The Bombay High Court on Thursday refused to step in and quash two long-running CBI prosecutions linked to the 2005–06 IPO scam involving Yes Bank and IDFC, even though market regulator SEBI had settled its own proceedings against accused sub-broker Manoj Gokulchand Seksaria way back in 2009 through a consent order.
The Bench of Justice A.S. Gadkari and Justice Ranjitsinha Raja Bhonsale, delivering a detailed judgment, said the criminal cases involved "serious offences touching the rights of retail investors" and that a civil-style consent settlement under SEBI law cannot magically dissolve independent CBI prosecutions.
The judgment came after the Supreme Court, in 2024, specifically remanded the matter back to the High Court, instructing it to re-examine everything afresh.
Background
The CBI cases allege that Seksaria and several others engineered a large-scale scheme by opening hundreds of Demat and bank accounts in fictitious names and using them to apply for IPO shares reserved for small retail investors.
According to the chargesheets, 192 such applications were used in the Yes Bank IPO and around 2,000 in the IDFC IPO. The shares allotted in these fake accounts were then funnelled back to certain accused, including Seksaria, who allegedly sold them at a profit.
SEBI, after its own inquiry in 2006, issued show-cause notices and later permitted Seksaria to file a consent application in 2008. He paid ₹2.25 crore in disgorgement and settlement charges as per the December 7, 2009 consent order.
Seksaria's argument before the High Court was straightforward: once SEBI-the "originating complainant"- settled the matter, the CBI prosecutions should not survive. His counsel argued that continuing criminal proceedings was an "abuse of process" after the regulator had closed its file.
Court’s Observations
The Bench did not agree. The judges took pains to spell out the difference between regulatory violations handled by SEBI and criminal wrongdoing investigated by the CBI under the IPC, Prevention of Corruption Act, and Companies Act.
In a sharply worded passage, the Bench observed that the IPO manipulation wasn’t just a dispute between the accused and SEBI but an assault on the integrity of the market itself.
"The acts of the petitioner and other accused have adversely affected the rights of retail investors and had a wide market impact," the Bench noted.
The court also examined the SEBI consent framework in detail. Consent orders, the Bench said, are designed to settle administrative and civil actions—not criminal prosecutions already launched by another agency.
Justice Bhonsale remarked during the reading of the judgment that SEBI’s own circulars exclude "serious, fraudulent and unfair trade practices" from the ambit of settlement unless losses to investors are fully made good. In this case, retail investors who were denied IPO allotment could not be compensated simply by paying disgorgement to SEBI.
The Bench also highlighted a key factual point:
"The Consent Order dated 7th December 2009 does not even refer to the pending CBI prosecutions."
Notably, the court described the reference to CBI cases in Seksaria’s consent application as a “unilateral attempt” and said SEBI never agreed to compound or settle those prosecutions.
Concluding that the offences alleged-cheating, forgery, criminal conspiracy, and corruption involving public sector bank officials—were not private disputes but crimes against the financial system and retail investors, the court held that these cases "cannot be quashed only because the petitioner has paid monies to SEBI."
The Bench therefore dismissed the petitions and cleared the way for both Special CBI Cases (Yes Bank and IDFC IPO matters) to proceed before the trial court.
