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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 ..... t cannot be accepted that the proceedings were in the nature of recovery and therefore the application for compounding ought to be allowed. The Special Judge has rightly rejected the application. The factual aspects and for all the reasons stated herein I am not inclined to allow the application for compounding in exercise of inherent powers under section 482 of Code of Criminal Procedure when the Respondent No.1 has not consented for compouding the said offence. Considering the aforesaid circumstances and more particularly in view of the observations of the Division Bench of this Court in the case of Shilpa Stock Broker [2013 (9) TMI 656 - HIGH COURT OF BOMBAY] and also in the light of scope powers of Respondent No.1 being the regulatory authority or the statutory authority it cannot be said that the proceedings can be compounded in the absence of the consent of Respondent No.1. I do not find any infirmity in the order passed by the Special Court rejecting the application preferred by the petitioner. Considering factual the matrix and the observations made herein above even in exercise of powers under Section 482 of Code of Criminal Procedure, I am not inclined to grant any rel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ropolitan Magistrate at Bandra under Section 26 read with Section 24(2) and Section 27 of SEBI Act on account of non-payment of penalty imposed by Adjudicating Officer. The said complaint was subsequently transferred to SEBI Special Court and is presently pending in the said Court. 4. The petitioners had filed an application before the SEBI Special Court for compounding the offence on 8th December, 2017, expressing their willingness to comply with the terms that may be mandated by SEBI as part of compounding process. The said application was opposed by Respondent No.1 by filling reply. The application was rejected vide order dated 22nd December, 2017. The petitioners are aggrieved by the said order and thus preferred the present petition challenging the impugned order. 5. Learned Senior Advocate Mr. Amit Desai advanced following submissions i. The offence alleged against the petitioners is under Section 24(2) of the SEBI Act which provides for imprisonment and fine and hence it is compoundable in accordance with Section 24(A) of the said Act. ii. Learned Special Judge failed to appreciate that Section 24(A) of the said Act does not anywhere provide that the compounding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r submitted that in the said decision, it was further observed that the statutory provision should be interpreted in a way to encourage compounding by the Court if the accused is willing to pay the amount. The Court had suggested that the object of the provision being deterrence against default, all efforts should be made towards compounding and not towards continuation of the prosecution. The provision and intent of Section 24(2) of the SEBI Act being similar to the provision of under Section 138 of the Negotiable Instrument Act, the said decision is squarely applicable in the facts and circumstances of the present case. vii. Learned counsel relied upon the circular dated 20th April, 2017 issued by SEBI relating to guidelines for consent orders and for considering the request for composition of offences. It is submitted that clause 11 of the said circular/guidelines indicates the factors to be considered for consent. It is stipulated that while considering the proposal of consent from any party, the Committee shall have due regard to the objective of the respective statute, the interest of the investors and securities market and factors including but not limited to the factors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... utandis mutandis. ix. The Court failed to appreciate that even the original breach which led to the adjudication proceedings was technical in nature and has not effected any investors nor caused loss to anyone. The original breach had no impact on the stock market as a whole and petitioners have not made any profits from the breach. It is further submitted that the quantum of penalty imposed was an amount being ₹ 1,50,000/- and reflects that the alleged breach is not grave in nature and ought to have been compounded. The Special Judge failed to appreciate that in the past a number of instances of other associate companies have already been settled through consent orders and there is no reason why the present case could be distinguished. Learned counsel relied upon the other orders wherein the consent was accepted. x. The failure to pay penalty was not willful and resulted from financial distress suffered by the petitioners at the relevant due to several factors. The continuation of prosecution what serve no fruitful purpose as it would deprive the Respondent No.1 which is public a body of the penalty amount and would unnecessarily involve litigation expense out of publi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s against whom the proceedings have been initiated or may be initiated under Sections 11, 11B, 11D, Section 12(3) or Section 15-I only and not once the prosecution has been initiated. xiv. In the decision of the Supreme Court delivered in VLS Finance Limited v. Union of India 2013(6) SCC 278, the Court has dealt with the powers embodied under Section 621-A of the Companies Act. Learned counsel placed reliance on the observations Supreme Court in paragraphs 15 to 19 of the said decision. It is observed by the Supreme Court that the powers under Section 621(1)(7) and 621 A are parallel powers to be exercised by Company Law Board or the authorities mentioned therein and prior permission of the Court is not necessary for compounding the offence, when power of compounding is exercised by the Company Law Board. xv. The guidelines and regulations notified by SEBI highlight the intent to have matters settled through consent mechanism wherever appropriate. The guidelines for consent orders and for considering the request for composition of offences dated 20th April, 2007 clearly highlight the intent of SEBI to encourage settlement and compounding. Clause 11 of the said guidelines set ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... filed before the Special Judge, it was stated that considering the facts and circumstances of the case and material available on record against the accused, SEBI has decided that the matter should not be compounded against accused Nos.1 to 4 and it was prayed that the application for compounding be rejected in the interest of justice. The trial Court has assigned reasons for rejecting the compounding application. The order dated 27th December, 2017 clearly demonstrates that the trial Court has exercised its discretion and on the basis of the same rejected the application. The petitioners had purportedly forwarded correspondence dated 26th February, 2007 to demonstrate their willingness to pay the penalty but inability to pay the entire amount due to financial reasons. The petitioner did not move the authority for modification of order permitting them to make payment in part. In the absence of any such modification and in compliance with the rules, SEBI returned the said demand draft to the petitioner company as there was no procedure for accepting payments in part. Petitioner company alongwith other group of companies had attempted to make part payment on the second occasion which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he accused was not present and no application for exemption was preferred on their behalf. On 7th September, 2017, time was sought by both the parties as the stages in the various cases which were being heard together were to be determined. On 18th September 2017 the advocate for the accused was present but the accused were absent and the application undertaking to keep all of them present on the next date was filed which was taken on record. On 28th September, 2017 the accused were again absent while their advocate was present and the application for exemption was preferred. The said application was opposed by the Respondent No.1 and the same was rejected. On 4th October, 2017 Respondent No.1 was directed to take appropriate steps. On the next date i.e 3rd November, 2017 the non-bailable warrant issued against the accused were cancelled and charge against the accused was framed. Respondent No.1 was directed to lead evidence without fail. Thereafter, the matter was posted for recording of evidence. The Court also imposed costs on the prosecution since evidence was not led. The accused then moved an application for compounding on 8th December, 2017. Identical applications were filed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n into consideration. The recommendation of the SEBI is always based upon the facts and circumstances of the case and the conduct of the accused. One of the object of the SEBI is to protect the interest of the investors. SEBI recommended for rejection of compounding application after considering the facts and circumstances of the case and conduct of the accused. 7. It is submitted that as far as interpretation of Section 15(J) (B) of SEBI Act is concerned it has to be noted that for the purpose of the present proceedings the relevant provisions are under Section 24, 24A and 27 of the said Act. Section 15(J)(B) deals with circumstances which are before the criminal prosecution is launched and not after. The provision relates to settlement of administrative and civil proceedings and does not apply to Criminal Proceedings. The accused by not complying the adjudication order dated 22nd April, 2003 and the order of said dated 9th January, 2007, subsequent communication of SEBI evading of service of summons, bailable warrants, non-bailable warrants had addresses which continued to be the addresses of the petitioners and the directions of the Court from time to time shows that the peti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dent No. 1 had conducted investigation into an allegations of acquisition of shares of one Shonkh Technologies International Limited by certain entities in excess of limits prescribed under regulations 7 and 10 of SEBI (Substantial Acquisition of Shares and Takeovers) and Regulations 1997. The adjudication order dated 22nd April, 2003 list down the various entities which were being investigated in the adjudication proceedings which includes the petitioner No.1 company and petitioner No.2 and 3. The petitioner No.2 and 3 also feature as Directors and/or shareholders of the other entities which were the subject matter of the adjudication proceeding. On the basis of analysis of evidence, the Adjudicating Officer held that the entities and the persons involved were acting in consert with each other and that the acquisitions of shares cannot be looked into in isolation for each entity. The Adjudicating Officer applied the principle of lifting of Corporate veil to reveal the violation of law under the garb of being separate entities. The petitioner No.1 company features specifically in the adjudication orders in the table showing the violations of regulations 7(1) of SEBI (SAST) Regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear and deliberate violation of the orders of the adjudicating officer by the accused and deserves most severe punishment as prescribed under Section 24(2) of SEBI Act. The accused No.2 to 4 were Directors / Officers of accused No.1 company when the offences were committed and therefore they are responsible for the conduct of the business. They are deemed to be guilty under the provisions of Section 27 of the Act. Section 24(2) of SEBI Act, 1992 reads as follows :- If any persons fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of directions or orders, he shall be punishable with imprisonment for term which shall not be less than one month, but which may extent to 10 years or fine which may extent to 20 crores rupees or both. 10. The Respondent No.1 has contended that there are 10 complaints similar in nature and arising out of same adjudication order which were filed specifically impleading each company and its Directors as accused in the matter under Section 24(2) of the SEBI Act, 1992. Petitioner No.3 is an accused in three more matters arising out of the same adjudication proceedings and all other three petitioners are implea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n adjourned to 27th December, 2017. The arguments were heard and by order dated 27th December, 2017 the application for compounding was rejected. 11. In the reply filed by the Respondent No.1 before the Special Judge opposing the application for compounding it was contended that considering the facts and circumstances of the case and material available on record against the accused, SEBI has decided that the matter should not be compounded against the accused. It was therefore prayed that the application for compounding be rejected in the interest of justice. The learned Special Judge while rejecting the said application for compounding was pleased to observe that Section 24A of SEBI Act specify the jurisdiction to entertain compounding in certain offences. The said provision indicates two forums. The first before the institution of criminal case if compounding is preferred, securities Appellate Tribunal can entertain the compounding and second if after the institution of any proceedings like the prosecution, the Court before which such proceedings are pending can entertain the compounding. It was further observed that all the accused had preferred compounding before SEBI author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority which appeal was dismissed on 9th January, 2007. The accused forwarded the letter dated 26th February, 2007 for making part payment. The said request was turned down. The complaint was filed for non-compliance of the adjudication order on 14th January, 2013. It is thus, clear that the adjudication order was passed about 15 years ago. The application for compounding was preferred again before the Special Court on 8th December, 2017. The prayer clause of the said application it was stated that offence be compounded under Section 24A of the SEBI Act, 1992 and in terms of SEBI Circular dated 20th April, 2017 and SEBI Regulation 2014 dated 9th January, 2014. From the Roznama reproduced in the written submissions tendered by the Respondent No.1 it is crystal clear that the proceedings were dragged for lengthy period and ultimately the charge could be framed and the matter was kept for evidence and at that point of time the application was preferred by the petitioners. The petitioners are now trying to contend that to save the cost and time of the Court and without admitting guilt the petitioners had preferred the application for compounding. Thus, the petitioners have preferred th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The petitioners cannot claim parity with regards to the consent given by Respondent No.1 in other complaints. Apparently, consent was given in different circumstances. The Respondent No.1 is within its right to oppose the application for compounding. The Special Judge has intended to reject the application with an observation that the decision of Respondent No.1 refusing to accept the compounding proposal cannot be adjudicated by the Court. The impugned order indicates that whether it is the discretion of Respondent No.1 to support the proposal of the compounding initiated by the accused or not to support the same. From the submissions of respondent No.1, it is implicit that it was decided not to support the application. The trial Court has rightly observed that the decision of SEBI and reason for not supporting compounding application cannot be adjudicated. In any case from the submission putforth be respondent No.1, the said decision has been justified. The Adjudicating Officer has held that the entities and the person involved were persons acting in concert with each other that the acquisition of shares cannot look into entity each other. The penalty was imposed in 2003. Appare ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 6. The Guidelines make it abundantly clear that an application for consensual resolution can be moved even before a proceeding is instituted under Clause 9(I). An application for settlement can also be moved where a proceeding is pending. Any person who is notified or has reasonable grounds to believe that civil or administrative proceedings may be instituted against him or any party to a proceeding already instituted, is empowered to move a proposal with an offer of consent. Similarly, a person who has been notified or who has reasonable ground to believe that a criminal proceeding may or will be instituted against him, may before before the filing of a criminal complaint by SEBI, propose a consentual resolution. Once a criminal complaint is filed it can only be compounded in accordance with law. Before a complaint is filed a person who has reasonable grounds to believe that he would be subject to criminal action, can move SEBI with an offer of settlement that will, if accepted, obviate the filing of a complaint. During the pendency of proceedings either before the Securities Appellate Tribunal or before a Court, the same consent process can be undertaken. SEBI, as a regulator h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s no vested right to insist that the dispute be resolved in terms or a consensual settlement. SEBI has been constituted as an expert regulator to ensure the stable and orderly functioning of the securities market. Acting as a regulator of the securities market, decisions taken by SEBI impact upon the economy and financial stability. SEBI is vested with statutory powers, in the public interest and the exercise of power must, therefore, be guided by the public interest that SEBI is vested with the power to protect. The considerations which are spelt out in clause 11 provide some indication of the nature of the power that is exercised. Amongst the circumstances which are to be borne in mind is whether the violation is intentional, the conduct of the party during the course of investigation, the gravity of the charge, the track record of the violator, whether a violation is technical or minor, the extent of harm that may be caused to investors, processes which have been adopted to minimize future violations, proposed compliance schedule, economic benefits that have accrued from delayed or failure in compliance, conditions necessary to deter future non-compliance, satisfaction of claims ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng proceeding, it is for SEBI, on a considered view of all the circumstances of each case, to determine as to whether the dispute merits an amicable solution. Thus, the ratio of the said decision is that the Respondent No.1 cannot be compelled to settle the dispute. The guidelines makes it clear that an application for consensual resolution can be moved before the proceeding instituted. An application can also be moved where proceeding is pending. However, once a criminal complaint is filed, it can only be compounded in accordance with law. Before a complaint is filed, a person who has a reasonable ground to believe that he would be subjected to criminal action can move SEBI with an offer of settlement that if accepted it would obviate filing of complaint. SEBI as a regulator has an enabling power to settle a dispute. It is further observed that the object and purpose of the guidelines is enable SEBI to resolve the dispute where the regulator does not consider it necessary to pursue adjudicatory or criminal remedies. The exercise of the discretion which is conferred on SEBI is structured by the consideration which are elaborated in clause 11 of the said guidelines. It is als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng with the guidelines of 27th April 2007 and the Court had not considered the scope of Section 24A of the SEBI Act. It is also contended that the factual aspect of the said decision indicate that proceedings had attained finality and in the light of the said circumstances, the Court has made certain observations. It is further contended that Section 24A of the SEBI Act is still confers power on the Court to compound and it cannot rest at the discretion of Respondent No.1. 15. The decision in the case of Damodar Prabhu (supra) relates to the guidelines / directions issued to encourage litigants in cheque dishonoured cases to opt for compouding during early stage of litigation to ease chocking of Criminal Justice system or graded scheme imposing cost on the parties for unduly delay compounding of offences and for controlling of filing of complaints in multiple jurisdiction reletable to the same transaction. The observation and guidelines issued therein were concerning the proceedings under section 138 of the Negotiable Instruments Act. The said guidelines or observations of the Apex Court are to be applied to such cases considering the scope and object of the said provision. Le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... observed that the provision of Section 138 was intended to prevent dishonesty on the part of the drawer of negotiable instruments in issuing cheques without sufficient funds. It does seek to promote the efficacy of bank operations. In paragraph 11 of the said decision, it was also observed that certain offences are very serious in which compromise or settlement are not permissible. Some other offences, on the other hand, are not so serious and the law may allow the parties to settle them by entering into a compromise. The compounding of an offence signifies that the person against whom an offence has been committed has received some gratification to an act as an inducement for its abstaining from proceedings further with the case. It is relevant to note that unlike for other forms of crime the complainant s interest lies primarily in recovering the money rather than seeing drawer of the cheque in jail. The threat of jail is only a mode to ensure recovery. As against the accused who is willing to go undergo jail term, there is little remedy available for the holder of the cheque. The Apex Court thus in Damodar Prabhu (supra) case observed that it is obvious that with respect to offe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e punishable with imprisonment only or with imprisonment and also with fine either before or after the institution of any prosecution. In the light of the provisions under the Companies Act, the Court had observed that ordinarily the offences compoundable under the provisions of the Code of Criminal Procedure and the power to accord permission is conferred on the Code accepting those offences for which the permission is not required. However, in view of the non-obstante clause, the power of composition can be exercised by the Court or the Company Law Board. The legislature has conferred the same power on the Company Law Board which can exercise its power either before or after the institution of any prosecution whereas the criminal Court has no power to accord permission for composition of an offence before the institution of the proceedings. The legislature in its wisdom has not put the rider of prior permission of the Court before compounding the offence by Company Law Board and incase the contention of the Appellate is accepted the same would amount to addition of the words with the prior permission of the Court in the Act which is not permissible. Thus, the Court was considerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that compensation under Section 357 of Code of Criminal Procedure with sentence of less than one year will not be adequate having regard to the amount of cheque and conduct of the accused and other circumstances. It was also observed that the object of provision under Section 138 of Negotiable Instrument Act, being primarily compensatory, punitive ailment being mainly with the object of enforcing the compensatory relevant, compounding at the initial stage has to be encouraged but is not debarred at later stage subject to appropriate compensation as may be found acceptable to the parties or the Court. The directions issued in the said decision were in the light of the scope and object of the provisions under Section 138 of the Negotiable Instrument Act. It would be pertinent to note that the object of the provision was described as both punitive as well as compensatory. The intention of the provision was to ensure that the complainant received the cheque by way of compensation. Though proceedings under Section 138 of Negotiable Instruments Act would not be treated as a civil suits for recovery the scheme of the provisions provides for imprisonment or with fine which could ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... retion of SEBI or a person who apprehends that action will be initiated by SEBI has no vested right to insist that the dispute be resolved in terms of consensual settlement. The Respondent No.1 has constituted as an expert regulator to ensure the stable and orderly functioning of the securities market. Acting as a regulator of the securities market decisions taken by SEBI impact upon the economy and financial stability. SEBI is vested with statutory powers in the public interest and the exercise of power must therefore be guided by the public interest that SEBI is vested with the power to protect. Although, the Division Bench of this Court in the said decision was not dealing with the provisions under Section 24A of the SEBI Act, the observations made therein which are reproduced herein above can be applied to the provision under Section 24A of the Act. Merely on the ground that the embargo laid down under Section 320 of Code of Criminal Procedure may not be applicable to the provision of Section 24A, it cannot be said that without the consent of SEBI the proceedings can be compounded. Or else the statutory authority will be rendered to be a mute spectator in the event of such an a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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