TMI Blog2021 (7) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 order for compounding was not warranted. Judgment of the High Court of Delhi Affirmed. - Criminal Appeal No 569 of 2021 ( Arising out of SLP ( Crl ) No. 4728 of 2019 ) - - - Dated:- 23-7-2021 - Dr Dhananjaya Y Chandrachud And M R Shah , JJ. For the Petitioner : Mr. T. L. Garg, AOR For the Respondent : Mr. Anup Jain, AOR Mr. Mahesh Jethmalani, Sr. Adv Mr. Sandeep Kapur, Adv. Mr. Ravi Sharma, Adv. Mr. Mridul Yadav, Adv. Mr. Aashneet Singh Anand, Adv. M/s. Karanjawala Co., AOR JUDGMENT Dr Dhananjaya Y Chandrachud, J This judgment has been divided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 992. This view of the High Court has been called into question in these proceedings. B The IPO, SEBI s Investigation and the criminal complaint 2 The appellant is the director and promoter of a company by the name of Ideal Hotels Industries Limited ( the Company ), which owns a 3-star hotel in Varanasi. While it was incorporated initially as a private limited company under the Companies Act, 1956 on 17 December 1985, the status of the company was changed to that of a public limited company with the approval of the Department of Company Affairs on 4 May 1994. 3 In 1995, the Company made an Initial Public Offer ( IPO ) inviting a subscription to 38 lac equity shares at a par value of ₹ 10 per share, aggregating to ₹ 380 lacs. This offer was pursuant to a prospectus dated 6 October 1995. The IPO opened on 15 November 1995 and closed on 24 November 1995. The prospectus specified that the holding of the promoters of the Company after the IPO was 22 lac shares representing 32.83 per cent of the paid-up capital of 67 lac shares, with the shareholding of the appellant being 1,400 shares representing 0.02 per cent of the paid-up capital. The Company got listed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g the shares of the Company, for which funds were made available either from funds of the Company out of the proceeds of the IPO or from Inter Corporate Deposits raised by the entities from the market on personal verbal guarantees of the appellant and the Chairman and Managing Director of the Company (which had all been repaid subsequently). 7 On 24 August 1999, summons were issued by SEBI to the appellant under Section 11(3) of the SEBI Act regarding a potential violation of Regulations 4(a) and 4(e) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 ( 1995 PFUTP Regulations ); Regulations 6(1), 6(3), 8(1), 10(1) and 10(2) of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1994 ( 1994 Takeover Regulations ) and Regulation 10 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ( 1997 Takeover Regulations ). On 18 November 1999, the Chairperson of SEBI appointed an Adjudicating Officer ( AO ) to adjudicate upon the above allegations. 8 Prior to the decision of the AO, SEBI filed a criminal complaint Complaint No. 152 of 2000 on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that they have already acquired 95% of the total equity share capital of the company. They are planning to get the scrip of Ideal Hotels delisted from the rolls of all the Stock Exchanges where the scrips have been listed. The AO further observed: In terms of the above order issued under section 11B of the SEBI Act, all the investors were offered an exit route at ₹ 12/- per share. This was higher than the public issue price of ₹ 10/-. Thus in the ultimate analysis I find there was no loss to any investor. However, according to the AO, the offer ought to have been made by the appellant/promoters on their own accord and not when proceedings under Section 11B were pending. Consequently, the AO levied a penalty of ₹ 20,000 on the appellant and two co-promoters. According to the appellant the penalty was paid. 12 Pursuant to SEBI s criminal complaint dated 29 March 2000, the Additional Chief Metropolitan Magistrate summoned the accused on the same day. In 2006-07, the appellant together with the other accused instituted proceedings under Section 482 of the Code of Criminal Procedure, 1973 ( CrPC ) before the High Court of Delhi for quashing the compla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... challenge the order of the Trial Judge which, as stated earlier, has been dismissed by a Single Judge of the High Court of Delhi on 1 April 2019. D Counsel s submissions 18 Mr Shyam Divan, learned Senior Counsel appearing on behalf of the appellant has urged the following submissions: (i) The Chairperson of SEBI in the order under Section 11B dated 22 September 2000 accepted the proposal of the appellant and co-promoters, that they would buy the remaining shares of the Company from the allotees/existing shareholders in the public issue at the rate of ₹ 12 per share. This has provided an exit option; (ii) The AO took note of the submission of the acquirers that they had already acquired 99 per cent of the total equity share capital of the Company and were planning to get the scrip de-listed from the rolls of the stock exchanges; (iii) In terms of the order under Section 11B, all the investors were offered an exit route at ₹ 12 per share, which was higher than the public issue price of ₹ 10; hence, in the ultimate analysis the AO held that no loss has been caused to any investor; (iv) Contrary to the finding of the High Court, the application for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tances, it can be concluded that the associate concern of IHL were mere front entities of IHL and its promoters and the entire exercise of transfer of public proceeds to associate concerns was for the purchase of its own shares. Transfer of shares is a part of their design to manipulate the price of the shares IHL and its promoters were also afforded an opportunity of personal hearing to make their submissions. Accordingly, Shri L.R. Maurya and Shri Prakash Gupta appeared before me. The said individuals offered a proposal that they would buy the remaining shares of the company from the allottees/ existing shareholders in the public issue at the rate of Rupees Twelve per share. I have considered the said proposal of the promoters and I find that this provides a way to exit to the allottees/existing shareholders of IHL. (iii) SEBI s investigation revealed that the Company had mis-utilized the funds which were raised in the IPO for buying back of its own shares. These funds of the public issue were made available to the six entities which were group companies managed by the appellant or to promoters or directors of group companies to purchase the shares. The dealing in the sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of prior permission could not be implied since it would be contrary to the terms of the statute; and (iv) The decision in JIK Industries (supra), is an authority for the principle that a scheme under Section 391 of the Companies Act, 1956 does not amount to the compounding of an offence under Section 138 of the Negotiable Instruments Act, 1888 ( NI Act ). In the case of the NI Act, Section 147 merely states that offences under the Act shall be compoundable whereas Section 24A of the SEBI Act specifically provides for the power of SAT and the Court to compound offences. 21 These rival submissions now fall for our consideration. E Analysis E.1 Structure of the SEBI Act 22 The long title to the SEBI Act stipulates that it has been 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 Statement of Objects and Reasons accompanying the introduction of the Bill in Parliament notes that SEBI was established in 1988 through a government resolution to promote the orderly and healthy gro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1A deals with the power of SEBI to make regulations or to issue general or special orders prohibiting the issue of documents or advertisements soliciting money from the public for the issue of securities. Section 11B empowers SEBI to issue directions and to levy penalties. Section 11C enunciates the powers of investigation entrusted to SEBI. 26 Chapter VA, which incorporates Section 12A, contains a prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control in contravention of the provision of the Act and the Regulations. 27 Chapter VIA deals with penalties and adjudication. SEBI is empowered to impose penalties in a range of diverse situations including: (i) Penalty for failure to furnish information, returns, documents or reports (Section 15A); (ii) Penalty for failure to redress investors grievances (Section 15C); (iii) Penalty for defaults in the case of mutual funds (Section 15D); (iv) Penalty for default in case of stock brokers (Section 15F); (v) Penalty for insider trading (Section 15G); (vi) Penalty for non-disclosure of acquisition of shares (Section 15H); (vii) Penalty for fraudulent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ned in any other law for the time being in force, any person, against whom any proceedings have been initiated or may be initiated under Section 11, Section 11-B, Section 11-D, sub-section (3) of Section 12 or Section 15-I, may file an application in writing to the Board proposing for settlement of the proceedings initiated or to be initiated for the alleged defaults. (2) The Board may, after taking into consideration the nature, gravity and impact of defaults, agree to the proposal for settlement, on payment of such sum by the defaulter or on such other terms as may be determined by the Board in accordance with the regulations made under this Act. (3) The settlement proceedings under this section shall be conducted in accordance with the procedure specified in the regulations made under this Act. (4) No appeal shall lie under Section 15-T against any order passed by the Board or adjudicating officer, as the case may be, under this section. (5) All settlement amounts, excluding the disgorgement amount and legal costs, realised under this Act shall be credited to the Consolidated Fund of India. 29 Chapter VIB provides for the establishment, jurisdiction, aut ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 25 January 1995. Prior to its amendment by Act 59 of 2002 with effect from 29 October 2002, Section 24 stipulated that offences punishable under sub-Section (1) would be punishable with imprisonment for a term which may extend to one year or with fine or with both. This provision was substituted by Amending Act 59 of 2002 to provide for imprisonment for a term of ten years or with fine which may extend to ₹ 25 crores or with both. Similarly, the punishment under sub-Section (2) prior to Amending Act 59 of 2002 was for three years or with fine which shall not be less than ₹ 2000 but which may extend to ₹ 10,000 or with both. By Amending Act 59 of 2002, it has been enhanced to ten years or with fine which may extend to ₹ 25 crores or with both. 33 Section 24A, inserted for the first time by the Amending Act 59 of 2002, provides for the compounding of offences: 24A. Composition of certain offences- Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may either before or after the ins ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... punishable only with imprisonment or with imprisonment and fine. Therefore, only where a fine is an alternative to imprisonment does the provision apply; thirdly, the offence may be compounded either before or after the institution of any proceeding; and fourthly, the offence may be compounded by SAT or by a Court, before which such proceedings are pending. 37 Offences punishable under sub-Section (1) of Section 24 are compoundable for the reason that the punishment which has been stipulated is for a certain term of imprisonment or with fine or with both (the term of imprisonment and the quantum of fine has been enhanced as we have seen earlier but that is not of relevance to this part of the interpretation). Whether an offence under sub-Section (2) of Section 24 is compoundable under Section 24A depends on the construction which is to be placed on the words or with fine . One option would be to construe these words as an alternative to the whole of the preceding words which appear immediately before namely he shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to ten years . The second option is that the words or with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the application/ request to be placed before the High Powered Committee. The terms of compounding as recommended by the Committee and approved by the Panel of WTMs would be placed before the court by the Prosecution Division by way of written submissions or application, as appropriate, for passing orders as the court deems fit. Emphasis supplied 40 Accompanying this circular were certain Frequently Asked Questions ( FAQ ) issued by SEBI Available at accessed on 20 July 2021 . The relevant ones are extracted below: Q6. What is the objective of Compounding of Offence? A. Compounding of offence allows the accused to avoid a lengthy process of criminal prosecution, which would save cost, time, mental agony, etc in return for payment of compounding charges. [ ] Q14. At what stage Compounding of Offence can take place? A. At any stage after filing criminal complaint by SEBI. Where a criminal complaint has not yet been filed but is envisaged, the process for consent orders will be followed rather than the one for compounding. [ ] Q 16 What is the process for passing consent orders/ compounding of offences? A. Any party who wishes to com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Court, the final decision must remain in the domain of the Court. 43 However, since SEBI has argued before us that its consent must be deemed mandatory for compounding an offence under Section 24A, we must also independently evaluate the argument on its merits. In order to do that, we must first understand the jurisprudential basis for compounding of offences. E.3 Jurisprudential basis for Compounding 44 In tracing the history of compounding, we must begin with its origins in English common law. Curiously, the original discussions surrounding compounding (or composition) of offences in the English common law do not occur in its context as a procedural tool (as we understand today) but rather as an offence itself. Under such an offence, a prosecutor or a victim would accept consideration in return for not prosecuting an offence Percy Henry Winfield, The Present Law of Abuse of Legal Procedure (Cambridge University Press, 2013) at page 117 . 45 Indeed, Blacks Law Dictionary 5th Edition, at page 259 contains a definition of the expression compounding crime as follows: Compounding Crime. Compounding crime consists of the receipt of some property or other con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imprisonment for life, or with imprisonment which may extend to ten years, shall be punished with imprisonment of either description for a term which may extend to three years, and shall also be liable to fine; and if the offence is punishable with imprisonment not extending to ten years, shall be punished with imprisonment of the description provided for the offence for a term which may extend to one-fourth part of the longest term of imprisonment provided for the offence, or with fine, or with both. 214. Offering gift or restoration of property in consideration of screening offender.-Whoever gives or causes, or offers or agrees to give or cause, any gratification to any person, or restores or causes the restoration of any property to any person, in consideration of that person's 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 punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l Code (45 of 1860) specified in the first two columns of the Table next following may, with the permission of the Court before which any prosecution for such offence is pending, be compounded by the persons mentioned in the third column of that Table (3) When an offence is compoundable under this section, the abetment of such offence or an attempt to commit such offence (when such attempt is itself an offence) or where the accused is liable under Sections 34 or 149 of the Indian Penal Code (45 of 1860) may be compounded in like manner. (4)(a) When the person who would otherwise be competent to compound an offence under this section is under the age of eighteen years or is an idiot or a lunatic, any person competent to contract on his behalf may, with the permission of the Court, compound such offence. (b) When the person who would otherwise be competent to compound an offence under this section is dead, the legal representative, as defined in the Code of Civil Procedure, 1908 (5 of 1908), of such person may, with the consent of the Court, compound such offence. (5) When the accused has been committed for trial or when he has been convicted and an appeal is pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fences, column 2 specifies the corresponding section of the IPC and column 3 indicates the person by whom the offence may be compounded. A provision for the permission of the Court has been introduced in respect of offences governed by sub-Section (2) of Section 320 since the legislature has viewed those offences to be of a more serious nature as compared to the offences governed by sub-Section (1) of Section 320. 53 Sub-Section (3) of Section 320 provides that where an offence is compoundable under the provision, the abetment of such an offence or attempt to commit such an offence or where the accused is liable under Section 34 or Section 149 of the IPC may also be compounded in a like manner. Sub-Sections (4a) provides that where the person who would otherwise be competent to compound the offence under the provision is under the age of 18 or is an idiot or a lunatic a person competent to contract on their behalf may, with the permission of the Court, compound the offence. Similarly, under sub-Section 4(b), where the person who would otherwise be competent to compound the offence under the provision is dead, their legal representative as defined under the Code of Civil Proced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able at accessed on 20 July 2021 : 1.2 Compounding in the context of criminal law means forbearance from the prosecution as a result of an amicable settlement between the parties. As observed by Calcutta High Court in a vintage decision in Murray [(1894)21 ILR 103 at 112], compounding of an offence signifies that the person against whom the offence has been committed has received some gratification, not necessarily of a pecuniary character, to act as an inducement of his desiring to abstain from a prosecution . The victim may have received compensation from the offender or the attitude of the parties towards each other may have changed for good. The victim is prepared to condone the offensive conduct of the accused who became chastened and repentant. Criminal law needs to be attuned to take note of such situations and to provide a remedy to terminate the criminal proceedings in respect of certain types of offences. That is the rationale behind compounding of offences. 57 In Biswabahan Das vs Gopen Chandra Hazarika AIR 1967 SC 895 , a three judge Bench of this Court held that the principle underlying Section 320 is that wrongs of certain classes which affects the person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , the second principle is equally important because even an offence committed against a private party may affect the fabric of society at large. Non-prosecution of such an offence may affect the limits of conduct which is acceptable in the society. The Courts play an important role in setting these limits through their adjudication and by prescribing punishment in proportion to how far away from these limits was the offence which was committed. As such, in deciding on whether to compound an offence, a Court does not just have to understand its effect on the parties before it but also consider the effect it will have on the public. Hence, societal interest in the prosecution of crime which has a wider social dimension must be borne in mind. 60 This formulation of this principle is also in alignment with the position under English common law, where in a judgment of the Queen s Bench in Keir vs F. Leeman and Pearson, Lord Denman CJ held (1844) 6 Queen's Bench Reports 308 : We shall probably be safe in laying it down that the law will permit a compromise of all offences, though made the subject of a criminal prosecution, for which offences the injured party might sue and r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 1956 was held not to have the effect of terminating the proceedings for an offence under Section 138 of the NI Act. Justice AK Ganguly, speaking for the two judge Bench, observed that in most of the cases the offence under the NI Act had been committed prior to the scheme: 19. In the instant appeal in most of the cases the offence under the NI Act has been committed prior to the scheme. Therefore, the offence which has already been committed prior to the scheme does not get automatically compounded only as a result of the said scheme. Therefore, even by relying on the ratio of the aforesaid judgment in J.K. (Bombay) (P) Ltd. [AIR 1970 SC 1041], this Court cannot accept the appellant's contention that the scheme under Section 391 of the Companies Act will have the effect of automatically compounding the offence under the NI Act. Reiterating further, the Court held: 27. The compounding of an offence is always controlled by statutory provision. There are various features in the compounding of an offence and those features must be satisfied before it can be claimed by the offender that the offence has been compounded. Thus, compounding of an offence cannot be achi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the court is not required. But all cases of compounding can take place at the instance of the persons mentioned in the Third Column of the Table. If the said Table is perused, it will be clear that compounding can only be possible at the instance of the person who is either a complainant or who has been injured or is aggrieved. 67 The above observations interpret the statutory provisions of section 320 which specify the person at whose instance compounding is permissible. Before moving forward, it is important to note a judgment of a three judge Bench of this Court in Damodar S Prabhu vs Sayed Babalal H 2010 5 SCC 663 ( Damodar S Prabhu ), dealing with the provisions of Section 147 of the NI Act, where the Court held: 10. At this point, it would be apt to clarify that in view of the non obstante clause, the compounding of offences under the Negotiable Instruments Act, 1881 is controlled by Section 147 and the scheme contemplated by Section 320 of the Code of Criminal Procedure (hereinafter CrPC ) will not be applicable in the strict sense since the latter is meant for the specified offences under the Penal Code, 1860. The Court then noted that: 12. Secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in the strict sense and the jurisdiction under Article 142 was being exercised due to the presence of a legislative vacuum in the NI Act, in order to discourage litigants from unduly delaying the compounding of offence in cases involving Section 138. The Court in its guidelines indicated a scheme by imposing costs as a means for encouraging compounding at an early stage of the litigation. 69 The judgment in Damodar S Parabhu (supra) was cited before the two judge Bench in JIK Industries (supra) in support of the proposition that Section 147 of the NI Act, which is a special statute, does not incorporate the requirement of consent of the person aggrieved while compounding, as contemplated in Section 320 of the CrPC. This submission was however rejected by observing that though offences under the NI Act, which were previously non-compoundable in view of Section 320(9) of the CrPC, have now become compoundable, that did not do away with all the guidelines of Section 320: 68. It is clear from a perusal of the aforesaid Statement of Objects and Reasons that offence under the NI Act, which was previously non-compoundable in view of Section 320 sub-section (9) of the Code has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... asonably construed to mean that as a result of the said section the offences under the NI Act are made compoundable, but the main principle of such compounding, namely, the consent of the person aggrieved or the person injured or the complainant cannot be wished away nor can the same be substituted by virtue of Section 147 of the NI Act. 71 However, before we can apply the decision in JIK Industries (supra), it is important to acknowledge that there is a clear distinction between the provisions of Section 147 of the NI Act and Section 24A of the SEBI Act. A comparison of the provisions of Section 147 of the NI Act with Section 24A of the SEBI Act would indicate that both sets of statutory provisions begin with a non-obstante provision overriding the provisions of the CrPC, insofar as the compounding of offence is concerned. Having stipulated a non-obstante clause in Section 147 of the NI Act, Parliament has provided that every offence punishable under this Act shall be compoundable . Section 147 of the NI Act does not expressly incorporate the permission of the Court for compounding, conceivably because the impact of the crime is against an individual. Section 24A of the SEBI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nded against the payment of a fine. 74 For the purposes of the present discussion, it is material to note that the provision for compounding of offences was contained in Section 621-A of the Companies Act, 1956, in the following terms: 621-A. Composition of certain offences -(1) Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act (whether committed by a company or any officer thereof), not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may, either before or after the institution of any prosecution, be compounded by- (a) the Company Law Board; or (b) where the maximum amount of fine which may be imposed for such offence does not exceed five thousand rupees, by the Regional Director, on payment or credit, by the company or the officer, as the case may be, to the Central Government of such sum as that Board or the Regional Director, as the case may be, may specify: Provided that the sum so specified shall not, in any case, exceed the maximum amount of the fine which may be imposed for the offence so compounded: Provided further that in spe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances to achieve the purpose of the Act or give purposeful meaning. It is also a cardinal rule of interpretation that words, phrases and sentences are to be given their natural, plain and clear meaning. When the language is clear and unambiguous, it must be interpreted in an ordinary sense and no addition or alteration of the words or expressions used is permissible. As observed earlier, the aforesaid enactment was brought in view of the need of leniency in the administration of the Act because a large number of defaults are of technical nature and many defaults occurred because of the complex nature of the provision. Hence, the powers under sub-Sections (1) and (7) of Section 621-A were held to be parallel powers to be exercised by the CLB or the authorities mentioned, and the prior permission of the Court was not necessary for compounding an offence when the power was exercised by the CLB. 77 Mr. Shyam Divan, learned senior Counsel, appearing on behalf of the appellant, has adverted, during the course of his submissions, to the judgment of a two Judge Bench of this Court in Meters and Instruments Pvt. Ltd. vs Kanchan Mehta (2018) 1 SCC 560 ( Meters and Instrume ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in respect of applicability of Sections 262 to 265 of the Code and the summary procedure to be followed for trials under Chapter XVII. Conferring power on the court by reading certain words into provisions is impermissible. A judge must not rewrite a statute, neither to enlarge nor to contract it. Whatever temptations the statesmanship of policy-making might wisely suggest, construction must eschew interpolation and evisceration. He must not read in by way of creation [J. Frankfurter, Of Law and Men: Papers and Addresses of Felix Frankfurter ]. The Judge s duty is to interpret and apply the law, not to change it to meet the Judge s idea of what justice requires [Dupont Steels Ltd. v. Sirs (1980) 1 All ER 529 (HL)]. The court cannot add words to a statute or read words into it which are not there [Union of India v. Deoki Nandan Aggarwal 1992 Supp (1) SCC 323]. Emphasis supplied 79 Before parting with the discussion on this aspect, it is necessary for us to refer to the judgment of the Bombay High Court in N H Securities Limited vs Securities and Exchange Board of India 2018 SCC OnLine Bom 4040 , where it was held that the consent of SEBI was necessary before an applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l or the Court before which such proceedings are pending ); and (v) The entrustment of the power to compound to the SAT or the Court. 82 The entrustment of the exclusive power to compound offences under Section 24A of the SEBI Act to the SAT or the Court before which such a proceeding is pending is evinced by the expression be compounded by a Securities Appellate Tribunal or a court before which such proceedings are pending . Section 24A thus contains a departure from the modalities which are prescribed in sub-Sections (1) and (2) of Section 320 of the CrPC. Section 320 of the CrPC, as we have noticed earlier, permits the compounding only of certain specified offences under the IPC. Section 320 contains a two-fold distinction between offences punishable under the IPC which can be compounded: (i) without the leave of the Court; and (ii) with the leave of the Court. In contrast, the power to compound under Section 24A is confined to offences punishable under the SEBI Act. The power is entrusted solely to the SAT or to the Court, before which the proceedings are pending. Hence, the non-obstante provision contained in Section 24A must be given its natural meaning and effect. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a full and true disclosure in respect of the alleged violation, to grant an immunity from prosecution for an offence subject to such conditions as it may impose. The second proviso clarifies that the recommendation of SEBI would not be binding upon the Union Government. In other words, Section 24B has provided for the exercise of powers by the Central Government to grant immunity from prosecution on the recommendation of SEBI. In contrast, Section 24A is conspicuously silent in regard to the consent of SEBI before the SAT or, as the case may be, the Court before which the proceeding is pending can exercise the power. Hence, it is clear that SEBI s consent cannot be mandatory before SAT or the Court before which the proceeding is pending, for exercising the power of compounding under Section 24A. 85 However, it is also important to remember that proceedings for the trial of offences under the SEBI Act are initiated on a complaint made by SEBI by virtue of Section 26 of the SEBI Act. SEBI is a regulatory and prosecuting agency under the legislation. Hence, while the statutory provisions do not entrust SEBI with an authority in the nature of a veto under the provisions of Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diaries, issue directions, initiate prosecution, order suspension or cancellation of registration. Penalties can also be imposed in case of violation of the provisions of the Act or the Rules or the Regulations. However, the SEBI has no jurisdiction to prohibit issue of securities or preventing siphoning of funds or assets stripping by any company. While the SEBI can call for information from intermediaries, it cannot call for information from any bank and other authority or board or corporation established or constituted by or under any Central, State or Provincial Act. The SEBI cannot retain books of account, documents, etc., in its custody. Under the existing provisions contained in the Securities and Exchange Board of India Act, 1992, the SEBI cannot issue commissions for the examination of witnesses or documents. Further, the SEBI has pointed out that existing penalties are too low and do not serve as effective deterrents. At present, under Section 209-A of the Companies Act, 1956, the SEBI can conduct inspection of listed companies only for violations of the provisions contained in sections referred to in Section 55-A of that Act but it cannot conduct inspection of any listed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direct any intermediary or any person associated with the securities market in any manner not to dispose of or alienate an asset forming part of any transaction which is under investigation; (iii) regulating or prohibiting for the protection of investors, issue of prospectus, offer document or advertisement soliciting money for issue of securities; (iv) directing any person to investigate the affairs of intermediary or person associated with the securities market and to search and seize books, registers, other documents and records considered necessary for the purposes of the investigation, with the prior approval of a Magistrate of the First Class; (v) passing an order requiring any person who has violated or is likely to violate, any provision of the SEBI Act or any Rules or Regulations made thereunder to cease and desist for committing any (sic act) causing such violation; (c) prohibiting manipulative and deceptive devices, insider trading, fraudulent and manipulative trade practices, market manipulation and substantial acquisition of securities and control; (d) crediting sums realised by way of penalties to the Consolidated Fund of India; (e) amend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prohibiting insider trading in securities; (ix) regulating substantial acquisition of shares and takeover of companies; (x) collection of information, inspection, conducting inquiries and audits of the stock exchanges, mutual funds, other persons associated with the securities market and other intermediaries and self-regulatory organizations in the securities market; (xi) performing such other functions as are delegated to it by the Central Government; (xii) conducting research for the above purposes; (xiii) providing necessary information for the efficient discharge of the functions of the organizations with securities markets etc. The said Board is also vested with certain powers of the civil courts under the Code of Civil Procedure, 1908 in regard to discovery, production, summoning and enforcing the attendance of persons and inspection of books, registers etc. Section 11(2)(k) of the Act empowers the Board to levy fees or other charges for carrying out the purposes enumerated in Section 11 of the Act. Section 12 requires the stockbrokers, sub-brokers, share-transfer agents, bankers to an issue, trustees of trust deeds, registrars to an issue, merchant bankers, underwriters, por ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns 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 SEBI s statutory objectives. The Court, speaking through Justice A K Ganguly, held: 33. If we look at the legislative intent for enacting the said Act, it transpires that the same was enacted to achieve the twin purposes of promoting orderly and healthy growth of securities market and for protecting the interest of the investors. The requirement of such an enactment was felt in view of substantial growth in the capital market by increasing the participation of the investors. In fact such enactment was necessary in order to ensure the confidence of the investors in the capital market by giving them some protection. 34. The said Act is pre-eminently a social welfare legislation seeking to protect the interests of common men who are small investors. It is a well-known canon of construction that when the court is called upon to interpret provisions of a social welfare legislation the paramount duty of the court is to adopt such an interpretation as to further the purposes of law and if possible ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 offence and its implication upon the protection of investors and the stability of the securities market. These considerations and others which SEBI may place before the SAT or the Court, would be of relevance in determining as to whether an application for compounding should be allowed. We, therefore, hold that before taking a decision on whether to compound an offence punishable under Section 24 (1), the SAT or the Court must obtain the views of SEBI for furnishing guidance to its ultimate decision. These views, unless manifestly arbitrary or mala fide, must be accorded a high degree of deference. The Court must be wary of substituting its own wisdom on the gravity of the offence or the impact on the markets, while discarding the expert opinion of the SEBI. 91 It is also important to note that the legislative scheme of the SEBI Act delineates several actions that are liable for penalty under Section 15, but includes a common sentencing provision under Section 24. Therefore, Section 24 wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enefits 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 them or delivery of securities to them. 13. Compliance of the civil enforcement action by the accused. 14. Party has undergone any other regulatory enforcement action for the same violation. 15. Any other factors necessary in the facts and circumstances of the case. (ii) According to the circular dated 20 April 2007 and the accompanying FAQs, an accused while filing their application for compounding has to also submit a copy to SEBI, so it can be placed before the HPAC. The recommendation of the HPAC is then filed before the SAT or the Court, as the case may be. As such, the SAT or the Court must give due deference to such opinion. As mentioned above, the opinion of HPAC and SEBI indicates their position on the effect of non-prosecution on maintainability of market structures. Hence, the SAT or the Court must have cogent reasons to differ from the opinion provided and should only do so when it believes the reasons provided by S ..... X X X X Extracts X X X X X X X X Extracts X X X X
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