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2016 (3) TMI 765 - SUPREME COURT

2016 (3) TMI 765 - SUPREME COURT - TMI - Interplay between section 15A, as amended in the year 2002, and Section 15J of the SEBI Act - whether the expression “namely” fixes the discretion which can be exercised only in the circumstances mentioned in the three clauses set out in Section 15J, or whether it would also take into account other relevant circumstances, having particular regard to the fact that it is a penalty provision that the Court is construing? - Held that:- The familiar expression .....

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made as a result of the default; no loss has been caused to an investor or group of investors as a result of the default; and there is in fact, no repetitive nature of default, no penalty at all ought to be imposed.

What has been done by the appellants here is to fail to adhere to Regulation 13, as alleged in the show cause notice, which failure has occurred on three days and consequently, has allegedly not been repeated by the appellants anytime thereafter. If we were to read Secti .....

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think that this could have been the intention of the Parliament in enacting Section 15A, as amended in 2002. We also feel that on the assumption that paragraph 5 of the judgment is correct, it would be very difficult for Section 15A to be construed as a reasonable provision, as it would then arbitrarily and disproportionately invade the appellants' fundamental rights. This being the case, on both the conclusions reached by this Court in paragraphs 4 and 5, as stated by us hereinabove, these mat .....

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year 2002, and Section 15J of the Securities and Exchange Board of India Act, 1992 (in short 'the SEBI Act') . 2. The brief facts necessary to understand the present controversy are that the appellants before us made certain purchases of shares of the Brijlaxmi Leasing and Finance Company between October and December, 2012. On 16th June, 2014, in Civil Appeal No.14730 of 2015, a show cause notice came to be issued by the respondent SEBI to the appellant under Rule 4(1) of the Securities .....

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purchases and sale of the shares did not exceed ₹ 55,000/-. It was further submitted that the transaction was neither made with a view to make any disproportionate gain or unfair advantage nor was it for the purpose of causing any loss to investors. The default, if any, was a technical default that did not call for any penal action. 4. The Adjudicating Officer, by various orders imposed a penalty of ₹ 5 lacs, 7 lacs and 11 lacs respectively, in the three civil appeals, before us. An .....

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e Securities Appellate Tribunal, Mumbai that have come up before us in these appeals. 6. Learned counsel appearing on behalf of the appellants has argued that Section 15A, after its amendment in 2002, which was the law until the section was further amended in the year 2014, would undoubtedly apply to the present facts of the case. However, learned counsel submitted that Section 15A would, at all times, have to be read with Section 15J of the SEBI Act and that, this being so, it is clear that the .....

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ndent SEBI has placed before us a judgment of a Division Bench of this Court titled as SEBI Through its Chairman versus Roofit Industries Limited, reported in 2015 (12) SCALE 642. Mr. Singh has pointed out, one may say fairly, to us that observations made in paragraph 5 of the said judgment would completely foreclose the arguments made by the learned counsel for the appellants in the present cases, but that these observations may not constitute the ratio of the judgment for the reason that the j .....

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15J. While adjudging the quantum of penalty under Section 15-I, the adjudicating officer shall have due regard to the following facts, namely :- a. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default. b. the amount of loss caused to an investor or group of investors as a result of the default; c. the repetitive nature of the default. The use of the word namely' indicates that these factors alone are to be considered by the Adjudicat .....

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002 amendment, for the facility of reference: 15A. If any person, who is required under this Act or any rules or regulations made thereunder,- a. to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less; …...... In the connected appeals before us, the appellant has imposed a penalty of ₹ 75 lakhs despite the failure havi .....

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to the crippling penalties they would impose. We do not agree with these submissions. The clear intention of the amendment is to impose harsher penalties for certain offences, and we find no reason to water them down. The wording of the statute clarifies that the penalty to be imposed in case the offence continued for over one hundred days is restricted to ₹ 1 crore. No scope has been given for discretion. Prior to the amendment, the section provided for a penalty not exceeding one lakh fi .....

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icer was withdrawn, the scope of Section 15J was drastically reduced, and it became relevant only to the Sections where the Adjudicating Officer retained his prior discretion, such as in Section 15F(a) AND Section 15HB. This ought to have been reflected in the language of Section 15-I, but was clearly overlooked. Section 15J has become relevant once again, subsequent to the Securities Laws (Amendment) Act, 2014, which changed Section 15A(a), with effect from 8.9.2014, to read as follows :- 15A. .....

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e discretion of the adjudicating Officer which was taken away by the SEBI (Amendment) Act, 2002. Had the failure of the respondent taken place between 29.10.2002 and 8.9.2014, the penalty ought to have been ₹ 1 crore, without the possibility of any discretion for reduction. 9. Two things have been clearly stated by this Court in so far as the amended Section 15A read with Section 15J is concerned. First, this Court has indicated that by the use of the expression namely in Section 15J, SEBI .....

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pe for any discretion for this period is to be exercised, if in fact, there is any infraction of Rules or Regulations. This Court clearly held that the discretionary power of the Adjudicating Officer having been withdrawn, the scope of Section 15J would correspondingly stand drastically reduced. 10. Prima facie, we find it a little difficult to subscribe to both the views contained in paragraph 4 as well as in paragraph 5 of the said judgment. The expression shall have due regard to is a very kn .....

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s, having particular regard to the fact that it is a penalty provision that the Court is construing. As this needs to be authoritatively decided for the future, it would be better if we refer it to a larger Bench for such authoritative pronouncement. 11. We also find it a little difficult to accept what is stated in paragraph 5 of the judgment. It is very difficult, keeping in view, particularly, two important legal facets - one the doctrine of harmonious construction of a statute; and two, the .....

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the present case would go to show that where there is allegedly only a technical default, and the three parameters of Section 15J would allegedly be satisfied by the appellants, namely, that no disproportionate or unfair advantage has been made as a result of the default; no loss has been caused to an investor or group of investors as a result of the default; and there is in fact, no repetitive nature of default, no penalty at all ought to be imposed. What has been done by the appellants here is .....

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