Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.14730 OF 2015
SIDDHARTH CHATURVEDI Appellant(s)
Versus
SECURITIES AND EXCHANGE BOARD OF INDIA Respondent(s)
W I T H
CIVIL APPEAL NO. 14728 OF 2015
ANKUR CHATURVEDI Appellant(s)
Versus
SECURITIES AND EXCHANGE BOARD OF INDIA Respondent(s)
JUDGMENT
CIVIL APPEAL NO. 14729 OF 2015
JAY KISHORE CHATURVEDI Appellant(s)
Versus
SECURITIES AND EXCHANGE BOARD OF INDIA Respondent(s)
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O R D E R
1. These appeals raise an interesting question of
the interplay between section 15A, as amended in the
year 2002, and Section 15J of the Securities and
Exchange Board of India Act, 1992 (in short 'the SEBI
Act') .
2. The brief facts necessary to understand the
present controversy are that the appellants before us
made certain purchases of shares of the Brijlaxmi
Leasing and Finance Company between October and
th
December, 2012. On 16 June, 2014, in Civil Appeal
No.14730 of 2015, a show cause notice came to be
issued by the respondent SEBI to the appellant under
Rule 4(1) of the Securities and Exchange Board of
India (Procedure for holding inquiry and imposing
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penalty by adjudicating officer) Rules, 1995 for the
alleged violation of the provisions of Regulations
13(4), 13(4A) and 13(5) of the Securities and
Exchange Board of India (Prohibition of Insider
Trading) Regulations, 1992.
3. A detailed reply was filed by the appellant to
th
the show cause notice, on 13 August, 2014,
submitting that there was no intention to violate any
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rule or regulation. The entire transaction value of
purchases and sale of the shares did not exceed
Rs.55,000/-. It was further submitted that the
transaction was neither made with a view to make any
disproportionate gain or unfair advantage nor was it
for the purpose of causing any loss to investors.
The default, if any, was a technical default that did
not call for any penal action.
4. The Adjudicating Officer, by various orders
imposed a penalty of Rs.5 lacs, 7 lacs and 11 lacs
respectively, in the three civil appeals, before us.
An appeal made to the Securities Appellate Tribunal
suffered the same fate, and was dismissed by the
Tribunal stating that there is no dispute that there
was violation of mandatory regulations, and that in
any case, a penalty of Rs.one crore could have been
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imposed on facts, whereas, in fact, the Adjudicating
Officer penalised the appellants with a penalty of
Rs.5 lacs, 7 lacs and 11 lacs respectively, which
cannot be said to be excessively harsh or
unreasonable.
5. It is these judgments of the Securities Appellate
Tribunal, Mumbai that have come up before us in these
appeals.
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6. Learned counsel appearing on behalf of the
appellants has argued that Section 15A, after its
amendment in 2002, which was the law until the
section was further amended in the year 2014, would
undoubtedly apply to the present facts of the case.
However, learned counsel submitted that Section 15A
would, at all times, have to be read with Section 15J
of the SEBI Act and that, this being so, it is clear
that the violation of the regulations being only
technical, and not involving any disproportionate
gain to the appellant, or unfair advantage or loss to
any investor, SEBI was not, in the first instance,
correct in imposing any penalty at all. According to
the learned counsel for the appellants, the defaults
that were made were technical, and were made on three
days only, and there was no repetitive nature of any
default as well.
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7. Mr. C.U. Singh, learned senior counsel appearing
on behalf of the respondent SEBI has placed before us
a judgment of a Division Bench of this Court titled
as SEBI Through its Chairman versus Roofit Industries
Limited, reported in 2015 (12) SCALE 642. Mr. Singh
has pointed out, one may say fairly, to us that
observations made in paragraph 5 of the said
judgment would completely foreclose the arguments
made by the learned counsel for the appellants in the
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present cases, but that these observations may not
constitute the ratio of the judgment for the reason
that the judgment ultimately construed Section 15A
prior to its amendment in the year 2002.
8. It is necessary at this juncture to set out
paragraphs 4 and 5 of the aforesaid judgment in order
to first ascertain as to what this Court has
stated :-
“4. We find merit in the contentions of
learned senior counsel for the appellant
that the penalty imposed by the Adjudicating
Officer should not have been reduced on
wholly extraneous grounds not mentioned in
Section 15J of the SEBI Act. Section 15J
reads thus :
15J. While adjudging the quantum of penalty
under Section 15-I, the adjudicating officer
shall have due regard to the following
facts, namely :-
a. the amount of disproportionate
gain or unfair advantage, wherever
quantifiable, made as a result of the
default.
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b. the amount of loss caused to an
investor or group of investors as a result
of the default;
c. the repetitive nature of the
default.
The use of the word “namely' indicates that
these factors alone are to be considered by
the Adjudicating Officer. Black's Law
Dictionary defines “namely” as “by name or
particular mention. The term indicates what
is to be included by name. By contrast,
including implies a partial list and
indicates something that is not listed.” In
this context, we find no reason to read
“namely” as “including”, as learned senior
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counsel for the respondent would have us do.
5. It would be apposite for us to begin
our analysis of the penalty to be imposed by
laying out Section 15A(a) as it stood
subsequent to the 2002 amendment, for the
facility of reference:
15A. If any person, who is required under
this Act or any rules or regulations made
thereunder,-
a. to furnish any document, return or
report to the Board, fails to furnish the
same, he shall be liable to a penalty of one
lakh rupees for each day during which such
failure continues or one crore rupees,
whichever is less;
…......
In the connected appeals before us, the
appellant has imposed a penalty of Rs.75
lakhs despite the failure having continued
for substantially more than 75 days.
Learned senior counsel for the appellant has
contended that the appellant has discretion
to impose a penalty below the number of days
of default regardless of the words
“whichever is less”. He has argued that
there would be no purpose to Section 15J if
the Adjudicating Officer's discretion to fix
the quantum of penalty did not exist, and
that such an interpretation would render
certain Sections of the SEBI Act as
expropriatory legislation due to the
crippling penalties they would impose. We
do not agree with these submissions. The
clear intention of the amendment is to
impose harsher penalties for certain
offences, and we find no reason to water
them down. The wording of the statute
clarifies that the penalty to be imposed in
case the offence continued for over one
hundred days is restricted to Rs.1 crore.
No scope has been given for discretion.
Prior to the amendment, the section provided
for a penalty “not exceeding one lakh fifty
thousand rupees for each such failure”, thus
giving the appellant the discretion to
decide the appropriate amount of penalty.
In this context, the change to language
which does not repose any discretion is even
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more significant, as it indicates a
legislative intent to recall and remove the
previously provided discretion.
Additionally Section 15J existed prior to
the amendment and was relevant at that time
for adjudging quantum of penalty. Once this
discretionary power of the adjudicating
officer was withdrawn, the scope of Section
15J was drastically reduced, and it became
relevant only to the Sections where the
Adjudicating Officer retained his prior
discretion, such as in Section 15F(a) AND
Section 15HB. This ought to have been
reflected in the language of Section 15-I,
but was clearly overlooked. Section 15J has
become relevant once again, subsequent to
the Securities Laws (Amendment) Act, 2014,
which changed Section 15A(a), with effect
from 8.9.2014, to read as follows :-
15A. Penalty for failure to furnish
information, return, etc. - If any person,
who is required under this Act or any rules
or regulations made thereunder :-
a. to furnish any document, return or
report to the Board, fails to furnish the
same, he shall be liable to a penalty which
shall not be less than one lakh rupees but
which may extend to one lakh rupees for each
day during which such failure continues
subject to a maximum of one crore rupees;
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The purpose of amendment was clearly to re-
introduce the discretion of the adjudicating
Officer which was taken away by the SEBI
(Amendment) Act, 2002. Had the failure of the
respondent taken place between 29.10.2002 and
8.9.2014, the penalty ought to have been Rs.1
crore, without the possibility of any
discretion for reduction.”
9. Two things have been clearly stated by this Court
in so far as the amended Section 15A read with
Section 15J is concerned. First, this Court has
indicated that by the use of the expression “namely”
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in Section 15J, SEBI in adjudging the quantum of
penalty under Section 15A can have due regard only to
the three factors set out therein and not to other
relevant factors as the expression “namely” cannot be
equated with the expression “including”, being an
exhaustive provision on the subject matter covered by
the provision. This Court has also clearly held that
Section 15J would suffer an eclipse for the period
2002 to 2014 inasmuch as the intention of the
Legislature, by amending Section 15A, seems to be
that no scope for any discretion for this period is
to be exercised, if in fact, there is any infraction
of Rules or Regulations. This Court clearly held
that the discretionary power of the Adjudicating
Officer having been withdrawn, the scope of Section
15J would correspondingly stand drastically reduced.
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10. Prima facie, we find it a little difficult to
subscribe to both the views contained in paragraph 4
as well as in paragraph 5 of the said judgment. The
expression “shall have due regard to” is a very known
legislative device used from the time of Julius v
Bishop of Oxford (1880) LR 5 AC 214 (HL), and
followed in many judgments both English as well as of
our Courts as words vesting a discretion in an
Adjudicating Officer. The question which arises in
the present appeals is whether the expression
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“namely” fixes the discretion which can be exercised
only in the circumstances mentioned in the three
clauses set out in Section 15J, or whether it would
also take into account other relevant circumstances,
having particular regard to the fact that it is a
penalty provision that the Court is construing. As
this needs to be authoritatively decided for the
future, it would be better if we refer it to a larger
Bench for such authoritative pronouncement.
11. We also find it a little difficult to accept what
is stated in paragraph 5 of the judgment. It is very
difficult, keeping in view, particularly, two
important legal facets – one the doctrine of
harmonious construction of a statute; and two, the
fact that we are construing a penalty provision of a
statute which is to be strictly construed, Section
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15A, post amendment in 2002, is suddenly given a
pride of place, and Section 15J is made to yield
entirely to it. The familiar expression
“notwithstanding anything contained” does not appear
in the amended Section 15A. This being the case, it
is a little difficult to appreciate as to how one can
construe Section 15A, as amended, in isolation,
without regard to Section 15J. In fact, the facts of
the present case would go to show that where there is
allegedly only a technical default, and the three
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parameters of Section 15J would allegedly be
satisfied by the appellants, namely, that no
disproportionate or unfair advantage has been made as
a result of the default; no loss has been caused to
an investor or group of investors as a result of the
default; and there is in fact, no repetitive nature
of default, no penalty at all ought to be imposed.
What has been done by the appellants here is to fail
to adhere to Regulation 13, as alleged in the show
cause notice, which failure has occurred on three
days and consequently, has allegedly not been
repeated by the appellants anytime thereafter. If
we were to read Section 15A, as amended in 2002, in
the manner suggested by the Division Bench of this
Court, it may lead to anomalous results in that the
effect of continuing failure to adhere to statutory
regulations alleged to have been continued well
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beyond the period of three days, and which continues
till this day, has Rs.1 lakh per day as the minimum
mandatory penalty under the provisions, which would
culminate in the appellants herein having to pay Rs.1
crore in each of the three appeals. We do not think
that this could have been the intention of the
Parliament in enacting Section 15A, as amended in
2002. We also feel that on the assumption that
paragraph 5 of the judgment is correct, it would be
very difficult for Section 15A to be construed as a
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reasonable provision, as it would then arbitrarily
and disproportionately invade the appellants'
fundamental rights. This being the case, on both the
conclusions reached by this Court in paragraphs 4 and
5, as stated by us hereinabove, these matters deserve
consideration at the hands of a larger Bench. The
Registry is, accordingly, directed to place the
papers of these appeals before Hon'ble the Chief
Justice of India for placing these matters before a
larger Bench.
12. Interim orders passed by this Court shall
continue to operate.
........................J.
(KURIAN JOSEPH)
JUDGMENT
........................J.
(ROHINTON FALI NARIMAN)
New Delhi,
March 14, 2016
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