TaxTMI 
TaxTMI 
2021 (7) TMI 971
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.... appellant is being prosecuted for an offence under Section 24(1) of the Securities and Exchange Board of India Act, 1992 ("SEBI Act"). The appellant sought the compounding of the offence under Section 24A. By an order dated 15 November 2018, the Additional Sessions Judge - 02 Central District at Tis Hazari Courts, Delhi ("Trial Judge"), rejected the application, upholding the objection of the Securities and Exchange Board of India that the offence could not be compounded without its consent. By a judgment of a Single Judge of the High Court of Delhi dated 1 April 2019 the order of the Trial Judge has been affirmed in revision. The High Court has held that the trial has reached the stage of final arguments and the application for compounding cannot be allowed without Securities and Exchange Board of India's ("SEBI") consent. The reasons of the High Court are extracted below: "6. Compounding at the initial stage has to be encouraged, but not at the final stage. The object of the SEBI Act has to be kept in mind. A stable and orderly functioning of the securities market has to be ensured. It will not be in the interest of justice to discharge the accused at the final stage of....
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....iminary inquiry between 1996 and 1999, SEBI initiated an investigation against the Company on 2 February 1999. The Company was investigated for the period between 28 January 1996 and 29 February 1996. This was the period immediately preceding the listing of the scrip of the Company. This scrip moved from a low of Rs. 11.25 on 30 January 1996 to a high of Rs. 23.25 on 13 February 1996. The traded volume was unusually high during this period, with a daily turnover of 1,00,000 shares on many days. Thereafter, the price of the scrip registered a steep decline to Rs. 17 on 29 February 1996, and the daily turnover also reduced to an average of a few hundred shares. 5 During its investigation, SEBI obtained the details of the top brokers who traded in the shares of the Company during this period on the Delhi Stock Exchange and Bombay Stock Exchange, and also of their clients who had made significant purchases or sales on the scrip. Consequently, SEBI came up with the name of six entities who had purchased approximately 51 per cent of the 38 lac equity shares on offer during the period between 28 January 1996 and 29 February 1996. They were found to have continued buying shares even aft....
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....lant and others to make an offer to purchase the shares owned by the shareholders of the Company who are not its promoters. The order directed that the offer presented would be at Rs. 12 per share, which was higher than Rs. 10 per share at which the shares of the Company were listed during the IPO. The appellant has stated that in compliance of the order, the promoters/directors of the Company acquired equity shares which raised their holding to the extent of about 95 per cent of the Company (post IPO). Thereafter, the Company also got its shares delisted from various stock exchanges. 10 On 19 June 2001, the AO passed an order in which it noted that the six entities were managed by the appellant, which can be determined from the fact that: (i) he received the summons sent to them; (ii) he had admitted in his statement on 7 June 1999 that he or his relatives were the directors in these entities; (iii) they purchased these shares on the basis of an oral commitment made by the appellant and by using funds obtained from the Company or on the basis of Inter Corporate Debtors obtained on the guarantee of the appellant, Chairman and Managing Director of the Company; (iv) the shares pur....
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....lication under Section 24A of the SEBI Act was filed before the Additional Chief Metropolitan Magistrate, Tis Hazari, Delhi by the appellant and other accused persons seeking the compounding of the offence in the criminal complaint filed by SEBI since they had already purchased the shares from the public in accordance with the order of SEBI Chairperson under Section 11B and had paid the penalty levied by the AO. 15 SEBI referred the compounding application for seeking the views of its High Powered Advisory Committee ("HPAC") headed by a former Judge of the High Court of Bombay. The HPAC has been constituted for examining proposals for compounding offences. The HPAC recommended that the offences should not be compounded following which an intimation was furnished to the Trial Judge and recorded in an order dated 7 May 2016. 16 In the interregnum, the criminal complaint was listed for recording the evidence of the complainant, but after the evidence was adduced, the appellant declined to cross-examine the witness until the compounding application was decided. The appellant also filed an application on 6 November 2017 before the Trial Judge, praying that the compounding applicat....
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.... of the SEBI Act is to ensure the protection of the investors, which has been met by the deposit of penalty; (viii) Section 24A confers adequate powers on Securities Appellate Tribunal ("SAT") and the Court to compound offences, and there is no provision in the statute for the consent of SEBI. Compounding should be allowed if, after an assessment of the overall facts, there is no reason to deny it; (ix) The order of the Trial Judge is manifestly erroneous when it holds that "there is nothing on record to show that the investors have been duly compensated". Moreover, the observation that the offence could not be compounded under Section 24A without the consent of SEBI is contrary to the plain terms of the statute which do not contemplate the consent of SEBI; and (x) In the facts of the present case, the application for compounding should be allowed since: a. The appellant is a senior citizen; b. The Company has been de-listed on the stock exchanges; and c. No loss is shown to have been caused to the investors. 19 Mr CU Singh, learned Senior Counsel appearing on behalf of SEBI opposed the submissions on the ground that: ....
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....ations and of the 1994 Takeover Regulations was found to have been committed. This, in substance, constitutes the basis of the criminal complaint; (iv) The conduct of the appellant is also significant: after the criminal complaint was lodged on 29 March 2000, petitions under Section 482 of the CrPC were filed in 2006-07. They remained pending for seven years, until they were dismissed on 26 August 2013 by the High Court of Delhi. Once the Trial Judge took cognizance of the criminal complaint, the application for compounding was then submitted belatedly on 14 October 2013 when the evidence was being recorded; and (v) A case does not exist for the interference of this Court under Article 136 of the Constitution. 20 Mr Mahesh Jethmalani, learned Senior Counsel has intervened in these proceedings and has urged submissions on the issue as to whether the power of compounding offences under Section 24A of the SEBI Act requires the consent of SEBI. Learned Senior Counsel submitted that: (i) Section 24A refers to only two authorities - SAT and a Court - before which the proceedings are pending. Section 24A has no reference to SEBI, and it does not condition the....
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....ublic. Investors' confidence in the capital market can be sustained largely by ensuring investors' protection. With this end in view, Government decided to vest SEBI immediately with statutory powers required to deal effectively with all matters relating to capital market. As Parliament was not in session, and there was an urgent need to instill a sense of confidence in the public in the growth and stability of the capital market, the President promulgated the Securities and Exchange Board of India Ordinance, 1992 (No. 5 of 1992) on the 30th January, 1992." 23 Chapter IV of the SEBI Act delineates the power and functions of SEBI. Within this chapter, Section 11 stipulates the functions of SEBI. Sub-Section (1) casts upon SEBI the duty to protect the interests of investors in securities and to promote the development and regulation of the securities market, through such measures as it deems fit. Among the functions which are specified in sub-Section (2) are: (i) Regulating the business in stock exchanges and any other stock exchange markets (clause (a)); (ii) Prohibiting fraudulent and unfair trade practices relating to securities markets (clause (e)); ....
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....idating the power to adjudicate in the following terms: "15-I Power to adjudicate: (1) For the purpose of adjudging under sections 15A, 15B, 15C, 15D, 15E, 15-EA, 15-EB, 15F, 15G,15H, 15HA and 15HB, the Board may appoint any officer not below the rank of a Division Chief to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty. (2) While holding an inquiry the adjudicating officer shall have power to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the adjudicating officer, may be useful for or relevant to the subject-matter of the inquiry and if, on such inquiry, he is satisfied that the person has failed to comply with the provisions of any of the sections specified in subsection (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections. (3) The Board may call for and examine the record of any proceedings under this section and if it considers that th....
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....ties Laws (Second Amendment) Act, 1999, under this Act, or the rules or regulations made thereunder; or (b) by an order made by an adjudicating officer under this Act; or (c) by an order of the Insurance Regulatory and Development Authority or the Pension Fund Regulatory and Development Authority, may prefer an appeal to a Securities Appellate Tribunal having jurisdiction in the matter..." 30 An appeal lies to this Court, under Section 15Z, from a decision of SAT on a question of law: "15Z Appeal to Supreme Court-Any person aggrieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Securities Appellate Tribunal to him on any question of law arising out of such order: Provided that the Supreme Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days." 31 As distinct from the provisions for penalties and adjudication in Chapter VIA, Chapter VII, which is titled 'Miscellaneous' deals with ....
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....able under this Act or any rules or regulations made thereunder, save on a complaint made by the Board." 35 Section 27 provides for contraventions by companies: "27. Contravention by companies -(1) Where a contravention of any of the provisions of this Act or any rule, regulation, direction or order made thereunder has been committed by a company, every person who at the time the contravention was committed was in charge of, and was responsible to, the company for the conduct of the business of the company, as well as the company, shall be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such contravention. (2) Notwithstanding anything contained in sub-section (1), where an contravention under this Act has been committed by a company and it is proved that the contravention has been committed with the consent or connivance of....
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....ndatory. While the imprisonment may extend up to ten years, for any period in excess of one month a fine of up to Rs. 25 crores is an alternative or in the cumulative. However, since the present matter does not turn on the construction of the Section 24(2), it is not necessary to express any final view on whether an offence under that provision is compoundable. E.2 SEBI Circulars in relation to Section 24A 38 Section 24A provides for the compounding of an offence either before or after the institution of any proceeding. Since Section 24A provides for compounding prior to the institution of proceedings, the legislature has stipulated that an application can be made to SAT. However, once a proceeding has been instituted before a Court which is seized of it, it is the imprimatur of the Court that is required in such a situation. The expression "or a court before which such proceedings are pending" would indicate that once proceedings have been instituted before it, the Court has exclusive jurisdiction to compound offences. It would be instructive to also look at the circulars issued by SEBI in order to better understand the practical implications of the language of Section 24A. ....
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....ill forward the application/ request to be placed before the high powered Committee. The terms of compounding as recommended by the Committee and approved by the Competent Authority would be placed before the court by the Prosecution Division by way of written submissions or application, as appropriate, for passing orders as the court deems fit... [...] Q23. What will be the consequences of non-acceptance? A. ...In cases where SEBI is not inclined to accept Settlement/Compounding of offence, SEBI would file its objections before SAT/Court for consideration." 41 SEBI amended the circular dated 20 April 2007 through a circular dated 25 May 2012 Available at accessed on 20 July 2021. While the circular primarily issues new guidelines in relations to consent orders, it also provides a list of offences which SEBI shall not settle, which includes: "ii. Serious fraudulent and unfair trade practices which, in the opinion of the Board, cause substantial losses to investors and/or affects their rights, especially retail investors and small shareholders or have or may have market wide impact, except those defaults where the entity makes good the losses d....
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.... statute: (1) the agreement not to prosecute; (2) knowledge of the actual commission of a crime; and (3) the receipt of some consideration. The offense committed by a person who, having been directly injured by a felony, agrees with the criminal that he will not prosecute him, on condition of the latter's making reparation, or on receipt of a reward or bribe not to prosecute. The offense of taking a reward for forbearing to prosecute a felony; as where a party robbed takes his goods again, or other amends, upon agreement not to prosecute." 46 Similarly, P Ramanatha Aiyar's Advanced Law Lexicon 3rd Edition, Reprint 2007, at page 932 defines the expression "Compounding a crime" in the following terms: "The offence of either agreeing not to prosecute a crime that one knows has been committed or agreeing to hamper the prosecution.- Also termed theft-bote. (Black, 7th Edn., 1999) "If a prosecuting attorney should accept money from another to induce the officer to prevent the finding of an indictment against that person this would be compounding a crime if the officer knew the other was guilty of an offense, but would be bribery whether he had such ....
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....nment which may extend to ten years, shall be punished with imprisonment of either description for a term which may extend to three years, and shall also be liable to fine; and if the offence is punishable with imprisonment not extending to ten years, shall be punished with imprisonment of the description provided for the offence for a term which may extend to one-fourth part of the longest term of imprisonment provided for the offence, or with fine, or with both. Exception.-The provisions of Sections 213 and 214 do not extend to any case in which the offence may lawfully be compounded." While the "exception" to the provisions of Sections 213 and 214 make the provisions inapplicable to offences which may be compounded, it is important to note that the "exception" was only introduced through an amendment in 1882 (Act 8 of 1882). 48 On the other hand, it was in 1872, when the Code of Criminal Procedure was amended, that compounding was first introduced as a procedural tool in Indian criminal law. Section 188 therein stated: "Section 188 Compounding offences - In the case of offences which may lawfully be compounded, injured persons may compound the of....
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....ted, or, as the case may be, before which the appeal is to be heard. (6) A High Court or Court of Session acting in the exercise of its powers of revision under Section 401 may allow any person to compound any offence which such person is competent to compound under this section. (7) No offence shall be compounded if the accused is, by reason of a previous conviction, liable either to enhanced punishment or to a punishment of a different kind for such offence. (8) The composition of an offence under this section shall have the effect of an acquittal of the accused with whom the offence has been compounded. (9) No offence shall be compounded except as provided by this section." 50 Broadly speaking, the provisions of Section 320 indicate that there are three categories of offences: (i) Those offences which can be compounded by the parties themselves; (ii) Those offences which can be compounded by the parties but for which the permission of the Court is required; and (iii) Offences which cannot be compounded at all. 51 Sub-section (1) of Section 320 of the CrPC stipulates that offences punishable under the sections o....
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....ection (5) provides that where the accused has been committed for trial or when the accused has been convicted and an appeal has been pending, no compounding shall be allowed without the leave of the Court to which the accused is committed or of the Court before which the appeal is to be heard. Under sub-Section (6), the High Court or Court of Sessions is empowered to allow a person to compound an offence in the exercise of its revisional powers which such a person is competent to compound under the provision otherwise. Sub-Section (7) provides that compounding will not be permitted when the accused is liable either to enhanced punishment or to a punishment of a different kind for such offence for a previous conviction. Sub-Section (8) provides that the effect of compounding under this provision would have the same effect as the acquittal of the accused. Finally, sub-Section (9) provides that no offence shall be compounded except as provided by the provision. 54 In explaining the basis for the provision of compounding an offence in Section 345 of the 1898 Act, the Law Commission of India in its 41st Report stated as follows Available at accessed on 20 July 2021 : "24.66....
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.... sufficiently redressed by compounding. 58 In Sheonandan Paswan vs State of Bihar (1987) 1 SCC 288, a Constitution Bench of this Court was interpreting Section 321 of the CrPC. While drawing an analogy between Sections 320 and 321, Justice V. Khalid, speaking for himself and Justice Natarajan observed: "85. The scope of Section 321 can be tested from another angle and that is with reference to Section 320 which deals with "compounding of offences". Both these sections occur in Chapter 24 under the heading "General Provisions as to Enquiries and Trials"... 86. These two sub-sections use the expression "with the permission of the court" and "with the consent of the court" which are more or less ejusdem generis. On a fair reading of the abovementioned sub-sections it can be safely presumed that the sections confer only a supervisory power on the court in the matter of compounding of offences in the manner indicated therein, with this safeguard that the accused does not by unfair or deceitful means, secure a composition of the offence. Viewed thus I do not think that a plea can be successfully put forward that granting permission or giving consent under sub-section....
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.... the only manner in which he can obtain redress. But, if the offence is of a public nature, no agreement can be valid that is founded on the consideration of stifling a prosecution for it." Emphasis supplied 61 Singapore, where the procedure for compounding of offences was introduced in a manner similar to India Ryan David Lim and Selene Yap, 'Composition: Legal and Theoretical Foundations' (2015) 27 SAcLJ 462, follows an analogous principle. In the Singapore High Court's decision in Public Prosecutor vs Norzian bin Bintat [1995] SGHC 207, Chief Justice Yong Pung How held: "55. ...Thus, in a case where the public interest is involved, it is proper to withhold consent to composition... [...] 57. On the other hand, the cases also show that, in the absence of aggravating factors, the courts should lean towards the granting of consent in cases where the public interest does not figure strongly..." (emphasis supplied) 62 However, Section 320 provides for the compounding of offences only under the IPC. Hence, in respect of offences which lie outside the IPC, compounding may be permitted only if the statute which creates the offence contains a....
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....ectly by the sanctioning of a scheme by the Company Court." 65 The submission of the appellant in the decision in JIK Industries (supra) was that a scheme of compromise under Section 391 of the Companies Act, 1956 operates as a 'deemed compounding' of an offence under the NI Act. This submission was rejected by the Court. Distinguishing between quashing of a case and compounding, the Court observed: "43. Quashing of a case is different from compounding. In quashing the court applies it but in compounding it is primarily based on consent of the injured party. Therefore, the two cannot be equated. It is clear from the discussion made hereinabove that Duncans Agro case [(1996) 5 SCC 591 : 1996 SCC (Cri) 1045] was not one relating to compounding of offence. Apart from that the Court found that the dues of the banks have been satisfied by receiving the money and the suits filed by the bank in the civil court have been compromised. The FIRs were filed in 1987-1988 and the investigation had not been completed till 1991. On those facts the Court, rendering the judgment in July 1996, felt that having regard to the lapse of time and also having regard to the fact that there is a ....
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.... Section 147 of the Negotiable Instruments Act, 1881 is in the nature of an enabling provision which provides for the compounding of offences prescribed under the same Act, thereby serving as an exception to the general rule incorporated in sub-section (9) of Section 320 CrPC which states that "No offence shall be compounded except as provided by this section". A bare reading of this provision would lead us to the inference that offences punishable under laws other than the Penal Code also cannot be compounded. However, since Section 147 was inserted by way of an amendment to a special law, the same will override the effect of Section 320(9) CrPC, especially keeping in mind that Section 147 carries a non obstante clause." 68 The Court in Damodar S Prabhu (supra) observed that the permissibility of the compounding of an offence is linked to the perceived seriousness of the offence, and the nature of the remedy provided. In an offence involving the dishonor of a cheque, "it is the compensatory aspect of the remedy which should be given priority over the punitive aspect". At the same time, it was highlighted before the Court by the Attorney General, who appeared as amicus curiae, t....
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.... Code has now become compoundable. That does not mean that the effect of Section 147 is to obliterate all statutory provisions of Section 320 of the Code relating to the mode and manner of compounding of an offence. Section 147 will only override Section 320(9) of the Code insofar as offence under Section 147 of the NI Act is concerned. This is also the ratio in Damodar [(2010) 5 SCC 663 : (2010) 2 SCC (Civ) 520 : (2010) 2 SCC (Cri) 1328] (see para 12). Therefore, the submission of the learned counsel for the appellant to the contrary cannot be accepted." 70 The Court then relied on Section 4 of the CrPC, which is the governing statute in India for investigation, enquiry and trial of offences. Section 4, the Court held, deals both with offences under the IPC in sub-Section (1) and with offences under any other law in sub-Section (2). Hence, it was held that in the absence of a special procedure in the NI Act for compounding of offences, the procedure relating to compounding under Section 320 shall automatically apply in view of the clear mandate of sub-Section (2) of Section 4, which reads as follows: "4. (2) All offences under any other law shall be investigated, inqui....
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....ction 24A of the SEBI Act, while containing a similar non-obstante clause, excludes certain categories of offences, namely offences punishable with imprisonment only or with imprisonment and also with fine. Section 24A stipulates that an offence punishable under the Act may be compounded by SAT or a Court before which such proceedings are pending. The power to compound is recognized either before or after the institution of any proceeding. 72 Hence, it is evident that Section 24A specifies the authorities vested with the powers to compound offences under the SEBI Act, while Section 147 of the NI Act merely states that the offence under the Act shall be compoundable. In a complaint filed under the NI Act, the complainant is an aggrieved party, invariably being the payee in a dishonored instrument. The consideration which weighed with the two judge Bench while interpreting the provisions of Section 147 of the NI Act in JIK Industries (supra) will therefore not be ipso facto attracted while construing the provisions of Section 24A of the SEBI Act. Further, since the two statutory provisions are not in pari materia, it is not necessary for this Court to express any opinion on the is....
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....ded: Provided further that in specifying the sum required to be paid or credited for the compounding of an offence under this sub-section, the sum, if any, paid by way of additional fee under sub-section (2) of Section 611 shall be taken into account." Sub-Section (7) of Section 621-A provided as follows: "(7) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974)- (a) any offence which is punishable under this Act with imprisonment or with fine, or with both, shall be compoundable with the permission of the court, in accordance with the procedure laid down in that Act for compounding of offences; (b) any offence which is punishable under this Act with imprisonment only or with imprisonment and also with fine shall not be compoundable." 75 It was argued before this Court that when the Court was in seisin in the matter, it was only the Magistrate who could compound the offence. Further, in any event, the CLB had to seek the permission of the Court before it could compound. Dealing with the argument, Justice C K Prasad, speaking for the Bench, held: "17. Ordinarily, the offence is compounded under the ....
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....td. vs Kanchan Mehta (2018) 1 SCC 560 ("Meters and Instruments") where this Court observed that an offence under Section 138 of the NI Act "is primarily a civil wrong". It was held that the object of the NI Act being primarily compensatory, compounding at the initial stage has to be encouraged but is not debarred at a later stage subject to appropriate compensation as may be acceptable to the parties and the Court. Moreover, Justice A K Goel, speaking for the Bench, held that: "18.3. Though compounding requires consent of both parties, even in absence of such consent, the court, in the interests of justice, on being satisfied that the complainant has been duly compensated, can in its discretion close the proceedings and discharge the accused." 78 Our attention has been drawn to the judgment of the Constitution Bench in Re: Expeditious Trial of cases under Section 136 of Negotiable Instruments Act 1881 in Suo Motu Writ Petition (Crl) No. 2 of 2020. The Constitution Bench considered the decision in Meters and Instruments (supra), where the two Judge Bench of the Court took the view that Section 143 of the NI Act confers an implied power on the Magistrate to discharge the ....
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.... it was held that the consent of SEBI was necessary before an application of compounding could be allowed under Section 24A. A special leave petition challenging this judgment was filed before this Court Criminal Appeal No.1407 of 2019 (Arising out of S.L.P. (Criminal) No.1132 of 2019). This was disposed of by a two Judge Bench this Court through an order dated 17 September 2019, wherein SEBI agreed to "compounding of the offence subject to any penalty which may be imposed under Section 24(2)" of the SEBI Act. This was also allowed by this Court, keeping in mind the age of the directors of the appellant. Pertinently, however, this Court noted that they "have not commented one way or the other on the larger questions sought to be raised by the appellants", i.e., on whether the consent of SEBI was necessary for compounding an offence under Section 24A. As such, the judgment and this Court's order have not adjudicated on the issue involved in the present case. 80 Section 24A of the SEBI Act commences with a non-obstante provision which operates notwithstanding anything contained in the CrPC. Sub-Sections (1) and (2) of Section 320 of the CrPC dealt with the compounding of offenc....
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....tante provision contained in Section 24A must be given its natural meaning and effect. 83 The plain language of Section 24A does not provide for the consent of SEBI. The issue is whether this Court should read the requirement of the consent of SEBI into the provision, on the ground that this is a casus omissus. This would, however, amount to re-writing the statutory provision by introducing language which has not been employed by the legislature. In a two Judge Bench judgment of this Court in Union of India vs Rajiv Kumar (2003) 6 SCC 516, Justice Arijit Payasat speaking for the Court held: "22. While interpreting a provision, the court only interprets the law and cannot legislate it. If a provision of law is misused and subjected to the abuse of process of law, it is for the legislature to amend, modify or repeal it, if deemed necessary. (See CST v. Popular Trading Co. [(2000) 5 SCC 511]) The legislative casus omissus cannot be supplied by judicial interpretative process. 23. Two principles of construction - one relating to casus omissus and the other in regard to reading the statute/statutory provision as a whole - appear to be well settled. Under the first p....
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....ions do not entrust SEBI with an authority in the nature of a veto under the provisions of Section 24A, it is equally necessary to understand the importance of its role and position. E.5 Regulatory role of SEBI 86 The provisions of the SEBI Act, as analyzed earlier in this judgment, would indicate the importance of the role which has been ascribed to it as a regulatory, adjudicatory and prosecuting agency. SEBI has vital functions to discharge in the context of maintaining an orderly and stable securities' market so as to protect the interests of investors. SEBI was established in 1988 by a government resolution, to urgently respond to the rapid growth of capital markets. In Sahara India Real Estate Corporation Ltd. vs SEBI (2013) 1 SCC 1 a two judge bench of this Court, considered this history in order to guide its interpretative exercise over the statutory provisions. Justice J S Khehar (as the learned Chief justice then was) noted in his concurring opinion that: "298. The Securities and Exchange Board of India (SEBI) was established in 1988 by way of a government resolution to promote orderly and healthy growth of the securities market and for investors' prote....
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....contained in sections referred to in Section 55-A of that Act but it cannot conduct inspection of any listed public company for violation of the SEBI Act or Rules or Regulations made thereunder. 3. In addition, growing importance of the securities markets in the economy has placed new demands upon the SEBI in terms of organizational structure and institutional capacity. A need was, therefore, felt to remove these shortcomings by strengthening the mechanisms available to the SEBI for investigation and enforcement so that it is better equipped to investigate and enforce against market malpractices. 4. In view of the above, the Securities and Exchange Board of India (Amendment) Ordinance, 2002 (6 of 2002) was promulgated on 29-10-2002 to amend the Securities and Exchange Board of India Act, 1992. 5. It is now proposed to replace the Ordinance by a Bill, with, inter alia, the following features- (a) increasing the number of members of the SEBI from six (including Chairman) to nine (including Chairman); (b) conferring power upon the Board for- (i) calling for information and record from any bank or other authority or Board or corpora....
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....arket manipulation and substantial acquisition of securities and control; (d) crediting sums realised by way of penalties to the Consolidated Fund of India; (e) amending the composition of the Securities Appellate Tribunal from one person to three persons; (f) changing the qualifications for appointment as Presiding Officer and members of the Securities Appellate Tribunal; (g) composition of certain offences by the Securities Appellate Tribunal; (h) conferring power upon the Central Government to grant immunity; (i) appeal to the Supreme Court from the orders of the Securities Appellate Tribunal; (j) enhancing the penalties specified in the SEBI Act." (emphasis supplied) 87 Therefore, the SEBI Act and the rules, regulations and circulars made or issued under the legislation, are constantly evolving with a concerted aim to enforce order in the securities market and promote its healthy growth while protecting investor wealth. A three judge bench of this Court, in B S E Brokers' Forum vs Securities and Exchange Board of India (2001) 3 SCC 482, appreciated the extent of the powers and functions that had been ent....
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....erated in Section 11 of the Act. Section 12 requires the stockbrokers, sub-brokers, share-transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, portfolio managers, investment advisors and such other intermediaries who may be associated with the securities market to get themselves registered and obtain a certificate of registration from the Board in accordance with the Regulations made under this Act. Section 12(2) empowers the Board to collect such fees as may be determined by the Regulations from the applicants who seek registration." 88 In a consistent line of precedent, this Court has been mindful of the public interest that guides the functioning of SEBI and has refrained from substituting its own wisdom over the actions of SEBI G L Sultania vs Securities & Exchange Board of India, (2007) 5 SCC 133, para 84; PGF Ltd vs Union of India, (2015) 13 SCC 50, paras 46-58; SEBI vs Akshya Infrastructure (P) Ltd., (2014) 11 SCC 112; SEBI vs Saikala Associates Ltd., (2009) 7 SCC 432, para 16. Its wide regulatory and adjudicatory powers, coupled with its expertise and information gathering mechanisms, imprints its decision....
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....nstruction that when the court is called upon to interpret provisions of a social welfare legislation the paramount duty of the court is to adopt such an interpretation as to further the purposes of law and if possible eschew the one which frustrates it...." Therefore, in line with the object of the SEBI Act and the precedents of this Court, it would be our task to interpret Section 24A in a manner that furthers the statutory role of SEBI, rather than one which thwarts its considered course of action. 89 Section 24(1) is an omnibus provision for all offences punishable for contravention (or attempts or abetments) of the provisions of the Act or of any rule or regulation made under it. As we have seen earlier, prior to Amending Act 59 of 2002 which came into effect from 29 October 2002, the punishment for offences extended to a period of one year of imprisonment, or with fine, or with both under Section 24(1). The term of imprisonment has been extended to up to ten years and a fine of Rs twenty-five crores by the amending legislation of 2002. The rationale for this amendment, as evinced from its Statement of objects and reasons, was to provide an effective deterrent for potent....
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....mportant to note that the legislative scheme of the SEBI Act delineates several actions that are liable for penalty under Section 15, but includes a common sentencing provision under Section 24. Therefore, Section 24 would be the sentencing provision for the most banal of offences, to the most egregious of market disruptions and frauds. The maximum punishment prescribed under Section 24 has also seen an amendment and increase by the Amending Act 59 of 2002, in order to ensure effective deterrence. In exercising the power of compounding under Section 24A, the SAT or the Court must be conscious of the gravity of the offences that the accused are being prosecuted for, considering that the legislative scheme does not individually prescribe separate sentencing provisions which would otherwise have provided an insight into the gravity and gradation of the offences. Hence, SEBI's view on the compounding would become all the more important, in this light. F Guidelines for Compounding under Section 24A 92 Section 24A only provides the SAT or the Court before which proceedings are pending with the power to compound the offences, without providing any guideline as to when should thi....
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....oned above, the opinion of HPAC and SEBI indicates their position on the effect of non-prosecution on maintainability of market structures. Hence, the SAT or the Court must have cogent reasons to differ from the opinion provided and should only do so when it believes the reasons provided by SEBI/HPAC are mala fide or manifestly arbitrary; (iii) The SAT or Court should ensure that the proceedings under Section 24A do not mirror a proceeding for quashing the criminal complaint under Section 482 of the CrPC, thereby providing the accused a second bite at the cherry. The principle behind compounding, as noted before in this judgment, is that the aggrieved party has been restituted by the accused and it consents to end the dispute. Since the aggrieved party is not present before the SAT or the Court and most of the offences are of a public character, it should be circumspect in its role. In the generality of instances, it should rely on the SEBI's opinion as to whether such restitution has taken place; and (iv) Finally, the SAT or the Court should consider whether the offence committed by the party submitting the application under Section 24A is private in nature, or i....