TaxTMI 
TaxTMI 
2025 (1) TMI 853
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....panel of Whole Time Members (WTC) while rejecting the request of the Petitioner herein for compounding the offence alleged in the complaint against the Petitioner herein. 2. Shorn of unnecessary details, the facts leading to the filing of the present petition are as under"- a. On 28.05.2004, a criminal complaint, being Criminal Complaint No. 12/2016, was filed by the Responder under Section 200 of the CrPC read with Section 26 of the SEBI Act, 1992 before the learned trial Court against the Petitioner and another accused Mr. Vivek Nagpal under Section 11C (6) read with Section 27 of the SEBI Act, 1992. b. It is stated that the allegations against the Petitioner and Mr. Vivek Nagpal are that they were found actively involved in fraudulent and unfair transactions/activities manipulating the market in the script of "Padmini Technologies". It is stated that the allegations in the complaint is that the Petitioner and Mr. Vivek Nagpal failed to respond to the summons received by them. The role of the Petitioner is that the Petitioner played an active role in facilitating an irregular preferential allotment in order to manipulate the market and create artificial price....
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....Petitioner so that it can place its arguments for adjudication of the application under Section 24A of the SEBI Act. e. The said application has been rejected vide Order dated 26.11.2021. The Ld. Trial Court while placing reliance upon Regulations 29 (2) of the Settlement Regulations, 2018 has stated that regulations clearly talk about any proposals, information submitted, or representation made by the Petitioner. The Ld. Trial Court is of the onion that the reply filed by the SEBI not only contains the decision of rejection but also about the circumstances that led to the rejection of request for compounding the application. The Ld. Trial Court held that prayer to compound the offence under the SEBI Act shall be considered by the Court, uninfluenced by the rejection of similar request by the authorities of SEBI. It is this Judgment which is under challenge in the Petition. 3. Notice in the present Petition was issued on 03.02.2022. Reply has been filed by the Respondent/SEBI 4. Learned Senior Counsel for the Petitioner submits that penal actions are attracted for the violation of Section 11C (6) read with Section 27 of the SEBI and the Petitioner is entitled to know....
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....material on record. 7. Section 24A of the SEBI Act provides that the Securities Appellate Tribunal (hereinafter referred to as "the SAT") or the Court, before which the proceedings are pending for adjudication of offence under the SEBI Act, has the power to compound the offences. The Apex Court in Prakash Gupta (supra) has held that the proceedings for trial under the SEBI Act are initiated on the complaint made by the SEBI by virtue of Section 26 of the SEBI Act. SEBI is a regulatory and prosecuting agency under the legislation. However, Section 24A does not stipulate that the consent of SEBI is necessary for the Court before which the proceedings are pending to compound the offence. Relevant portions of the said judgment reads as under: "93. In the present case, it is evident that Section 24-A does not stipulate that the consent of SEBI is necessary for SAT or the court before which such proceedings are pending to compound an offence. Where Parliament intended that a recommendation by SEBI is necessary, it has made specific provisions in that regard in the same statute. Section 24-B provides a useful contrast. Section 24-B(1) empowers the Union Government on the recom....
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....nce should be compounded. For SEBI can provide an expert view on the nature and gravity of the offence and its implication upon the protection of investors and the stability of the securities' market. These considerations and others which SEBI may place before SAT or the court, would be of relevance in determining as to whether an application for compounding should be allowed. We, therefore, hold that before taking a decision on whether to compound an offence punishable under Section 24(1), SAT or the court must obtain the views of SEBI for furnishing guidance to its ultimate decision. These views, unless manifestly arbitrary or mala fide, must be accorded a high degree of deference. The court must be wary of substituting its own wisdom on the gravity of the offence or the impact on the markets, while discarding the expert opinion of SEBI." 9. By virtue of its application, the Petitioner has prayed for a direction to the SEBI to place on record all the statements/findings/documents considered by the HPAC in its meeting. This Court is of the opinion that while considering the application for compounding the offence it would be necessary for the Court to understand the factors....
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....l enforcement action by the accused. 14. Party has undergone any other regulatory enforcement action for the same violation. 15. Any other factors necessary in the facts and circumstances of the case." 104.2. According to the Circular dated 20-4-2007 and the accompanying FAQs, an accused while filing their application for compounding has to also submit a copy to SEBI, so it can be placed before HPAC. The recommendation of HPAC is then filed before SAT or the court, as the case may be. As such, SAT or the court must give due deference to such opinion. As mentioned above, the opinion of HPAC and SEBI indicates their position on the effect of non-prosecution on maintainability of market structures. Hence, 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. 104.3. SAT or court should ensure that the proceedings under Section 24-A do not mirror a proceeding for quashing the criminal complaint under Section 482CrPC, thereby providing the accused a second bite at the cherry. The principle behind compounding, as noted ....