March 01, 2019:

On Thursday, the Bench headed by Hon'ble Chief Justice Ranjan Gogoi, answers a reference on the scope of discretion of adjudicating authority under Section 15J of the Securities and Exchange Board of India Act 1992 in relation to imposition of penalties.

For the purposes of the reference in the present case, the Hon'ble Supreme Court has proceeded to consider the provisions contained in Chapter VI­A of the SEBI Act.

Sections 15­A to 15­HA are the penalty provisions whereas Section 15­I deals with the power of adjudication and Section 15­J enumerates the “factors to be taken into account by the Adjudicating Officer” while adjudging the quantum of penalty.

Questions arising in the present case are as follows:

  1. Whether the conditions stipulated in clauses (a), (b) and (c) of Section 15­J of the Securities and Exchange Board of India Act, 1992 (SEBI Act) are exhaustive to govern the discretion in the Adjudicating Officer to decide on the quantum of penalty or the said conditions are merely illustrative?
  2. Whether the power and discretion vested by Section 15­J of the SEBI Act to decide on the quantum of penalty, regardless of the manner in which the first question is answered, stands eclipsed by the penalty provisions contained in Section 15­A to Section 15­HA of the SEBI Act?

Observations:

The SEBI Act, as per the object of the enactment, was enacted "to provide for the establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto."

The first question is dealt by the Bench in accordance with the submissions advanced by both the parties who have actually canvassed for a wider and more expansive interpretation of Section 15­J. The Bench takes the view that,

"the provisions of clauses (a), (b) and (c) of Section 15­J are illustrative in nature and have to be taken into account whenever such circumstances exist. But this is not to say that there can be no other circumstance(s) beyond those enumerated in clauses (a), (b) and (c) of Section 15­J that the Adjudicating Officer is precluded in law from considering while deciding on the quantum of penalty to be imposed."

According to the Bench, a narrow view would be in direct conflict with the provisions of Section 15­I(2) of the SEBI Act which vests jurisdiction in the Adjudicating Officer, who is empowered on completion of the inquiry to impose “such penalty as he thinks fit in accordance with the provisions of any of those sections.”

Insofar as the second question is concerned, the Bench states, "......if the penalty as prescribed in Section 15­A to Section 15­HA of the SEBI Act is to be mandatorily imposed in case of default/failure, Section 15­J of the SEBI Act would stand obliterated and eclipsed."

"Sections 15­A(a) to 15­HA have to be read along with Section 15­J in a manner to avoid any inconsistency or repugnancy. We must avoid conflict and head­ on­ clash and construe the said provisions harmoniously. Provision of one section cannot be used to nullify and obtrude another unless it is impossible to reconcile the two provisions. The explanation to Section 15­ J of the SEBI Act has clarified and vested in the Adjudicating Officer a discretion under Section 15­J on the quantum of penalty to be imposed while adjudicating defaults under Sections 15­A to 15­HA...."

It is beyond any doubt that the second referred question stands fully answered by clarification through the medium of enacting the Explanation to Section 15­J, which also states that the Adjudicating Officer shall always have deemed to have exercised and applied the provision.

Verdict:

The Bench therefore, deem it appropriate to hold that the provisions of Section 15­J were never eclipsed and had continued to apply in terms thereof to the defaults under Section 15­A(a) of the SEBI Act.

The Bench further holds that, "......conditions stipulated in clauses (a), (b) and (c) of Section 15­ J are not exhaustive and in the given facts of a case, there can be circumstances beyond those enumerated by clauses (a), (b) and (c) of Section 15­J which can be taken note of by the Adjudicating Officer while determining the quantum of penalty.

....Agreeing with the findings of the Appellate Tribunal, the Bench observes that the fault in question squarely lies with the appellants and, thus, penalty of Rs.1,00,00,000/­ (Rupees one crore only) for violation of Section 11­C(3) under Section 15­A(a) of the SEBI Act does not call for any interference of the apex court."

The Supreme Court has also laid down, the distinction between a 'continuing offence' and a 'repeat offence':

The continuing offence is a one which is of a continuous nature as distinguished from one which is committed once and for all. The continuing offence is explained and elucidated as an offence in which, the liability continues until the rule or its requirement is obeyed or complied with. On every occasion when disobedience or non-­compliance occurs and reoccurs, there is an offence committed. Continuing offence constitutes a fresh offence every time or occasion it occurs.

A recurring or successive wrong, on the other hand, are those which occur periodically with each wrong giving rise to a distinct and separate cause of action. A reference is made to this legal position in view of clause (c) of Section 15­J of the SEBI Act which refers to repetitive nature of default and not a continuing default.

"The word “repetitive” as used therein would refer to a recurring or successive default. This factum has to be taken into consideration while deciding upon the quantum of penalty. This dictum, however, does not mean that factum of continuing default is not a relevant factor, as we have held that clauses (a) to (c) in Section 15­J of the SEBI Act are merely illustrative and are not the only grounds/factors which can be taken into consideration while determining the quantum of penalty....".

Read Judgment @ LatestLaws.com

ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD OF INDIA Vs BHAVESH PABARI_28-Feb-2019(Downloadable PDF)

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