2021 Supreme(SC) 379

SUPREME COURT OF INDIA
DHANANJAYA Y. CHANDRACHUD, M.R. SHAH, JJ.
Prakash Gupta – Appellant
Versus
Securities and Exchange Board of India – Respondent
Criminal Appeal No 569 of 2021 (Arising out of SLP (Crl) No. 4728 of 2019)
Decided On : 23-07-2021

IMPORTANT POINTS
(1) Power of compounding must be expressly conferred by Statute which creates offence.
(2) Section 147 of N.I. Act does not expressly incorporate permission of Court for compounding, conceivably because impact of crime is against an individual.
(3) Offences punishable under sub-Section (1) of Section 24 of Securities and Exchange Board of India Act, 1992 are compoundable for reason that punishment which has been stipulated is for a certain term of imprisonment or with fine or with both.

Headnote:

(A) Criminal Procedure Code, 1973 – Section 320 – Compounding of offence – Legislative sanction for compounding of offences is based upon two contrasting principles: first, that private parties should be allowed to settle a dispute between them at any stage (with or without permission of Court, depending on offence), even of a criminal nature, if proper restitution has been made to aggrieved party; and second, that, however, this should not extend to situations where offence committed is of a public nature, even when it may have directly affected aggrieved party – First of these principles is crucial so as to allow for amicable resolution of disputes between parties without adversarial role of Courts, and also to ease burden of cases coming before Courts – However, the second principle is equally important because even an offence committed against a private party may affect fabric of society at large – Non-prosecution of such an offence may affect limits of conduct which is acceptable in society – Courts play an important role in setting these limits through their adjudication and by prescribing punishment in proportion to how far away from these limits was offence which was committed – As such, in deciding on whether to compound an offence, Court does not just have to understand its effect on parties before it but also consider effect it will have on public – Societal interest in prosecution of crime which has a wider social dimension must be borne in mind – However, Section 320 provides for compounding of offences only under IPC – In respect of offences which lie outside IPC, compounding may be permitted only if statute which creates offence contains express provision for compounding before such offence can be made compoundable. (Paras 59 and 62)

(B) Negotiable Instruments Act, 1881 – Section 147 – Securities and Exchange Board of India Act, 1992 – Section 24A – Compounding of offence – Section 147 of N.I. Act does not expressly incorporate permission of Court for compounding, conceivably because impact of crime is against an individual – Section 24A specifies authorities vested with powers to compound offences under SEBI Act, while Section 147 of N.I. Act merely states that offence under the Act shall be compoundable. (Paras 71 and 72)

(C) Securities and Exchange Board of India Act, 1992 – Section 24A – Compounding of offence – Offences punishable under sub-Section (1) of Section 24 are compoundable for reason that punishment which has been stipulated is for a certain term of imprisonment or with fine or with both – Whether an offence under sub-Section (2) of Section 24 is compoundable under Section 24A depends on construction which is to be placed on words “or with fine” – Section 24A provides for compounding of an offence either before or after institution of any proceeding – Once proceedings have been instituted before a Court which is seized of it, the Court has exclusive jurisdiction to compound offences – While High Powered Advisory Committee’s (HPAC’s) decision on a party’s application for compounding under Section 24A must be placed before appropriate Court, final decision must remain in domain of Court. (Paras 37, 38 and 42)

(D) Securities and Exchange Board of India Act, 1992 – Section 24A – Compounding of offence – Section 24A does not stipulate that consent of SEBI is necessary for Securities Appellate Tribunal (SAT) or Court before which such proceedings are pending to compound an offence – Where Parliament intended that a recommendation by SEBI is necessary, it has made specific provisions in that regard in same statute – Section 24B empowers Union Government on recommendation of SEBI, if it is satisfied that a person who has violated the Act or Rules or Regulations has made a full and true disclosure in respect of alleged violation, to grant immunity from prosecution for an offence subject to such conditions as it may impose – SEBI’s consent cannot be mandatory before SAT or Court before which proceeding is pending, for exercising power of compounding under Section 24A – However, proceedings for trial of offences under SEBI Act are initiated on a complaint made by SEBI – While statutory provisions do not entrust SEBI with an authority in nature of a veto under provisions of Section 24A, it is equally necessary to understand importance of its role and position – Provisions of Section 24A must be read in a manner consistent with object and purpose underlying position of SEBI as an expert regulator.(Paras 84, 85 and 89)

(E) Securities and Exchange Board of India Act, 1992 – Sections 24(1) and 24A – Price rigging and insider trading in scrip of Company – Compounding of offence – SAT or Courts must take into account factors enumerated in SEBI’s circular dated 20th April 2007 and accompanying FAQs, while deciding whether to allow an application for a consent order or an application for compounding – SAT or Court should ensure that proceedings under Section 24A do not mirror a proceeding for quashing criminal complaint under Section 482 of Cr.P.C. – SAT or Court should consider whether offence committed by party submitting application under Section 24A is private in nature, or it is of a public character, non-prosecution of which will affect others at large – As such, latter should not be compounded, even if restitution has taken place – Nature of allegations against appellant are such so as to preclude a decision to compound offences – Allegations in present case involved serious acts which impinged upon protection of investors and stability of securities’ market – Order for compounding was not warranted – Judgment of High Court affirmed. (Paras 92, 93 and 94)

Facts of the case:

Appellant is being prosecuted for an offence under Section 24(1) of Securities and Exchange Board of India Act, 1992 (SEBI Act). The appellant sought the compounding of the offence under Section 24A. By an order dated 15 November 2018, the Additional Sessions Judge – 02 Central District at Tis Hazari Courts, Delhi (Trial Judge), rejected the application, upholding the objection of the Securities and Exchange Board of India that the offence could not be compounded without its consent. By a judgment of a Single Judge of the High Court of Delhi dated 1st April 2019 the order of the Trial Judge has been affirmed in revision. The High Court has held that the trial has reached the stage of final arguments and the application for compounding cannot be allowed without Securities and Exchange Board of India’s (SEBI) consent. This view of High Court has been called into question in these proceedings.

Findings of Court:

While statute has entrusted the powers of compounding offences to SAT or to the Court, as the case may be, before which the proceedings are pending, the view of SEBI as an expert regulator must necessarily be borne in mind by the SAT and the Court, and would be entitled to a degree of deference. While SEBI does not have a veto, having regard to the language of Section 24A, its views must be elicited. The view of SEBI, an envisaged in the FAQs accompanying SEBI’s circular dated 20 April 2007, must undoubtedly be sought by SAT or the Court, to decide on whether an offence should be compounded.

Result : Appeal disposed of.