SEBI consent not mandatory for compounding offences under Section 24A of SEBI Act: Supreme Court [Read Judgment]

The Supreme Court on Friday held that the consent of Securities and Exchange Board of India (SEBI) is not mandatory for compounding of offences under Section 24A of the SEBI Act but the court or the Securities Appellate Tribunal (SAT) compounding the offence must elicit the views of the market regulator (Prakash Gupta vs SEBI)..A Bench of Justices DY Chandrachud and MR Shah held that while the statute has entrusted the powers of compounding offences to SAT or to the court and SEBI is not conferred with any authority to veto a decision regarding compounding, its views must be taken since it is an expert body."Section 24A is conspicuously silent in regard to the consent of SEBI before the SAT or, as the case may be, the Court before which the proceeding is pending can exercise the power. Hence, it is clear that SEBI’s consent cannot be mandatory before SAT or the Court before which the proceeding is pending, for exercising the power of compounding under Section 24A. While SEBI does not have a veto, having regard to the language of Section 24A, its views must be elicited," the top court ruled. .SEBI, the top court opined, can provide an expert view on the nature and gravity of the offence and its implication upon the protection of investors and the stability of the securities’ market..Thus, taking views of SEBI is necessary in the interest of the stability of the securities market and protection of investors, the top court said. "We, therefore, hold that before taking a decision on whether to compound an offence punishable under Section 24 (1), the SAT or the Court must obtain the views of SEBI for furnishing guidance to its ultimate decision. These views, unless manifestly arbitrary or mala fide, must be accorded a high degree of deference," the judgment said. The Court must be wary of substituting its own wisdom on the gravity of the offence or the impact on the markets, while discarding the expert opinion of the SEBI, the Court added..The judgment came on an appeal filed against a Delhi High Court order dismissing an application by one Prakash Gupta under Section 24A of the Sebi Act for compounding of offences.The petitioner is an undertrial in a case registered for violation of provisions of the SEBI Act. The trial court had rejected the petitioner’s application under Section 24A relying on the Supreme Court decision..Section 24A in The Securities and Exchange Board of India Act, 1992 states that “Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may either before or after the institution of any proceeding, be compounded by a Securities Appellate Tribunal or a court before which such proceedings are pending.”.The top court held that Section 24A only provides the SAT or the Court before which proceedings are pending with the power to compound the offences, without providing any guideline as to when should this take place..In view of the same, the apex court issued the following guidelines which SAT or courts must take into account while adjudicating an application under Section 24A. .1. SAT should consider the factors enumerated in SEBI’s circular dated 20 April 2007 and the accompanying FAQs, while deciding whether to allow an application for a consent order or an application for compounding;2. The SAT or the court must have cogent reasons to differ from the opinion provided and should only do so when it believes the reasons provided by SEBI/HPAC are mala fide or manifestly arbitrary;3. SAT or court should ensure that the proceedings under Section 24A do not mirror a proceeding for quashing the criminal complaint under Section 482 of the CrPC, thereby providing the accused a second bite at the cherry;4. Since the aggrieved party is not present before the SAT or the court and most of the offences are of a public character, it should be circumspect in its role. In the generality of instances, it should rely on the SEBI’s opinion as to whether such restitution has taken place;5. SAT or the Court should consider whether the offence committed by the party submitting the application under Section 24A is private in nature, or it is of a public character, the non-prosecution of which will affect others at large..In the present case, The Court said that it was of the view that the nature of the allegations against the appellant are such that it preclude a decision to compound the offences."We find merit in the submissions which has been urged before the Court by learned Senior Counsel who appeared on behalf of SEBI that the allegations in the present case involved serious acts which impinged upon the protection of investors and the stability of the securities’ market," the Court said. It, therefore, dismissed the appeal..[Read Judgment]