SEBI Act | Special Law Overrides General Law': Bombay High Court Quashes Police FIR Against Ex-Axis Mutual Fund Chief Dealer In Front-Running Case

"Once a Special Law is enacted or is in existence, the provisions of the general law that anybody can set criminal law in motion cannot be applied and will have to give way."Bombay High Court, in a significant ruling dated August 13, 2026, held that criminal proceedings cannot be directly initiated through a police First Information Report (FIR) under general penal provisions for the offence of "front running", ruling that only the Securities and Exchange Board of India (SEBI) is statutorily empowered to launch prosecutions.

 A single bench of Justice Ranjitsinha Raja Bhonsale quashed an FIR registered by the Mumbai Police Economic Offences Wing against former Axis Mutual Fund Chief Dealer Viresh Joshi, observing that "the statutory provisions of the Special Act i.e. the SEBI Act cannot be rendered redundant nor can they be circumvented in any manner."

The dispute arose after an investor lodged an FIR with the Sion Police Station, later transferred to the Economic Offences Wing (EOW), alleging that Viresh Joshi misused his position as the Chief Dealer of Axis Mutual Fund by leaking non-public trade information to connected entities to execute front-running trades, allegedly causing massive losses to retail investors. The FIR was registered under Sections 406, 417, 420, 465, 467, 468, and 477A read with Sections 34 and 120B of the Indian Penal Code, 1860 (IPC), triggering parallel probes by the EOW and the Enforcement Directorate under the Prevention of Money Laundering Act, 2002. Joshi approached the High Court under Section 528 of the Bharatiya Nagarik Suraksha Sanhita, 2023 (BNSS) seeking to quash the FIR on the ground that the SEBI Act, 1992 holds exclusive jurisdiction over securities market violations.

The primary question before the court was whether an individual investor or the police can initiate an FIR under the IPC for allegations that strictly constitute the offence of "front running". The bench was also called upon to determine whether Section 26 of the SEBI Act operates as a statutory bar against courts taking cognizance of market misconduct absent a formal complaint filed by the SEBI Board.

Front Running Falls Squarely Within The SEBI Regulatory Regime

Justice Bhonsale carefully examined the nature of the allegations and noted that the crux of the complaint pertained to "front running", where non-public information of impending large trades by Axis Mutual Fund was shared with third parties who executed advance trades to secure unlawful profits. The court referred to the Supreme Court's ruling in SEBI v. Kanhaiyalal Baldevbhai Patel (2017) and Regulation 4(2)(q) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (FUTP Regulations), observing that front running is an act of market abuse that undermines market integrity and directly harms retail investors.

SEBI Act Prevails Over General Penal Provisions Under IPC And BNS

The bench emphasized that the SEBI Act is a comprehensive special statute enacted specifically to regulate securities markets and protect investor interests. It held that the general principle of criminal jurisprudence—that any person can set the criminal law in motion—must yield when a special enactment provides a distinct procedural mechanism. The court held that allowing general IPC offences to be investigated directly by local police for transactions that squarely fall under the SEBI framework would defeat the legislative scheme.

Section 26 SEBI Act Imposes An Absolute Statutory Bar On Police Cognizance

Addressing the mandatory nature of Section 26(1) of the SEBI Act, the bench observed that the statute contains an express negative covenant prohibiting courts from taking cognizance of any offence punishable under the Act save on a complaint made by the Board. The court held that the police cannot bypass this bar by simply registering an FIR under the IPC for acts that are essentially securities violations.

"To initiate proceedings in contradiction of the Act, would amount to circumvention of the Special Act and its provisions. The same cannot be permitted."

High Court Relies On Precedents Against Circumvention Of Special Statutes

To fortify its conclusion, the bench surveyed several key precedents. It relied on the Supreme Court's decision in Union of India v. Ashok Kumar Sharma (2021) regarding special statutory bars, the Madhya Pradesh High Court's ruling in Alka Shrivastava v. State of M.P. (upheld by the Supreme Court), the Allahabad High Court's decision in Jitendra Kumar Keshwani v. State of U.P. (2024), and the Calcutta High Court's ruling in Kanwar Deep Singh v. State of West Bengal (2002). The bench reiterated the doctrine of circumvention, underscoring that what the law forbids directly cannot be accomplished indirectly by altering the lexical character of the offence to general cheating or criminal breach of trust.

"Even assuming that an ordinary citizen, who feels that an offence is committed against him or his financial interest, approaches police station for filing an FIR, it is incumbent on the police authorities in such cases to forward the said complainant/complaint to SEBI."

Police Must Forward Market Fraud Complaints To SEBI For Expert Evaluation

The High Court clarified the duty of law enforcement agencies when approached with allegations of stock market manipulation or front running. Justice Bhonsale held that when a citizen approaches the police with allegations constituting market infractions, the police authorities are bound to forward the complaint to SEBI. The bench stressed that SEBI, as the specialized expert regulator, possesses the technical competence and statutory authority to evaluate the violations and determine whether administrative directions, civil penalties, or criminal prosecutions under Section 24 of the SEBI Act should be pursued.

Court Keeps Employer's Remedies And SEBI's Independent Action Open

While quashing the FIR, the bench clarified that it was not expressing any opinion on the merits of the allegations or on whether the information could constitute "property" for the purposes of Sections 408 or 420 IPC. The court noted that Axis Asset Management Company Limited had submitted a separate complaint regarding the breach of employment contracts and fiduciary duties. The bench expressly reserved the liberty of Axis Mutual Fund to pursue independent legal remedies or approach SEBI, while granting SEBI 12 weeks to take swift, effective steps under the SEBI Act.

The High Court allowed the criminal application and quashed FIR No. 0369/2024 registered with Sion Police Station and investigated by the Mumbai EOW. The ruling firmly establishes that allegations of front running in the securities market must be routed exclusively through SEBI under Section 26 of the SEBI Act, precluding direct police FIRs under general criminal law.

Date of Decision: 13 August 2026