2019 (4) TMI 1090 - HC - SEBI

Compounding in proceedings - consent of respondent to permit compounding - Compounding at the initial stage or at the final stage - Whether object of the SEBI Act would be lost if compounding is permitted by this Court, as the allegations levelled against petitioner are of artificially jerking the price of the share of petitioner s company? - HELD THAT - No doubt, that petitioner had filed an application for compounding way back in the year 2013 and it remained pending, but now, the proceedings before the trial court have reached the stage of final arguments. 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 the proceedings by allowing the application for compounding without the consent of SEBI Act as it will defeat the objective of the SEBI Act. Though the Adjudicating Officer has found that the alleged violation committed by petitioner has not resulted in any loss to the investors, but this by itself would not justify discharge of accused at the fag end of trial. As relying on N.H. SECURITIES LTD., NAVINDCHANDRA PAREKH AND KIRTIKUMAR PAREKH 2018 (12) TMI 99 - BOMBAY HIGH COURT and M/S. METERS AND INSTRUMENTS PRIVATE LIMITED 2017 (10) TMI 218 - SUPREME COURT OF INDIA no justification to allow petitioner s application under Section 24A of the SEBI Act, 1992.

Summary

Issues: Trial court's rejection of application under Section 24A of SEBI Act, 1992; Interpretation of Supreme Court decisions on compounding; Consideration of High Court decisions on compounding; Evaluation of SEBI Act's objectives in relation to compounding; Justification for denying petitioner's application under Section 24A of SEBI Act.

In this judgment, the High Court addressed the trial court's rejection of the petitioner's application under Section 24A of the Securities and Exchange Board of India Act, 1992, based on the Supreme Court's decision in JIK Industries Limited. The petitioner relied on the Supreme Court's ruling in Meters and Instruments Private Limited to argue that the respondent's consent for compounding was not necessary. The respondents, however, cited the High Court of Bombay's decision in N.H. Securities Ltd. to support the trial court's order, emphasizing that allowing compounding would undermine the SEBI Act's purpose, particularly in cases involving share price manipulation allegations. The petitioner highlighted an order demonstrating that investors were offered an exit route at a higher price than the public issue price, asserting that no investor suffered losses.

The High Court, after considering the cited decisions and the stage of the proceedings, noted that compounding should be encouraged at the initial stage but not at the final stage to ensure the securities market's stable functioning. Despite the absence of investor losses, the court emphasized that discharging the accused without SEBI's consent at the trial's end would defeat the SEBI Act's objective. Consequently, the court declined the petitioner's application under Section 24A of the SEBI Act, without commenting on the case's merits. The judgment concluded by disposing of the petition and related applications.