2016 (3) TMI 765 - SC - Companies Law

Interplay between section 15A, as amended in the year 2002, and Section 15J of the SEBI Act - whether the expression namely fixes the discretion which can be exercised only in the circumstances mentioned in the three clauses set out in Section 15J, or whether it would also take into account other relevant circumstances, having particular regard to the fact that it is a penalty provision that the Court is construing? - Held that - The familiar expression notwithstanding anything contained does not appear in the amended Section 15A. This being the case, it is a little difficult to appreciate as to how one can construe Section 15A, as amended, in isolation, without regard to Section 15J. In fact, the facts of the present case would go to show that where there is allegedly only a technical default, and the three parameters of Section 15J would allegedly be satisfied by the appellants, namely, that no disproportionate or unfair advantage has been made as a result of the default; no loss has been caused to an investor or group of investors as a result of the default; and there is in fact, no repetitive nature of default, no penalty at all ought to be imposed. What has been done by the appellants here is to fail to adhere to Regulation 13, as alleged in the show cause notice, which failure has occurred on three days and consequently, has allegedly not been repeated by the appellants anytime thereafter. If we were to read Section 15A, as amended in 2002, in the manner suggested by the Division Bench of this Court, it may lead to anomalous results in that the effect of continuing failure to adhere to statutory regulations alleged to have been continued well beyond the period of three days, and which continues till this day, has ₹ 1 lakh per day as the minimum mandatory penalty under the provisions, which would culminate in the appellants herein having to pay ₹ 1 crore in each of the three appeals. We do not think that this could have been the intention of the Parliament in enacting Section 15A, as amended in 2002. We also feel that on the assumption that paragraph 5 of the judgment is correct, it would be very difficult for Section 15A to be construed as a reasonable provision, as it would then arbitrarily and disproportionately invade the appellants fundamental rights. This being the case, on both the conclusions reached by this Court in paragraphs 4 and 5, as stated by us hereinabove, these matters deserve consideration at the hands of a larger Bench. The Registry is, accordingly, directed to place the papers of these appeals before Hon ble the Chief Justice of India for placing these matters before a larger Bench.

Summary

Issues:
Interplay between Section 15A and Section 15J of the SEBI Act in the context of penalty imposition for violations of insider trading regulations.

Analysis:
1. The case involved the appellants making share purchases, leading to a show cause notice from SEBI for alleged violations of insider trading regulations.
2. The Adjudicating Officer imposed penalties on the appellants, which were upheld by the Securities Appellate Tribunal.
3. The appellants argued that the violations were technical, without intent for disproportionate gain, unfair advantage, or investor loss, hence no penalty should be imposed.
4. SEBI cited a judgment to support its penalty imposition, emphasizing the factors to consider under Section 15J when adjudging penalties.
5. The court analyzed the amended Section 15A and Section 15J, noting the legislative intent to reintroduce the Adjudicating Officer's discretion in penalty imposition.
6. The court clarified that Section 15J's factors are exhaustive, limiting the Adjudicating Officer's considerations for penalties.
7. The court raised concerns about the interpretation of "namely" in Section 15J, suggesting a larger bench for authoritative clarification.
8. The court found difficulty subscribing to the previous judgment's views and referred the matter to a larger bench for a definitive decision.
9. The court highlighted the need for harmonious construction of statutes and strict interpretation of penalty provisions in the context of Section 15A and Section 15J.
10. Considering the potential disproportionate penalties under Section 15A, the court deemed it necessary for a larger bench to review the matter comprehensively.
11. The court directed the Registry to place the case before a larger bench for further consideration while maintaining the interim orders.

This detailed analysis of the judgment highlights the complex legal issues surrounding the interplay between Section 15A and Section 15J of the SEBI Act in the context of penalty imposition for violations of insider trading regulations, emphasizing the need for a definitive interpretation by a larger bench to ensure consistency and fairness in such cases.