2015 (11) TMI 1387 - SC - Companies Law

Supreme Court Reverses SAT Decision on SEBI Act Penalties

The Supreme Court held that the Securities Appellate Tribunal (SAT) erred in reducing penalties based on extraneous factors not specified in Section 15J ... Reduction the penalty payable by the Respondent, Roofit Industries Ltd., under Section 15A of the Securities And Exchange Board of India Act, 1992 (SEBI Act) from ₹ 1 crore to ₹ 60,000 - Held that:- On an analysis of the language in the 1961 Act, it is clear that the Legislature intended for non-compliance with the obligation of making a Return to be considered an infraction as long as the default continued. The facts before us are significantly different. The amendment to Section 15A did not indicate that the amended Section would apply to penalties imposed after 29.10.2002. The amendment was merely made with effect from that date, indicating that the change would be applicable for failures occurring after that date. The date on which the failure occurred was thus relevant for deciding the applicable law, not the date on which the penalty was imposed. The relevant version of the Act for us to consider would therefore be that before 29.10.2002, the language of which did not indicate a legislative intent to consider the default a continuing one. As in Deokaran Nenshi, the default was clearly complete on the failure to submit the requisite information by the date set by the Appellant, i.e. 16.9.2002. Had the Respondent furnished the information sought by the Appellant by that date, undoubtedly there would have been no culpability against it. Thus the penalty first became applicable under the pre-amendment Section, which imposed 'a penalty not exceeding one lakh fifty thousand rupees for each such failure'. The intention of the Section as it then stood was clearly not to consider it a continuing default. Such an intention can be read into the provision as it currently stands, as it imposes a penalty for each day for which the breach continues, but this was not the case prior to 29.10.2002. Facially, this was the reason and necessity for the amendment. As the failure herein was complete on 16.9.2002, the penalty to be imposed on the Respondent in C.A. No. 1364-65 of 2015 and on each of the Respondents in the connected Appeals is ₹ 1.5 lakhs. The impugned judgment of the SAT is set aside and the Appeals are allowed in these terms. The interim stay order dated 18.2.2005 is vacated. Issues Involved:1. Legality of the Securities Appellate Tribunal (SAT) reducing penalties imposed by the Adjudicating Officer under SEBI.2. Consideration of extraneous factors not mentioned in Section 15J of the SEBI Act for penalty reduction.3. Interpretation of the amendment to Section 15A(a) of the SEBI Act and its applicability.4. Determination of whether the default was a continuing offence or a one-time infraction.Issue-wise Detailed Analysis:1. Legality of the SAT Reducing Penalties:The Appeals challenge the SAT's decision, which modified the penalties imposed by the Adjudicating Officer under SEBI. The SAT reduced the penalty for Roofit Industries Ltd. from Rs. 1 crore to Rs. 60,000 and similarly reduced penalties for other respondents. The Supreme Court noted that the SAT's reduction lacked a clear formula, raising concerns of potential arbitrariness.2. Consideration of Extraneous Factors:The SAT considered the financial condition of the Respondent, citing its verge of bankruptcy and staff departure, as reasons to reduce the penalties. The Supreme Court found merit in the Appellant's contention that these grounds were extraneous and not mentioned in Section 15J of the SEBI Act. Section 15J specifies factors such as disproportionate gain, loss to investors, and repetitive nature of the default, which alone should guide the adjudication of penalties. The Court emphasized that the term 'namely' in Section 15J indicates exclusivity to these factors.3. Interpretation of the Amendment to Section 15A(a):The Supreme Court analyzed Section 15A(a) as amended in 2002, which imposed a penalty of Rs. 1 lakh for each day of failure or Rs. 1 crore, whichever is less. The Court rejected the argument that the Adjudicating Officer retained discretion to impose lesser penalties, emphasizing the legislative intent to enforce harsher penalties without discretion. The Court highlighted that the pre-amendment Section allowed discretion, but the amendment removed this discretion, underscoring a shift towards stricter enforcement. The 2014 amendment reintroduced discretion, but this was not applicable to the period in question.4. Determination of the Nature of Default:The Court addressed whether the default was a continuing offence or a one-time infraction. The initial Summons was issued on 23.7.2002, with the Respondent failing to comply by the final deadline of 16.9.2002. The Court distinguished this case from Maya Rani Punj, where non-compliance was considered a continuing wrong. Instead, it aligned with State of Bihar v. Deokaran Nenshi, which treated failure to comply by a specific date as a one-time infraction. Consequently, the penalty applicable was under the pre-amendment Section, i.e., Rs. 1.5 lakhs.Conclusion:The Supreme Court concluded that the SAT erred in reducing the penalties based on extraneous factors not mentioned in Section 15J. The default was complete by 16.9.2002, making the pre-amendment penalty of Rs. 1.5 lakhs applicable. The SAT's judgment was set aside, and the Appeals were allowed, imposing a penalty of Rs. 1.5 lakhs on each Respondent. The interim stay order was vacated, with no orders as to costs.