PRAKASH GUPTA versus SECURITIES AND EXCHANGE BOARD OF INDIA on 23 July 2021

SUPREME COURT REPORTS

[2021] 4 S.C.R.

A

PRAKASH GUPTA

v.

SECURITIES AND EXCHANGE BOARD OF INDIA

(Criminal Appeal No 569 Of 2021)

JULY 23, 2021

B

[DR. DHANANJAYA Y CHANDRACHUDAND M. R. SHAH, JJ.]

Securities and Exchange Board of India Act, 1992:

ss. 24 and 24A – Compounding of offence under – On facts,Callegations against appellant-director of a company of price riggingand insider trading in the scrip of the Company – Prosecution ofthe appellant u/s. 24(1) – Appellant sought the compounding of theoffence u/s. 24A – Rejection of, by the trial judge upholding theobjection of the Securities and Exchange Board of India (SEBI)Dthat the offence could not be compounded without its consent –Upheld by the High Court holding that the trial has reached thestage of final arguments and the application for compounding cannotbe allowed without SEBI’s consent – On appeal, held: Power tocompound offences u/s. 24A rests exclusively with the SecuritiesAppellate Tribunal-SAT or a court before which such proceedingsEare pending and SEBI’s consent for compounding offences is notmandatory – However, the SAT or the concerned courts must seekand consider the view of SEBI on matters related to the compoundingof offences – Allegations involved serious acts which impinged uponthe protection of investors and the stability of the securities’ market– Thus, SEBI justified in opposing the request for the compoundingFof the offences – Decision taken by SEBI is not mala fide nor doesit suffer from manifest arbitrariness – Thus, an order forcompounding not warranted – Order of the High Court is upheld.

Objects and reasons of enactment – Held: Is to provide forthe establishment of a Board to protect the interests of investors inGsecurities and to promote the development of and to regulate thesecurities market.

s. 24A – Ingredients of – Explained.

s. 24A – Compounding of offence under – Held: s. 24Aspecifies the authorities vested with the powers to compound offencesH

under the SEBI Act – s. 24A, by incorporating a non-obstanteprovision indicates a legislative intent to the effect that the powerto compound offences punishable under the SEBI Act is nottrammeled by the provisions of s. 320 CrPC – Power to compoundu/s. 24A is confined to offences punishable under the SEBI Act –Power is entrusted solely to the SAT or to the Court, before whichthe proceedings are pending – Hence, the non-obstante provisioncontained in s. 24A must be given its natural meaning and effect.

s. 24A – Requirement of the consent of SEBI – Held: s. 24Adoes not stipulate that the consent of SEBI is necessary for the SATor the Court before which such proceedings are pending tocompound an offence – Where Parliament intended that arecommendation by SEBI is necessary, it has made specific provisionsin that regard in the same statute, as in s. 24B – Section 24A isconspicuously silent in regard to the consent of SEBI before theSAT or, as the case may be, the Court before which the proceedingis pending can exercise the power – Hence, it is clear that SEBI’sconsent cannot be mandatory before SAT or the Court before whichthe proceeding is pending, for exercising the power of compoundingu/s. 24A.

Securities and Exchange Board of India – Power andfunctions of – Held: SEBI has been ascribed role as a regulatory,adjudicatory and prosecuting agency – Thus, the SEBI Act and therules, regulations and circulars made or issued under the legislation,are constantly evolving with a concerted aim to enforce order in thesecurities market and promote its healthy growth while protectinginvestor wealth – Powers of the SAT and the Court would necessarilyhave to align with SEBI’s larger existential purpose – Thus, in linewith the object of the SEBI Act, s. 24A to be interpreted in a mannerthat furthers the statutory role of SEBI, rather than one which thwartsits considered course of action – Therefore, before taking a decisionon whether to compound an offence punishable u/s. 24(1), the SATor the Court must obtain the views of SEBI for furnishing guidanceto its ultimate decision – These views, unless manifestly arbitrary ormala fide, must be accorded a high degree of deference – Courtmust be wary of substituting its own wisdom on the gravity of theoffence or the impact on the markets, while discarding the expertopinion of the SEBI.

AB

C

D

E

F

G

H

As. 24A – Compounding of offence under – Guidelines laiddown for Securities Appellate Tribunal-SAT or such courts in thematter of adjudicating an application for compounding of theoffence u/s. 24A – To consider the factors in SEBI’s circular dated20.04.2007; to give deference to the opinion of High poweredadvisory committee-HPAC, and SAT or court to differ only when theBreasons provided are malafide or manifestly arbitrary; to ensurethat application u/s. 24A are not for quashing u/s. 482 CrPC; andto consider whether the offence is private or public in nature andthe non-prosecution.

Code of Criminal Procedure, 1973: s. 320 – CompoundingCof offences – Principle underlying s. 320 – Stated – s. 320 providesfor the compounding of offences only under the IPC – Hence, inrespect of offences which lie outside the IPC, compounding may bepermitted only if the statute which creates the offence contains anexpress provision for compounding before such an offence can beDmade compoundable – Power of compounding must, be expresslyconferred by the statute which creates the offence.

Criminal law: Compounding of offences – Jurisprudentialbasis for – Discussed.

Words and phrases: Expression “compounding crime” –EDefinition of.

Disposing of the appeal, the Court

HELD: 1.1 Section 24A of the Securities and ExchangeBoard of India Act, 1992, which provides for the compounding ofFcertain offences, contains certain characteristic features: firstly,Section 24A begins with a non-obstante clause, “notwithstandinganything contained in the Code of Criminal Procedure 1973”;secondly, any offence punishable under the SEBI Act can becompounded, provided it is not an offence which is punishableonly with imprisonment or with imprisonment and fine. Therefore,Gonly where a fine is an alternative to imprisonment does theprovision apply; thirdly, the offence may be compounded eitherbefore or after the institution of any proceeding; and fourthly, theoffence may be compounded by SAT or by a Court, before whichsuch proceedings are pending. [Para 36][894-D-F]

H

H

1.2 Offences punishable under sub-Section (1) of Section24 are compoundable for the reason that the punishment whichhas been stipulated is for a certain term of imprisonment or withfine or with both (the term of imprisonment and the quantum offine has been enhanced). Whether an offence under Sub-section(2) of Section 24 is compoundable under Section 24A depends onthe construction which is to be placed on the words “or with fine”.One option would be to construe these words as an alternativeto the whole of the preceding words which appear immediatelybefore namely “he shall be punishable with imprisonment for aterm which shall not be less than one month but which may extendto ten years”. The second option is that the words “or with fine”are an alternative to any sentence imposed above the minimumof one month. Prima facie, it appears that for offences under sub-Section (2) of Section 24, prescribing imprisonment for a termwhich shall not be less than one month is mandatory. While theimprisonment may extend up to ten years, for any period in excessof one month a fine of up to Rs 25 crores is an alternative or inthe cumulative. [Para 37][894-F-H; 895-A-B]

2.1 Section 24A provides for the compounding of an offenceeither before or after the institution of any proceeding. SinceSection 24A provides for compounding prior to the institution ofproceedings, the legislature has stipulated that an application canbe made to SAT. However, once a proceeding has been institutedbefore a Court which is seized of it, it is the imprimatur of theCourt that is required in such a situation. The expression “or acourt before which such proceedings are pending” would indicatethat once proceedings have been instituted before it, theCourt has exclusive jurisdiction to compound offences.[Para 38][895-C-E]

2.2 In a circular dated 20 April 2007, SEBI issued guidelinesfor consent orders under Sections 15T of the SEBI Act and Section23A of the Depositories Act, 1996, and for compounding ofoffences under Section 24A of the SEBI Act, Section 22A of theDepositories 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 beforethe criminal courts” and “can take place after filing criminal AB

C

D

E

F

G

H

Acomplaint by SEBI”. Finally, it notes the procedure to be followedby an accused person while seeking compounding. SEBI amendedthe circular dated 20 April 2007 through a circular dated 25 May2012. While the circular primarily issues new guidelines inrelations to consent orders, it also provides a list of offenceswhich SEBI shall not settle. [Paras 39, 41][895-E-G; 897-C]B

<https://www.sebi.gov.in/legal/circulars/apr-2007/guidelines-for-consent-orders-and-for-considering-requests-for-composition-of-offences_9254.html>accessed on 20 July 2021; <https://www.sebi.gov.in/s e b i _ d a t a / c o m m o n d o c s / c o n s e n t o r d -Cfaq1_p.pdf>accessed on 20 July 2021; <https://www.sebi.gov.in/legal/circulars/may-2012/amendment-t o - t h e - c o n s e n t - c i rc u l a r - d a t e d - 2 0 t h - a p r i l -2007_22808.html> accessed on 20 July 2021 –referred to.D2.3 A combined reading of the two circulars and FAQs issuedby SEBI clarifies the following: firstly, a party can seekcompounding under Section 24A at any stage once the criminalcomplaint has been filed by SEBI; secondly, the party shall haveto file the application for compounding before the Court whereEthe criminal complaint is pending; thirdly, a copy of the applicationfor compounding must also be sent to SEBI, which will place itbefore the High Powered Advisory Committee (HPAC); andfourthly, the HPAC’s decision on the application, be it anacceptance or an objection, shall be placed by SEBI before theappropriate Court, which will have to pass appropriate orders.FHence, this makes it abundantly clear that while the HPAC’sdecision on a party’s application for compounding under Section24A must be placed before the appropriate Court, the final decisionmust remain in the domain of the Court. [Para 42][897-E-G]

3.1 In tracing the history of compounding, its origins inGEnglish common law is to be seen. The original discussionssurrounding compounding (or composition) of offences in theEnglish common law do not occur in its context as a proceduraltool (as understood today) but rather as an offence itself. Undersuch an offence, a prosecutor or a victim would acceptH

consideration in return for not prosecuting an offence. [Para44][898-B-C]

Percy Henry Winfield, The Present Law of Abuse ofLegal Procedure (Cambridge University Press, 2013)at page 117; Blacks’ Law Dictionary 5th Edition, atpage 259; P Ramanatha Aiyar’s Advanced Law Lexicon3rd Edition, Reprint 2007, at page 932 – referred to.

3.2 While the “exception” to the provisions of Sections213 and 214 Penal Code, 1860 make the provisions inapplicableto offences which may be compounded, it is important to notethat the “exception” was only introduced through an amendmentin 1882 (Act 8 of 1882). On the other hand, it was in 1872, whenthe Code of Criminal Procedure was amended, that compoundingwas first introduced as a procedural tool in Indian criminal law.As is evident, the above provision only provided that compoundingof offences was possible out of Court, or in Court with itspermission. However, while it referred to offences which may be“lawfully compounded”, the decision on those was left to judicialdiscretion. When the Code of Criminal Procedure was amendedin 1882, it enumerated a list of offences which could becompounded by the Courts in Section 345. This list was expandedwhen the Code of Criminal Procedure was amended again in 1898.Finally, in its current form, the compounding of offences ispermissible under Section 320 of the CrPC. [Paras 47-49][900-D-H; 901-A]

3.3 The provisions of Section 320 indicate that there arethree categories of offences: those offences which can becompounded by the parties themselves; those offences whichcan be compounded by the parties but for which the permissionof the Court is required; and offences which cannot becompounded at all. [Para 50][902-C-E]

3.4 Sub-section (1) of Section 320 of the CrPC stipulatesthat offences punishable under the sections of the IPC in thefirst two columns of the appended table may be compounded bythe persons mentioned in the third column of that table, withoutthe permission of the Court. Broadly speaking, the offencescovered by sub- Section (1) of Section 320 are relatively of aminor nature directed against an individual without affecting the A

BC

DE

F

GH

Asociety at large. The maximum sentence for these offences mayvary from five to seven years’ imprisonment. Almost all theoffences are bailable and several are non-cognizable. Sub-Section(2) of Section 320 provides for offences where compoundingrequires the permission of the Court before which a prosecutionfor the offence is pending. A provision for the permission of theBCourt has been introduced in respect of offences governed bysub-Section (2) of Section 320 since the legislature has viewedthose offences to be of a more serious nature as compared to theoffences governed by sub-Section (1) of Section 320. Sub-Section(3) of Section 320 provides that where an offence is compoundableCunder the provision, the abetment of such an offence or attemptto commit such an offence or where the accused is liable underSection 34 or Section 149 of the IPC may also be compounded ina like manner. Sub-Sections (4a) provides that where the personwho would otherwise be competent to compound the offenceunder the provision is under the age of 18 or “is an idiot or aDlunatic” a person competent to contract on their behalf may, withthe permission of the Court, compound the offence. Similarly,under sub-Section 4(b), where the person who would otherwisebe competent to compound the offence under the provision isdead, their legal representative as defined under the Code ofECivil Procedure, 1908 may, with the consent of the Court,compound the offence. Sub-Section (5) provides that where theaccused has been committed for trial or when the accused hasbeen convicted and an appeal has been pending, no compoundingshall be allowed without the leave of the Court to which theaccused is committed or of the Court before which the appeal isFto be heard. Under sub-Section (6), the High Court or Court ofSessions is empowered to allow a person to compound an offencein the exercise of its revisional powers which such a person iscompetent to compound under the provision otherwise. Sub-Section (7) provides that compounding will not be permitted whenthe accused is liable either to enhanced punishment or to aGpunishment of a different kind for such offence for a previousconviction. Sub- Section (8) provides that the effect ofcompounding under this provision would have the same effect asthe acquittal of the accused. Finally, sub-Section (9) provides thatno offence shall be compounded except as provided by theHprovision. [Paras 51-53][902-E-H; 903-A-G]

3.5 It is evident that that legislative sanction forcompounding of offences is based upon two contrasting principles:first, that private parties should be allowed to settle a disputebetween them at any stage (with or without the permission of theCourt, depending on the offence), even of a criminal nature, ifproper restitution has been made to the aggrieved party; andsecond, that, however, this should not extend to situations wherethe offence committed is of a public nature, even when it mayhave directly affected the aggrieved party. The first of theseprinciples is crucial so as to allow for amicable resolution ofdisputes between parties without the adversarial role of Courts,and also to ease the burden of cases coming before the Courts.However, the second principle is equally important because evenan offence committed against a private party may affect the fabricof society at large. Non-prosecution of such an offence may affectthe limits of conduct which is acceptable in the society. The Courtsplay an important role in setting these limits through theiradjudication and by prescribing punishment in proportion to howfar away from these limits was the offence which was committed.As such, in deciding on whether to compound an offence, a Courtdoes not just have to understand its effect on the parties beforeit but also consider the effect it will have on the public. Hence,societal interest in the prosecution of crime which has a widersocial dimension must be borne in mind. [Para 59][906-A-E]

Biswabahan Das vs Gopen Chandra Hazarika AIR1967 SC 895:1967 SCR 447; Sheonandan Paswan vsState of Bihar (1987) 1 SCC 288 : [1987] 1 SCR 702 –referred to.

Keir vs F. Leeman and Pearson (1844) 6 Queen’sBench Reports 308; Public Prosecutor vs Norzian binBintat [1995] SGHC 207 – referred to.

Ryan David Lim and Selene Yap ‘Composition: Legaland Theoretical Foundations’ (2015) 27 SAcLJ 462 –referred to.

<https://lawcommissionofindia.nic.in/reports/report237.pdf>accessed on 20 July 2021 – referred to.

ABC

DE

F

G

H

A

A3.6 Section 320 provides for the compounding of offencesonly under the IPC. Hence, in respect of offences which lie outsidethe IPC, compounding may be permitted only if the statute whichcreates the offence contains an express provision forcompounding before such an offence can be made compoundable.The power of compounding must, be expressly conferred by theBstatute which creates the offence. [Para 62][907-C-D]

4.1 Section 24A of the SEBI Act commences with a non-obstante provision which operates notwithstanding anythingcontained in the CrPC. Sub-Sections (1) and (2) of Section 320 ofthe CrPC dealt with the compounding of offences under the IPC,Cwhile sub-Section (9) stipulates that no offence shall becompounded except as provided in the Section. However, thestipulation contained in sub-Section (9) of Section 320 ceases tohave effect in relation to the compounding of offences under theSEBI Act by virtue of a specific non-obstante provision containedDin Section 24A providing for the compounding by offencespunishable under that legislation. Section 24A, by incorporatinga non-obstante provision indicates a legislative intent to the effectthat the power to compound offences punishable under the SEBIAct is not trammeled by the provisions of Section 320 of the CrPC.[Para 80][918-A-D]E

4.2 The ingredients of Section 24A of the SEBI Act mustbe delineated. Section 24 A contains five ingredients when itspecifies: the offences which can be compounded (“any offencepunishable in this Act”); the exceptions which the statutoryprovision carves out (“not being an offence punishable withFimprisonment only or with imprisonment and also with fine”);the stage at which compounding may take place (“either beforeor after the institution of any proceedings”); the forum beforewhich the compounding act takes place (“a Securities AppellateTribunal or the Court before which such proceedings areGpending”); and the entrustment of the power to compound to theSAT or the Court. [Para 81][918-D-G]

4.3 The entrustment of the exclusive power to compoundoffences under Section 24A of the SEBI Act to the SAT or theCourt before which such a proceeding is pending is evinced by H

the expression “be compounded by a Securities AppellateTribunal or a court before which such proceedings are pending”.Section 24A thus contains a departure from the modalities whichare prescribed in sub-Sections (1) and (2) of Section 320 of theCrPC. Section 320 of the CrPC, permits the compounding onlyof certain specified offences under the IPC. Section 320 containsa two-fold distinction between offences punishable under the IPCwhich can be compounded: (i) without the leave of the Court;and (ii) with the leave of the Court. In contrast, the power tocompound under Section 24A is confined to offences punishableunder the SEBI Act. The power is entrusted solely to the SAT orto the Court, before which the proceedings are pending. Hence,the non-obstante provision contained in Section 24A mustbe given its natural meaning and effect. [Para 82][918-G-H;919-A-C]

4.4 The plain language of section 24 A does not provide forthe consent of SEBI. The issue is whether this Court should readthe requirement of the consent of SEBI into the provision, onthe ground that this is a casus omissus. This would, however,amount to re-writing the statutory provision by introducinglanguage which has not been employed by the legislature.[Para 83][919-C-D]

Union of India vs Rajiv Kumar (2003) 6 SCC 516 :[2003] (1) Suppl. SCR 597 – referred to.

4.5 It is evident that Section 24A does not stipulate thatthe consent of SEBI is necessary for the SAT or the Court beforewhich such proceedings are pending to compound an offence.Where Parliament intended that a recommendation by SEBI isnecessary, it has made specific provisions in that regard in thesame statute. Section 24B provides a useful contrast. Section24B(1) empowers the Union Government on the recommendationof SEBI, if it is satisfied that a person who has violated the Act orthe Rules or Regulations has made a full and true disclosure inrespect of the alleged violation, to grant an immunity fromprosecution for an offence subject to such conditions as it mayimpose. The second proviso clarifies that the recommendationof SEBI would not be binding upon the Union Government. Inother words, Section 24B has provided for the exercise of powers AB

C

D

E

F

G

H

Aby the Central Government to grant immunity from prosecutionon the recommendation of SEBI. In contrast, Section 24A isconspicuously silent in regard to the consent of SEBI before theSAT or, as the case may be, the Court before which the proceedingis pending can exercise the power. Hence, it is clear that SEBI’sconsent cannot be mandatory before SAT or the Court beforeBwhich the proceeding is pending, for exercising the power ofcompounding u/s. 24A. However, it is also important to rememberthat proceedings for the trial of offences under the SEBI Act areinitiated on a complaint made by SEBI by virtue of Section 26 ofthe SEBI Act. SEBI is a regulatory and prosecuting agency underCthe legislation. Hence, while the statutory provisions do notentrust SEBI with an authority in the nature of a veto under theprovisions of Section 24A, it is equally necessary to understandthe importance of its role and position. [Paras 84, 85][920-B-G]

JIK Industries Limited vs. Amarlal v. Jumani (2012) 3DSCC 255 : [2012] 3 SCR 114; VLS Finance Limited vs.Union of India (2013) 6 SCC 278 : [2013] 8 SCR 849;Damodar S Prabhu vs Sayed Babalal 2010 5 SCC 663: [2010] 5 SCR 678; Meters and Instruments Pvt. Ltd.vs Kanchan Mehta (2018) 1 SCC 560 : [2017] 10 SCR66; N H Securities Limited vs Securities and ExchangeEBoard ofIndia 2018 SCC OnLine Bom 4040; Re:Expeditious Trial of cases under Section 136 ofNegotiable Instruments Act 1881 Suo Motu WritPetition (Crl) No. 2 of 2020 – referred to.

5.1 The provisions of the SEBI Act would indicate theFimportance of the role which has been ascribed to it as aregulatory, adjudicatory and prosecuting agency. SEBI has vitalfunctions to discharge in the context of maintaining an orderlyand stable securities’ market so as to protect the interests ofinvestors. SEBI was established in 1988 by a governmentGresolution, to urgently respond to the rapid growth of capitalmarkets. Therefore, the SEBI Act and the rules, regulations andcirculars made or issued under the legislation, are constantlyevolving with a concerted aim to enforce order in the securitiesmarket and promote its healthy growth while protecting investorwealth. [Paras 86-87][920-G-H; 921-A; 924-E-F]H

PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARDOF INDIA

Sahara India Real Estate Corporation Ltd. vs SEBI(2013) 1 SCC 1 : [2012] (12) SCR 1; B S E Brokers’Forum vs Securities and Exchange Board of India(2001) 3 SCC 482 – referred to.

5.2 This Court has been mindful of the public interest thatguides the functioning of SEBI and has refrained from substitutingits own wisdom over the actions of SEBI. Its wide regulatory andadjudicatory powers, coupled with its expertise and informationgathering mechanisms, imprints its decisions with a degree ofcredibility. The powers of the SAT and the Court would necessarilyhave to align with SEBI’s larger existential purpose. Therefore,in line with the object of the SEBI Act and the precedents, itwould be the task to interpret s. 24A in a manner that furthersthe statutory role of SEBI, rather than one which thwarts its courseof action. [Para 88][926-A-B; 927-D]

5.3 Section 24(1) is an omnibus provision for all offencespunishable for contravention (or attempts or abetments) of theprovisions of the Act or of any rule or regulation made under it.Prior to Amending Act 59 of 2002 which came into effect from 29October 2002, the punishment for offences extended to a periodof one year of imprisonment, or with fine, or with both underSection 24(1). The term of imprisonment has been extended toup to ten years and a fine of Rs twenty-five crores by the amendinglegislation of 2002. The rationale for this amendment, as evincedfrom its Statement of objects and reasons, was to provide aneffective deterrent for potential wrongdoers. Offences punishableunder sub- Section (1) of Section 24 would cover a range ofviolations from the venial to the serious. The entrustment of thepower to compound offences either before or after the institutionof any proceeding is to SAT or a Court before which suchproceedings are pending. The provisions of Section 24A must beread in a manner consistent with the object and purposeunderlying the position of SEBI as an expert regulator. SEBI, asthe regulator, is entrusted with diverse roles and functionsincluding the power to regulate the securities’ market, makeregulations and to enforce the provisions of the Act. Its functionshave been recognized in a panoply of statutory provisions.Independent of initiating a prosecution, SEBI has been entrusted A

BC

DEF

G

H

Awith wide ranging powers and functions including the power toinvestigate, to issue directions and levy penalties and make ceaseand desist orders. [Para 89][927-E-H; 928-A-B]

SEBI vs Kishore R Ajmera (2016) 6 SCC 368 : [2016] 1SCR 1118; Securities and Exchange Board of India vsBAjay Agarwal (2010) 3 SCC 765 : [2010] 3 SCR 70; GL Sultania vs Securities & Exchange Board of India(2007) 5 SCC 133 : [2007] 6 SCR 1152; PGF Ltd vsUnion of India (2015) 13 SCC 50 : [2013] 6 SCR 32;SEBI vs Akshya Infrastructure (P) Ltd. (2014) 11 SCC112 : [2014] 13 SCR 402; SEBI vs Saikala AssociatesCLtd. (2009) 7 SCC 432 : [2009] 6 SCR 798 – referred to.

5.4 While the statute has entrusted the powers ofcompounding offences to SAT or to the Court, as the case maybe, before which the proceedings are pending, the view of SEBIDas an expert regulator must necessarily be borne in mind by theSAT and the Court, and would be entitled to a degree of deference.While SEBI does not have a veto, having regard to the languageof Section 24A, its views must be elicited. The view of SEBI, anenvisaged in the FAQs accompanying SEBI’s circular dated 20EApril 2007, must undoubtedly be sought by the SAT or the Court,to decide on whether an offence should be compounded. For SEBIcan provide an expert view on the nature and gravity of the offenceand its implication upon the protection of investors and thestability of the securities’ market. These considerations andothers which SEBI may place before the SAT or the Court, wouldFbe of relevance in determining as to whether an application forcompounding should be allowed. Therefore, before taking adecision on whether to compound an offence punishable underSection 24 (1), the SAT or the Court must obtain the views ofSEBI for furnishing guidance to its ultimate decision. These views,Gunless manifestly arbitrary or mala fide, must be accorded a highdegree of deference. The Court must be wary of substituting itsown wisdom on the gravity of the offence or the impact on themarkets, while discarding the expert opinion of the SEBI.[Para 90][928-B-E]

H

5.5 It is also important to note that the legislative schemeof the SEBI Act delineates several actions that are liable forpenalty under Section 15, but includes a common sentencingprovision under Section 24. Therefore, Section 24 would be thesentencing provision for the most banal of offences, to the mostegregious of market disruptions and frauds. The maximumpunishment prescribed under Section 24 has also seen anamendment and increase by the Amending Act 59 of 2002, inorder to ensure effective deterrence. In exercising the power ofcompounding under Section 24A, the SAT or the Court must beconscious of the gravity of the offences that the accused are beingprosecuted for, considering that the legislative scheme does notindividually prescribe separate sentencing provisions whichwould otherwise have provided an insight into the gravity andgradation of the offences. Hence, SEBI’s view on thecompounding would become all the more important, in this light.[Para 91][928-F-H; 929-A]

6. Section 24A only provides the SAT or the Court beforewhich proceedings are pending with the power to compound theoffences, without providing any guideline as to when should thistake place. Hence, it is necessary to elucidate upon someguidelines which SAT or such Courts must take into account whileadjudicating an application under Section 24A:

(i) They should consider the factors enumerated in SEBI’scircular dated 20 April 2007 and the accompanying FAQs,while deciding whether to allow an application for a consentorder or an application for compounding. These factors arenon-exhaustive.

(ii) According to the circular dated 20 April 2007 and theaccompanying FAQs, an accused while filing theirapplication for compounding has to also submit a copy toSEBI, so it can be placed before the HPAC. Therecommendation of the HPAC is then filed before the SATor the Court, as the case may be. As such, the SAT or theCourt must give due deference to such opinion. The opinionof HPAC and SEBI indicates their position on the effect ofnon-prosecution on maintainability of market structures.Hence, the SAT or the Court must have cogent reasons to A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

Adiffer from the opinion provided and should only do so whenit believes the reasons provided by SEBI/HPAC are malafide or manifestly arbitrary.

(iii) The SAT or Court should ensure that the proceedingsunder Section 24A do not mirror a proceeding for quashingBthe criminal complaint under Section 482 of the CrPC,thereby providing the accused an opportunity. The principlebehind compounding, is that the aggrieved party has beenrestituted by the accused and it consents to end the dispute.Since the aggrieved party is not present before the SAT orthe Court and most of the offences are of a public character,Cit should be circumspect in its role. In the generality ofinstances, it should rely on the SEBI’s opinion as to whethersuch restitution has taken place.

(iv) Finally, the SAT or the Court should consider whetherthe offence committed by the party submitting theDapplication under Section 24A is private in nature, or it isof a public character, the non-prosecution of which will affectothers at large. As such, the latter should not becompounded, even if restitution has taken place.[Para 92][929-B-D; 930-E-H; 931-A-D]

E7. In the instant case, the nature of the allegations againstthe appellant are such so as to preclude a decision to compoundthe offences. They have been adverted, in a considerable amountof detail, to the circumstances which have been narrated in thecounter affidavit filed by SEBI. There is merit in the submissionsFthat the allegations in the present case involved serious acts whichimpinged upon the protection of investors and the stability of thesecurities’ market. The observation in the order of adjudicationof the Chairperson of the SEBI dated 22 September 2000, thatno loss has been caused to the investors as a result of the proposalwhich was submitted by the promoters to purchase the shares atGthe rate of Rs 12 per share, would not efface the element of allegedwrong doing. Such alleged acts of price rigging and manipulationof the prices of the shares have a vital bearing on investors’ wealthand the orderly functioning of the securities market. SEBI was,therefore, justified in opposing the request for the compoundingof the offences. The matter was referred to the HPAC constitutedH

PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARDOF INDIA

A

by SEBI and presided over by a former judge of the BombayAHigh Court, which denied the request for compounding. Thisdecision which has been taken by SEBI is not mala fide nor doesit suffer from manifest arbitrariness. On the contrary, having dueregard to the nature of the allegations, an order for compoundingwas not warranted. The judgment of the High Court is upheld.B[Paras 93-94][931-D-H; 932-A-B]

CD

EF

CRIMINAL APPELLATE JURISDICTION : Criminal AppealNo. 569 of 2021.

From the Judgment and Order dated 01.04.2019 of the High Courtof Delhi at New Delhi in CRL. REV. P. No.1076 of 2018.

G

Shyam Divan, Sr. Adv., Rajiv Garg, T. L. Garg, Advs. for theappellant.

C. U. Singh, Mahesh Jethmalani, Sr. Advs., Abhishek Baid, AnupJain, Praneet Das, Vijay Aggarwal, Sandeep Kapur, Ravi Sharma, Mudit H

AJain, Ashul Agarwal, Mridul Yadav, Aashneet Singh Anand, SiddhantKrishnan Singh, M/s. Karanjawala & Co., Advs. for the respondent.

The Judgment of the Court was delivered by DR. DHANANJAYA Y CHANDRACHUD, J.

BThis judgment has been divided into sections to facilitate analysis.They are:

AThe Appeal

BThe IPO, SEBI’s Investigation and the criminal complaint CApplication for Compounding C

DCounsel’s submissions

EAnalysis

E.1Structure of the SEBI Act

DE.2SEBI Circulars in relation to Section 24A

E.3Jurisprudential basis for ‘Compounding’

E.4Compounding outside of CrPC

E.5Regulatory role of SEBI

EFGuidelines for Compounding under Section 24A

GAnalysis on facts and conclusion

A The Appeal

1. The appellant is being prosecuted for an offence under SectionF24(1) of the Securities and Exchange Board of India Act, 1992 (“SEBIAct”). The appellant sought the compounding of the offence underSection 24A. By an order dated 15 November 2018, the AdditionalSessions Judge – 02 Central District at Tis Hazari Courts, Delhi (“TrialJudge”), rejected the application, upholding the objection of the Securitiesand Exchange Board of India that the offence could not be compoundedGwithout its consent. By a judgment of a Single Judge of the High Courtof Delhi dated 1 April 2019 the order of the Trial Judge has been affirmedin revision. The High Court has held that the trial has reached the stageof final arguments and the application for compounding cannot be allowedwithout Securities and Exchange Board of India’s (“SEBI”) consent.HThe reasons of the High Court are extracted below:

“6. Compounding at the initial stage has to be encouraged, but notat the final stage. The object of the SEBI Act has to be kept inmind. A stable and orderly functioning of the securities markethas to be ensured. It will not be in the interest of justice to dischargethe accused at the final stage of the proceedings by allowing theapplication for compounding without the consent of SEBI Act asit will defeat the objective of the SEBI Act. Though theAdjudicating Officer has found that the alleged violation committedby petitioner has not resulted in any loss to the investors, but thisby itself would not justify discharge of accused at the fag end oftrial. After considering the Supreme Court’s decision in Metersand Instruments Private. Limited (Supra), and the view expressedby High Court of Bombay in N.H. Securities Ltd. (Supra) as wellas the facts and circumstances of this case, I find no justificationto allow petitioner’s application under Section 24A of the SEBIAct, 1992.”

This view of the High Court has been called into question in theseproceedings.

B The IPO, SEBI’s Investigation and the criminal complaint

2. The appellant is the director and promoter of a company by thename of Ideal Hotels & Industries Limited (“the Company”), whichowns a 3-star hotel in Varanasi. While it was incorporated initially as aprivate limited company under the Companies Act, 1956 on 17 December1985, the status of the company was changed to that of a public limitedcompany with the approval of the Department of Company Affairs on 4May 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 Rs 10 pershare, aggregating to Rs 380 lacs. This offer was pursuant to a prospectusdated 6 October 1995. The IPO opened on 15 November 1995 andclosed on 24 November 1995. The prospectus specified that the holdingof the promoters of the Company after the IPO was 22 lac sharesrepresenting 32.83 per cent of the paid-up capital of 67 lac shares, withthe shareholding of the appellant being 1,400 shares representing 0.02per cent of the paid-up capital. The Company got listed in the stockexchanges at Delhi, Mumbai, Ahmedabad and Chennai, with the UPstock exchange being the parent exchange.

A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

A4. On 27 June 1996, SEBI received a complaint from one MrVijay Miglani alleging that certain Delhi/Bombay based brokers had, onthe instructions of the Company, purchased its shares and that hugedeliveries were kept outstanding in the grey market. SEBI also receivedan anonymous complaint in October 1996, alleging price rigging andinsider trading in the scrip of the Company. After a preliminary inquiryBbetween 1996 and 1999, SEBI initiated an investigation against theCompany on 2 February 1999. The Company was investigated for theperiod between 28 January 1996 and 29 February 1996. This was theperiod 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 ofCRs 23.25 on 13 February 1996. The traded volume was unusually highduring this period, with a daily turnover of 1,00,000 shares on manydays. Thereafter, the price of the scrip registered a steep decline to Rs17 on 29 February 1996, and the daily turnover also reduced to an averageof a few hundred shares.D5. During its investigation, SEBI obtained the details of the top D5. During its investigation, SEBI obtained the details of the topbrokers who traded in the shares of the Company during this period onthe Delhi Stock Exchange and Bombay Stock Exchange, and also oftheir clients who had made significant purchases or sales on the scrip.Consequently, SEBI came up with the name of six entities who hadpurchased approximately 51 per cent of the 38 lac equity shares onEoffer 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 wasapproximately 75 per cent of the post issue floating stock of the Company.As such, it was assumed that these entities were, therefore, responsibleFfor the upward price movement in the scrip.

6. When SEBI issued summons to these six entities, it was theappellant who replied to them. In a statement given to SEBI on 7 June1999, the appellant admitted that these entities were directly/indirectlyrelated to the Company and its directors, and that he managed their day-Gto-day affairs. He also admitted that approximately Rs 4.5 to 5 croreswas invested by these entities in the purchasing the shares of theCompany, for which funds were made available either from funds of theCompany out of the proceeds of the IPO or from Inter CorporateDeposits raised by the entities from the market on personal verbalguarantees of the appellant and the Chairman and Managing Director ofHthe Company (which had all been repaid subsequently).

7. On 24 August 1999, summons were issued by SEBI to theappellant under Section 11(3) of the SEBI Act regarding a potentialviolation of Regulations 4(a) and 4(e) of the Securities and ExchangeBoard of India (Prohibition of Fraudulent and Unfair Trade Practicesrelating to Securities Market) Regulations, 1995 (“1995 PFUTPRegulations”); 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, theChairperson of SEBI appointed an Adjudicating Officer (“AO”) toadjudicate upon the above allegations.

8. Prior to the decision of the AO, SEBI filed a criminal complaint[1]on 29 March 2000 before the Additional Chief Metropolitan Magistrate,Tis Hazari Court, Delhi alleging violations of Regulations 4(a) and 4(e)of the 1995 PFUTP Regulations, read with Regulations 6(1), 6(3), 8(1),10(1) and 10(2) of the 1994 Takeover Regulations, which are punishableunder Sections 24 and 27 of the SEBI Act.

9. While the proceedings were pending before the AO, on 22September 2000, SEBI’s Chairperson passed an order under Section11B read with Section 4(iii) of the SEBI Act accepting the proposal ofthe appellant and others to make an offer to purchase the shares ownedby the shareholders of the Company who are not its promoters. Theorder 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 theCompany were listed during the IPO. The appellant has stated that incompliance of the order, the promoters/directors of the Company acquiredequity shares which raised their holding to the extent of about 95 percent of the Company (post IPO). Thereafter, the Company also got itsshares delisted from various stock exchanges.

10. On 19 June 2001, the AO passed an order in which it notedthat the six entities were managed by the appellant, which can bedetermined 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 relativeswere the directors in these entities; (iii) they purchased these shares onthe basis of an oral commitment made by the appellant and by usingfunds obtained from the Company or on the basis of Inter Corporate 1 Complaint No. 152 of 2000

AB

C

D

EF

G

H

ADebtors obtained on the guarantee of the appellant, Chairman andManaging Director of the Company; (iv) the shares purchased werelying in the office of the appellant; and (v) it had also been admitted bythe Chairman and Managing Director of the Company in his statementto SEBI on 5 July 1999 that this was done after due consultation withhim. As such, it held, inter alia, that the appellant had failed to complyBwith Regulations 8(1), 8(2) and 10 of the 1997 Takeover Regulations,and had thus violated the provisions of Section 15H of the SEBI Act.

11. The AO also noted the order of SEBI’s Chairman under Section11B of the SEBI Act, and observed that:C“In response to that order [SEBI’s Chairman’s order], vide letterdated 25.05.2001, the acquirers have submitted that they havealready acquired 95% of the total equity share capital of thecompany. They are planning to get the scrip of Ideal Hotels delistedfrom the rolls of all the Stock Exchanges where the scrips havebeen listed.”

D

The AO further observed:

“In terms of the above order issued under section 11B of theSEBI Act, all the investors were offered an exit route at Rs.12/-per share. This was higher than the public issue price of Rs.10/-.EThus in the ultimate analysis I find there was no loss to anyinvestor.”

However, according to the AO, the offer ought to have been madeby the appellant/promoters on their own accord and not when proceedingsunder Section 11B were pending. Consequently, the AO levied a penaltyFof Rs. 20,000 on the appellant and two co-promoters. According to theappellant the penalty was paid.

12. Pursuant to SEBI’s criminal complaint dated 29 March 2000,the Additional Chief Metropolitan Magistrate summoned the accused onthe same day. In 2006-07, the appellant together with the other accusedinstituted proceedings under Section 482 of the Code of CriminalGProcedure, 1973 (“CrPC”) before the High Court of Delhi for quashingthe complaint case and the summoning order. The proceedings underSection 482 remained pending before the High Court for about six years,until they were eventually dismissed on 26 August 2013.

H

C Application for Compounding

H

C Application for Compounding

13. On 12 September 2013, the appellant and the other accusedpersons filed a ‘consent application’ with SEBI, which was returned on27 September 2013 with the intimation that the appellant and otheraccused persons could file an appropriate application for compoundingin the criminal case.

14. On 14 October 2013, an application under Section 24A of theSEBI Act was filed before the Additional Chief Metropolitan Magistrate,Tis Hazari, Delhi by the appellant and other accused persons seekingthe compounding of the offence in the criminal complaint filed by SEBIsince they had already purchased the shares from the public inaccordance with the order of SEBI Chairperson under Section 11B andhad paid the penalty levied by the AO.

15. SEBI referred the compounding application for seeking theviews of its High Powered Advisory Committee (“HPAC”) headed bya former Judge of the High Court of Bombay. The HPAC has beenconstituted for examining proposals for compounding offences. TheHPAC recommended that the offences should not be compoundedfollowing which an intimation was furnished to the Trial Judge andrecorded in an order dated 7 May 2016.

16. In the interregnum, the criminal complaint was listed forrecording the evidence of the complainant, but after the evidence wasadduced, the appellant declined to cross-examine the witness until thecompounding application was decided. The appellant also filed anapplication on 6 November 2017 before the Trial Judge, praying that thecompounding application be decided before further evidence of thecomplainant was recorded in the criminal complaint.

17. By an order dated 15 November 2018, the Trial Judge dismissedthe compounding application and the criminal complaint was listed forthe cross-examination of the complainant’s witness by the accusedpersons. The Trial Judge placed reliance on the decision of this Court inJIK Industries Limited vs Amarlal v. Jumani[2] (“JIK Industries”)forholding that no application for compounding an offence could be allowedwithout the consent of the complainant. A revision petition was filed bythe appellant before the High Court of Delhi to challenge the order of A

B

C

D

EF

G

H

Athe Trial Judge which, as stated earlier, has been dismissed by a SingleJudge of the High Court of Delhi on 1 April 2019.

D Counsel’s submissions

18. Mr Shyam Divan, learned Senior Counsel appearing on behalfof the appellant has urged the following submissions:B

(i) The Chairperson of SEBI in the order under Section 11Bdated 22 September 2000 accepted the proposal of theappellant and co-promoters, that they would buy theremaining shares of the Company from the allotees/existingshareholders in the public issue at the rate of Rs 12 perCshare. This has provided an exit option;

(ii) The AO took note of the submission of the acquirers thatthey had already acquired 99 per cent of the total equityshare capital of the Company and were planning to get thescrip de-listed from the rolls of the stock exchanges;D

(iii) In terms of the order under Section 11B, all the investorswere offered an exit route at Rs 12 per share, which washigher than the public issue price of Rs. 10; hence, in theultimate analysis the AO held that no loss has been causedto any investor; E

(iv) Contrary to the finding of the High Court, the applicationfor compounding was not filed at the end of the trial but in2013 after the petition under Section 482 of the CrPC wasdismissed by the High Court of Delhi;

(v) The promoters are, even at this stage, ready and willing toFmake a further mop-up offer;

(vi) The criminal complaint was filed on 29 March 2000, priorto the order of SEBI’s Chairperson under Section 11B dated22 September 2000 and the order of the AO dated 19 June2001, which concluded that no loss has been caused to theGinvestors;

(vii) The purpose of the SEBI Act is to ensure the protection ofthe investors, which has been met by the deposit of penalty;(viii) Section 24A confers adequate powers on SecuritiesHAppellate Tribunal (“SAT”) and the Court to compound

offences, and there is no provision in the statute for theconsent of SEBI. Compounding should be allowed if, afteran assessment of the overall facts, there is no reason todeny it;

(ix) The order of the Trial Judge is manifestly erroneous whenit holds that “there is nothing on record to show that theinvestors have been duly compensated”. Moreover, theobservation that the offence could not be compounded underSection 24A without the consent of SEBI is contrary to theplain terms of the statute which do not contemplate theconsent of SEBI; and

(x) In the facts of the present case, the application forcompounding should be allowed since:

a.The appellant is a senior citizen;

b.The Company has been de-listed on the stockexchanges; and

c.No loss is shown to have been caused to the investors.

19. Mr CU Singh, learned Senior Counsel appearing on behalf ofSEBI opposed the submissions on the ground that:

(i) The criminal complaint which was filed on 29 March 2000sets out the element of criminality involving:

a.Mis-utilization of the proceeds of the IPO to purchasethe shares of the Company through the six relatedentities; b.Manipulation of the price of the scrip in which theIPO took place;

c.The artificial increase in the price of the shares ofthe Company to Rs. 23.5 per share, which wassubsequently brought down; d.The IPO was over-subscribed by four times, whichimplies that 75 per cent of the applicants were unableto obtain the shares of the Company;

(ii) The order of the Chairperson of SEBI dated 22 September2000, in fact arrived at the following conclusions:

A

B

C

D

E

F

G

H

“In these circumstances, it can be concluded that theassociate concern of IHL were mere front entities ofIHL and its promoters and the entire exercise of transferof public proceeds to associate concerns was for thepurchase of its own shares. Transfer of shares is a partof their design to manipulate the price of the shares…

A

B

IHL and its promoters were also afforded an opportunityof personal hearing to make their submissions.Accordingly, Shri L.R. Maurya and Shri Prakash Guptaappeared before me. The said individuals offered aproposal that they would buy the remaining shares ofthe company from the allottees/ existing shareholders inthe public issue at the rate of Rupees Twelve per share.I have considered the said proposal of the promotersand I find that this provides a way to exit to the allottees/existing shareholders of IHL.”

C

D

(iii) SEBI’s investigation revealed that the Company had mis-utilized the funds which were raised in the IPO for buyingback of its own shares. These funds of the public issuewere made available to the six entities which were groupcompanies managed by the appellant or to promoters orEdirectors of group companies to purchase the shares. Thedealing in the shares of the Company by these entities ledto an increase in the price of its shares. The purchases bythose entitles also cumulatively constituted almost the entirepurchase made at the Delhi Stock Exchange, and asubstantial part of the floating stock of the Company. Hence,Fthese entities purchased a substantial equity in the sharesof the company without disclosures to the public. Therefore,a violation of the 1995 PFUTP Regulations and of the 1994Takeover Regulations was found to have been committed.This, in substance, constitutes the basis of the criminalGcomplaint;

(iv) The conduct of the appellant is also significant: after thecriminal complaint was lodged on 29 March 2000, petitionsunder Section 482 of the CrPC were filed in 2006-07. Theyremained pending for seven years, until they were dismissedHon 26 August 2013 by the High Court of Delhi. Once the

Trial Judge took cognizance of the criminal complaint, theapplication for compounding was then submitted belatedlyon 14 October 2013 when the evidence was being recorded;and A

(v) A case does not exist for the interference of this Courtunder Article 136 of the Constitution.

B

20. Mr Mahesh Jethmalani, learned Senior Counsel has intervenedin these proceedings and has urged submissions on the issue as to whetherthe power of compounding offences under Section 24A of the SEBI Actrequires the consent of SEBI. Learned Senior Counsel submitted that:

C

(i) Section 24A refers to only two authorities – SAT and aCourt – before which the proceedings are pending. Section24A has no reference to SEBI, and it does not condition thepower of the Court or SAT of compounding offences to theprior consent of SEBI; D

(ii) It is a well settled principle of statutory construction thatwhile interpreting a statutory provision, no addition orsubtraction from it is permissible;

(iii) The submission of SEBI that its consent is mandatory inorder to compound an offence under Section 24A would, ifaccepted, result in re-writing the provisions of the statute.EWhile considering Section 621-A of the Companies Act,1956, which was inserted by an amending Act of 1988, thisCourt in VLS Finance Limited vs Union of India[3 ](“VLSFinance”) held that in the absence of a requirement of thesanction or prior permission of the Court before an offenceFis compounded by the Company Law Board, such arequirement of prior permission could not be implied sinceit would be contrary to the terms of the statute; and

(iv) The decision in JIK Industries (supra), is an authority forthe principle that a scheme under Section 391 of theGCompanies Act, 1956 does not amount to the compoundingof an offence under Section 138 of the NegotiableInstruments Act, 1888 (“NI Act”). In the case of the NIAct, Section 147 merely states that offences under the Act shall be compoundable whereas Section 24A of the SEBIAct specifically provides for the power of SAT and theCourt to compound offences.

A

21. These rival submissions now fall for our consideration.

E AnalysisB

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 ofinvestors in securities and to promote the development of and to regulatethe securities market and for matters connected therewith or incidentalCthereto”. The Statement of Objects and Reasons accompanying theintroduction of the Bill in Parliament notes that SEBI was established in1988 through a government resolution to promote the orderly and healthygrowth of the securities market and for the protection of investors. SEBIhad been monitoring the activities of stock exchanges, mutual funds,Dmerchant bankers and other activities to achieve these goals. TheStatement of Objects and Reasons elucidates that:

“The capital market has witnessed tremendous growth in recenttimes, characterized particularly by the increasing participation ofthe public. Investors’ confidence in the capital market can beEsustained largely by ensuring investors’ protection. With this endin view, Government decided to vest SEBI immediately withstatutory powers required to deal effectively with all mattersrelating to capital market. As Parliament was not in session, andthere was an urgent need to instill a sense of confidence in theFpublic in the growth and stability of the capital market, the Presidentpromulgated the Securities and Exchange Board of IndiaOrdinance, 1992 (No. 5 of 1992) on the 30th January, 1992.”

23. Chapter IV of the SEBI Act delineates the power and functionsof SEBI. Within this chapter, Section 11 stipulates the functions of SEBI.Sub-Section (1) casts upon SEBI the duty to protect the interests ofGinvestors in securities and to promote the development and regulation ofthe securities market, through such measures as it deems fit. Among thefunctions which are specified in sub-Section (2) are:

(i) Regulating the business in stock exchanges and any otherstock exchange markets (clause (a));H

PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD889OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.](ii)Prohibiting fraudulent and unfair trade practices relating toAsecurities markets (clause (e));

(iii) Prohibiting insider trading in securities (clause (g)); and

(iv) Regulating substantial acquisition of shares and takeoverof companies (clause (h)).

B

24. Under sub-Section (2a) (inserted with effect from 29 October2002), SEBI is empowered to undertake the inspection of any book,register, document or record of any listed public company or a publiccompany which intends to get its securities listed on any recognizedstock exchange, where SEBI has reasonable grounds to believe thatsuch company has been indulging in insider trading or fraudulent andunfair trade practices relating to the securities market. Sub-Section (4)empowers SEBI to take certain measures in the interest of investors orthe securities market either pending an investigation or inquiry or on itscompletion.

25. Section 11A deals with the power of SEBI to make regulationsor to issue general or special orders prohibiting the issue of documentsor advertisements soliciting money from the public for the issue ofsecurities. Section 11B empowers SEBI to issue directions and to levypenalties. Section 11C enunciates the powers of investigation entrustedto SEBI.

26. Chapter VA, which incorporates Section 12A, contains aprohibition of manipulative and deceptive devices, insider trading andsubstantial acquisition of securities or control in contravention of theprovision of the Act and the Regulations.

F

27. Chapter VIA deals with penalties and adjudication. SEBI isempowered 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 (SectionG15C);

(iii) Penalty for defaults in the case of mutual funds (Section15D);

(iv) Penalty for default in case of stock brokers (Section 15F); A(v)Penalty for insider trading (Section 15G);

(vi) Penalty for non-disclosure of acquisition of shares (Section15H);

(vii) Penalty for fraudulent and unfair trade practices (Section15 HA);B

(viii) Penalty for alteration, destruction of records and failure toprotect the electronic database of the Board (Section15HAA); and

(ix) Penalty for contravention where no separate penalty hasCbeen provided (Section 15HB).

28. Section 15-I has made provisions elucidating the power toadjudicate in the following terms:

“15-I Power to adjudicate: (1) For the purpose of adjudgingunder sections 15A, 15B, 15C, 15D, 15E, 15-EA, 15-EB, 15F,D15G,15H, 15HA and 15HB, the Board may appoint any officernot below the rank of a Division Chief to be an adjudicating officerfor holding an inquiry in the prescribed manner after giving anyperson concerned a reasonable opportunity of being heard for thepurpose of imposing any penalty.

E(2) While holding an inquiry the adjudicating officer shall havepower to summon and enforce the attendance of any personacquainted with the facts and circumstances of the case to giveevidence or to produce any document which in the opinion of theadjudicating officer, may be useful for or relevant to the subject-matter of the inquiry and if, on such inquiry, he is satisfied that theFperson has failed to comply with the provisions of any of thesections specified in subsection (1), he may impose such penaltyas he thinks fit in accordance with the provisions of any of thosesections.

(3) The Board may call for and examine the record of anyGproceedings under this section and if it considers that the orderpassed by the adjudicating officer is erroneous to the extent it isnot in the interests of the securities market, it may, after makingor causing to be made such inquiry as it deems necessary, pass anorder enhancing the quantum of penalty, if the circumstances ofHthe case so justify:

Provided that no such order shall be passed unless the personconcerned has been given an opportunity of being heard in thematter:

Provided further that nothing contained in this sub-section shallbe applicable after an expiry of a period of three months from thedate of the order passed by the adjudicating officer or disposal ofthe appeal under section 15T, whichever is earlier.”

Section 15JB provides for settlement of administrative and civilproceedings in the following terms:

“15-JB Settlement of administrative and civil proceedings: (1)Notwithstanding anything contained in any other law for the timebeing in force, any person, against whom any proceedings havebeen initiated or may be initiated under Section 11, Section 11-B,Section 11-D, sub-section (3) of Section 12 or Section 15-I, mayfile an application in writing to the Board proposing for settlementof 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 termsas may be determined by the Board in accordance with theregulations made under this Act.

(3) The settlement proceedings under this section shall beconducted in accordance with the procedure specified in theregulations made under this Act.

(4) No appeal shall lie under Section 15-T against any order passedby the Board or adjudicating officer, as the case may be, underthis section.

(5) All settlement amounts, excluding the disgorgement amountand legal costs, realised under this Act shall be credited to theConsolidated Fund of India.”

29. Chapter VIB provides for the establishment, jurisdiction,authority and the procedure of SAT. Section 15T provides for an appealto SAT:

“15T. Appeal to the Securities Appellate Tribunal. (1) Saveas provided in sub-section (2), any person aggrieved, — (a) by an AB

C

D

E

F

G

H

Aorder of the Board made, on and after the commencement of theSecurities Laws (Second Amendment) Act, 1999, under this Act,or the rules or regulations made thereunder; or (b) by an ordermade by an adjudicating officer under this Act; or (c) by an orderof the Insurance Regulatory and Development Authority or thePension Fund Regulatory and Development Authority, may preferBan appeal to a Securities Appellate Tribunal having jurisdiction inthe matter…”

30. An appeal lies to this Court, under Section 15Z, from a decisionof SAT on a question of law:

C“15Z Appeal to Supreme Court—Any person aggrieved by anydecision or order of the Securities Appellate Tribunal may file anappeal to the Supreme Court within sixty days from the date ofcommunication of the decision or order of the Securities AppellateTribunal to him on any question of law arising out of such order:

DProvided that the Supreme Court may, if it is satisfied that theappellant was prevented by sufficient cause from filing the appealwithin the said period, allow it to be filed within a further periodnot exceeding sixty days.”

31. As distinct from the provisions for penalties and adjudicationEin Chapter VIA, Chapter VII, which is titled ‘Miscellaneous’ deals withoffences in Section 24. Section 24 as it stands presently, is in the followingterms:

“24. Offences.—(1) Without prejudice to any award of penaltyby the Adjudicating Officer or the Board under this Act, if anyFperson contravenes or attempts to contravene or abets thecontravention of the provisions of this Act or of any rules orregulations made thereunder, he shall be punishable withimprisonment for a term which may extend to ten years, or withfine, which may extend to twenty-five crore rupees or with both.

(2) If any person fails to pay the penalty imposed by theGAdjudicating Officer or the Board or fails to comply with anydirections or orders, he shall be punishable with imprisonment fora term which shall not be less than one month but which mayextend to ten years, or with fine, which may extend to twenty-five crore rupees or with both.”

H

32. Section 24 was substituted by Act 9 of 1995 with effect from25 January 1995. Prior to its amendment by Act 59 of 2002 with effectfrom 29 October 2002, Section 24 stipulated that offences punishableunder sub-Section (1) would be punishable with imprisonment for a termwhich may extend to one year or with fine or with both. This provisionwas substituted by Amending Act 59 of 2002 to provide for imprisonmentfor a term of ten years or with fine which may extend to Rs 25 crores orwith both. Similarly, the punishment under sub-Section (2) prior toAmending Act 59 of 2002 was for three years or with fine which shallnot be less than Rs 2000 but which may extend to Rs 10,000 or withboth. By Amending Act 59 of 2002, it has been enhanced to ten years orwith fine which may extend to Rs 25 crores or with both.

33. Section 24A, inserted for the first time by the Amending Act59 of 2002, provides for the compounding of offences:

“24A. Composition of certain offences— Notwithstandinganything contained in the Code of Criminal Procedure, 1973 (2 of1974), any offence punishable under this Act, not being an offencepunishable with imprisonment only, or with imprisonment and alsowith fine, may either before or after the institution of anyproceeding, be compounded by a Securities Appellate Tribunal ora court before which such proceedings are pending”

34. Section 26 stipulates that:

“26. Cognizance of offences by courts—(1) No court shalltake cognizance of any offence punishable under this Act or anyrules or regulations made thereunder, save on a complaint madeby the Board.”

35. Section 27 provides for contraventions by companies:

“27. Contravention by companies —(1) Where a contraventionof any of the provisions of this Act or any rule, regulation, directionor order made thereunder has been committed by a company,every person who at the time the contravention was committedwas in charge of, and was responsible to, the company for theconduct of the business of the company, as well as the company,shall be deemed to be guilty of the contravention and shall beliable to be proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall renderany such person liable to any punishment provided in this Act, if A

B

C

D

E

F

G

H

he proves that the contravention was committed without hisknowledge or that he had exercised all due diligence to preventthe commission of such contravention.

A

(2) Notwithstanding anything contained in sub-section (1), wherean contravention under this Act has been committed by a companyBand it is proved that the contravention has been committed withthe consent or connivance of, or is attributable to any neglect onthe part of, any director, manager, secretary or other officer ofthe company, such director, manager, secretary or other officershall also be deemed to be guilty of the contravention and shall beliable to be proceeded against and punished accordingly.

C

Explanation.—For the purposes of this section,—

(a) “company” means any body corporate and includes a firm orother association of individuals; and (b) “director”, in relation to a firm, means a partner of the firm.”D

36. Section 24A, which provides for the compounding of certainoffences, contains certain characteristic features which need to beunderstood while interpreting its provisions: firstly, Section 24A beginswith a non-obstante clause, “notwithstanding anything contained in theCode of Criminal Procedure 1973”; secondly, any offence punishableEunder the SEBI Act can be compounded, provided it is not an offencewhich is punishable only with imprisonment or with imprisonment andfine. Therefore, only where a fine is an alternative to imprisonment doesthe provision apply; thirdly,the offence may be compounded either beforeor after the institution of any proceeding; and fourthly, the offence mayFbe compounded by SAT or by a Court, before which such proceedingsare pending.

37. Offences punishable under sub-Section (1) of Section 24 arecompoundable for the reason that the punishment which has beenstipulated is for a certain term of imprisonment or with fine or with both(the term of imprisonment and the quantum of fine has been enhancedGas we have seen earlier but that is not of relevance to this part of theinterpretation). Whether an offence under sub-Section (2) of Section 24is compoundable under Section 24A depends on the construction whichis to be placed on the words “or with fine”. One option would be toconstrue these words as an alternative to the whole of the precedingHwords which appear immediately before namely “he shall be punishable with imprisonment for a term which shall not be less than one month butwhich may extend to ten years”. The second option is that the words “orwith fine” are an alternative to any sentence imposed above the minimumof one month. Prima facie, it appears that for offences under sub-Section (2) of Section 24, prescribing imprisonment for a term whichshall not be less than one month is mandatory. While the imprisonmentmay extend up to ten years, for any period in excess of one month a fineof up to Rs 25 crores is an alternative or in the cumulative. However,since the present matter does not turn on the construction of the Section24(2), it is not necessary to express any final view on whether an offenceunder that provision is compoundable.

E.2 SEBI Circulars in relation to Section 24A

38. Section 24A provides for the compounding of an offence eitherbefore or after the institution of any proceeding. Since Section 24Aprovides for compounding prior to the institution of proceedings, thelegislature has stipulated that an application can be made to SAT. However,once a proceeding has been instituted before a Court which is seized ofit, 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, theCourt has exclusive jurisdiction to compound offences. It would beinstructive to also look at the circulars issued by SEBI in order to betterunderstand the practical implications of the language of Section 24A.

39. In a circular dated 20 April 2007[4], SEBI issued guidelines forconsent orders under Sections 15T of the SEBI Act and Section 23A ofthe Depositories Act, 1996, and for compounding of offences underSection 24A of the SEBI Act, Section 22A of the Depositories Act andSection 23N of the Securities Contracts (Regulation) Act, 1956. It notedthat compounding of an offence”may cover appropriate prosecutioncases filed by SEBI before the criminal courts” and “can take placeafter filing criminal complaint by SEBI”. Finally, it notes the procedureto be followed by an accused person while seeking compounding, in thefollowing terms:

“Any party who wishes to compound an offence shall file anappropriate application before the court where complaint is pending 4 Available at <https://www.sebi.gov.in/legal/circulars/apr-2007/guidelines-for-consent-orders-and-for-considering-requests-for-composition-of-offences_9254.html> accessedon 20 July 2021

AB

C

D

E

F

G

H

Awith a copy addressed to the Prosecution Division, EnforcementDepartment of SEBI’s Mumbai office (address is given above)which will forward the application/ request to be placed beforethe High Powered Committee. The terms of compounding asrecommended by the Committee and approved by the Panelof WTMs would be placed before the court by theBProsecution Division by way of written submissions orapplication, as appropriate, for passing orders as the courtdeems fit.”

Emphasis supplied

C40. Accompanying this circular were certain Frequently AskedQuestions (“FAQ”) issued by SEBI[5]. The relevant ones are extractedbelow:

“Q6. What is the objective of Compounding of Offence?

A. Compounding of offence allows the accused to avoid a lengthyDprocess 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?

EA. At any stage after filing criminal complaint by SEBI. Where acriminal complaint has not yet been filed but is envisaged, theprocess for consent orders will be followed rather than the onefor compounding.

[…]FQ 16 What is the process for passing consent orders/ compoundingof offences?

A. … Any party who wishes to compound an offence shall file anappropriate application before the court where complaint is pendingwith a copy addressed to the Prosecution Division, EnforcementGDepartment of SEBI’s Mumbai office which will forward theapplication/ request to be placed before the high poweredCommittee. The terms of compounding as recommended by theCommittee and approved by the Competent Authority would be 5 Available at <https://www.sebi.gov.in/sebi_data/commondocs/consentord-faq1_p.pdf>Haccessed on 20 July 2021

placed before the court by the Prosecution Division by way ofwritten submissions or application, as appropriate, for passingorders as the court deems fit…

[…]

Q23. What will be the consequences of non-acceptance?

A. …In cases where SEBI is not inclined to accept Settlement/Compounding of offence, SEBI would file its objections beforeSAT/Court for consideration.”

41. SEBI amended the circular dated 20 April 2007 through acircular dated 25 May 2012[6]. While the circular primarily issues newguidelines in relations to consent orders, it also provides a list of offenceswhich SEBI shall not settle, which includes:

“ii. Serious fraudulent and unfair trade practices which, in theopinion of the Board, cause substantial losses to investors and/oraffects their rights, especially retail investors and smallshareholders or have or may have market wide impact, exceptthose defaults where the entity makes good the losses due to theinvestors;”

42. A combined reading of the two circulars and FAQs issued bySEBI clarifies the following: firstly, a party can seek compounding underSection 24A at any stage once the criminal complaint has been filed bySEBI; secondly, the party shall have to file the application forcompounding before the Court where the criminal complaint is pending;thirdly, a copy of the application for compounding must also be sent toSEBI, which will place it before the HPAC[7]; and fourthly, the HPAC’sdecision on the application, be it an acceptance or an objection, shall beplaced by SEBI before the appropriate Court, which will have to passappropriate orders. Hence, this makes it abundantly clear that while theHPAC’s decision on a party’s application for compounding under Section24A must be placed before the appropriate Court, the final decision mustremain in the domain of the Court.

6 Available at <https://www.sebi.gov.in/legal/circulars/may-2012/amendment-to-the-consent-circular-dated-20th-april-2007_22808.html> accessed on 20 July 2021

7 Constituted under circular dated 25 May 2012 to “consist of a retired Judge of a HighCourt and three other external experts, as may be decided by the Board from time totime”.

A

B

C

D

E

F

G

H

A43. However, since SEBI has argued before us that its consentmust be deemed mandatory for compounding an offence under Section24A, we must also independently evaluate the argument on its merits. Inorder to do that, we must first understand the jurisprudential basis forcompounding of offences.BE.3 Jurisprudential basis for ‘Compounding’

A

44. In tracing the history of compounding, we must begin with itsorigins in English common law. Curiously, the original discussionssurrounding compounding (or composition) of offences in the Englishcommon law do not occur in its context as a procedural tool (as weunderstand today) but rather as an offence itself. Under such an offence,Ca prosecutor or a victim would accept consideration in return for notprosecuting an offence[8].

45. Indeed, Blacks’ Law Dictionary[9] contains a definition of theexpression “compounding crime” as follows:

“Compounding Crime. Compounding crime consists of theDreceipt of some property or other consideration in return for anagreement not to prosecute or inform on one who has committeda crime. There are three elements to this offense at common law,and under the typical compounding statute: (1) the agreement notto prosecute; (2) knowledge of the actual commission of a crime;Eand (3) the receipt of some consideration.

The offense committed by a person who, having been directlyinjured by a felony, agrees with the criminal that he will notprosecute him, on condition of the latter’s making reparation, oron receipt of a reward or bribe not to prosecute.

FThe offense of taking a reward for forbearing to prosecute afelony; as where a party robbed takes his goods again, or otheramends, upon agreement not to prosecute.”

46. Similarly, P Ramanatha Aiyar’s Advanced Law Lexicon[10]defines the expression “Compounding a crime” in the following terms:G“The offence of either agreeing not to prosecute a crime that oneknows has been committed or agreeing to hamper theprosecution.— Also termed theft-bote. (Black, 7th Edn., 1999)

8 Percy Henry Winfield, The Present Law of Abuse of Legal Procedure (Cambridge University Press, 2013) at page 1179 5th Edition, at page 259H10 3rd Edition, Reprint 2007, at page 932

“If a prosecuting attorney should accept money from another toinduce the officer to prevent the finding of an indictment againstthat person this would be compounding a crime if the officer knewthe other was guilty of an offense, but would be bribery whetherhe 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 theIndian Penal Code, 1860 (“IPC”) which also introduce a similar crimein India, in the following terms:

“213. Taking gift, etc., to screen an offender frompunishment.—Whoever accepts or attempts to obtain, or agreesto accept, any gratification for himself or any other person, or anyrestitution of property to himself or any other person, inconsideration of his concealing an offence or of his screening anyperson from legal punishment for any offence, or of his notproceeding against any person for the purpose of bringing him tolegal punishment, if a capital offence.—shall, if the offence is punishable with death,be punished with imprisonment of either description for a termwhich may extend to seven years, and shall also be liable to fine; if punishable with imprisonment for life, or with imprisonment.—and if the offence is punishable with imprisonment for life, or withimprisonment which may extend to ten years, shall be punishedwith imprisonment of either description for a term which mayextend to three years, and shall also be liable to fine; and if the offence is punishable with imprisonment not extendingto ten years, shall be punished with imprisonment of the descriptionprovided for the offence for a term which may extend to one-fourth part of the longest term of imprisonment provided for theoffence, or with fine, or with both.

214. Offering gift or restoration of property in considerationof screening offender.—Whoever gives or causes, or offers oragrees to give or cause, any gratification to any person, or restoresor causes the restoration of any property to any person, inconsideration of that person’s concealing an offence, or of hisscreening any person from legal punishment for any offence, or A

B

C

D

E

F

G

H

Aof his not proceeding against any person for the purpose of bringinghim to legal punishment, if a capital offence.—shall, if the offence is punishable with death,be punished with imprisonment of either description for a termwhich may extend to seven years, and shall also be liable to fine; B

if punishable with imprisonment for life, or with imprisonment.—and if the offence is punishable with imprisonment for life, or withimprisonment which may extend to ten years, shall be punishedwith imprisonment of either description for a term which mayextend to three years, and shall also be liable to fine; Cand if the offence is punishable with imprisonment not extendingto ten years, shall be punished with imprisonment of the descriptionprovided for the offence for a term which may extend to one-fourth part of the longest term of imprisonment provided for theoffence, or with fine, or with both.

DException.—The provisions of Sections 213 and 214 do not extendto any case in which the offence may lawfully be compounded.”

While the “exception” to the provisions of Sections 213 and 214make the provisions inapplicable to offences which may be compounded,it is important to note that the “exception” was only introduced throughEan amendment in 1882 (Act 8 of 1882).

48. On the other hand, it was in 1872, when the Code of CriminalProcedure was amended, that compounding was first introduced as aprocedural tool in Indian criminal law. Section 188 therein stated:

“Section 188 Compounding offences - In the case of offencesFwhich may lawfully be compounded, injured persons maycompound the offence out of Court, or in Court with the permissionof the Court.”

As is evident, the above provision only provided that compoundingof offences was possible out of Court, or in Court with itsGpermission. However, while it referred to offences which may be“lawfully compounded”, the decision on those was left to judicialdiscretion.

49. When the Code of Criminal Procedure was amended in 1882,it enumerated a list of offences which could be compounded by theH

Courts in Section 345. This list was expanded when the Code of CriminalProcedure was amended again in 1898. Finally, in its current form, thecompounding 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 punishableunder the sections of the Indian Penal Code (45 of 1860) specifiedin the first two columns of the Table next following may becompounded by the persons mentioned in the third column of thatTable…

(2) The offences punishable under the sections of the Indian PenalCode (45 of 1860) specified in the first two columns of the Tablenext following may, with the permission of the Court before whichany prosecution for such offence is pending, be compounded bythe persons mentioned in the third column of that Table…

(3) When an offence is compoundable under this section, theabetment of such offence or an attempt to commit such offence(when such attempt is itself an offence) or where the accused isliable under Sections 34 or 149 of the Indian Penal Code (45 of1860) may be compounded in like manner.

(4) (a) When the person who would otherwise be competent tocompound an offence under this section is under the age of eighteenyears or is an idiot or a lunatic, any person competent to contracton his behalf may, with the permission of the Court, compoundsuch offence.

(b) When the person who would otherwise be competent tocompound an offence under this section is dead, the legalrepresentative, as defined in the Code of Civil Procedure, 1908 (5of 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 hehas been convicted and an appeal is pending, no composition forthe offence shall be allowed without the leave of the Court towhich he is committed, or, as the case may be, before which theappeal is to be heard.

(6) A High Court or Court of Session acting in the exercise of itspowers of revision under Section 401 may allow any person to A

B

C

D

E

F

G

H

Acompound any offence which such person is competent tocompound under this section.

(7) No offence shall be compounded if the accused is, by reasonof a previous conviction, liable either to enhanced punishment orto a punishment of a different kind for such offence.

B(8) The composition of an offence under this section shall havethe effect of an acquittal of the accused with whom the offencehas been compounded.

(9) No offence shall be compounded except as provided by thissection.”

C50. Broadly speaking, the provisions of Section 320 indicate thatthere are three categories of offences:

(i) Those offences which can be compounded by the partiesthemselves; D(ii)Those offences which can be compounded by the partiesbut 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 thatoffences punishable under the sections of the IPC in the first two columnsEof the appended table may be compounded by the persons mentioned inthe third column of that table, without the permission of the Court. Column1 of this table describes the offences, column 2 indicates the correspondingsection of the IPC and column 3 provides the person by whom the offencemay be compounded. Column 3 indicates that the compounding of theFoffence is essentially at the instance of a victim, person aggrieved or theinjured person. Broadly speaking, the offences covered by sub-Section(1) of Section 320 are relatively of a minor nature directed against anindividual without affecting the society at large. The maximum sentencefor these offences may vary from five to seven years’ imprisonment.Almost all the offences are bailable and several are non-cognizable.G

52. Sub-Section (2) of Section 320 provides for offences wherecompounding requires the permission of the Court before which aprosecution for the offence is pending. As in the case of offencesgoverned by sub-Section (1) of Section 320, column 1 of the tableappended to sub-Section (2) describes the offences, column 2 specifiesH

the corresponding section of the IPC and column 3 indicates the personby whom the offence may be compounded. A provision for the permissionof the Court has been introduced in respect of offences governed bysub-Section (2) of Section 320 since the legislature has viewed thoseoffences to be of a more serious nature as compared to the offencesgoverned by sub-Section (1) of Section 320.

53. Sub-Section (3) of Section 320 provides that where an offenceis compoundable under the provision, the abetment of such an offenceor attempt to commit such an offence or where the accused is liableunder Section 34 or Section 149 of the IPC may also be compounded ina like manner. Sub-Sections (4a) provides that where the person whowould otherwise be competent to compound the offence under theprovision is under the age of 18 or “is an idiot or a lunatic” a personcompetent to contract on their behalf may, with the permission of theCourt, compound the offence. Similarly, under sub-Section 4(b), wherethe person who would otherwise be competent to compound the offenceunder the provision is dead, their legal representative as defined underthe Code of Civil Procedure, 1908 may, with the consent of the Court,compound the offence. Sub-Section (5) provides that where the accusedhas been committed for trial or when the accused has been convictedand an appeal has been pending, no compounding shall be allowed withoutthe leave of the Court to which the accused is committed or of the Courtbefore which the appeal is to be heard. Under sub-Section (6), the HighCourt or Court of Sessions is empowered to allow a person to compoundan offence in the exercise of its revisional powers which such a personis competent to compound under the provision otherwise. Sub-Section(7) provides that compounding will not be permitted when the accused isliable either to enhanced punishment or to a punishment of a differentkind for such offence for a previous conviction. Sub-Section (8) providesthat the effect of compounding under this provision would have the sameeffect as the acquittal of the accused. Finally, sub-Section (9) providesthat no offence shall be compounded except as provided by the provision.

54. In explaining the basis for the provision of compounding anoffence in Section 345 of the 1898 Act, the Law Commission of India inits 41[st] Report stated as follows[11]:

11 Available at <https://lawcommissionofindia.nic.in/1-50/Report41.pdf> accessed on20 July 2021

AB

C

D

E

F

G

H

SUPREME COURT REPORTS

A“24.66…The broad principle that forms the basis of the presentscheme is that where the offence is essentially of a privatenature and relatively not serious, it is compoundable.”

emphasis supplied

55. The Law Commission of India in its 154[th] Report on the CrPC,Bexplained the rationale for Section 320 in the following terms[12]:

“2. The rationale for compounding of offences is that the chastenedattitude of the accused and the praiseworthy attitude of thecomplainant in order to restore peace and harmony in society,must be given effect to in the composition of offences.”CHowever, it also goes on to then note:

“9. We recommend that as a matter of policy more offences bebrought under the category of offences compoundable by theparties themselves without the intervention of the court. However,Doffences against the public at large, however small they maybe, should not be compoundable.”

Emphasis supplied

56. Thereafter, in its 237[th] Report on Compounding of (IPC)Offences, the Law Commission of India explained the rationale forEcompounding as follows[13]:

“1.2 Compounding in the context of criminal law meansforbearance from the prosecution as a result of an amicablesettlement between the parties. As observed by Calcutta HighCourt in a vintage decision in Murray [(1894)21 ILR 103 at 112],Fcompounding of an offence signifies “that the person against whomthe offence has been committed has received some gratification,not necessarily of a pecuniary character, to act as an inducementof his desiring to abstain from a prosecution”. The victim mayhave received compensation from the offender or the attitude ofthe parties towards each other may have changed for good. TheGvictim is prepared to condone the offensive conduct of the accusedwho became chastened and repentant. Criminal law needs to be 12 Available at <https://lawcommissionofindia.nic.in/101-169/Report154Vol1.pdf>accessed on 20 July 2021

13 Available at <https://lawcommissionofindia.nic.in/reports/report237.pdf> accessedHon 20 July 2021

attuned to take note of such situations and to provide a remedy toterminate the criminal proceedings in respect of certain types ofoffences. That is the rationale behind compounding of offences.”

57. In Biswabahan Das vs Gopen Chandra Hazarika[14], a threejudge Bench of this Court held that the principle underlying Section 320is that wrongs of certain classes which affects the person mainly in theirindividual capacity or character may be sufficiently redressed bycompounding.

58. In Sheonandan Paswan vs State of Bihar[15], a ConstitutionBench of this Court was interpreting Section 321 of the CrPC. Whiledrawing an analogy between Sections 320 and 321, Justice V. Khalid,speaking for himself and Justice Natarajan observed:

“85. The scope of Section 321 can be tested from another angleand that is with reference to Section 320 which deals with“compounding of offences”. Both these sections occur in Chapter24 under the heading “General Provisions as to Enquiries andTrials”…

86. These two sub-sections use the expression “with the permissionof the court” and “with the consent of the court” which are moreor less ejusdem generis. On a fair reading of theabovementioned sub-sections it can be safely presumed thatthe sections confer only a supervisory power on the courtin the matter of compounding of offences in the mannerindicated therein, with this safeguard that the accused doesnot by unfair or deceitful means, secure a composition ofthe offence. Viewed thus I do not think that a plea can besuccessfully put forward that granting permission or giving consentunder sub-section (4)(a) or (4)(b) for compounding of an offence,the court is enjoined to make a serious detailed evaluation of theevidence or assessment of the case to be satisfied that the casewould result in acquittal or conviction. It is necessary to bearin mind that an application for compounding of an offencecan be made at any stage..”

Emphasis supplied

14 AIR 1967 SC 895

15 (1987) 1 SCC 288

A

B

C

DEF

G

A59. Analyzing the above decisions, it is evident that that legislativesanction for compounding of offences is based upon two contrastingprinciples: first, that private parties should be allowed to settle a disputebetween them at any stage (with or without the permission of the Court,depending on the offence), even of a criminal nature, if proper restitutionhas been made to the aggrieved party; and second, that, however, thisBshould not extend to situations where the offence committed is of apublic nature, even when it may have directly affected the aggrievedparty. The first of these principles is crucial so as to allow for amicableresolution of disputes between parties without the adversarial role ofCourts, and also to ease the burden of cases coming before the Courts.CHowever, the second principle is equally important because even anoffence committed against a private party may affect the fabric of societyat large. Non-prosecution of such an offence may affect the limits ofconduct which is acceptable in the society. The Courts play an importantrole in setting these limits through their adjudication and by prescribingpunishment in proportion to how far away from these limits was theDoffence which was committed. As such, in deciding on whether tocompound an offence, a Court does not just have to understand its effecton the parties before it but also consider the effect it will have on thepublic. Hence, societal interest in the prosecution of crime which has awider social dimension must be borne in mind.E60. This formulation of this principle is also in alignment with theposition under English common law, where in a judgment of the Queen’sBench in Keir vs F. Leeman and Pearson, Lord Denman CJ held[16]:

“We shall probably be safe in laying it down that the law willpermit a compromise of all offences, though made the subject ofFa criminal prosecution, for which offences the injured party mightsue and recover damages in an action. It is often the only mannerin which he can obtain redress. But, if the offence is of a publicnature, no agreement can be valid that is founded on theconsideration of stifling a prosecution for it.”

G

Emphasis supplied

61. Singapore, where the procedure for compounding of offenceswas introduced in a manner similar to India[17], follows an analogous16 (1844) 6 Queen’s Bench Reports 308

17 Ryan David Lim and Selene Yap, ‘Composition: Legal and Theoretical Foundations’H(2015) 27 SAcLJ 462

principle. In the Singapore High Court’s decision in Public Prosecutorvs Norzian bin Bintat[18], Chief Justice Yong Pung How held:

“55. …Thus, in a case where the public interest is involved,it is proper to withhold consent to composition…

[…]

57. On the other hand, the cases also show that, in the absence ofaggravating factors, the courts should lean towards the grantingof consent in cases where the public interest does not figurestrongly…” (emphasis supplied)

62. However, Section 320 provides for the compounding ofoffences only under the IPC. Hence, in respect of offences which lieoutside the IPC, compounding may be permitted only if the statute whichcreates the offence contains an express provision for compounding beforesuch an offence can be made compoundable. The power of compoundingmust, in other words, be expressly conferred by the statute which createsthe offence.

E.4 Compounding outside of CrPC

63. The provisions contained in Section 147 of the NI Act forcompounding of offences came up for consideration before a two judgeBench of this Court in JIK Industries (supra). Section 147 of the NIAct is in the following terms:

“147. Offences to be compoundable.- Notwithstanding anythingcontained 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 petitionschallenging the processes which were issued by the Trial Judge on acomplaint filed by the respondent in proceedings under Section 138 readwith Section 141. The High Court held that the sanctioning of a schemeunder Section 391 of the Companies Act, 1956 did not automaticallyamount to the compounding of an offence under Section 138 read withSection 141 of the NI Act. In other words, the sanctioning of the schemeunder Section 391 of the Act of 1956 was held not to have the effect ofterminating the proceedings for an offence under Section 138 of the NIAct. Justice AK Ganguly, speaking for the two judge Bench, observed A

B

CD

E

F

G

H

Athat in most of the cases the offence under the NI Act had been committedprior to the scheme:

“19. In the instant appeal in most of the cases the offence underthe NI Act has been committed prior to the scheme. Therefore,the offence which has already been committed prior to the schemeBdoes not get automatically compounded only as a result of thesaid scheme. Therefore, even by relying on the ratio of theaforesaid judgment in J.K. (Bombay) (P) Ltd. [AIR 1970 SC1041], this Court cannot accept the appellant’s contention that thescheme under Section 391 of the Companies Act will have theeffect of automatically compounding the offence under the NICAct.”

Reiterating further, the Court held:

“27. The compounding of an offence is always controlled bystatutory provision. There are various features in the compoundingof an offence and those features must be satisfied before it canDbe claimed by the offender that the offence has been compounded.Thus, compounding of an offence cannot be achieved indirectlyby the sanctioning of a scheme by the Company Court.”

65. The submission of the appellant in the decision in JIKEIndustries (supra) was that a scheme of compromise under Section391 of the Companies Act, 1956 operates as a ‘deemed compounding’of an offence under the NI Act. This submission was rejected by theCourt. Distinguishing between quashing of a case and compounding, theCourt observed:

“43. Quashing of a case is different from compounding. In quashingFthe court applies it but in compounding it is primarily based onconsent of the injured party. Therefore, the two cannot be equated.It is clear from the discussion made hereinabove that DuncansAgro case [(1996) 5 SCC 591 : 1996 SCC (Cri) 1045] was notone relating to compounding of offence. Apart from that the CourtGfound that the dues of the banks have been satisfied by receivingthe money and the suits filed by the bank in the civil court havebeen compromised. The FIRs were filed in 1987-1988 and theinvestigation had not been completed till 1991. On those facts theCourt, rendering the judgment in July 1996, felt that having regardto the lapse of time and also having regard to the fact that there isH

a compromise decree satisfying the banks’ dues, there is nopurpose in allowing the criminal prosecution to proceed. On thoseconsideration, this Court, in the “special facts of the case”, did notinterfere with the order of the High Court dated 23-12-1992whereby the criminal prosecution was quashed.”

66. The Court then noted the submission of the complainant thatthere is no concept of “deemed compounding under the criminal law andthat under the very concept of compounding, it cannot take place withoutthe explicit consent of the complainant or the person aggrieved”. Holdingthat the “Court finds a lot of substance in the aforesaid submission”,Justice Ganguly observed:

“54. Compounding of an offence is statutorily provided underSection 320 of the Code. If we look at the list of offences whichare specified in the table attached to Section 320 of the Code, itwould be clear that there are basically two categories of offencesunder the provisions of the Penal Code which have been madecompoundable. There is a category of offence for the compoundingof which leave of the court is required and there is another categoryof the offences where for compounding the leave of the court isnot required. But all cases of compounding can take place at theinstance of the persons mentioned in the Third Column of theTable. If the said Table is perused, it will be clear that compoundingcan only be possible at the instance of the person who is either acomplainant or who has been injured or is aggrieved.”

67. The above observations interpret the statutory provisions ofsection 320 which specify the person at whose instance compounding ispermissible. Before moving forward, it is important to note a judgmentof a three judge Bench of this Court in Damodar S Prabhu vs SayedBabalal H[19 ](“Damodar S Prabhu”), dealing with the provisions ofSection 147 of the NI Act, where the Court held:

“10. …At this point, it would be apt to clarify that in view of thenon obstante clause, the compounding of offences under theNegotiable Instruments Act, 1881 is controlled by Section 147and the scheme contemplated by Section 320 of the Code ofCriminal Procedure (hereinafter “CrPC”) will not be applicablein the strict sense since the latter is meant for the specified offencesunder the Penal Code, 1860.”

A

B

C

D

E

F

G

H

AThe Court then noted that:

“12. Section 147 of the Negotiable Instruments Act, 1881 is inthe nature of an enabling provision which provides for thecompounding of offences prescribed under the same Act, therebyserving as an exception to the general rule incorporated in sub-Bsection (9) of Section 320 CrPC which states that “No offenceshall be compounded except as provided by this section”. A barereading of this provision would lead us to the inference thatoffences punishable under laws other than the Penal Code alsocannot be compounded. However, since Section 147 was insertedby way of an amendment to a special law, the same will overrideCthe effect of Section 320(9) CrPC, especially keeping in mindthat Section 147 carries a non obstante clause.”

68. The Court in Damodar S Prabhu (supra) observed that thepermissibility of the compounding of an offence is linked to the perceivedseriousness of the offence, and the nature of the remedy provided. In anDoffence involving the dishonor of a cheque, “it is the compensatory aspectof the remedy which should be given priority over the punitive aspect”.At the same time, it was highlighted before the Court by the AttorneyGeneral, who appeared as amicus curiae, that cheque dishonor caseswere being compounded or settled at the late stages of litigation, therebyEcontributing to delay in the delivery of justice. This, in part, was due tothe fact that unlike Section 320 of the CrPC, Section 147 of the NI Actprovides no explicit guidance on the stage at which compounding can orcannot be done and where compounding can be done at the instance ofthe complainant or with the leave of the Court. As a result, accusedpersons are willing to take a chance of progressing through various stagesFof a prosecution and to opt for the route of compounding only when noother option remains. Having regard to this problem, the Court prescribedcertain guidelines to be followed in compounding, in exercise of itsjurisdiction under Article 142 of the Constitution. The Court clarifiedthat it was issuing these guidelines “which could be seen as an act ofGjudicial law making and therefore an intrusion into the legislature domain”because Section 147 did not carry any guidance on how to proceed withthe compounding of offence under the NI Act. The Court again reiteratedthat it had “already explained that the scheme contemplated under Section320 CrPC cannot be followed in the strict sense” and the jurisdictionunder Article 142 was being exercised due to the presence of a legislativeH

vacuum in the NI Act, in order to discourage litigants from unduly delayingthe compounding of offence in cases involving Section 138. The Courtin its guidelines indicated a scheme by imposing costs as a means forencouraging compounding at an early stage of the litigation.

69. The judgment in Damodar S Parabhu (supra) was cited beforethe two judge Bench in JIK Industries (supra) in support of theproposition that Section 147 of the NI Act, which is a special statute,does not incorporate the requirement of consent of the person aggrievedwhile compounding, as contemplated in Section 320 of the CrPC. Thissubmission was however rejected by observing that though offencesunder the NI Act, which were previously non-compoundable in view ofSection 320(9) of the CrPC, have now become compoundable, that didnot do away with all the guidelines of Section 320:

“68. It is clear from a perusal of the aforesaid Statement of Objectsand Reasons that offence under the NI Act, which was previouslynon-compoundable in view of Section 320 sub-section (9) of theCode has now become compoundable. That does not mean thatthe effect of Section 147 is to obliterate all statutory provisions ofSection 320 of the Code relating to the mode and manner ofcompounding of an offence. Section 147 will only override Section320(9) of the Code insofar as offence under Section 147 of theNI Act is concerned. This is also the ratio in Damodar [(2010) 5SCC 663 : (2010) 2 SCC (Civ) 520 : (2010) 2 SCC (Cri) 1328](see para 12). Therefore, the submission of the learned counselfor the appellant to the contrary cannot be accepted.”

70. The Court then relied on Section 4 of the CrPC, which is thegoverning statute in India for investigation, enquiry and trial of offences.Section 4, the Court held, deals both with offences under the IPC in sub-Section (1) and with offences under any other law in sub-Section (2).Hence, it was held that in the absence of a special procedure in the NIAct for compounding of offences, the procedure relating to compoundingunder Section 320 shall automatically apply in view of the clear mandateof sub-Section (2) of Section 4, which reads as follows:

“4. (2) All offences under any other law shall be investigated,inquired into, tried, and otherwise dealt with according to the sameprovisions, but subject to any enactment for the time being in forceregulating the manner or place of investigating, inquiring into, tryingor otherwise dealing with such offences.”

A

B

C

D

E

F

G

H

AIn conclusion, the Court held:

“82. A perusal of Section 320 makes it clear that the provisionscontained in Section 320 and the various sub-sections is a code byitself relating to compounding of offence. It provides for the variousparameters and procedures and guidelines in the matter ofBcompounding. If this Court upholds the contention of the appellantthat as a result of incorporation of Section 147 in the NI Act, theentire gamut of procedure of Section 320 of the Code are madeinapplicable to compounding of an offence under the NI Act, inthat case the compounding of offence under the NI Act will beleft totally unguided or uncontrolled. Such an interpretation apartCfrom being an absurd or unreasonable one will also be contrary tothe provisions of Section 4(2) of the Code, which has been discussedabove. There is no other statutory procedure for compounding ofoffence under the NI Act. Therefore, Section 147 of the NI Actmust be reasonably construed to mean that as a result of the saidDsection the offences under the NI Act are made compoundable,but the main principle of such compounding, namely, the consentof the person aggrieved or the person injured or the complainantcannot be wished away nor can the same be substituted by virtueof Section 147 of the NI Act.”

E71. However, before we can apply the decision in JIK Industries(supra), it is important to acknowledge that there is a clear distinctionbetween the provisions of Section 147 of the NI Act and Section 24A ofthe SEBI Act. A comparison of the provisions of Section 147 of the NIAct with Section 24A of the SEBI Act would indicate that both sets ofstatutory provisions begin with a non-obstante provision overriding theFprovisions of the CrPC, insofar as the compounding of offence isconcerned. Having stipulated a non-obstante clause in Section 147 ofthe NI Act, Parliament has provided that “every offence punishable underthis Act shall be compoundable”. Section 147 of the NI Act does notexpressly incorporate the permission of the Court for compounding,Gconceivably because the impact of the crime is against an individual.Section 24A of the SEBI Act, while containing a similar non-obstanteclause, excludes certain categories of offences, namely offencespunishable with imprisonment only or with imprisonment and also withfine. Section 24A stipulates that an offence punishable under the Actmay be compounded by SAT or a Court before which such proceedingsH

are pending. The power to compound is recognized either before orafter the institution of any proceeding.

72. Hence, it is evident that Section 24A specifies the authoritiesvested with the powers to compound offences under the SEBI Act,while Section 147 of the NI Act merely states that the offence under theAct shall be compoundable. In a complaint filed under the NI Act, thecomplainant is an aggrieved party, invariably being the payee in adishonored instrument. The consideration which weighed with the twojudge Bench while interpreting the provisions of Section 147 of the NIAct in JIK Industries (supra) will therefore not be ipso facto attractedwhile construing the provisions of Section 24A of the SEBI Act. Further,since the two statutory provisions are not in pari materia, it is notnecessary for this Court to express any opinion on the issue as to whetherthe judgment in JIK Industries (supra), which is of a two judge Bench,is contrary to the earlier three judge Bench decision in Damodar SPrabhu (supra). We are concerned in the present case with interpretingthe provisions of Section 24A of the SEBI Act, and hence it is notnecessary for this Court to construe Section 147 of the NI Act.

73. Subsequent to the decision in JIK Industries (supra), thereis a decision of another two-judge Bench of this Court in VLS Finance(supra). The Company Judge of the Delhi High Court had dismissed anappeal assailing an order of the Company Law Board allowing an offenceunder Section 211(7) of Companies Act, 1956 to be compounded. Acomplaint was filed by the Registrar of Companies in the Court of theCMM, alleging that though the company had obtained certain land fromthe municipal corporation on a yearly license fee, the land had beenshown in the schedule of fixed assets, which was not a fair view andwas 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 theCLB’s order, the offence was compounded against the payment of afine.

74. For the purposes of the present discussion, it is material tonote that the provision for compounding of offences was contained inSection 621-A of the Companies Act, 1956, in the following terms:

“621-A. Composition of certain offences — (1) Notwithstandinganything contained in the Code of Criminal Procedure, 1973 (2 of AB

C

D

E

F

G

H

1974), any offence punishable under this Act (whether committedby a company or any officer thereof), not being an offencepunishable with imprisonment only, or with imprisonment and alsowith fine, may, either before or after the institution of anyprosecution, be compounded by—

A

B(a) the Company Law Board; or

(b) where the maximum amount of fine which may be imposedfor such offence does not exceed five thousand rupees, by theRegional Director, on payment or credit, by the company or theofficer, as the case may be, to the Central Government of suchCsum 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, exceedthe maximum amount of the fine which may be imposed for theoffence so compounded:

D

Provided further that in specifying the sum required to be paid orcredited for the compounding of an offence under this sub-section,the sum, if any, paid by way of additional fee under sub-section(2) of Section 611 shall be taken into account.”

Sub-Section (7) of Section 621-A provided as follows:E“(7) Notwithstanding anything contained in the Code of CriminalProcedure, 1973 (2 of 1974)—

(a) any offence which is punishable under this Act withimprisonment or with fine, or with both, shall be compoundablewith the permission of the court, in accordance with the procedureFlaid down in that Act for compounding of offences; (b) any offence which is punishable under this Act withimprisonment only or with imprisonment and also with fine shallnot be compoundable.”

G75. It was argued before this Court that when the Court was inseisin in the matter, it was only the Magistrate who could compound theoffence. Further, in any event, the CLB had to seek the permission ofthe Court before it could compound. Dealing with the argument, JusticeC K Prasad, speaking for the Bench, held:

H

“17. Ordinarily, the offence is compounded under the provisionsof the Code of Criminal Procedure and the power to accordpermission is conferred on the court excepting those offences forwhich the permission is not required. However, in view of the nonobstante clause, the power of composition can be exercised bythe court or the Company Law Board. The legislature hasconferred the same power on the Company Law Board whichcan exercise its power either before or after the institution of anyprosecution whereas the criminal court has no power to accordpermission for composition of an offence before the institution ofthe proceeding. The legislature in its wisdom has not put the riderof prior permission of the court before compounding the offenceby the Company Law Board and in case the contention of theappellant is accepted, same would amount to addition of the words“with the prior permission of the court” in the Act, which is notpermissible.”

76. The Court held that while interpreting the provisions of thestatute, the words must be construed in their ordinary sense without anyaddition; 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 thatonly in exceptional circumstances to achieve the purpose of theAct or give purposeful meaning. It is also a cardinal rule ofinterpretation that words, phrases and sentences are to be giventheir natural, plain and clear meaning. When the language is clearand unambiguous, it must be interpreted in an ordinary sense andno addition or alteration of the words or expressions used ispermissible. As observed earlier, the aforesaid enactment wasbrought in view of the need of leniency in the administration ofthe Act because a large number of defaults are of technical natureand many defaults occurred because of the complex nature ofthe 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 theauthorities mentioned, and the prior permission of the Court was notnecessary for compounding an offence when the power was exercisedby the CLB.

A

B

C

D

E

F

G

H

A77. Mr. Shyam Divan, learned senior Counsel, appearing on behalfof the appellant, has adverted, during the course of his submissions, tothe judgment of a two Judge Bench of this Court in Meters andInstruments Pvt. Ltd. vs Kanchan Mehta[20](“Meters andInstruments”) where this Court observed that an offence under Section138 of the NI Act “is primarily a civil wrong”. It was held that the objectBof the NI Act being primarily compensatory, compounding at the initialstage has to be encouraged but is not debarred at a later stage subject toappropriate compensation as may be acceptable to the parties and theCourt. Moreover, Justice A K Goel, speaking for the Bench, held that:

“18.3. Though compounding requires consent of both parties, evenCin absence of such consent, the court, in the interests of justice,on being satisfied that the complainant has been duly compensated,can in its discretion close the proceedings and discharge theaccused.”

78. Our attention has been drawn to the judgment of theDConstitution Bench in Re: Expeditious Trial of cases under Section136 of Negotiable Instruments Act 1881 in Suo Motu Writ Petition(Crl) No. 2 of 2020. The Constitution Bench considered the decision inMeters and Instruments (supra), where the two Judge Bench of theCourt took the view that Section 143 of the NI Act confers an impliedEpower on the Magistrate to discharge the accused if the complainant iscompensated to the satisfaction of the Court. On that analogy, it washeld that apart from compounding by consent of the parties, the TrialCourt has jurisdiction to pass the jurisdictional order under Section 143in exercise of its inherent power. The Constitution Bench, whiledisagreeing with the view in Meters and Instruments (supra) observed:F“20. Section 143 of the Act mandates that the provisions ofsummary trial of the Code shall apply “as far as may be” to trialsof complaints under Section 138. Section 258 of the Codeempowers the Magistrate to stop the proceedings at any stagefor reasons to be recorded in writing and pronounce a judgmentGof acquittal in any summons case instituted otherwise than uponcomplaint. Section 258 of the Code is not applicable to a summonscase instituted on a complaint. Therefore, Section 258 cannot comeinto play in respect of the complaints fled under Section 138 ofthe Act. The judgment of this Court in Meters and

Instruments (supra) in so far as it conferred power on theTrial Court to discharge an accused is not good law. Supporttaken from the words “as far as may be” in Section 143 ofthe Act is inappropriate. The words “as far as may be” inSection 143 are used only in respect of applicability ofSections 262 to 265 of the Code and the summaryprocedure to be followed for trials under Chapter XVII.Conferring power on the court by reading certain wordsinto provisions is impermissible. A judge must not rewritea statute, neither to enlarge nor to contract it. Whatevertemptations the statesmanship of policy-making mightwisely suggest, construction must eschew interpolation andevisceration. He must not read in by way of creation [J.Frankfurter, “Of Law and Men: Papers and Addresses of FelixFrankfurter”]. 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 courtcannot add words to a statute or read words into it which are notthere [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 necessaryfor us to refer to the judgment of the Bombay High Court in N HSecurities Limited vs Securities and Exchange Board of India[21],where it was held that the consent of SEBI was necessary before anapplication of compounding could be allowed under Section 24A. Aspecial leave petition challenging this judgment was filed before thisCourt[22]. This was disposed of by a two Judge Bench this Court throughan order dated 17 September 2019, wherein SEBI agreed to“compounding of the offence subject to any penalty which may beimposed under Section 24(2)” of the SEBI Act. This was also allowedby this Court, keeping in mind the age of the directors of the appellant.Pertinently, however, this Court noted that they “have not commentedone way or the other on the larger questions sought to be raised by theappellants”, i.e., on whether the consent of SEBI was necessary forcompounding an offence under Section 24A. As such, the judgment and 21 2018 SCC OnLine Bom 4040

22 Criminal Appeal No.1407 of 2019 (Arising out of S.L.P. (Criminal) No.1132 of 2019)

AB

C

D

E

F

G

H

Athis Court’s order have not adjudicated on the issue involved in the presentcase.

80. Section 24A of the SEBI Act commences with a non-obstanteprovision which operates notwithstanding anything contained in the CrPC.Sub-Sections (1) and (2) of Section 320 of the CrPC dealt with theBcompounding of offences under the IPC, while sub-Section (9) stipulatesthat no offence shall be compounded except as provided in the Section.However, the stipulation contained in sub-Section (9) of Section 320ceases to have effect in relation to the compounding of offences underthe SEBI Act by virtue of a specific non-obstante provision containedin Section 24A providing for the compounding by offences punishableCunder that legislation. Section 24A, by incorporating a non-obstanteprovision indicates a legislative intent to the effect that the power tocompound offences punishable under the SEBI Act is not trammeled bythe provisions of Section 320 of the CrPC.

81. At this stage, the ingredients of Section 24A of the SEBI ActDmust be delineated. Section 24 A contains five ingredients when itspecifies:

(i) The offences which can be compounded (“any offencepunishable in this Act”);

(ii) The exceptions which the statutory provision carves outE(“not being an offence punishable with imprisonment onlyor with imprisonment and also with fine”);

(iii) The stage at which compounding may take place (“eitherbefore or after the institution of any proceedings”); F(iv)The forum before which the compounding act takes place(“a Securities Appellate Tribunal or the Court before whichsuch proceedings are pending”); and

(v) The entrustment of the power to compound to the SAT orthe Court.

G

82. The entrustment of the exclusive power to compound offencesunder Section 24A of the SEBI Act to the SAT or the Court beforewhich such a proceeding is pending is evinced by the expression “becompounded by a Securities Appellate Tribunal or a court before whichsuch proceedings are pending”. Section 24A thus contains a departureHfrom 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 noticedearlier, permits the compounding only of certain specified offences underthe IPC. Section 320 contains a two-fold distinction between offencespunishable under the IPC which can be compounded: (i) without theleave of the Court; and (ii) with the leave of the Court. In contrast, thepower to compound under Section 24A is confined to offences punishableunder the SEBI Act. The power is entrusted solely to the SAT or to theCourt, before which the proceedings are pending. Hence, the non-obstanteprovision contained in Section 24A must be given its natural meaningand effect.

83. The plain language of Section 24A does not provide for theconsent of SEBI. The issue is whether this Court should read therequirement of the consent of SEBI into the provision, on the groundthat this is a casus omissus. This would, however, amount to re-writingthe statutory provision by introducing language which has not beenemployed by the legislature. In a two Judge Bench judgment of thisCourt in Union of India vs Rajiv Kumar[23], Justice Arijit Pasayat speakingfor the Court held:

“22. While interpreting a provision, the court only interprets thelaw and cannot legislate it. If a provision of law is misused andsubjected to the abuse of process of law, it is for the legislature toamend, modify or repeal it, if deemed necessary. (See CST v.Popular Trading Co. [(2000) 5 SCC 511]) The legislative casusomissus cannot be supplied by judicial interpretativeprocess.

23. Two principles of construction — one relating to casus omissusand the other in regard to reading the statute/statutory provisionas a whole — appear to be well settled. Under the first principlea casus omissus cannot be supplied by the court except inthe case of clear necessity and when reason for it is foundin the four corners of the statute itself. But, at the sametime a casus omissus should not be readily inferred and forthat purpose all the parts of a statute or section must beconstrued together and every clause of a section should beconstrued with reference to the context and other clausesthereof so that the construction to be put on a particularprovision makes a consistent enactment of the whole AB

CD

E

F

G

H

920SUPREME COURT REPORTS

Astatute. This would be more so if literal construction of aparticular clause leads to manifestly absurd or anomalousresults which could not have been intended by thelegislature…”

Emphasis supplied

B

84. In the present case, it is evident that Section 24A does notstipulate that the consent of SEBI is necessary for the SAT or the Courtbefore 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. SectionC24B provides a useful contrast. Section 24B(1) empowers the UnionGovernment on the recommendation of SEBI, if it is satisfied that aperson who has violated the Act or the Rules or Regulations has made afull and true disclosure in respect of the alleged violation, to grant animmunity from prosecution for an offence subject to such conditions asit may impose. The second proviso clarifies that the recommendation ofDSEBI would not be binding upon the Union Government. In other words,Section 24B has provided for the exercise of powers by the CentralGovernment to grant immunity from prosecution on the recommendationof SEBI. In contrast, Section 24A is conspicuously silent in regard to theconsent of SEBI before the SAT or, as the case may be, the CourtEbefore which the proceeding is pending can exercise the power. Hence,it is clear that SEBI’s consent cannot be mandatory before SAT or theCourt before which the proceeding is pending, for exercising the powerof compounding under Section 24A.

85. However, it is also important to remember that proceedingsFfor the trial of offences under the SEBI Act are initiated on a complaintmade by SEBI by virtue of Section 26 of the SEBI Act. SEBI is aregulatory and prosecuting agency under the legislation. Hence, whilethe statutory provisions do not entrust SEBI with an authority in thenature of a veto under the provisions of Section 24A, it is equallynecessary to understand the importance of its role and position.G

E.5 Regulatory role of SEBI

86. The provisions of the SEBI Act, as analyzed earlier in thisjudgment, would indicate the importance of the role which has beenascribed to it as a regulatory, adjudicatory and prosecuting agency. SEBIhas vital functions to discharge in the context of maintaining an orderlyH

and stable securities’ market so as to protect the interests of investors.SEBI was established in 1988 by a government resolution, to urgentlyrespond to the rapid growth of capital markets. In Sahara India RealEstate Corporation Ltd. vs SEBI[24] a two judge bench of this Court,considered this history in order to guide its interpretative exercise overthe statutory provisions. Justice J S Khehar (as the learned Chief justicethen was) noted in his concurring opinion that:

“298. The Securities and Exchange Board of India (SEBI) wasestablished in 1988 by way of a government resolution to promoteorderly and healthy growth of the securities market and forinvestors’ protection. On account of tremendous growth of thecapital market characterized particularly by increasing participationof the public, to sustain confidence in the capital market it wasconsidered essential to ensure investors’ protection. Accordingly,it was decided to vest SEBI with statutory powers, so as to enableit to deal effectively with all matters relating to the capital market.”

Justice Khehar also reproduced the rationale for the AmendingAct of 2002, which would have a bearing on our present determinationto the extent that it increased the quantum of imprisonment and monetarypenalty that can be imposed under Section 24. The Court held:

“300. The SEBI Act was again amended in 1999, but insofar asthe present controversy is concerned, the amendment of the SEBIAct in 2002 is of utmost relevance. The relevant part of theStatement of Objects and Reasons of the amendment of the SEBIAct in 2002 is being reproduced below:

“2. Recently many shortcomings in the legal provisions of theSecurities and Exchange Board of India Act, 1992 have beennoticed, particularly with respect to inspection, investigationand enforcement. Currently, the SEBI can call for information,undertake inspections, conduct enquiries and audits of stockexchanges, mutual funds, intermediaries, issue directions, initiateprosecution, order suspension or cancellation of registration.Penalties can also be imposed in case of violation of theprovisions of the Act or the Rules or the Regulations. However,the SEBI has no jurisdiction to prohibit issue of securities orpreventing siphoning of funds or assets stripping by any A

B

C

D

E

F

G

922SUPREME COURT REPORTS

company. While the SEBI can call for information fromintermediaries, it cannot call for information from any bankand other authority or board or corporation established orconstituted by or under any Central, State or Provincial Act.The SEBI cannot retain books of account, documents, etc., inits custody. Under the existing provisions contained in theSecurities and Exchange Board of India Act, 1992, the SEBIcannot issue commissions for the examination of witnesses ordocuments. Further, the SEBI has pointed out that existingpenalties are too low and do not serve as effectivedeterrents. At present, under Section 209-A of the CompaniesAct, 1956, the SEBI can conduct inspection of listed companiesonly for violations of the provisions contained in sectionsreferred to in Section 55-A of that Act but it cannot conductinspection of any listed public company for violation of theSEBI Act or Rules or Regulations made thereunder.

A

B

C

D3. In addition, growing importance of the securities markets in theeconomy has placed new demands upon the SEBI in terms oforganizational structure and institutional capacity. A need was,therefore, felt to remove these shortcomings bystrengthening the mechanisms available to the SEBI forinvestigation and enforcement so that it is better equipped

Eto investigate and enforce against market malpractices.

4. In view of the above, the Securities and Exchange Board ofIndia (Amendment) Ordinance, 2002 (6 of 2002) was promulgatedon 29-10-2002 to amend the Securities and Exchange Board ofIndia Act, 1992.

F

5. It is now proposed to replace the Ordinance by a Bill, with,inter alia, the following features—

(a) increasing the number of members of the SEBI from six(including Chairman) to nine (including Chairman); G(b) conferring power upon the Board for—

(i) calling for information and record from any bank or otherauthority or Board or corporation established or constituted byor under any Central, State or Provincial Act in respect of anytransaction in securities which are under investigation or inquiryHby the Board;

(ii) passing an order for reasons to be recorded in writing, inthe interest of investors or securities market, either pendinginvestigation or enquiry or on completion of such investigationor inquiry for taking any of the following measures, namely,to—

(A) suspend the trading of any security in a recognisedstock exchange; (B) restrain persons from accessing the securities marketand prohibit any person associated with securities marketto buy, sell or deal in securities;

(C) suspend any office-bearer of any stock exchange orself-regulatory organisation from holding such position; (D) impound and retain the proceeds or securities in respectof any transaction which is under investigation; (E) attach, after passing of an order on an application madefor approval by the Judicial Magistrate of the First Classhaving jurisdiction, for a period not exceeding one month,one or more bank account or accounts of any intermediaryor any person associated with the securities market in anymanner involved in violation of any of the provisions of thisAct, or the Rules or the Regulations made thereunder; (F) direct any intermediary or any person associated withthe securities market in any manner not to dispose of oralienate an asset forming part of any transaction which isunder investigation;

(iii) regulating or prohibiting for the protection of investors, issueof prospectus, offer document or advertisement solicitingmoney for issue of securities;

(iv) directing any person to investigate the affairs of intermediaryor person associated with the securities market and to searchand seize books, registers, other documents and recordsconsidered necessary for the purposes of the investigation, withthe prior approval of a Magistrate of the First Class;

(v) passing an order requiring any person who has violated oris likely to violate, any provision of the SEBI Act or any Rules A

B

C

DE

F

G

H

Aor Regulations made thereunder to cease and desist forcommitting any (sic act) causing such violation;

(c) prohibiting manipulative and deceptive devices, insidertrading, fraudulent and manipulative trade practices, marketmanipulation and substantial acquisition of securities andBcontrol; (d) crediting sums realised by way of penalties to theConsolidated Fund of India; (e) amending the composition of the Securities AppellateTribunal from one person to three persons; C

(f) changing the qualifications for appointment as PresidingOfficer and members of the Securities Appellate Tribunal; (g) composition of certain offences by the SecuritiesAppellate Tribunal; D(h) conferring power upon the Central Government to grantimmunity;

(i) appeal to the Supreme Court from the orders of theSecurities Appellate Tribunal; (j) enhancing the penalties specified in the SEBI Act.”

E

(emphasis supplied)

87. Therefore, the SEBI Act and the rules, regulations and circularsmade or issued under the legislation, are constantly evolving with aconcerted aim to enforce order in the securities market and promote itsFhealthy growth while protecting investor wealth. A three judge bench ofthis Court, in B S E Brokers’ Forum vs Securities and ExchangeBoard of India[25], appreciated the extent of the powers and functionsthat had been entrusted with the SEBI and held:

“17…. The Act in question is an Act to provide for the establishmentof a Board to protect the interests of investors in securities and toGpromote the development of, and to regulate, the securities marketand for matters connected therewith or incidental thereto. TheBoard is established under Section 3 of the Act. Section 11 of theAct defines the powers and functions of the Board which mandatesthat it shall be the duty of the Board to protect the interests ofH25 (2001) 3 SCC 482

investors in securities and to promote the development of, and toregulate the securities market by such measures as it thinks fit.Sub-section (2) of the said section enumerates the various areasin which the Board is mandated to take measures to fulfil theobjects of the Act. They include such measures as (i) regulatingthe business in stock exchanges and any other securities markets;(ii) registering and regulating the working of stockbrokers andother intermediaries; (iii) registering and regulating the workingof the depositories etc.; (iv) registering and regulating the workingof venture capital funds and collective investment schemes,including mutual funds; (v) promoting and regulating self-regulatoryorganizations; (vi) prohibiting fraudulent and unfair trade practicesrelating to securities markets; (vii) promoting investors’ educationand training of intermediaries; (viii) prohibiting insider trading insecurities; (ix) regulating substantial acquisition of shares andtakeover of companies; (x) collection of information, inspection,conducting inquiries and audits of the stock exchanges, mutualfunds, other persons associated with the securities market andother intermediaries and self-regulatory organizations in thesecurities market; (xi) performing such other functions as aredelegated to it by the Central Government; (xii) conductingresearch for the above purposes; (xiii) providing necessaryinformation for the efficient discharge of the functions of theorganizations with securities markets etc. The said Board is alsovested with certain powers of the civil courts under the Code ofCivil Procedure, 1908 in regard to discovery, production,summoning and enforcing the attendance of persons and inspectionof books, registers etc. Section 11(2)(k) of the Act empowers theBoard to levy fees or other charges for carrying out the purposesenumerated in Section 11 of the Act. Section 12 requires thestockbrokers, sub-brokers, share-transfer agents, bankers to anissue, trustees of trust deeds, registrars to an issue, merchantbankers, underwriters, portfolio managers, investment advisorsand such other intermediaries who may be associated with thesecurities market to get themselves registered and obtain acertificate of registration from the Board in accordance with theRegulations made under this Act. Section 12(2) empowers theBoard to collect such fees as may be determined by the Regulationsfrom the applicants who seek registration.”

ABC

DEF

G

H

ABC

DEF

G

H

A88. In a consistent line of precedent, this Court has been mindfulof the public interest that guides the functioning of SEBI and has refrainedfrom substituting its own wisdom over the actions of SEBI[26]. Its wideregulatory and adjudicatory powers, coupled with its expertise andinformation gathering mechanisms, imprints its decisions with a degreeof credibility. The powers of the SAT and the Court would necessarilyBhave to align with SEBI’s larger existential purpose. A two judge benchof this Court, in SEBI vs Kishore R Ajmera[27], had echoed thisunderstanding when speaking through Justice Kurian Joseph, it held:

“25. The SEBI Act and the Regulations framed thereunder areintended to protect the interests of investors in the Securities MarketCwhich has seen substantial growth in tune with the paralleldevelopments in the economy. Investors’ confidence in the capital/securities market is a reflection of the effectiveness of theregulatory mechanism in force. All such measures are intendedto pre-empt manipulative trading and check all kinds ofDimpermissible conduct in order to boost the investors’ confidencein the capital market. The primary purpose of the statutoryenactments is to provide an environment conducive to increasedparticipation and investment in the securities market which is vitalto the growth and development of the economy. The provisions ofthe SEBI Act and the Regulations will, therefore, have to beEunderstood and interpreted in the above light.”

Similarly, a two judge bench of this Court, in Securities andExchange Board of India vs Ajay Agarwal[28], while determining thescope of the regulatory body’s powers under Section 11(B) to restrainpersons from accessing the securities market, had elaborated on theFspecial nature of the legislation and implored the Courts to exercise theirinterpretative 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, ittranspires that the same was enacted to achieve the twin purposesG

26 G L Sultania vs Securities & Exchange Board of India, (2007) 5 SCC 133, para84; PGF Ltd vs Union of India, (2015) 13 SCC 50, paras 46-58; SEBI vs AkshyaInfrastructure (P) Ltd., (2014) 11 SCC 112; SEBI vs Saikala Associates Ltd., (2009)7 SCC 432, para 1627 (2016) 6 SCC 368H28 (2010) 3 SCC 765

of promoting orderly and healthy growth of securities market andfor protecting the interest of the investors. The requirement ofsuch an enactment was felt in view of substantial growth in thecapital market by increasing the participation of the investors. Infact such enactment was necessary in order to ensure theconfidence of the investors in the capital market by giving themsome protection.

34. The said Act is pre-eminently a social welfare legislationseeking to protect the interests of common men who are smallinvestors. It is a well-known canon of construction that when thecourt is called upon to interpret provisions of a social welfarelegislation the paramount duty of the court is to adopt such aninterpretation as to further the purposes of law and if possibleeschew the one which frustrates it….”

Therefore, in line with the object of the SEBI Act and theprecedents of this Court, it would be our task to interpret Section 24A ina manner that furthers the statutory role of SEBI, rather than one whichthwarts its considered course of action.

89. Section 24(1) is an omnibus provision for all offences punishablefor contravention (or attempts or abetments) of the provisions of the Actor of any rule or regulation made under it. As we have seen earlier, priorto Amending Act 59 of 2002 which came into effect from 29 October2002, the punishment for offences extended to a period of one year ofimprisonment, or with fine, or with both under Section 24(1). The termof imprisonment has been extended to up to ten years and a fine of Rstwenty-five crores by the amending legislation of 2002. The rationalefor this amendment, as evinced from its Statement of objects and reasons,was to provide an effective deterrent for potential wrongdoers. Offencespunishable under sub-Section (1) of Section 24 would cover a range ofviolations from the venial to the serious. The entrustment of the powerto compound offences either before or after the institution of anyproceeding is to SAT or a Court before which such proceedings arepending. The provisions of Section 24A must be read in a mannerconsistent with the object and purpose underlying the position of SEBIas an expert regulator. SEBI, as the regulator, is entrusted with diverseroles and functions including the power to regulate the securities’ market,make regulations and to enforce the provisions of the Act. Its functions AB

D

E

F

G

H

Ahave been recognized in a panoply of statutory provisions. Independentof initiating a prosecution, SEBI has been entrusted with wide rangingpowers and functions including the power to investigate, to issue directionsand levy penalties and make cease and desist orders.

90. While the statute has entrusted the powers of compoundingBoffences to SAT or to the Court, as the case may be, before which theproceedings are pending, the view of SEBI as an expert regulator mustnecessarily be borne in mind by the SAT and the Court, and would beentitled 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’sCcircular dated 20 April 2007, must undoubtedly be sought by the SAT orthe Court, to decide on whether an offence should be compounded. ForSEBI can provide an expert view on the nature and gravity of the offenceand its implication upon the protection of investors and the stability ofthe securities’ market. These considerations and others which SEBI

Dmay place before the SAT or the Court, would be of relevance indetermining as to whether an application for compounding should beallowed. We, therefore, hold that before taking a decision on whether tocompound an offence punishable under Section 24 (1), the SAT or theCourt must obtain the views of SEBI for furnishing guidance to its ultimatedecision. These views, unless manifestly arbitrary or mala fide, must beEaccorded a high degree of deference. The Court must be wary ofsubstituting its own wisdom on the gravity of the offence or the impacton the markets, while discarding the expert opinion of the SEBI.

91. It is also important to note that the legislative scheme of theSEBI Act delineates several actions that are liable for penalty underFSection 15, but includes a common sentencing provision under Section24. Therefore, Section 24 would be the sentencing provision for themost banal of offences, to the most egregious of market disruptions andfrauds. The maximum punishment prescribed under Section 24 has alsoseen an amendment and increase by the Amending Act 59 of 2002, inGorder to ensure effective deterrence. In exercising the power ofcompounding under Section 24A, the SAT or the Court must be consciousof the gravity of the offences that the accused are being prosecuted for,considering that the legislative scheme does not individually prescribeseparate sentencing provisions which would otherwise have providedan insight into the gravity and gradation of the offences. Hence, SEBI’sH

view on the compounding would become all the more important, in thislight.

FGuidelines for Compounding under Section 24A

92. Section 24A only provides the SAT or the Court before whichproceedings are pending with the power to compound the offences,without providing any guideline as to when should this take place. Hence,we deem it necessary to elucidate upon some guidelines which SAT orsuch Courts must take into account while adjudicating an applicationunder Section 24A:

(i) They should consider the factors enumerated in SEBI’scircular dated 20 April 2007 and the accompanying FAQs,while deciding whether to allow an application for a consentorder or an application for compounding. These factors,which are non-exhaustive, are:

“Following factors, which are only indicative, may betaken into consideration for the purpose of passingConsent Orders and also in the context of compoundingof offences under the respective statute:

1. Whether violation is intentional.

2. Party’s conduct in the investigation and disclosure offull facts.

3. Gravity of charge i.e. charge like fraud, marketmanipulation or insider trading.

4. History of non-compliance. Good track record of theviolator i.e. it had not been found guilty of similar orserious violations in the past.

5. Whether there were circumstances beyond the controlof the party.

6. Violation is technical and/or minor in nature andwhether violation warrants penalty.

7. Consideration of the amount of investors’ harm orparty’s gain.

A

B

C

D

E

F

G

H

A

B

C

D

E

F

G

H

8. Processes which have been introduced since theviolation to minimize future violations/lapses.

9. Compliance schedule proposed by the party.

10. Economic benefits accruing to a party from delayedor avoided compliance.

11. Conditions where necessary to deter future non-compliance by the same or another party.

12. Satisfaction of claim of investors regarding paymentof money due to them or delivery of securities to them.

13. Compliance of the civil enforcement action by theaccused.

14. Party has undergone any other regulatoryenforcement action for the same violation.

15. Any other factors necessary in the facts andcircumstances of the case.”

(ii) According to the circular dated 20 April 2007 and theaccompanying FAQs, an accused while filing theirapplication for compounding has to also submit a copy toSEBI, so it can be placed before the HPAC. Therecommendation of the HPAC is then filed before the SATor the Court, as the case may be. As such, the SAT or theCourt must give due deference to such opinion. Asmentioned above, the opinion of HPAC and SEBI indicatestheir position on the effect of non-prosecution onmaintainability of market structures. Hence, the SAT or theCourt must have cogent reasons to differ from the opinionprovided and should only do so when it believes the reasonsprovided by SEBI/HPAC are mala fide or manifestlyarbitrary;

(iii) The SAT or Court should ensure that the proceedings underSection 24A do not mirror a proceeding for quashing thecriminal complaint under Section 482 of the CrPC, thereby providing the accused a second bite at the cherry. Theprinciple behind compounding, as noted before in thisjudgment, is that the aggrieved party has been restituted bythe accused and it consents to end the dispute. Since theaggrieved party is not present before the SAT or the Courtand most of the offences are of a public character, it shouldbe circumspect in its role. In the generality of instances, itshould rely on the SEBI’s opinion as to whether suchrestitution has taken place; and

(iv) Finally, the SAT or the Court should consider whether theoffence committed by the party submitting the applicationunder Section 24A is private in nature, or it is of a publiccharacter, the non-prosecution of which will affect othersat large. As such, the latter should not be compounded, evenif restitution has taken place.

G Analysis on facts and conclusion

93. In the present case, we are clearly of the view that the natureof the allegations against the appellant are such so as to preclude adecision to compound the offences. We have adverted, in a considerableamount of detail, to the circumstances which have been narrated in thecounter affidavit filed by SEBI. We find merit in the submissions whichhas been urged before the Court by learned Senior Counsel who appearedon behalf of SEBI that the allegations in the present case involved seriousacts which impinged upon the protection of investors and the stability ofthe securities’ market. The observation in the order of adjudication ofthe Chairperson of the SEBI dated 22 September 2000, that no loss hasbeen caused to the investors as a result of the proposal which wassubmitted by the promoters to purchase the shares at the rate of Rs 12per share, would not efface the element of alleged wrong doing. Suchalleged acts of price rigging and manipulation of the prices of the shareshave a vital bearing on investors’ wealth and the orderly functioning ofthe securities market. SEBI was, therefore, justified in opposing therequest for the compounding of the offences. The matter was referredto the HPAC constituted by SEBI and presided over by a former judgeof 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 A

B

C

D

E

F

G

H

Asuffer from manifest arbitrariness. On the contrary, having due regardto the nature of the allegations, we are of the view that an order forcompounding was not warranted.

94. For the above reasons, we affirm the judgment of the HighCourt of Delhi, however, for the reasons which have been indicated inBthis judgment.

95. The appeal shall stand disposed of in the above terms.

C

96. Impleadment and interventions allowed. Pending application(s),if any, stand disposed of.

Nidhi Jain

Appeal disposed of.

D

E

F

G

H