SIDDHARTH CHATURVEDI Vs. SECURITIES AND EXCHANGE BOARD OF INDIA
Supreme Court of India (Division Bench (DB)- Two Judge)
Appeal (Civil), 14730 of 2015, Judgment Date: Mar 14, 2016
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)
CIVIL APPEAL NO. 14729 OF 2015
JAY KISHORE CHATURVEDI Appellant(s)
Versus
SECURITIES AND EXCHANGE BOARD OF INDIA Respondent(s)
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 December, 2012.
On 16th 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 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 the show cause notice,
on 13th August, 2014, submitting that there was no intention to violate any
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 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.
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.
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 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.
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 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 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;
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” 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.
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
“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
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 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 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 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)
........................J.
(ROHINTON FALI NARIMAN)
New Delhi,
March 14, 2016
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