SEBI compounding requires regulator's views, but market-manipulation offences affecting investors were not fit for compounding.

Section 24A of the SEBI Act vests compounding power in the SAT or the court seized of the proceedings, and prior consent of SEBI is not mandatory; however, SEBI's expert views on the nature, gravity and market impact of the alleged default must be sought and given due deference unless mala fide or manifestly arbitrary. Applying that approach, allegations of price rigging, artificial price rise and misuse of public issue proceeds were treated as offences of a public-market character affecting investors and market confidence, so compounding was refused despite compensatory steps. The challenge therefore failed and compounding was declined on the facts.

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Issues: (i) Whether the power to compound offences under Section 24A of the Securities and Exchange Board of India Act, 1992 requires the prior consent of SEBI; (ii) whether, on the facts of the case, the offences involving alleged price rigging and misuse of public issue proceeds should be compounded.

Issue (i): Whether the power to compound offences under Section 24A of the Securities and Exchange Board of India Act, 1992 requires the prior consent of SEBI.

Analysis: Section 24A contains a non obstante clause and vests the power to compound in the Securities Appellate Tribunal or the court before which the proceedings are pending. The provision does not mention SEBI as a consenting authority. Reading a mandatory consent requirement into the text would amount to rewriting the statute. At the same time, because SEBI is the expert regulator and prosecuting agency under the Act, its views on the nature, gravity and market impact of the alleged default must be sought and given due deference, unless those views are shown to be mala fide or manifestly arbitrary.

Conclusion: Prior consent of SEBI is not mandatory for compounding under Section 24A, but SEBI's views must be obtained and considered with due deference.

Issue (ii): Whether, on the facts of the case, the offences involving alleged price rigging and misuse of public issue proceeds should be compounded.

Analysis: The alleged conduct was not a private wrong capable of being settled merely by restitution. It involved serious allegations of market manipulation, artificial price rise, misuse of IPO proceeds and conduct affecting investors and the stability of the securities market. In such cases, the public character of the offence and the broader impact on investor confidence justify refusing compounding, even where some compensatory steps were taken and the regulator did not suffer from any lack of information or arbitrariness in opposing the application.

Conclusion: The offences were not fit to be compounded on the facts.

Final Conclusion: The statutory power under Section 24A is controlled by the text of the Act and must be exercised with regard to SEBI's expert view and the public character of securities-market offences. On the facts, compounding was rightly declined and the challenge failed.

Ratio Decidendi: Under Section 24A of the SEBI Act, the tribunal or court alone decides compounding, but must seek and seriously consider SEBI's expert views; offences of a public-market character involving investor harm and market manipulation should not ordinarily be compounded.

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