TaxTMI 
TaxTMI 
2004 (3) TMI 430
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....The appellants, SEBI, are statutory body constituted under the provisions of the SEBI Act. It can sue and be sued by that name. Being a person aggrieved and affected by the impugned order, has preferred this Appeal. 4. The respondents-Cabot International Capital Corporation (for short referred as 'CICC') have its office at Suite 1300, Two Seaport Lane, Boston MA-02210-2019. Cabot India Ltd. (for short 'CIL') is a company incorporated under the Companies Act, 1956. CIL was listed in Bombay Stock Exchange on 16th December, 1996, CICC, the foreign collaboration of the CIL, held 51% of paid up capital of the CIL. After the Board Meeting of the CIL dated 24th December, 1996, the Board of Directors approved the recommendations for the Preferential Issue to the members and shareholders of the CIL and accordingly, Extraordinary General Meeting was convened and conducted on January 23, 1997, which was duly notified to the Bombay Stock Exchange on January 2, 1997. 5. By Certificate dated 14th January, 1997, S.R. Batliboi & Associates, Chartered Accountants, being the statutory Auditors of the CIL, addressed a certificate to the SEBI and the Reserve Bank of India (for short 'RBI') and it wa....
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....pursuant to section 75(1) of the Companies Act with the Registrar of Companies, Maharashtra, in respect of the above referred issues and allotment of new equity shares. On 16th May, 1997, on application, Bombay Stock Exchange, informed the listing of the aforesaid shares and that the shares were not transferable upto 10th April, 2002. CICC, therefore, pursuant to the aforesaid preferential allotment, held 60% of the issued capital of the CIL. On 2nd June, 1997, the respondents ought to have filed a Report with the SEBI under Regulation 3(4), 3(5) of SEBI Takeover Regulations, 1997, within 21 days of the said allotment. On 28th October, 1998, the SEBI Takeover Regulations, 1997 were amended. 7. DSP Merill Lynch Limited, on 10th November, 1998, on behalf of the CICC, made an application to the SEBI in respect of acquisition of further 14% of the shares and sought an exemption under regulation 3 of the SEBI Takeover Regulations, 1997. 8. Sometime in November, 1998, appellants raised query and pointed out that the SEBI Takeover Regulations, 1997, were applicable and the respondents were under an obligation to file a Report under regulation 3(4) of the SEBI Takeover Regulations, 1997.....
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....mposing monetary penalty, preferred an Appeal No. 24 of 2000, under section 15T of the SEBI Act, before the SEBI Appellate Tribunal (SAT), Mumbai, on 22nd October, 2000. This Appeal was duly contested by the appellants through its Adjudicating Officer. The basic grounds raised in the appeal by the respondents were that, there was no deliberate or dishonest conduct or any conscious disregard to the SEBI Takeover Regulations of 1994/1997. It was only a technical or venial flaw from a bona fide belief that the respondents were not liable to act in the manner prescribed under the provisions of SEBI Takeover Regulations, 1997. That alleged breach was without 'mens rea' and no advantage of any kind accrued to the respondents or any loss to the investors. There was no occurrence of default or repetition of the alleged violation by the respondents. They had complied with other laws and regulations. Therefore, no case of penalty was made out and the learned Adjudicating Officer failed to exercise discretion judiciously. The appellants, resisted the above grounds by its Affidavit dated 14th November, 2000. 11. The SAT, after hearing both the parties, by its order dated 25th January, 2001, a....
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....ion, return, etc.-If any person, who is required under this Act or any rules or regulations made thereunder:- (a )to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty not exceeding one lakh and fifty thousand rupees, for each such failure; (b)to file any return or furnish any information, books or other documents within the time specified therefore in the regulations, fails to file return or furnish the same within the time specified therefore in the regulation, he shall be liable to a penalty not exceeding five thousand rupees for every day during which such failure continues; (c)To maintain books of account or records, fails to maintain the same, he shall be liable to a penalty not exceeding ten thousand rupees for every day during which the failure continues. 15J. Factors to be taken into account by the Adjudicating Officer.-While adjudging the quantum of penalty under section 15-I, the Adjudicating Officer shall have due regard to the following factors namely :- (a)the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b)the amount of loss caused to an ....
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....depend on the purport and object for which the same had been used. The purpose and object of the Act must be given its full effect and the entire statute must be read as a whole; 'Contextual reading is a well-known proposition of interpretation of statute. The clauses of a statute should be construed with reference to the context vis-a-vis the other provisions so as to make a consistent enactment of the whole statute relating to the subject matter. 'A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word'; 'No part of a statute and no word of a statute can be construed in isolation'; ****** 29. It is clear from the provisions referred above, that it is an obligation and duty of the acquirer to provide and furnish detailed information with documents through the format of report as prescribed. This format further makes it clear that general information about the acquisition of shares must be submitted to the Board by acquirer with details including details of 'promoter' and 'target company' etc. The format is always for the convenie....
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....f the SEBI Act, was bound to adjudicate on the said breach's and on quantum of penalty, in question. (E) The SEBI Act and the Regulations in question are not penal statutes, but are regulatory and remedial in nature. Proceedings under Chapter VI-A relating to levy of penalties are adjudicatory in nature and are not criminal proceedings. The Adjudicating Officer performs quasi-judicial functions and does not act as a Court, but acts for the purpose of determining the liability for the breach of civil obligations imposed by the SEBI Act and the Regulations. (F) The Adjudicating Officer, after taking into consideration all facts and circumstances and the provisions of section 15J, had imposed a nominal penalty of Rs. 1,50,000 only. Therefore, discretion exercised by the Adjudicating Officer ought not to have been interfered with. The Adjudicating Officer had not imposed any penalty under section 15H(ii) of the SEBI Act as no offence under that section was made out. (G) The penalties prescribed under the SEBI Act are the liabilities for breach of civil obligation in complying with civil obligations imposed by the SEBI Act and Regulations and, therefore, penalty imposed cannot be equ....
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....rom the assessee. B. It has been contended therefore, that settled principle of mens rea is a must before proposing a penalty in question. This general principle is not altered or affected by the decision in Director of Enforcement v. MCTM AIR 1996 SC 1100. C. In the case of State of Maharashtra v. Mayer Hans George AIR 1965 SC 722 (3 Judges) the Supreme Court had earlier held that offences under FERA were absolute offences and not conditioned by guilty intent or mens rea. D. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be judicially exercised and on a consideration of all the relevant circumstances/the entirety of circumstances." 17. Senior Counsel Mr. Janak Dwarkadas for the respondents in other appeal supported the arguments of Senior Counsel Mr. Aspi Chinoy and in addition to that, he referred to the Judgment of this Court in Appeal No. 2 of 2001, dated 5th December, 2003 (supra), Nathulal v. State of MP AIR 1966 SC 43 (3 Judges) and Gannon (Hongkong) v. Attorney General of Hongkong 1984 (2) All. ER 503 (PC). He further submitted that non-compliance of the order of the Adjudicating Officer resu....
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....mposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to exercise judiciously and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." This was a case under the Sales Tax Act, 1947 and penalty provision was in addition to the failure to register itself as a dealer. The observations of the Supreme Court that penalty for failure to carry out a statutory obligation would not be, ordinarily, imp....
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....3] 3 SCC 529 : This was a case of the penalty under the Central Sales Tax Act 1956 r/w Haryana General Sales Tax Act, 1973. This Judgment elaborates the meaning and purpose of the words "offence" and "penalty". After considering all earlier leading cases on these related principles of "offence" and 'penalty', the Hon'ble Supreme Court, in paragraphs 25 and 31, observed as under : "25. . . . The expression 'offence' is not defined in the Constitution. Article 367 of the Constitution says that unless the context otherwise provides for words which are not defined in the Constitution, the meaning assigned in the General Clauses Act, 1897 may be given. Section 3(38) of the General Clauses Act defines 'offence' as any act or omission made punishable by any law for the time being in force. The marginal note of our article 20 is 'protection in respect of conviction for offences'. The presence of the words 'conviction' and 'offences', in the marginal note 'convicted of an offence', 'the act charged as an offence' and 'commission of offence' in clause (1) of article 20, 'prosecuted and punished' in clause (2) of article 20 and 'accused of an offence' and 'compelled to be a witness against h....
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....s case (supra) and other cases, on merit, the imposition of penalty was held to be unwarranted and unjustifiable, as goods, itself, were not within the ambit of Import-Export Policy and/or the Customs Act and as they had acted bona fidely. Therefore, held that the quantum of penalty and fine in lieu of confiscation was extremely harsh, excessive and unreasonable, as found by the Appellate Tribunal. (xi) Consolidated Coffee Ltd. v. Agrl. ITO [2001] 1 SCC 278 : This judgment elaborates the meaning of the words 'interest' and 'penalty' in reference to the Agricultural Income-tax. 19. Mr. Dwarkadas relied on Nathulal's case (supra). This was a case of offence under Essential Commodities Act, 1955 r/w section 40 of the Indian Penal Code. This was again a case of criminal offence. The principle noted above and in Mayer Hans George's case (supra) has been followed. The paragraph referred vehemently in support of his submissions is reproduced as under : "Having regard to the object of the Act, namely, to control in general public interest, among others, trade in certain commodities, it cannot be said that the object of the Act would be defeated if mens rea is read as an ingredient of th....
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....a) which requires that mens rea must be proved before penalty can be levied under that provision. . . . ****** 5. Accordingly, we hold that the element of mens rea was not required to be proved in the proceedings taken by the Income-tax Officer under section 271(1)(a) of the Income-tax Act against the assessee for the assessment years 1965-66 and 1966-67." (p. 1673) 21. Addl. CIT v. I.M. Patel & Co. AIR 1992 SC 1762 : This judgment is again in reference to section 271(1)(a) of the Income-tax Act and concluded as under in paragraph 11 : "11. In view of this, it is no longer open to argument whether any mens rea is required to be established under section 271(1)(a). As a matter of fact, in the subsequent decision of this Court in CIT v. Kalyan Das Rastogi [1992] 193 ITR 713, squarely applied this ratio. In the result, the reference is answered in favour of the revenue. The appeals will stand allowed setting aside the judgments of the High Court and the Tribunal. The order of assessment as passed by the Assessing Authority and as confirmed by the Assistant Appellate Commissioner in relation to penalty is hereby confirmed. There shall be no order as to costs." (p. 1765) 22. In Dir....
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.... but of determination of the breach of the civil obligation by the offender. 8. It is true the breach of a 'civil obligation' which attracts 'penalty' under section 23(1)(a) FERA, 1947 and a finding that the delinquent has contravened the provisions of section 10 FERA, 1947 would immediately attract the levy of 'penalty' under section 23, irrespective of the fact whether the contravention was made by the defaulter with any 'guilty intention' or not. Therefore, unlike in a criminal case, where it is essential for the 'prosecution' to establish that the 'accused' had the necessary guilty intention or in other words the requisite 'mens rea' to commit the alleged offence with which he is charged before recording his conviction, the obligation on the part of the Directorate of Enforcement, in cases of contravention of the provisions of section 10 of FERA, would be discharged where it is shown that the 'blameworthy conduct' of the delinquent had been established by wilful contravention by him of the provisions of section 10 FERA, 1947. It is the delinquency of the defaulter itself which establishes this 'blameworthy' conduct, attracting the provisions of section 23(1)(a) of FERA, 1947 w....
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....nt to the commission of a 'criminal offence' overlooking the position that the 'blameworthy conduct' in the adjudicatory proceedings is established by proof only of the breach of a civil obligation under the Act, for which the defaulter is obliged to make amends by payment of the penalty imposed under section 23(1)(a) of the Act irrespective of the fact whether he committed the breach with or without any guilty intention. Our answer to the first question, formulated by us above is, therefore, in the negative." [Emphasis supplied] (pp. 1103-1106) 23. R.S. Joshi v. Ajit Mills Ltd. AIR 1977 SC 2279 : A Constitution Bench of 7 Judges, while dealing with the constitutionality of certain provisions of the Bombay Sales Tax Act, observed thus : "19. . . . Even here we may reject the notion that a penalty or a punishment cannot be cast in the form of an absolute or no-fault liability but must be preceded by mens rea. The classical view that 'no mens rea, 'no crime' has long ago been eroded and several laws in India and abroad, especially regarding economic crimes and departmental penalties, have created severe punishments even where the offences have been defined to exclude, mens rea. The....
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....tute minimum penalty is prescribed, the authority may refuse to impose penalty for justifiable reasons like the default occurred due to bona fide belief that he was not liable to act in the manner prescribed by the statute or there was too technical or venial breach, etc. 26. Chapter VI-A of the SEBI Act deals with the penalties and the adjudication. Section 15-I of the SEBI Act envisage appointment of Adjudicatory Officer for holding an inquiry in the prescribed manner, after giving reasonable opportunity of being heard for the purpose of imposing any penalty. This section read with concerned Rules provide power to the Adjudicating Officer to summon and enforce the attendance of any person to give evidence or to produce relevant or useful document for an inquiry and, provides a sequence of the procedure to conduct the inquiry before imposing any penalty. Furthermore, it is also provided in section 15J to consider various factors while adjudging the question of penalty under section 15-I, after taking into account, the amount of disproportionate gain or unfair advantage, whenever quantifiable, loss caused to an investor or group of investors, the repetitive nature of default. Thes....
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....that the word "penalty" has different colour and shades and facets and that has to be interpreted and imposed on the basis of particular act and policies or scheme. It is also clear that there can be two distinct liabilities under the same Act, i.e., civil and/or criminal. The Authorities or Regulatory Authority have ample power to initiate both proceedings, if case is made out, within the framework of the SEBI Act or the Regulations. 30. The SEBI Act and the Regulations, are intended to regulate the Security Market and the related aspects, the imposition of penalty, in the given, facts and circumstances of the case, cannot be tested on the ground of "no mens rea, no penalty". For breaches of provisions of SEBI Act and Regulations, according to us, which are civil in nature, mens rea is not essential. On particular facts and circumstances of the case, proper exercise or judicial discretion is a must, but not on a foundation that mens rea is an essential to impose penalty in each and every breach of provisions of the SEBI Act. 31. Now, the question, of the penalty, by the Adjudicating Authority, in the facts and circumstances of the case, was warranted or not. We find that the all....