SEBI Consent Orders Do Not Bar CBI Prosecutions for IPO Rigging: Economic Offences Affecting Retail Investors Are Public Wrongs Not Fit for Quashing

Introduction

In Manojdev Gokulchand Seksaria v. The State of Maharashtra & CBI, the Bombay High Court (A.S. Gadkari and R.R. Bhonsale, JJ.) delivered a significant ruling on 14 November 2025 that clarifies the legal consequences of settlements with the Securities and Exchange Board of India (SEBI) on parallel criminal prosecutions. The petitioner sought quashing under Article 227 and Section 482 of the Criminal Procedure Code (CrPC) of two CBI prosecutions arising from the 2005 IPO scam involving Yes Bank Ltd. (YBL) and IDFC Ltd. The core issues were:

Whether a SEBI consent order dated 7 December 2009 (disgorgement plus settlement charges) extinguishes or affects ongoing CBI criminal prosecutions under the Indian Penal Code (IPC), the Prevention of Corruption Act, 1988 (PC Act), and the Companies Act, 1956; and
Whether, in light of the consent order and payments made, the criminal cases could be quashed under Section 482 CrPC.

The case involves allegations that the petitioner, along with others (including public sector bank officials), orchestrated a conspiracy to corner shares reserved for retail investors (RII) in the YBL and IDFC IPOs by opening thousands of bank and demat accounts in fictitious names using forged documents, thereby depriving genuine retail investors and unlawfully profiting from listing gains. SEBI’s initial administrative and adjudicatory actions culminated in a consent order after disgorgement and settlement fees were paid. The petitioner argued that this regulatory settlement should nullify the criminal prosecutions.

Following a prior remand by the Supreme Court in August 2024 directing an independent reconsideration of the petitions, the High Court has now ruled decisively on the interface between SEBI’s consent regime and criminal law enforcement.

Summary of the Judgment

The High Court dismissed both writ petitions and refused to quash the CBI prosecutions. The Court held:

SEBI’s consent order dated 7 December 2009, accepting disgorgement and settlement charges, does not compromise or extinguish independent criminal prosecutions by the CBI for offences under IPC, PC Act, and Companies Act.
Section 24A of the SEBI Act permits compounding only of certain SEBI Act offences and is confined to offences where fine is an alternative to imprisonment. The consent circulars (2007 and 2012) reinforce that serious fraudulent and unfair trade practices with market-wide impact or harm to retail investors fall outside consent/compounding, except where investor losses are made good.
The consent order expressly limited itself to proceedings under Sections 11(4) and 11B (administrative directions), adjudication proceedings, and “proposed” SEBI prosecutions—not to pre-existing CBI prosecutions in which cognizance had already been taken in March 2008. A unilateral reference by the applicant to CBI cases in the consent application could not expand the consent order’s scope.
The IPO-rigging allegations constitute economic offences and public wrongs. These are not private disputes and are not amenable to quashing under Section 482 CrPC notwithstanding settlements or repayments. The involvement of public servants under the PC Act aggravates the public character of the wrong.

Emphasising the societal harm caused by predatory cornering of the retail investor quota, the Court concluded that continuation of the criminal proceedings is necessary to protect the integrity of the securities market and the public interest.

Analysis

1) Precedents Cited and Their Influence

a) Quashing in light of settlements: limited exception

Gian Singh v. State Of Punjab (2012) 10 SCC 303: Laid down the broad framework—High Courts may quash where disputes are overwhelmingly civil/commercial in flavour and the possibility of conviction is remote; however, serious offences, offences under special statutes (e.g., PC Act), and crimes against society are not fit for quashing even if settled.
Parbatbhai Aahir v. State of Gujarat (2017) 9 SCC 641: Consolidated principles; economic offences affecting the financial/economic well-being of the State stand on a different footing and ordinarily should not be quashed.
State of M.P. v. Laxmi Narayan (2019) 5 SCC 688: Reiterated that the nature and gravity of the offence, and whether the offence is against society, are key determinants.
Cases where quashing was allowed upon settlement, e.g., Nikhil Merchant v. CBI (2008) 9 SCC 677; CBI v. Narendra Lal Jain (2014) 5 SCC 364; CBI v. Duncans Agro Industries (1996) 5 SCC 591, were distinguished on facts as involving primarily civil/commercial disputes subsequently given a criminal colour, often without PC Act elements or market-wide public harm.

b) Economic offences and public wrongs: the dominant line

CBI v. Maninder Singh (2016) 1 SCC 389 and State of Maharashtra, CBI v. Vikram Anantrai Doshi (2014) 15 SCC 29: Economic offences involving bank frauds are public wrongs with societal impact; settlements/repayments are no ground to quash. The Court quoted and applied the “social wrong” rationale and cautioned against misplaced sympathy that would undermine public confidence and the financial system.
Sushil Suri v. CBI (2011) 5 SCC 708: Settlement/repayment does not erase criminal liability where conspiracy and forgery are alleged; Section 482 powers must not stifle legitimate prosecutions.
Rumi Dhar v. State of West Bengal (2009) 6 SCC 364: Civil settlements do not dictate criminal liability; Section 43 of the Evidence Act limits the relevance of civil decrees to criminal trials.
Daxaben v. State Of Gujarat (2022 LiveLaw SC 642): Reaffirmed Gian Singh; serious crimes with public ramifications not quashable despite compromise.
Anil Bhavarlal Jain v. State of Maharashtra (2024 SCC OnLine SC 3823): PC Act prosecutions should not be quashed on settlement; public exchequer injury and public interest predominate.
State of Odisha v. Pratima Mohanty (2022) 16 SCC 703; Bhajan Lal principles reiterated—quashing post-charge-sheet is rare and circumscribed; courts must avoid mini-trials at the 482 stage.

c) Compounding under the SEBI Act: the Prakash Gupta guidance

Prakash Gupta v. SEBI (2021) 17 SCC 451: Clarified that while SEBI’s consent is not mandatory for compounding under Section 24A SEBI Act, courts must consider gravity and public character of the offence and give due weight to SEBI/HPAC views. Crucially, offences of public character affecting market integrity should not be compounded even if restitution occurs.

The High Court drew on Prakash Gupta to underscore the gravity-based limits of composition/settlement in securities offences, aligning SEBI’s 2007/2012 circulars with judicial doctrine.

2) Legal Reasoning

a) The scope of Section 24A SEBI Act and the consent regime

The Court’s statutory analysis is a key contribution:

Section 24A permits compounding of only those SEBI Act offences where fine is in the alternative to imprisonment. It excludes offences punishable with imprisonment only, or with imprisonment and fine.
SEBI’s 20 April 2007 circular recognized two enforcement streams: (i) administrative/civil actions (directions, adjudication, SAT/court matters), and (ii) criminal action (prosecutions). Consent orders principally address the former, and compounding of offences is contemplated for SEBI’s own criminal complaints under Section 24A, subject to court/SAT scrutiny and SEBI’s policy factors.
SEBI’s 25 May 2012 circular narrowed the consent window: “serious fraudulent and unfair trade practices” with substantial investor losses or market-wide impact are not to be settled, except where investor losses are made good. The policy elevates the protection of retail investors’ rights and market integrity above mere monetary quantification.

Applying these principles, the Court concluded that a SEBI consent order does not—and cannot—by itself settle or neutralize independent criminal prosecutions initiated by the CBI for IPC/PC Act offences, especially where the alleged conduct is grave, has market-wide implications, and involves public servant complicity.

b) The consent order’s text and timing

The consent order expressly disposed of proceedings under Sections 11(4) and 11B of the SEBI Act, adjudication proceedings, and the proposed prosecution under Section 24 of the SEBI Act. It made no mention of the two CBI prosecutions (Special Case Nos. 47/2007 and 48/2007), in which cognizance had been taken in March 2008.
Because those CBI prosecutions pre-dated the consent order, the reference to “proposed prosecution” could not logically encompass them. The petitioner’s unilateral inclusion of the CBI cases in his consent application did not bind SEBI or expand the order’s reach.
Consent orders must be read strictly; what is not expressly covered remains unaffected. Non-mention is exclusion.

c) Section 482 CrPC: nature of the offence controls

The Court meticulously applied settled 482 principles:

Quashing is exceptional and reserved for clear cases where, even accepting the allegations at face value, no offence is made out (the Bhajan Lal categories).
Where charge-sheets have been filed, courts are especially circumspect; they do not assess the evidence on merits at the threshold.
Settlements justify quashing only in disputes with a predominantly civil/commercial flavour; not where the offence is a public wrong or involves special statutes like the PC Act, or where the conduct is inherently criminal from inception.

d) Classification proposed by the Court

The Bench articulated a useful heuristic:

Category 1: Criminal prosecutions arising out of purely civil disputes/transactions later given a criminal colour—potentially suitable for quashing after settlement.
Category 2: Conduct that is criminal from inception—e.g., planned conspiracies using forged documents, fictitious identities, and public servant complicity to subvert market mechanisms—not amenable to quashing.

The present case was placed firmly in Category 2.

e) Application to the facts: the petitioner’s role and societal impact

On the material collected by the CBI:

For YBL: 192 fictitious IPO applications; 88 fictitious demat accounts received 13,200 shares; transfer to petitioner’s genuine account via irregular single delivery instruction slips; alleged unlawful gain of Rs 1.98 lakh.
For IDFC: 2,000 fictitious IPO applications; 5,30,304 shares cornered; forged signatures; fictitious bank/demat accounts; funding via an NBFC/DP (KCL) including an outstation cheque of Rs 51.90 crores not backed by funds; alleged profit of Rs 1.64 crores.
Public servants (PSU bank officials) and depository participants allegedly aided the scheme, triggering PC Act applicability.

The Court found a well-planned conspiracy designed to defeat the IPO mechanism, injure the rights of small retail investors (RII), and undermine orderly market development—harm of a public character. Payment under a SEBI consent order could not furnish immunity from prosecution for such conduct.

3) Impact of the Ruling

a) On the interface of SEBI settlements and criminal prosecutions

Consent orders and disgorgement are not a shield against independent criminal liability—particularly for IPC/PC Act charges investigated by CBI.
SEBI’s consent framework addresses administrative/civil proceedings and, at best, SEBI’s own criminal complaints under Section 24A, subject to court control. It does not extinguish prosecutions by other agencies unless expressly compounded by the competent court.
Consent orders must be drafted with precision. Absent an express reference and a competent compounding order, other prosecutions continue unaffected.

b) On Section 482 CrPC strategy and economic offences

For market-manipulation/IPO-rigging cases with market-wide impact and harm to retail investors, quashing on settlement-based pleas will be resisted. Courts will prioritize public interest, market integrity, and deterrence.
Involvement of public servants under the PC Act creates a near-categorical bar to settlement-based quashing, aligning with Gian Singh and later authorities.

c) For regulators and enforcement agencies

SEBI can continue to pursue consent orders for administrative/adjudicatory matters while coordinating with investigative agencies on criminal prosecution. The two tracks are complementary, not mutually exclusive.
CBI and prosecuting agencies can rely on this precedent to oppose quashing attempts premised on SEBI settlements in serious securities offences.

d) For market participants and intermediaries

Disgorgement and settlement fees are not “passports to impunity.” Where conduct subverts market mechanisms and harms retail investors, criminal liability will persist notwithstanding regulatory settlements.
Depositories, DPs, and banks should anticipate heightened scrutiny where systemic safeguards are bypassed (e.g., mass fictitious accounts, irregular instruction slips, funding anomalies).

Complex Concepts Simplified

Consent Order (SEBI): A settlement order by SEBI that disposes of administrative/regulatory proceedings (e.g., directions, adjudication) based on agreed terms such as disgorgement and settlement charges. It is not, by itself, a compounding of criminal offences unless brought before the competent court.
Compounding (Section 24A, SEBI Act): A legal mechanism allowing certain SEBI Act offences to be settled before SAT/court. It excludes offences punishable with imprisonment only or with imprisonment and fine, and is guided by gravity and public interest.
Disgorgement: A non-penal equitable remedy requiring surrender of wrongful gains to prevent unjust enrichment; distinct from fines or criminal penalties.
Section 482 CrPC: High Court’s inherent power to prevent abuse of process and secure the ends of justice; exercised sparingly, not for conducting mini-trials or routinely quashing prosecutions post-charge-sheet.
Economic Offence: A crime affecting the economy or financial system (e.g., bank fraud, securities manipulation). Treated as a public wrong with societal impact; typically not quashable on the basis of private settlements.
Retail Individual Investor (RII) Quota: A reserved portion in an IPO for small, individual investors. Predatory cornering of RII quota undermines fairness and harms investor rights.
PC Act (Prevention of Corruption Act): Special statute punishing corruption by public servants and those abetting them. Cases under the PC Act are generally not amenable to settlement-based quashing.
HPAC/WTM (SEBI): High Powered Advisory Committee advises on consent/compounding; Whole Time Member issues final consent orders for administrative/adjudicatory matters.

Key Doctrinal Takeaways

SEBI consent orders are confined to administrative/adjudicatory proceedings and SEBI’s own contemplated prosecutions; they do not automatically settle or immunize independent prosecutions by the CBI under IPC/PC Act.
Where the alleged conduct is intrinsically criminal from inception—planned conspiracy, forgery, fictitious identities, and aiding by public servants to subvert the IPO mechanism—courts will treat it as a public wrong, not a private dispute.
Economic offences with market-wide impact and injury to retail investors fall outside the ambit of settlement-based quashing under Section 482 CrPC, even after disgorgement or repayment.
Consent orders must clearly spell out the proceedings they resolve; non-mention implies non-coverage. A petitioner’s unilateral listing of desired proceedings in a consent application has no legal effect absent express inclusion in the order.
SEBI’s 2012 policy exclusion for “serious fraudulent and unfair trade practices” with investor harm or market-wide impact is aligned with Supreme Court jurisprudence rejecting compounding/quashing of public wrongs.

Conclusion

This judgment establishes a clear precedent in securities regulation and criminal jurisprudence: regulatory settlements with SEBI, including disgorgement through consent orders, do not preclude or diminish independent criminal prosecutions for serious IPO manipulation and related economic offences investigated by the CBI. By anchoring its reasoning in Section 24A’s limited compounding scope, SEBI’s consent circulars, and the Supreme Court’s robust line of authority on economic offences and public wrongs, the Bombay High Court decisively refused to conflate civil/regulatory settlements with criminal liability.

The Court’s articulation of two categories of prosecutions—civil disputes later criminalized versus conduct criminal from inception—offers a pragmatic lens for future Section 482 analyses. IPO-rigging schemes that weaponize fictitious identities, forged documents, and public servant complicity to predate on the retail investor quota are squarely public wrongs, not private quarrels. Such cases, the Court held, must proceed to trial despite disgorgement, lest public confidence in market integrity and the criminal justice system be eroded.

The decision will guide regulators, enforcement agencies, and market participants alike: consent is not immunity; disgorgement is not absolution. Where market manipulation injures retail investors and the financial system, criminal accountability remains non-negotiable.