9911796707
TMI Blog2021 (7) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... the Securities and Exchange Board of India Act, 1992 ("SEBI Act"). The appellant sought the compounding of the offence under Section 24A. By an order dated 15 November 2018, the Additional Sessions Judge - 02 Central District at Tis Hazari Courts, Delhi ("Trial Judge"), rejected the application, upholding the objection of the Securities and Exchange Board of India that the offence could not be compounded without its consent. By a judgment of a Single Judge of the High Court of Delhi dated 1 April 2019 the order of the Trial Judge has been affirmed in revision. The High Court has held that the trial has reached the stage of final arguments and the application for compounding cannot be allowed without Securities and Exchange Board of India's ("SEBI") consent. The reasons of the High Court are extracted below: "6. 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 con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany on 2 February 1999. The Company was investigated for the period between 28 January 1996 and 29 February 1996. This was the period immediately preceding the listing of the scrip of the Company. This scrip moved from a low of Rs. 11.25 on 30 January 1996 to a high of Rs. 23.25 on 13 February 1996. The traded volume was unusually high during this period, with a daily turnover of 1,00,000 shares on many days. Thereafter, the price of the scrip registered a steep decline to Rs. 17 on 29 February 1996, and the daily turnover also reduced to an average of a few hundred shares. 5 During its investigation, SEBI obtained the details of the top brokers who traded in the shares of the Company during this period on the Delhi Stock Exchange and Bombay Stock Exchange, and also of their clients who had made significant purchases or sales on the scrip. Consequently, SEBI came up with the name of six entities who had purchased approximately 51 per cent of the 38 lac equity shares on offer during the period between 28 January 1996 and 29 February 1996. They were found to have continued buying shares even after that period, and had ultimately purchased 28,38,000 equity shares, which was approxim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... who are not its promoters. The order directed that the offer presented would be at Rs. 12 per share, which was higher than Rs. 10 per share at which the shares of the Company were listed during the IPO. The appellant has stated that in compliance of the order, the promoters/directors of the Company acquired equity shares which raised their holding to the extent of about 95 per cent of the Company (post IPO). Thereafter, the Company also got its shares delisted from various stock exchanges. 10 On 19 June 2001, the AO passed an order in which it noted that the six entities were managed by the appellant, which can be determined from the fact that: (i) he received the summons sent to them; (ii) he had admitted in his statement on 7 June 1999 that he or his relatives were the directors in these entities; (iii) they purchased these shares on the basis of an oral commitment made by the appellant and by using funds obtained from the Company or on the basis of Inter Corporate Debtors obtained on the guarantee of the appellant, Chairman and Managing Director of the Company; (iv) the shares purchased were lying in the office of the appellant; and (v) it had also been admitted by the Chairma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the appellant and other accused persons seeking the compounding of the offence in the criminal complaint filed by SEBI since they had already purchased the shares from the public in accordance with the order of SEBI Chairperson under Section 11B and had paid the penalty levied by the AO. 15 SEBI referred the compounding application for seeking the views of its High Powered Advisory Committee ("HPAC") headed by a former Judge of the High Court of Bombay. The HPAC has been constituted for examining proposals for compounding offences. The HPAC recommended that the offences should not be compounded following which an intimation was furnished to the Trial Judge and recorded in an order dated 7 May 2016. 16 In the interregnum, the criminal complaint was listed for recording the evidence of the complainant, but after the evidence was adduced, the appellant declined to cross-examine the witness until the compounding application was decided. The appellant also filed an application on 6 November 2017 before the Trial Judge, praying that the compounding application be decided before further evidence of the complainant was recorded in the criminal complaint. 17 By an order dated 15 Novembe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l ("SAT") and the Court to compound offences, and there is no provision in the statute for the consent of SEBI. Compounding should be allowed if, after an assessment of the overall facts, there is no reason to deny it; (ix) The order of the Trial Judge is manifestly erroneous when it holds that "there is nothing on record to show that the investors have been duly compensated". Moreover, the observation that the offence could not be compounded under Section 24A without the consent of SEBI is contrary to the plain terms of the statute which do not contemplate the consent of SEBI; and (x) In the facts of the present case, the application for compounding should be allowed since: a. The appellant is a senior citizen; b. The Company has been de-listed on the stock exchanges; and c. No loss is shown to have been caused to the investors. 19 Mr CU Singh, learned Senior Counsel appearing on behalf of SEBI opposed the submissions on the ground that: (i) The criminal complaint which was filed on 29 March 2000 sets out the element of criminality involving: a. Mis-utilization of the proceeds of the IPO to purchase the shares of the Company through the six related entities; b. Ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the CrPC were filed in 2006-07. They remained pending for seven years, until they were dismissed on 26 August 2013 by the High Court of Delhi. Once the Trial Judge took cognizance of the criminal complaint, the application for compounding was then submitted belatedly on 14 October 2013 when the evidence was being recorded; and (v) A case does not exist for the interference of this Court under Article 136 of the Constitution. 20 Mr Mahesh Jethmalani, learned Senior Counsel has intervened in these proceedings and has urged submissions on the issue as to whether the power of compounding offences under Section 24A of the SEBI Act requires the consent of SEBI. Learned Senior Counsel submitted that: (i) Section 24A refers to only two authorities - SAT and a Court - before which the proceedings are pending. Section 24A has no reference to SEBI, and it does not condition the power of the Court or SAT of compounding offences to the prior consent of SEBI; (ii) It is a well settled principle of statutory construction that while interpreting a statutory provision, no addition or subtraction from it is permissible; (iii) The submission of SEBI that its consent is mandatory in order to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... till a sense of confidence in the public in the growth and stability of the capital market, the President promulgated the Securities and Exchange Board of India Ordinance, 1992 (No. 5 of 1992) on the 30th January, 1992." 23 Chapter IV of the SEBI Act delineates the power and functions of SEBI. Within this chapter, Section 11 stipulates the functions of SEBI. Sub-Section (1) casts upon SEBI the duty to protect the interests of investors in securities and to promote the development and regulation of the securities market, through such measures as it deems fit. Among the functions which are specified in sub-Section (2) are: (i) Regulating the business in stock exchanges and any other stock exchange markets (clause (a)); (ii) Prohibiting fraudulent and unfair trade practices relating to securities markets (clause (e)); (iii) Prohibiting insider trading in securities (clause (g)); and (iv) Regulating substantial acquisition of shares and takeover of companies (clause (h)). 24 Under sub-Section (2a) (inserted with effect from 29 October 2002), SEBI is empowered to undertake the inspection of any book, register, document or record of any listed public company or a public company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any penalty. (2) While holding an inquiry the adjudicating officer shall have power to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the adjudicating officer, may be useful for or relevant to the subject-matter of the inquiry and if, on such inquiry, he is satisfied that the person has failed to comply with the provisions of any of the sections specified in subsection (1), he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections. (3) The Board may call for and examine the record of any proceedings under this section and if it considers that the order passed by the adjudicating officer is erroneous to the extent it is not in the interests of the securities market, it may, after making or causing to be made such inquiry as it deems necessary, pass an order enhancing the quantum of penalty, if the circumstances of the case so justify: Provided that no such order shall be passed unless the person concerned has been given an opportunity of being heard in the matter: Provided further that nothing contained in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... grieved by any decision or order of the Securities Appellate Tribunal may file an appeal to the Supreme Court within sixty days from the date of communication of the decision or order of the Securities Appellate Tribunal to him on any question of law arising out of such order: Provided that the Supreme Court may, if it is satisfied that the appellant was prevented by sufficient cause from filing the appeal within the said period, allow it to be filed within a further period not exceeding sixty days." 31 As distinct from the provisions for penalties and adjudication in Chapter VIA, Chapter VII, which is titled 'Miscellaneous' deals with offences in Section 24. Section 24 as it stands presently, is in the following terms: "24. Offences.-(1) Without prejudice to any award of penalty by the Adjudicating Officer or the Board under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, he shall be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees or with both. (2) If any person fails to pay t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on and shall be liable to be proceeded against and punished accordingly: Provided that nothing contained in this sub-section shall render any such person liable to any punishment provided in this Act, if he proves that the contravention was committed without his knowledge or that he had exercised all due diligence to prevent the commission of such contravention. (2) Notwithstanding anything contained in sub-section (1), where an contravention under this Act has been committed by a company and it is proved that the contravention has been committed with the consent or connivance of, or is attributable to any neglect on the part of, any director, manager, secretary or other officer of the company, such director, manager, secretary or other officer shall also be deemed to be guilty of the contravention and shall be liable to be proceeded against and punished accordingly. Explanation.-For the purposes of this section,- (a) "company" means any body corporate and includes a firm or other association of individuals; and (b) "director", in relation to a firm, means a partner of the firm." 36 Section 24A, which provides for the compounding of certain offences, contains certain cha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pulated that an application can be made to SAT. However, once a proceeding has been instituted before a Court which is seized of it, it is the imprimatur of the Court that is required in such a situation. The expression "or a court before which such proceedings are pending" would indicate that once proceedings have been instituted before it, the Court has exclusive jurisdiction to compound offences. It would be instructive to also look at the circulars issued by SEBI in order to better understand the practical implications of the language of Section 24A. 39 In a circular dated 20 April 2007 Available at accessed on 20 July 2021, SEBI issued guidelines for consent orders under Sections 15T of the SEBI Act and Section 23A of the Depositories Act, 1996, and for compounding of offences under Section 24A of the SEBI Act, Section 22A of the Depositories Act and Section 23N of the Securities Contracts (Regulation) Act, 1956. It noted that compounding of an offence "may cover appropriate prosecution cases filed by SEBI before the criminal courts" and "can take place after filing criminal complaint by SEBI". Finally, it notes the procedure to be followed by an accused person while seeking ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar primarily issues new guidelines in relations to consent orders, it also provides a list of offences which SEBI shall not settle, which includes: "ii. Serious fraudulent and unfair trade practices which, in the opinion of the Board, cause substantial losses to investors and/or affects their rights, especially retail investors and small shareholders or have or may have market wide impact, except those defaults where the entity makes good the losses due to the investors;" 42 A combined reading of the two circulars and FAQs issued by SEBI clarifies the following: firstly, a party can seek compounding under Section 24A at any stage once the criminal complaint has been filed by SEBI; secondly, the party shall have to file the application for compounding before the Court where the criminal complaint is pending; thirdly, a copy of the application for compounding must also be sent to SEBI, which will place it before the HPAC Constituted under circular dated 25 May 2012 to "consist of a retired Judge of a High Court and three other external experts, as may be decided by the Board from time to time".; and fourthly, the HPAC's decision on the application, be it an acceptance or an object ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cute a crime that one knows has been committed or agreeing to hamper the prosecution.- Also termed theft-bote. (Black, 7th Edn., 1999) "If a prosecuting attorney should accept money from another to induce the officer to prevent the finding of an indictment against that person this would be compounding a crime if the officer knew the other was guilty of an offense, but would be bribery whether he had such knowledge or not." Rollin M. Perkins & Ronald N. Boyce, Criminal Law 539 (3d ed. 1982)." 47 In this context we may refer to Sections 213 and 214 of the Indian Penal Code, 1860 ("IPC") which also introduce a similar crime in India, in the following terms: "213. Taking gift, etc., to screen an offender from punishment.-Whoever accepts or attempts to obtain, or agrees to accept, any gratification for himself or any other person, or any restitution of property to himself or any other person, in consideration of his concealing an offence or of his screening any person from legal punishment for any offence, or of his not proceeding against any person for the purpose of bringing him to legal punishment, if a capital offence.-shall, if the offence is punishable with death, be punish ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2). 48 On the other hand, it was in 1872, when the Code of Criminal Procedure was amended, that compounding was first introduced as a procedural tool in Indian criminal law. Section 188 therein stated: "Section 188 Compounding offences - In the case of offences which may lawfully be compounded, injured persons may compound the offence out of Court, or in Court with the permission of the Court." As is evident, the above provision only provided that compounding of offences was possible out of Court, or in Court with its permission. However, while it referred to offences which may be "lawfully compounded", the decision on those was left to judicial discretion. 49 When the Code of Criminal Procedure was amended in 1882, it enumerated a list of offences which could be compounded by the Courts in Section 345. This list was expanded when the Code of Criminal Procedure was amended again in 1898. Finally, in its current form, the compounding of offences is permissible under Section 320 of the CrPC. The relevant parts of Section 320 are extracted below: "320. Compounding of offences-(1) The offences punishable under the sections of the Indian Penal Code (45 of 1860) specified in the f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unded by the parties but for which the permission of the Court is required; and (iii) Offences which cannot be compounded at all. 51 Sub-section (1) of Section 320 of the CrPC stipulates that offences punishable under the sections of the IPC in the first two columns of the appended table may be compounded by the persons mentioned in the third column of that table, without the permission of the Court. Column 1 of this table describes the offences, column 2 indicates the corresponding section of the IPC and column 3 provides the person by whom the offence may be compounded. Column 3 indicates that the compounding of the offence is essentially at the instance of a victim, person aggrieved or the injured person. Broadly speaking, the offences covered by sub-Section (1) of Section 320 are relatively of a minor nature directed against an individual without affecting the society at large. The maximum sentence for these offences may vary from five to seven years' imprisonment. Almost all the offences are bailable and several are non-cognizable. 52 Sub-Section (2) of Section 320 provides for offences where compounding requires the permission of the Court before which a prosecution for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. 54 In explaining the basis for the provision of compounding an offence in Section 345 of the 1898 Act, the Law Commission of India in its 41st Report stated as follows Available at accessed on 20 July 2021 : "24.66...The broad principle that forms the basis of the present scheme is that where the offence is essentially of a private nature and relatively not serious, it is compoundable." emphasis supplied 55 The Law Commission of India in its 154th Report on the CrPC, explained the rationale for Section 320 in the following terms Available at accessed on 20 July 2021: "2. The rationale for compounding of offences is that the chastened attitude of the accused and the praiseworthy attitude of the complainant in order to restore peace and harmony in society, must be given effect to in the composition of offences." However, it also goes on to then note: "9. We recommend that as a matter of policy more offences be brought under the category of offences compoundable by the parties themselves without the intervention of the court. However, offences against the public at large, however small they may be, should not be compoundable." Emphasis supplied 56 Thereafter, in its ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a composition of the offence. Viewed thus I do not think that a plea can be successfully put forward that granting permission or giving consent under sub-section (4)(a) or (4)(b) for compounding of an offence, the court is enjoined to make a serious detailed evaluation of the evidence or assessment of the case to be satisfied that the case would result in acquittal or conviction. It is necessary to bear in mind that an application for compounding of an offence can be made at any stage.." Emphasis supplied 59 Analyzing the above decisions, it is evident that that legislative sanction for compounding of offences is based upon two contrasting principles: first, that private parties should be allowed to settle a dispute between them at any stage (with or without the permission of the Court, depending on the offence), even of a criminal nature, if proper restitution has been made to the aggrieved party; and second, that, however, this should not extend to situations where the offence committed is of a public nature, even when it may have directly affected the aggrieved party. The first of these principles is crucial so as to allow for amicable resolution of disputes between parties ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which lie outside the IPC, compounding may be permitted only if the statute which creates the offence contains an express provision for compounding before such an offence can be made compoundable. The power of compounding must, in other words, be expressly conferred by the statute which creates the offence. E.4 Compounding outside of CrPC 63 The provisions contained in Section 147 of the NI Act for compounding of offences came up for consideration before a two judge Bench of this Court in JIK Industries (supra). Section 147 of the NI Act is in the following terms: "147. Offences to be compoundable.- Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), every offence punishable under this Act shall be compoundable." 64 In that case, the High Court had rejected several writ petitions challenging the processes which were issued by the Trial Judge on a complaint filed by the respondent in proceedings under Section 138 read with Section 141. The High Court held that the sanctioning of a scheme under Section 391 of the Companies Act, 1956 did not automatically amount to the compounding of an offence under Section 138 read with Section 141 of the NI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd to the lapse of time and also having regard to the fact that there is a compromise decree satisfying the banks' dues, there is no purpose in allowing the criminal prosecution to proceed. On those consideration, this Court, in the "special facts of the case", did not interfere with the order of the High Court dated 23-12-1992 whereby the criminal prosecution was quashed." 66 The Court then noted the submission of the complainant that there is no concept of "deemed compounding under the criminal law and that under the very concept of compounding, it cannot take place without the explicit consent of the complainant or the person aggrieved". Holding that the "Court finds a lot of substance in the aforesaid submission", Justice Ganguly observed: "54. Compounding of an offence is statutorily provided under Section 320 of the Code. If we look at the list of offences which are specified in the table attached to Section 320 of the Code, it would be clear that there are basically two categories of offences under the provisions of the Penal Code which have been made compoundable. There is a category of offence for the compounding of which leave of the court is required and there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rney General, who appeared as amicus curiae, that cheque dishonor cases were being compounded or settled at the late stages of litigation, thereby contributing to delay in the delivery of justice. This, in part, was due to the fact that unlike Section 320 of the CrPC, Section 147 of the NI Act provides no explicit guidance on the stage at which compounding can or cannot be done and where compounding can be done at the instance of the complainant or with the leave of the Court. As a result, accused persons are willing to take a chance of progressing through various stages of a prosecution and to opt for the route of compounding only when no other option remains. Having regard to this problem, the Court prescribed certain guidelines to be followed in compounding, in exercise of its jurisdiction under Article 142 of the Constitution. The Court clarified that it was issuing these guidelines "which could be seen as an act of judicial law making and therefore an intrusion into the legislature domain" because Section 147 did not carry any guidance on how to proceed with the compounding of offence under the NI Act. The Court again reiterated that it had "already explained that the scheme c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall be investigated, inquired into, tried, and otherwise dealt with according to the same provisions, but subject to any enactment for the time being in force regulating the manner or place of investigating, inquiring into, trying or otherwise dealing with such offences." In conclusion, the Court held: "82. A perusal of Section 320 makes it clear that the provisions contained in Section 320 and the various sub-sections is a code by itself relating to compounding of offence. It provides for the various parameters and procedures and guidelines in the matter of compounding. If this Court upholds the contention of the appellant that as a result of incorporation of Section 147 in the NI Act, the entire gamut of procedure of Section 320 of the Code are made inapplicable to compounding of an offence under the NI Act, in that case the compounding of offence under the NI Act will be left totally unguided or uncontrolled. Such an interpretation apart from being an absurd or unreasonable one will also be contrary to the provisions of Section 4(2) of the Code, which has been discussed above. There is no other statutory procedure for compounding of offence under the NI Act. Therefore, Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the issue as to whether the judgment in JIK Industries (supra), which is of a two judge Bench, is contrary to the earlier three judge Bench decision in Damodar S Prabhu (supra). We are concerned in the present case with interpreting the provisions of Section 24A of the SEBI Act, and hence it is not necessary for this Court to construe Section 147 of the NI Act. 73 Subsequent to the decision in JIK Industries (supra), there is a decision of another two-judge Bench of this Court in VLS Finance (supra). The Company Judge of the Delhi High Court had dismissed an appeal assailing an order of the Company Law Board allowing an offence under Section 211(7) of Companies Act, 1956 to be compounded. A complaint was filed by the Registrar of Companies in the Court of the CMM, alleging that though the company had obtained certain land from the municipal corporation on a yearly license fee, the land had been shown in the schedule of fixed assets, which was not a fair view and was hence punishable under Section 211(7) of the Companies Act, 1956. Before the Court in seisin of the case could proceed with the complaint, an application was filed before the CLB for compounding. Through the CLB's or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccord permission is conferred on the court excepting 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 proceeding. The legislature in its wisdom has not put the rider of prior permission of the court before compounding the offence by the Company Law Board and in case the contention of the appellant is accepted, same would amount to addition of the words "with the prior permission of the court" in the Act, which is not permissible." 76 The Court held that while interpreting the provisions of the statute, the words must be construed in their ordinary sense without any addition; and in that context it observed: "18. As is well settled, while interpreting the provisions of a statute, the court avoids rejection or addition of words and resorts to that only in exceptional circumsta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nalogy, it was held that apart from compounding by consent of the parties, the Trial Court has jurisdiction to pass the jurisdictional order under Section 143 in exercise of its inherent power. The Constitution Bench, while disagreeing with the view in Meters and Instruments (supra) observed: "20. Section 143 of the Act mandates that the provisions of summary trial of the Code shall apply "as far as may be" to trials of complaints under Section 138. Section 258 of the Code empowers the Magistrate to stop the proceedings at any stage for reasons to be recorded in writing and pronounce a judgment of acquittal in any summons case instituted otherwise than upon complaint. Section 258 of the Code is not applicable to a summons case instituted on a complaint. Therefore, Section 258 cannot come into play in respect of the complaints fled under Section 138 of the Act. The judgment of this Court in Meters and Instruments (supra) in so far as it conferred power on the Trial Court to discharge an accused is not good law. Support taken from the words "as far as may be" in Section 143 of the Act is inappropriate. The words "as far as may be" in Section 143 are used only in respect of applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Section. However, the stipulation contained in sub-Section (9) of Section 320 ceases to have effect in relation to the compounding of offences under the SEBI Act by virtue of a specific non-obstante provision contained in Section 24A providing for the compounding by offences punishable under that legislation. Section 24A, by incorporating a non-obstante provision indicates a legislative intent to the effect that the power to compound offences punishable under the SEBI Act is not trammeled by the provisions of Section 320 of the CrPC. 81 At this stage, the ingredients of Section 24A of the SEBI Act must be delineated. Section 24 A contains five ingredients when it specifies: (i) The offences which can be compounded ("any offence punishable in this Act"); (ii) The exceptions which the statutory provision carves out ("not being an offence punishable with imprisonment only or with imprisonment and also with fine"); (iii) The stage at which compounding may take place ("either before or after the institution of any proceedings"); (iv) The forum before which the compounding act takes place ("a Securities Appellate Tribunal or the Court before which such proceedings are pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e itself. But, at the same time a casus omissus should not be readily inferred and for that purpose all the parts of a statute or section must be construed together and every clause of a section should be construed with reference to the context and other clauses thereof so that the construction to be put on a particular provision makes a consistent enactment of the whole statute. This would be more so if literal construction of a particular clause leads to manifestly absurd or anomalous results which could not have been intended by the legislature..." Emphasis supplied 84 In the present case, it is evident that Section 24A does not stipulate that the consent of SEBI is necessary for the 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 24B provides a useful contrast. Section 24B(1) empowers the Union Government on the recommendation of SEBI, if it is satisfied that a person who has violated the Act or the Rules or Regulations has made a full and true disclosure in respect of the alleged violation, to gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... considered essential to ensure investors' protection. Accordingly, it was decided to vest SEBI with statutory powers, so as to enable it to deal effectively with all matters relating to the capital market." Justice Khehar also reproduced the rationale for the Amending Act of 2002, which would have a bearing on our present determination to the extent that it increased the quantum of imprisonment and monetary penalty that can be imposed under Section 24. The Court held: "300. The SEBI Act was again amended in 1999, but insofar as the present controversy is concerned, the amendment of the SEBI Act in 2002 is of utmost relevance. The relevant part of the Statement of Objects and Reasons of the amendment of the SEBI Act in 2002 is being reproduced below: "2. Recently many shortcomings in the legal provisions of the Securities and Exchange Board of India Act, 1992 have been noticed, particularly with respect to inspection, investigation and enforcement. Currently, the SEBI can call for information, undertake inspections, conduct enquiries and audits of stock exchanges, mutual funds, intermediaries, issue directions, initiate prosecution, order suspension or cancellation of regis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g, in the interest of investors or securities market, either pending investigation or enquiry or on completion of such investigation or inquiry for taking any of the following measures, namely, to- (A) suspend the trading of any security in a recognised stock exchange; (B) restrain persons from accessing the securities market and prohibit any person associated with securities market to buy, sell or deal in securities; (C) suspend any office-bearer of any stock exchange or self-regulatory organisation from holding such position; (D) impound and retain the proceeds or securities in respect of any transaction which is under investigation; (E) attach, after passing of an order on an application made for approval by the Judicial Magistrate of the First Class having jurisdiction, for a period not exceeding one month, one or more bank account or accounts of any intermediary or any person associated with the securities market in any manner involved in violation of any of the provisions of this Act, or the Rules or the Regulations made thereunder; (F) direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... defines the powers and functions of the Board which mandates that it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market by such measures as it thinks fit. Sub-section (2) of the said section enumerates the various areas in which the Board is mandated to take measures to fulfil the objects of the Act. They include such measures as (i) regulating the business in stock exchanges and any other securities markets; (ii) registering and regulating the working of stockbrokers and other intermediaries; (iii) registering and regulating the working of the depositories etc.; (iv) registering and regulating the working of venture capital funds and collective investment schemes, including mutual funds; (v) promoting and regulating self-regulatory organizations; (vi) prohibiting fraudulent and unfair trade practices relating to securities markets; (vii) promoting investors' education and training of intermediaries; (viii) prohibiting insider trading in securities; (ix) regulating substantial acquisition of shares and takeover of companies; (x) collection of information, inspection, conduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the interests of investors in the Securities Market which has seen substantial growth in tune with the parallel developments in the economy. Investors' confidence in the capital/securities market is a reflection of the effectiveness of the regulatory mechanism in force. All such measures are intended to pre-empt manipulative trading and check all kinds of impermissible conduct in order to boost the investors' confidence in the capital market. The primary purpose of the statutory enactments is to provide an environment conducive to increased participation and investment in the securities market which is vital to the growth and development of the economy. The provisions of the SEBI Act and the Regulations will, therefore, have to be understood and interpreted in the above light." Similarly, a two judge bench of this Court, in Securities and Exchange Board of India vs Ajay Agarwal (2010) 3 SCC 765, while determining the scope of the regulatory body's powers under Section 11(B) to restrain persons from accessing the securities market, had elaborated on the special nature of the legislation and implored the Courts to exercise their interpretative role in a manner that furthers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the position of SEBI as an expert regulator. SEBI, as the regulator, is entrusted with diverse roles and functions including the power to regulate the securities' market, make regulations and to enforce the provisions of the Act. Its functions have been recognized in a panoply of statutory provisions. Independent of initiating a prosecution, SEBI has been entrusted with wide ranging powers and functions including the power to investigate, to issue directions and levy penalties and make cease and desist orders. 90 While the statute has entrusted the powers of compounding offences to SAT or to the Court, as the case may be, before which the proceedings are pending, the view of SEBI as an expert regulator must necessarily be borne in mind by the SAT and the Court, and would be entitled to a degree of deference. While SEBI does not have a veto, having regard to the language of Section 24A, its views must be elicited. The view of SEBI, an envisaged in the FAQs accompanying SEBI's circular dated 20 April 2007, must undoubtedly be sought by the SAT or the Court, to decide on whether an offence should be compounded. For SEBI can provide an expert view on the nature and gravity of the o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-exhaustive, are: "Following factors, which are only indicative, may be taken into consideration for the purpose of passing Consent Orders and also in the context of compounding of offences under the respective statute: 1. Whether violation is intentional. 2. Party's conduct in the investigation and disclosure of full facts. 3. Gravity of charge i.e. charge like fraud, market manipulation or insider trading. 4. History of non-compliance. Good track record of the violator i.e. it had not been found guilty of similar or serious violations in the past. 5. Whether there were circumstances beyond the control of the party. 6. Violation is technical and/or minor in nature and whether violation warrants penalty. 7. Consideration of the amount of investors' harm or party's gain. 8. Processes which have been introduced since the violation to minimize future violations/lapses. 9. Compliance schedule proposed by the party. 10. Economic benefits accruing to a party from delayed or avoided compliance. 11. Conditions where necessary to deter future non-compliance by the same or another party. 12. Satisfaction of claim of investors regarding payment of money due to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s been urged before the Court by learned Senior Counsel who appeared on behalf of SEBI that the allegations in the present case involved serious acts which impinged upon the protection of investors and the stability of the securities' market. The observation in the order of adjudication of the Chairperson of the SEBI dated 22 September 2000, that no loss has been caused to the investors as a result of the proposal which was submitted by the promoters to purchase the shares at the rate of Rs. 12 per share, would not efface the element of alleged wrong doing. Such alleged acts of price rigging and manipulation of the prices of the shares have a vital bearing on investors' wealth and the orderly functioning of the securities market. SEBI was, therefore, justified in opposing the request for the compounding of the offences. The matter was referred to the HPAC constituted by SEBI and presided over by a former judge of the Bombay High Court, which denied the request for compounding. This decision which has been taken by SEBI is not mala fide nor does it suffer from manifest arbitrariness. On the contrary, having due regard to the nature of the allegations, we are of the view that an orde ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
