SC: Clauses (a)-(c) in S. 15J of the SEBI Act are illustrative, not exhaustive

The Hon’ble Supreme Court, today, i.e. on 28th February 2019, in the matter of Adjudicating Officer, Securities and Exchange Board of India v. Bhavesh Puri which was heard with C.A. NO. 1824/2014, C.A. NO. 9798/2014, C.A. NO. 9797/2014, C.A. NO. 9799/2014, C.A. NO. 14728/2015, C.A. NO. 14730/2015, C.A. NO.14729/2015, C.A. NO. 33/2017, C.A. NO. 1009/2017, C.A. NO. 2641/2017, C.A. NO. 6160/2018, C.A. NO. 9563/2018, pronounced that clauses (a) to (c) in Section 15­J of the SEBI Act are merely illustrative and not exhaustive i.e. they are not the only grounds/factors which can be taken into consideration by the Adjudicating Officer while determining the quantum of penalty.

The Hon’ble Supreme Court, among other things, also observed that:

If the penalty provisions contained in Section 15­A to Section 15­HA of the Securities and Exchange Board of India Act, 1992 are to be understood as not admitting of any exception or discretion and the penalty as prescribed in Section 15­A to Section 15­HA of the SEBI Act, is to be mandatorily imposed in case of default/failure, Section 15­J of the SEBI Act would stand obliterated and eclipsed. (Para 6)

Sections 15­A(a) to 15­HA have to be read along with Section 15­J in a manner to avoid any inconsistency or repugnancy. We must avoid conflict and head­-on-­clash and construe the said provisions harmoniously. (Para 6)

Provision of one section cannot be used to nullify and obtrude another unless it is impossible to reconcile the two provisions. The explanation to Section 15­ J of the SEBI Act added by Act No.7 of 2017 has clarified and vested in the Adjudicating Officer a discretion under Section 15­J on the quantum of penalty to be imposed while adjudicating defaults under Sections 15­A to 15­HA.The provisions of Section 15­J were never eclipsed and had continued to apply in terms thereof to the defaults under Section 15­A(a) of the SEBI Act. (Para 6)

The provisions of clauses (a), (b) and (c) of Section 15­J are illustrative in nature and have to be taken into account whenever such circumstances exist. But this is not to say that there can be no other circumstance(s) beyond those enumerated in clauses (a), (b) and (c) of Section 15­J that the Adjudicating Officer is precluded in law from considering while deciding on the quantum of penalty to be imposed. (Para 8)

Therefore, to understand the conditions stipulated in clauses (a), (b) and (c) of Section 15­J to be exhaustive and admitting of no exception or vesting any discretion in the Adjudicating Officer would be virtually to admit/concede that in adjudications involving penalties under Sections 15­ A, 15­B and 15­C, Section 15­J will have no application. Such a result could not have been intended by the legislature. Therefore, conditions stipulated in clauses (a), (b) and (c) of Section 15­ J are not exhaustive and in the given facts of a case, there can be circumstances beyond those enumerated by clauses (a), (b) and (c) of Section 15­J which can be taken note of by the Adjudicating Officer while determining the quantum of penalty. (Para 11)

There is a distinction between a continuing offence and a repeat offence. The continuing offence is a one which is of a continuous nature as distinguished from one which is committed once and for all. In case of continuing offence, the liability continues until the rule or its requirement is obeyed or complied with. On every occasion when disobedience or non­compliance occurs and reoccurs, there is an offence committed. Continuing offence constitutes a fresh offence every time or occasion it occurs. A recurring or successive wrong, on the other hand, are those which occur periodically with each wrong giving rise to a distinct and separate cause of action. We have made reference to this legal position in view of which refers to repetitive nature of default and not a continuing default. The word “repetitive” as used in clause (c) of Section 15­J of the SEBI Act would refer to a recurring or successive default. This factum has to be taken into consideration while deciding upon the quantum of penalty. This dictum, however, does not mean that factum of continuing default is not a relevant factor, as clauses (a) to (c) in Section 15­J of the SEBI Act are merely illustrative and are not the only grounds/factors which can be taken into consideration while determining the quantum of penalty. (Para 13)

While delivering its verdict in C.A. No.33/2017 (Akshat Tandon and Others vs. Securities and Exchange Board of India); and C.A. No.9563/2018, (Badri Vishal Tandon vs. Securities and Exchange Board of India) it was held that:

The Supreme Court, in the exercise of its jurisdiction under Section 15­Z of the SEBI Act, cannot go into the proportionality and quantum of the penalty imposed, unless the same is distinctly disproportionate to the nature of the violation which makes it offensive, tyrannous or intolerable. Penalty by the very nature of the provision is penal. The Supreme Court can interfere only where the quantum is wholly arbitrary and harsh which no reasonable man would award. (Para 35)

Copy of judgement: Judgement_28-Feb-2019

-Tushar Kaushik

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