SEBI.

Although, it is a well-settled law yet cases on the same issue have consistently arisen. This results in repetitive legal proceedings squandering our current resources on the same matter. There is a need to dispose of cases with similar facts in issue at a prior stage to preserve the valuable time of the Court.