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Supreme Court of India (Division Bench (DB)- Two Judge)

Appeal (Civil), 1364-1365 of 2005, Judgment Date: Nov 26, 2015

                                                           REPORTABLE
                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION
                     CIVIL APPEAL NOs. 1364-1365 OF 2005


SEBI THROUGH  ITS CHAIRMAN                                        …APPELLANT

                                   VERSUS

ROOFIT INDUSTRIES LTD.                                           …RESPONDENT

                                    WITH

CIVIL APPEAL NOs.1366-1367 OF 2005,
CIVIL APPEAL NOs.1368-1369 OF 2005,
CIVIL APPEAL NOs.1370-1371 OF 2005,
CIVIL APPEAL NOs.1372-1373 OF 2005,
CIVIL APPEAL NOs.1374-1375 OF 2005,
CIVIL APPEAL NOs.1376-1377 OF 2005  AND
CIVIL APPEAL NOs.1378-1379 OF 2005



 
                              J U D G M E N T

VIKRAMAJIT SEN, J.

1     These Appeals lay siege to the decision of  the  Securities  Appellate
Tribunal (SAT) which modified the order of the  Adjudicating  Officer  under
SEBI, reducing the penalty payable  by  the  Respondent,  Roofit  Industries
Ltd., under Section 15A of the Securities And Exchange Board of  India  Act,
1992 (SEBI Act) from Rs. 1 crore to Rs. 60,000. In  the  connected  matters,
the penalty imposed by the Appellant SEBI was reduced from Rs. 75,00,000  to
Rs. 15,000 in five cases and Rs. 60,000 in  one  case.   What  formulae,  if
any, has been followed in these reductions is not  forthcoming,  making  the
exercise pregnant to the possibility of arbitrariness if  not  inconsistency
or caprice.

2     The Appellant, having noticed allegations of  share-price  rigging  by
the Respondent, initiated an investigation into the shareholder  pattern  of
the Respondent and price manipulation  thereof.  During  the  investigation,
the Appellant issued Summons on 23.7.2002 to the Respondent requiring it  to
procure and produce certain documents and  also  for  submitting  additional
information. The Respondent  sought  time  till  20.8.2002  to  provide  the
documents and information sought by the  Appellant,  and  thereafter  sought
further time till 31.8.2002 and  then  30.9.2002.  After  a  reminder  dated
5.9.2002,  since  the  Summons  were  still  not  complied  with   and   the
information required was not provided by  the  Respondent,  an  Adjudicating
Officer was appointed on 23.6.2003 under Section 15I  of  the  SEBI  Act  to
conduct an enquiry. By Show-Cause Notice dated 1.9.2003  for  non-compliance
of Summons dated 23.7.2002, the Adjudicating Officer granted the  Respondent
two opportunities  of  personal  hearing  on  25.2.2004  and  8.3.2004.  The
Respondent did not appear before  the  Adjudicating  Officer  despite  these
opportunities. The Adjudicating Officer therefore held, on  29.3.2004,  that
there was no material to suggest that the Respondent had complied  with  the
Summons or had given the information sought for by SEBI  despite  extensions
of time. In terms of Section 15A(a) of the SEBI Act,  a  penalty  of  Rs.  1
crore was imposed on the Respondent. In the connected appeals, a penalty  of
Rs. 75 lakhs was imposed  on  each  of  the  various  Respondent  companies.
Aggrieved, the Respondent moved an Appeal before the SAT.

3     The SAT, on 9.8.2004,  came  to  the  conclusion  that  there  was  no
dispute that the Respondent was liable to answer  the  summons  and  produce
whatever information was available with it. It noted that the penalty  under
Section 15A had been enhanced in 2002 to Rs. 1 lakh for each day of  failure
to furnish the  required  document,  return  or  report,  or  Rs.  1  crore,
whichever is less. It noted the submission of the  Respondent  that  it  had
suffered deep financial setbacks and was on the  verge  of  bankruptcy,  and
therefore most of its staff had left the service of  the  Company.  The  SAT
held that given that the business of the Respondent had come to a  dormancy,
there would be no point in imposing high penalties which would remain  paper
orders, and never be implemented. It considered impecuniosity an  additional
factor to those listed under Section 15J  in  adjudicating  the  quantum  of
penalty, and found it fit to reduce the penalty to Rs. 60,000.  The  quantum
of penalty in the connected appeals was also reduced for the  same  reasons,
from Rs. 75 lakh to Rs. 15,000 in five cases and Rs.  60,000  in  one  case.
The Appellant’s application for  review  was  dismissed  on  8.11.2004.  The
Appellant has now filed the present Appeal, contending that  the  SAT  erred
in reducing the penalty  imposed  by  the  Adjudicating  Officer  on  wholly
extraneous grounds including the inability of  the  Respondent  to  pay  the
penalty, a contingency which is not mentioned or featured in Section 15J  of
the SEBI Act.

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 quantum  of  penalty  under  Section  15-I,  the
adjudicating officer  shall  have  due  regard  to  the  following  factors,
namely:-
the  amount  of  disproportionate  gain  or   unfair   advantage,   wherever
quantifiable, made as a result of the default;
the amount of loss caused to an investor or group of investors as  a  result
of the default;
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  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,–
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 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  15I,  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,-

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;

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.

6     However, before imposing such a penalty, we must consider the date  on
which  the  amendment  came  into  effect,  i.e.   29.10.2002.   Since   the
Appellant’s Summons to furnish the required  documents  was  prior  to  this
date and the Respondent failed to do so till well  after  it,  the  question
before us is when the failure or default took  place.  While  this  question
does not appear to have been raised before the SAT, it is a question of  law
and can therefore be raised at any point. As  was  held  by  this  Court  in
Chitturi Subbanna vs Kudapa Subbanna (1965) 2 SCR 661, a  pure  question  of
law, which is not dependent on the determination of any  question  of  fact,
may be raised for the first time at the appellate or even the  final  stage,
even though no reference to it had been made in the Courts below.

7     As previously discussed, the initial Summons  to  the  Respondent  was
dated 23.7.2002. From this date onwards, there  was  an  obligation  on  the
Respondent  to  produce  the  documents  and  information  sought   by   the
Appellant, but it failed to do so, even until the imposition  of  a  penalty
by the Adjudicating Officer on 29.3.2004.  Instead,  the  Respondent  sought
extensions  of  time  vide  three  letters.  After  the  third  letter,  the
Appellant sent a reminder letter dated 5.9.2002, which is reproduced below:

                                   URGENT

                                                         IES/ID9/SP/17502/02
                                                           September 5, 2002

SUJIT PRASAD
DY. GENERAL MANAGER
INVESTIGATIONS, ENFORCEMENT AND
SURVEILLANCE DEPARTMENT
email : sujitp@sebi.gov.in
tel.no.:282981

M/s. Roofit Industries Ltd.
501, Sangli Bank Bldg.
296, Perin Nariman Street,
Fort,
Mumbai – 400001.

Dear Sirs,

Please refer to our summons dated July  23,  2002  advising  you  to  submit
certain information specified at  Annexure  ‘A’  to  the  said  summons,  by
August 01, 2002.

In response, you had vide your letter dated  July  26,  2002  requested  for
extension of time till August 20,  2002  for  submission  of  the  aforesaid
information.

Further, vide you letter dated August 12, 2002 you had again  requested  for
the extension of time till August 31, 2002 and now, vide your  letter  dated
August 28, 2002 you have once again requested for  extension  of  time  till
September 30, 2002 to furnish the information.

From the foregoing, it appears that you do not have  any  desire  to  submit
the information, as sought by us, and/or do not wish to  co-operate  in  the
ongoing investigation in the scrip of M/s. Roofit Industries Ltd.

However, before initiating action in terms of prosecution under  Section  24
of the SEBI Act, 1992 and/or levying penalty under Section 15A of  the  SEBI
Act, 1992, you are once again advised to submit the information sought  vide
our above mentioned summons by September 16, 2002 failing which  appropriate
action(s)  as  mentioned  above  would   be   initiated   and   no   further
communication would be entertained from your end.

It is thus abundantly clear from a perusal of the letter that the  Appellant
had declined the request for a further extension of time  beyond  16.9.2002.
The  Respondent  had  failed  to  furnish  the  information  by  that  date,
resulting in the penalty under Section 15A  becoming  applicable.  It  would
thus be palpable that the penalty prior to  the  amendment  to  Section  15A
would be applicable, i.e. Rs. 1.5 lakhs.

8     Learned Senior Counsel for the Appellant,  however,  has  argued  that
this is a continuing default,  as  it  did  not  end  till  well  after  the
amendment, with the result  that  penalties  both  prior  to  and  post  the
amendment would apply. He has relied on  the  decision  of  the  Three-Judge
bench in Maya Rani Punj vs Commissioner of Income Tax, Delhi  (1986)  1  SCC
445, wherein it was held that where “a duty continues from day to  day,  the
non-performance of that duty from day to day is a continuing  wrong.  Having
perused Maya Rani Punj, we find that the facts  therein  were  significantly
different from those before us. In that  case,  the  Income  Tax  Act,  1961
applied instead of the Income Tax  Act,  1922  because  the  former  statute
stated that it  would  apply  if  the  Assessment  was  made  subsequent  to
1.4.1962. On an analysis of the language in the 1961 Act, it is  clear  that
the Legislature intended for non-compliance with the obligation of making  a
Return to be considered an infraction as long as the default continued.  The
facts before us are significantly different. The amendment  to  Section  15A
did not indicate that the amended Section would apply to  penalties  imposed
after 29.10.2002. The amendment was merely made with effect from that  date,
indicating that the change would be applicable for failures occurring  after
that date. The date on which the failure  occurred  was  thus  relevant  for
deciding the applicable law, not the date on which the penalty was  imposed.
The relevant version of the Act for us to consider would therefore  be  that
before 29.10.2002, the language of which  did  not  indicate  a  legislative
intent to consider the default a continuing one.

9     We find that the situation before us  is  more  akin  in  its  factual
matrix to that in State of Bihar v. Deokaran Nenshi (1972) 2 SCC 890,  which
distinguished between continuing offences and offences  committed  once  and
for all.
5.    A continuing offence is one which is susceptible  of  continuance  and
is distinguishable from the one which is committed once and for all.  It  is
one of those offences which arises out of a failure to obey or  comply  with
a rule or its requirement and which involves a penalty,  the  liability  for
which continues until the rule or its  requirement  is  obeyed  or  complied
with. On every occasion that such disobedience or non-compliance occurs  and
recurs there is the offence  committed.  The  distinction  between  the  two
kinds of offences is  between  an  act  or  omission  which  constitutes  an
offence once and for  all  and  an  act  or  omission  which  continues  and
therefore, constitutes a fresh offence every time or occasion  on  which  it
continues.  In  the  case  of  a  continuing  offence,  there  is  thus  the
ingredient of continuance of the offence which is absent in the case  of  an
offence which takes place when an act or omission is committed once and  for
all.
                                                            (emphasis added)

In that case, Regulation 3 read with Section 66 of the Mines  Act  made  the
failure to file an Annual Return by the appropriate date an offence. It  was
held that since the failure was to file the Returns by the stipulated  date,
the infringement occurred on that date and became  complete  on  that  date.
Significantly, this case was  discussed  in  Maya  Rani  Punj  but  was  not
overruled.

10    On the facts at hand, as in Deokaran Nenshi, the default  was  clearly
complete on the failure to submit the requisite information by the date  set
by  the  Appellant,  i.e.  16.9.2002.  Had  the  Respondent  furnished   the
information sought by the Appellant by that date,  undoubtedly  there  would
have  been  no  culpability  against  it.  Thus  the  penalty  first  became
applicable under the pre-amendment Section, which  imposed  “a  penalty  not
exceeding one lakh  fifty  thousand  rupees  for  each  such  failure”.  The
intention of the Section as it then stood was clearly not to consider  it  a
continuing default. Such an intention can be read into the provision  as  it
currently stands, as it imposes a penalty for each day for which the  breach
continues, but this was not the case prior  to  29.10.2002.  Facially,  this
was the reason and necessity for the amendment.

11    As the failure herein was complete on 16.9.2002,  the  penalty  to  be
imposed on the Respondent in C.A. No. 1364-65 of 2015 and  on  each  of  the
Respondents in  the  connected  Appeals  is  Rs.  1.5  lakhs.  The  impugned
judgment of the SAT is set aside  and  the  Appeals  are  allowed  in  these
terms. The interim stay order dated 18.2.2005 is vacated. No  orders  as  to
costs.



                                             ……………………......................J.
                                                             [VIKRAMAJIT SEN]



                                            ……………………......................J.
                                                          [SHIVA KIRTI SINGH]

NEW DELHI,
NOVEMBER 26, 2015.