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TMI Blog2018 (12) TMI 99X X X X Extracts X X X X X X X X Extracts X X X X ..... itioner No.1 who were facing prosecution under Section 24(2) of SEBI Act. The Respondent No.1 conducted investigation into an allegation of acquisition of shares of Shonkh Technologies International Limited by certain entities in excess of the limits prescribed under regulations 7 and 10 of SEBI Regulations 1997. The acquisition of shares by petitioner No.1 was allegedly found to be in violation of the takeover regulations and the respondent No.1 therefore initiated adjudication proceedings against the petitioner No.1. By order dated 27th April, 2003, the Adjudication Officer appointed by Respondent No.1 imposed a penalty of Rs. 1,50,000/- for violation of Regulation of 7(1) and (2) of takeover Regulations and Section 15(A)(b) of SEBI Act to be paid within 45 days of receipt of the adjudication order. The petitioner No.1 preferred an appeal before the Securities Appellate Tribunal against the aforesaid adjudication order. The said appeal was dismissed by order dated 9th January, 2007. The petitioner No.1 was unable to pay the entire amount and by letter dated 26th February, 2007 forwarded part payment of the penalty amount by way of demand draft. However, the said demand draft was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complaint was only in respect of the failure of the petitioners to pay the penalty amount and not in respect of breach of regulations and no investor is set to have suffered any loss due to non-payment of penalty. Since the grievance of the Respondent No.1 is non-payment it is unconceivable why the Court should refuse to compound such a case if the petitioners were willing to pay the penalty amount with interest and cost. v. The intention of Section 24(2) is to create deterrence against non-payment towards payment of penalty. The Section does not intend to punish the original breach but only creates a penal consequence for non-payment of penalty imposed during the adjudication proceedings. The intent of the provisions is similar to Section 138 of Negotiable Instrument Act which contains a penal consequence for an act which is essentially an act of non-payment. vi. Mr. Desai relied upon the decision of the Supreme Court in the case of Damodar Prabhu v. Sayed Babalal 2010 (5) SCC 663 and submitted that in the said decision it was held that in cases under Section 138 of the Negotiable Instruments Act, Courts must encourage compounding if the accused shows the willingness to pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ations provide for factor to be considered to arrive at the settlement terms such as conduct of the applicant in the investigation, role played by the applicant in case of alleged default, nature gravity and impact of alleged default etc. The regulations also provides for Constitution of High Power Advisory Committee for consideration and recommendations of the terms of settlement. The regulations also provides for the reference of application to internal committees which shall examine whether the proceedings may be settled and if so determine the settlement terms in accordance with regulations and also provides for the procedure to be followed by the High Power Advisory Committee to consider the proposed settlement terms placed before it and action to be initiated on recommendation of High Power Advisory Committee viii. Learned counsel for the petitioner also invited my attention to notification dated 27th December, 2017 in respect to SEBI (Settlement of Administrative and Civil Proceedings) (Second Amendment) Regulations 2017. It is submitted that the amendment provides for summary settlement procedure and provision for the issuance of notice of settlement under sub regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court. The said Section nowhere mandated that consent of SEBI is pre-requisite condition for exercise of powers either by the Court or the Tribunal under Section 24A. It is submitted that in the case of Sahara India Real Estate Corporation and other v. SEBI and anothers 2013(1) SCC 1, it has been observed that the SEBI Act is a special law, a complete Code in itself containing elaborate provisions to protect interest of the investors. The SEBI Act is a special act dealing with the specific subject which has to be read in harmony with the provisions of Companies Act, 1956. It is thus submitted that Section 24A contains non-abstante clause with regards to the provisions of Criminal Procedure Code which provides that only those sections mention therein are compoundable and also provides for the procedure of compounding. The compounding of offences of SEBI are to be done within the parameters of Section 24A of SEBI and the consent as stipulated in section 320 of Cr.P.C. is not applicable in the present proceedings. In the case of offence of SEBI Act, the legislature has chosen to do away with requirement of consent of the victim by giving powers of compounding to the Securities Appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ght under Section 401 of the Act filed company petition before Company Law Board against the entities mentioned therein and pursuant to that the Company Law Board has passed ex-parte interim order dated 23rd December, 2008 restraining the Directors of the said entities from functioning as Directors of the said entities. It was therefore submitted that in view of the said order the entities are desirable from proceeding in legal matters before SEBI as all the Directors of the entities are unable to sign and to represent on their behalf. Learned counsel also pointed out the letter dated 24th March, 2009 issued by Assistant legal Advisor SEBI to the Advocate stating that the application filed on behalf of N.H. Securities Limited and others requesting SEBI to adjourn the matters cannot be considered as SEBI circular dated 20th April, 2007 does not provide for adjournment of concerned matters and hence, the caption applications are disposed off as withdrawn and the proceedings are kept in abeyance in terms of the said circular. It is submitted that thus the SEBI had relied upon the said circular which provides for the procedure for dealing with the concerned applications. 6. Ms. Anubha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Advocate on 18th February, 2016 when the matter was taken on board on their request. On 8th March, 2016 bail application was preferred by accused Nos.2 and 4 (Petitioner Nos.2 and 3) which was allowed. On 29th March, 2016, the accused were absent and bail conditions were not complied. The accused appeared through their advocate on 6th April, 2016 and sought extension of time for complying bail condition. The said prayer was granted on 3rd May, 2016 and 7th June, 2016. Neither the accused nor their lawyers appeared for the next five subsequent dates. On 22nd June, 2017 fresh Vakalatnama was filed by the new advocate alongwith application for extension of time to furnish surety. The same was allowed. On 20th July, 2017 all the accused were absent and Court proceeded to pass order, wherein the application for exemption was rejected and observed that if such applications are entertained there will be no framing of charge. The accused are expected to attend the Court as undertaken by them while getting released on bail. SEBI was directed to initiate the process against the accused. Application for issuance of NBW was adjourned for passing orders on 4th August, 2017 and also for framin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted procedure. It is submitted that the judgments relied upon by the petitioners were most of them concerned with the offence under Negotiable Instrument Act and same are not applicable in the present case. It is further contended that the prosecution under Negotiable Instrument Act is between two private parties and the dispute is of individual nature. The parameters laid therein are thus not applicable in the present case. SEBI is concerned to protect the rights of investors. It is not purely a dispute between SEBI and the accused. SEBI is the custodian of the interest of the investors and is the regulator of the securities markets. Thus, the judgments relied upon by the learned counsel for the petitioners are not applicable in the present case. It is submitted that the offences under the SEBI Act are economic offences. The scope and object of the Negotiable Instrument Act and the SEBI Act is completely different. The intent of the two legislations are absolutely distinct in nature. The trial court has exercised its discretion and passed the impugned order. The fact that the SEBI has refused to compound the present matter has been considered by the Court as material fact and ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been held and reiterated by the Court in the decision of the SEBI v. Ajay Agrawal 2010(3) SCC 765, N.Narayanan v. Adjudicating Officer , SEBI 2016 (6) SCC 368. The impact that the market abuse and manipulation of the securities market has on the economy of the nation and the confidence of the investors has been highlighted in the said judgments and directions were issued to SEBI to ensure that the same is protected. It is thus submitted that the petition be dismissed. In addition to the oral submissions, both the sides have tendered written submissions. As counter to the submissions tendered by the Respondent No.1 it was contended that in para 20 of the written submission the Respondent No.1 has considered the legal position that discretion to compound an offence in accordance with Section 24 A of SEBI Act is with the Court before which the prosecution is pending. It is thus, contended by Petitioners that the Respondent has agreed with the legal position that it is for the Court and not for SEBI to decide whether particular offence can be compounded or not and on that ground the impugned order has to be set aside. 8. Having heard both the sides and on scrutinizing the documents ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d was returned by the Respondent No.1. By notice dated 3rd July, 2008, the petitioners were intimated about initiation of prosecution proceedings against them for non-payment of penalty amount under Section 26 read with Section 24(2) and 27 of the SEBI Act. 9. On 14th January, 2013, the Respondent No.1 filed the complaint before the Court of Additional Chief Metropolitan Magistrate, 9th Court Bandra, Mumbai which was numbered as CC No. 22/SW/2003. The complaint refers to the adjudication order dated 22nd April, 2003, the order passed by the Appellate Authority 9th January, 2007 and also the letter dated 26th February, 2007 forwarded by the petitioner for part payment of the amount which was returned vide letter dated 18th April, 2007 alongwith the demand draft which was duly acknowledged by the accused. It is further mentioned that the accused opted for consent process which was rejected by the complainant. Despite repeated reminders by Respondent No.1, the petitioners failed to make payment of the penalty amount as directed by adjudicating order till the date of filing of the complaint and therefore the accused/petitioner had committed offence under Section 24(2) of SEBI Act, 199 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2017, the application was moved by the accused for taking the matter on board to file compounding application. Identical compounding application were filed by the accused in 10 connected matters including the matter in which one of the accused was under trial which was expediated by this Court. On 13th December, 2017 Respondent No.1 moved an application for production of documents vide Exh.27. Accused were permitted to file their say on the application of SEBI under Section 294 of Code of Criminal Procedure. The application under Section 66 of Evidence Act was also filed by SEBI. Accused had filed their say. In the order dated 13th December, 2017 it was observed that the Court has to take hard efforts to bring the case to the stage of evidence by shutting all the doors of adjournments. In this background SEBI entertains the compounding application for endless period for giving handle to the adjournments defeating the purpose and object of SEBI Act, 1992. It was further observed that the Respondent No.1 shall take note upon their failure on the next date it will be presumed that they are not interest to compound the case and case will be proceeded for evidence. On 26th December, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... complaints and decides not to compound the offence, the Court cannot compel them to accept the proposal of accused for compounding the offence. 12. In the present case, the petitioners had preferred the compounding application before SEBI authorities prior to launching of the prosecution. Said application was returned and stand rejected. After the proceedings were initiated and matter was due for recording evidence another application was preferred before the Special Judge where the prosecution was pending on 8th December, 2017. In the said application, it was contended that the offence under Section 24 of the said Act is compoundable as per Section 24A of the Act. The offence does not provide mandatory imprisonment and not barred by Section 24A which provide for compounding. The intention behind legislature in enacting SEBI Act is to provide opportunity to do good for any default committed by the accused in accordance with section 24 A of the Act. Without prejudice and without admitting guilt, the petitioners are ready to pay the subject matter being the penalty imposed by SEBI alongwith interest and such other necessary cost. It would be pertinent to note that the adjudication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this Court can entertain the said application and allow compounding vide Section 24A of the said Act. In the light of the reply filed by the Respondent No.1, the observation made in the adjudication of order, the order passed by the appellate authority dismissing appeal, the time when the application was preferred, the conduct of the petitioners, the pendency of the prosecution since 2013 are all the factors which would rejection of the application preferred by the petitioners. The Respondent No.1 cannot be a mute spectator to the application for compounding preferred by the petitioners. The prosecution was initiated for inaction on the part of the petitioners in complying order dated 22nd April, 2003. The offer of part payment made in 2007 was turned down and thereafter the application was preferred for seeking compounding of the application after the period of 10 years from the date of the first offer. The Respondent No.1 is the statutory authority and custodian of rights of investors. The object of SEBI Act 1992 is to protect the interest of the investor public. The Respondent No.1 is supposed to look into the complaints of the aggrieved persons and inspite of the default on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Stock Brokers Pvt. Ltd., v. Securities and Exchange Board of India (supra) SEBI Act provides for recovery proceedings and even in cases where penalty amount has been recovered the prosecution continuous as the offence of non-payment of penalty was committed irrespective of the same. 14. The object of the SAST Regulations mandating disclosure of requisition / sale beyond certain quantity is to give equal treatment and opportunity to all shareholders and protect their interest. The disclosure assumes all the more significance in view of the fact that the same could not be in the knowledge of the public. Accused would not have prejudged the reaction of the investors. By virtue on the part of the accused to make necessary disclosures the fact remains that the investors were deprived of the important information at the relevant point of time. By not making the disclosure the accused had concealed the vital information from the investors. In the case of Shilpa Stockc Brokers (supra), this Court has dealt with SEBI guidelines for consent order dated 20th April, 2007. In the said petition, a mandamus was sought directing SEBI to enforce the willingness conveyed in the letter of the said p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the violation warrants penalty; vii. Consideration of the amount of investors' harm or party's gain; viii. Processes which have been introduced since the violation to minimize future violations/lapses; ix. Compliance schedule proposed by the party; x. Economic benefits accruing to a party from delayed or avoided compliance; xi. Conditions where necessary, to deter future non-compliance by the same or another party; xii. Satisfaction of claim of investors regarding payment of money due to them or delivery of securities to them; xiii. Compliance of the civil enforcement action by the accused; xiv. Whether the party has undergone any other regulatory enforcement action for the same violation; and xv. Other factors necessary in the facts and circumstances of the case. 7. Whether a dispute should be resolved or whether the wider public interest in ensuring regulatory compliance requires that proceedings should be initiated and, if initiated should be followed to their logical conclusion, is a matter which falls within the discretion of SEBI. As a matter of first principle, a person against whom action has been initiated by SEBI or a person who apprehends th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an have no vested right either to insist upon SEBI settling a dispute or in enforcing compliance of the terms of a proposed offer of settlement. 8. If the matter is considered from this perspective, it is evident that the High Court in the exercise of its jurisdiction under Article 226 of the Constitution would not be justified in issuing a mandamus to SEBI to act upon a settlement or to accept a settlement as proposed. The guidelines which have been framed by SEBI are administrative in character. Since the judgment of the Supreme Court in G.J. Fernandez v. State of Mysore it has been a settled principle of law that if administrative guidelines issued by an authority have no statutory force, they can confer no right on an individual that could be enforced by a writ of mandamus. This principle was reiterated in a subsequent decision of the Supreme Court in J.R. Raghupathy v. State of A.P. But, apart from this position, it is equally fundamental, while analyzing the provisions of the guidelines to emphasise that where the guidelines have conferred a discretionary power upon SEBI to resolve a dispute which has still not reached the stage of adjudication or criminal action, or a dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... would not be justified in issuing mandate to SEBI act upon a settlement or to accept a settlement as proposed. This Court had further observed in the that the guidelines are intended to enable SEBI to obviate the reports to time consuming proceedings in appropriate cases, so that its time an effort can be devocated to those cases which truly merits its attention. The guidelines do not become available to overturn the judicial verdict which has attained finality. Besides that it would not advance the basic purpose of the adjudication and litigation. Once a litigation has taken place and final judicial order has been passed by the Court a settlement which would negate that order cannot be fasted on SEBI. The guidelines thus recognized the enabling power to SEBI to resolve certain cases which in view of SEBI can be said at best without compromising either an issue of principle or public interest. The guidelines do not confer a vested right in any person to insist on a settlement of proposed terms. Thus, in the light of the observations made by this Court, the Special Judge has rightly rejected the application issue preferred by the petitioners. The petitioners however contended that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ver, since Section 147 was inserted by way of an amendment to a special law, the same will override the effect of section 320(9) of Code of Criminal Procedure especially keeping in mind that Section 147 carries a non-obstinate clause. It would be relevant to note that the object of bringing Section 138 into the statute was to inculcate faith in the efficacy of banking operations and credibility in transacting business on negotiable Instrument. It was to enhance the acceptability of cheques in settlement of liabilities by making the drawer liable for penalty in case of bouncing cheques due to insufficient arrangement made by the drawer with adequate safeguards to prevent harrassment of honest drawers. If the cheque is dishonoured for the insufficiency of funds in the drawers account or if it exceeds to arrange the amount arranged to be paid from the account, the drawer is to be punished for imprisonment for a term which may extent to two years or with fine which may extent to twice of the amount of the cheque or with both. In the said decision the Apex Court has also referred to another decision of the Apex Court in the case of Vinay Devanna Naik v Ryot Seva Sarkari Bank Limited 200 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt. However, the distinction is drawn as far as the offence under Section 138 of the Negotiable Instruments Act, considering the fact that the aggrieved party is interested in return of his money and not in sending the person to jail. The Respondent No.1 is the regulatory authority. The Respondent No.1 is concerned with the interest of the public. Primarily the affected party are the investors. However, being the statutory authority Section 24A has been incorporated under the said Act. The discretion will have to be exercised depending upon the case and it cannot be applied randomly and powers of compounding are not expected to be exercised in every case. In V.L.S Finance Limited(supra) the order passed by the High Court dismissing appeal assailing the order of the Company Law Board allowing the compounding of offence under the Companies Act was under challenge. Reference was made to Section 21A of the Companies Act which relates to composition of certain offences notwithstanding anything contained in the Code of Criminal Procedure. The said provisions envisages the compounding of offences which are punishable under the Companies Act whether committed by a Company or any officer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the same issues will remain unaffected. Both the Acts will have to work in tandem in the interest of investors, especially when public money is raised by the issue of security from the people at large. 17. The powers and functions of SEBI are dealt with in Chapter IV of the SEBI Act. Section 11 states subject to the provision of the Act it shall be duty of SEBI to protect the interest of investors in securities and to promote the development of and to regulate the securities market. SEBI is duty bound to prohibit fraudulent and unfair trade practices relating to securities markets, prohibiting insided trading in securities etc. 18. In the case of Meters and Instruments Pvt. Limited & Anr. (Supra), the Supreme Court has observed that where the cheque amount with interest and costs as assessed by the Court is paid by specified date, the Court is entitled to close the proceedings in exercise of its powers under Section 143 of the Act read with Section 258 of Code of Criminal Procedure. The normal rule for trial of the cases under Chapter XVII of the Act is to follow the Summary Procedure and Summons trial procedure can be followed where sentence exceeding one year may be necess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Criminal Procedure any offence punishable under the SEBI act not being an offence punishable imprisonment only or with imprisonment or also with fine may either before or after the institution of any proceedings be compounded by Securities Appellate Tribunal or Court before which such proceedings are pending. The interpretation of the said provision would not mean that whenever an application is preferred by the accused such offences has to be compounded or that the prosecution agency cannot oppose such an application. It would also not mean that the prosecuting agency viz SEBI can be compelled to concede for allowing compounding application. The Division Bench of this Court in the case of Shilpa Stock Broker (supra) has taken into consideration the scope of the Act and the responsibility of SEBI in protecting the interest of the investors and in the light of the said circumstances, it was observed that SEBI cannot be compelled to settle the dispute. Whether a dispute should be resolved or whether the wider public interest in ensuring regulatory compliance requires that proceedings should be initiated and if initiated should be followed to that logical conclusion is the matter ..... X X X X Extracts X X X X X X X X Extracts X X X X
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