Only SEBI Can Prosecute: Bombay High Court Re-Affirms The Section 26 Bar In Front-Running Cases
A recent ruling of the Bombay High Court in Viresh Gangaram Joshi vs. The State of Maharashtra and Anr. (Bombay High Court); Criminal Application No. 1036 of 2025 has once again drawn a firm line around who may set the criminal law in motion for offences under the Securities and Exchange Board of India Act, 1992 (“SEBI Act”). Justice Ranjitsinha Raja Bhonsale quashed an FIR registered against the former Chief Dealer of Axis Asset Management Company on allegations of front-running, holding that Section 26 of the SEBI Act operates as a statutory bar on courts taking cognizance of such offences except on a complaint filed by the SEBI Board itself.
The ruling is not a novel proposition of law, but its timing and setting make it a useful occasion to revisit how the jurisdictional architecture of securities-market offences interacts with the general criminal process, and what it means for investors, intermediaries, and investigating agencies who find themselves at the intersection of the two.
The Factual Matrix
The applicant, Joshi, was accused of using his access to non-public information about Axis Mutual Fund’s large pending trades to enable third parties to take positions ahead of those trades and square them off once the Fund’s orders moved the market — the classic architecture of a front-running scheme. The investigating agency’s own affidavit recorded a “Buy-Buy-Sell” and “Sell-Sell-Buy” pattern across a set of trades that were cross-referenced against a spike-trade analysis conducted by Deloitte, identifying 34 suspect Axis Mutual Fund transactions. SEBI had independently issued an interim order-cum-show cause notice against Joshi on February 28, 2023, in relation to the same trades.
The FIR itself, however, originated not from SEBI but from a private investor, and was registered at the Sion Police Station invoking Sections 408, 420, 120B and 34 of the erstwhile Indian Penal Code. Axis Mutual Fund separately lodged a complaint against Joshi in October 2025 over his conduct as an employee, which the investigating agencies merged into the same proceedings.
The Court’s Reasoning
The High Court’s analysis turned entirely on the scope of Section 26 of the SEBI Act, which restricts cognizance of offences under the Act to complaints made by the Board. The Court held that where the substance of an allegation is a SEBI Act offence — here, front-running — a court cannot take cognizance of it merely because an FIR has been registered by the police at the instance of a private party. The special statute, the Court observed, prevails over the general criminal law, and the general principle that any person can set the criminal law in motion must yield to the specific procedure Parliament has prescribed for securities-market offences.
Importantly, the Court did not hold that Joshi’s conduct was innocent, nor did it foreclose SEBI’s own enforcement track. It expressly left SEBI free to independently examine whether the allegations — including those already flagged in its February 2023 show cause notice — disclosed an offence under the SEBI Act, and directed that necessary steps be taken within twelve weeks of SEBI receiving the order. Axis Mutual Fund, too, was granted liberty to pursue an independent complaint before SEBI or the appropriate forum, with a similar twelve-week timeline for SEBI’s decision.
The Court also carved out a distinct question it declined to decide: whether the same set of facts could independently sustain offences under the general criminal law — as the Enforcement Directorate and the State had contended, citing Sections 408, 420, 120B and 34 IPC. That question, the Court clarified, remains open and would have to be examined on its own terms, separately from the SEBI Act bar.
Why The Distinction Matters
The ruling is a reminder that a front-running allegation does not automatically fall outside the reach of ordinary criminal law merely because Section 26 blocks a private FIR for the SEBI Act offence. What the Court has done is separate two overlapping but analytically distinct questions: (a) can a private complainant or the police, acting on their own, prosecute conduct that is, in substance, an offence under the SEBI Act — no; and (b) can the same conduct, if it independently satisfies the ingredients of an IPC/BNS offence such as cheating, criminal breach of trust, or criminal conspiracy, be prosecuted through the ordinary process — that remains to be examined. Practitioners advising complainants in market-abuse fact patterns will need to plead and frame these two limbs separately, rather than treating an FIR as a catch-all vehicle.
For investors and market intermediaries who believe they have been victims of front-running or similar market abuse, the practical takeaway is procedural: a complaint to the police alone will not sustain prosecution for the securities-law offence. The Court has reiterated that where such a complaint reaches the police, the appropriate course is for it to be forwarded to SEBI, which alone can decide whether to prosecute under the Act. Employers such as Axis Mutual Fund, who may have independent grievances arising from an employee’s conduct, retain the separate option of pursuing those grievances — as the Court’s grant of liberty here illustrates — without being constrained by Section 26, since that bar applies only to the SEBI Act offence itself.
The decision also reinforces a point that recurs across SEBI jurisprudence on front-running: the Board’s role as the exclusive gatekeeper of criminal process is not a technicality but a considered legislative choice, rooted in the specialised nature of securities-market offences and the need for a regulator with the requisite expertise to assess whether conduct that appears anomalous on a trading pattern is, in fact, unlawful. Bypassing that gate — however well-intentioned the private complainant — invites exactly the kind of quashing that occurred here.
Conclusion
Viresh Joshi does not expand or narrow the substantive law on front-running; it reaffirms the procedural discipline Section 26 imposes, and clarifies that this discipline does not extinguish parallel remedies under the general criminal law or before SEBI. For a regulator increasingly active in market-abuse enforcement, and for a bar that regularly encounters front-running fact patterns in both regulatory and criminal fora, the ruling is a useful marker of where the jurisdictional lines actually sit — and a caution against conflating a securities offence with an ordinary criminal complaint simply because the underlying facts overlap.
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(The author is an Advocate and Company Secretary based in Mumbai, practising in securities law, SAT enforcement, and NCLT/IBC matters. Views are personal.)
