1. Investigation into securities market manipulation — Non-compliance with summons for production of documents — Penalty imposed under Section 15A(a), SEBI Act, 1992. (Para 4 , 5 , 7 , 11 , 18 )
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2022 Supreme(SC) 932
SUPREME COURT OF INDIA
AJAY RASTOGI, B.V. NAGARATHNA, JJ.
DKG Buildcon Pvt. Ltd. – Appellant
Versus
The Adjudicating and Enquiry Officer, S.E.B.I. – Respondent
Civil Appeal No. 1742 of 2009
WITH
R.C. Gupta and Co. Pvt. Ltd. – Appellant
Versus
Securities and Exchange Board of India – Respondent
Civil Appeal No. 5833 of 2009
Decided On : 14-09-2022
Important Points
Non-compliance with fresh summons issued after the 2002 amendment to Section 15A(a) of the SEBI Act constitutes a fresh offence, attracting the enhanced penalty. The Court upheld the one-crore penalty for prolonged defaults, stating it won't interfere unless the quantum is wholly arbitrary or disproportionate.
Subject
Securities Law - Regulatory Compliance
Act Referred
CIVIL PROCEDURE CODE: S.32, S.30
SEBI Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer Rules: R.4
SEBI Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market Regulations: Reg.4
SECURITIES AND EXCHANGE BOARD OF INDIA ACT: S.15, S.11
SEBI Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer Rules: R.4
SEBI Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market Regulations: Reg.4
SECURITIES AND EXCHANGE BOARD OF INDIA ACT: S.15, S.11
Headnote
(A) SEBI Act, 1992 - Section 15A(a) - Penalty for failure to furnish required information - Appellants failed to comply with multiple summons issued by SEBI during investigations into price manipulation of shares - The penalty of Rs.1 crore imposed on each appellant held justified as they obstructed the investigation and aided market manipulation. (Paras 8, 12, 25, 29, 32, 45)
(B) Investigations - SEBI's authority to require documents and information for investigations - The power of SEBI to compel compliance with summons under Section 11C(3) of the Act is established, with penalties in accordance with amended provisions of the law being proportionate to the violations. (Paras 5, 24, 30, 41)
Facts of the case:
The appellants, involved in the purchase and sale of shares of a company, obstructed SEBI's investigation by failing to respond to multiple summons seeking vital information linked to market manipulation cases tied to Ketan Parekh's entities.
Findings of Court:
The appellants' non-compliance, occurring repeatedly, was treated as fresh violations warranting application of amended penalty provisions, thereby validating the one-crore penalty imposed.
Issues: Court addressed whether the penalties were justified considering the timing of alleged violations and compliance with statutory requirements.
Ratio Decidendi: The penalties were deemed justified given the severity of the violations and the uncooperative behavior exhibited by the appellants, hindering necessary investigations.
Result: Appeals dismissed.
(B) Investigations - SEBI's authority to require documents and information for investigations - The power of SEBI to compel compliance with summons under Section 11C(3) of the Act is established, with penalties in accordance with amended provisions of the law being proportionate to the violations. (Paras 5, 24, 30, 41)
Facts of the case:
The appellants, involved in the purchase and sale of shares of a company, obstructed SEBI's investigation by failing to respond to multiple summons seeking vital information linked to market manipulation cases tied to Ketan Parekh's entities.
Findings of Court:
The appellants' non-compliance, occurring repeatedly, was treated as fresh violations warranting application of amended penalty provisions, thereby validating the one-crore penalty imposed.
Issues: Court addressed whether the penalties were justified considering the timing of alleged violations and compliance with statutory requirements.
Ratio Decidendi: The penalties were deemed justified given the severity of the violations and the uncooperative behavior exhibited by the appellants, hindering necessary investigations.
Result: Appeals dismissed.
Legal Category Hierarchy
- securities law
- administrative law
Advocates appeared:
For the Appellant(s) : Mr. Ambhoj Kumar Sinha, AOR Mrs. Deeksha Mishra, Adv. Mr. Debmalya Banerjee, Adv. Mr. Rohan Sharma, Adv. Mr. Kartik Bhatnagar, Adv. Mr. Anmol, Adv. Mr. Nicholas Choudhury, Adv. Mr. Shreesh Chadha, Adv. Mr. Atul Sinha, Adv. M/S. Karanjawala & Co., AOR
For the Respondent(s): Mr. Pratap Venugopal, Adv. Ms. Surekha Raman, Adv. Mr. Akhil Abraham Roy, Adv. Mr. Vijay Valsan, Adv. M/S. K J John And Co, AOR
For the Appellant(s) : Mr. Ambhoj Kumar Sinha, AOR Mrs. Deeksha Mishra, Adv. Mr. Debmalya Banerjee, Adv. Mr. Rohan Sharma, Adv. Mr. Kartik Bhatnagar, Adv. Mr. Anmol, Adv. Mr. Nicholas Choudhury, Adv. Mr. Shreesh Chadha, Adv. Mr. Atul Sinha, Adv. M/S. Karanjawala & Co., AOR
For the Respondent(s): Mr. Pratap Venugopal, Adv. Ms. Surekha Raman, Adv. Mr. Akhil Abraham Roy, Adv. Mr. Vijay Valsan, Adv. M/S. K J John And Co, AOR
Table of Contents
2. Applicability of un-amended penalty limits — Nature of summons as continuing vs fresh offence — Non-consideration of Section 15J factors — Jurisdiction over non-intermediary companies. (Para 23 )
3. Non-compliance with fresh summons constitutes a fresh offence — Amended penalty provisions apply to subsequent defaults — Penalty quantum justified given the gravity of market manipulation. (Para 32 , 33 , 34 , 36 , 38 , 39 , 40 )
4. Non-compliance with fresh summons issued after a statutory amendment constitutes a fresh offence, attracting the penalty prescribed under the amended provisions. (Para 32 )
5. Appeals dismissed — Penalty under Section 15A(a) of the SEBI Act, 1992 upheld. (Para 46 )
6. Does non-compliance with fresh summons issued after a statutory amendment constitute a fresh offence?
Yes. The court held that non-compliance with fresh summons issued after the amendment to Section 15A(a) constitutes a fresh offence, and the amended penalty provisions apply to such subsequent defaults, regardless of previous non-compliances. (Para 32 , 36 )
7. Is the Adjudicating Officer required to explicitly detail every factor under Section 15J when imposing a penalty under Section 15A(a)?
The court noted that the Explanation to Section 15J creates a presumption that the AO exercised power under that section. Furthermore, the factors listed in Section 15J are illustrative and not exhaustive. (Para 41 , 42 , 43 )
8. Can SEBI summon companies that are not registered intermediaries under Section 11C(3) of the SEBI Act?
Yes. Section 11C(3) empowers the Investigating Authority to require any person associated with the securities market in any manner to furnish information or produce documents relevant to an investigation. (Para 45 )
9. Under what circumstances can the court interfere with the quantum of penalty imposed by SEBI under Section 15Z?
Interference is permitted only if the quantum is wholly arbitrary, harsh, or distinctly disproportionate to the nature of the violation, making it offensive, tyrannous, or intolerable. (Para 44 )
JUDGMENT :
B.V. NAGARATHNA, J.
1. These Civil Appeals arise out of common impugned Order dated 07.01.2009 passed by the Securities Appellate Tribunal, Mumbai (for short “SAT”).
2. Since the questions of law and issues which arise to be dealt with in both the above captioned Civil Appeals are similar and the matters are distinct only in their respective facts and events, these appeals are being disposed of by this common judgment.
3. The appellant in Civil Appeal No. 1742 of 2009 is a Private Limited Company which was incorporated under the Companies Act, 1956 on 15.04.1997. The appellant in Civil Appeal No. 5833 of 2009 was incorporated under the Companies Act, 1956 on 02.06.1997.
4. An investigation was carried out by Securities and Exchange Board of India (‘SEBI’ for short) in the matter of purchase and sale of scrip and manipulation of share prices of M/s Shonkh Technology International Ltd. (‘STIL’ for the sake of convenience), a Company in which both the appellants had previously held shares. On noticing unusual price movement in the shares of STIL, SEBI conducted an investigation into the buying, selling and dealings in the shares of the Companies under the provisions of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995 (hereinafter referred to as ‘Regulations’). Investigations revealed that one M/s Shreejee Yatayat India Limited (for short ‘SYIL’) a listed company had acquired the entire Undertaking of STIL and in turn SYIL had allotted its shares to the shareholders of STIL. The appellant in Civil Appeal No. 1742 of 2009 was allotted 10,00,000 shares of SYIL while the appellant in Civil Appeal No. 5833 of 2009 was allotted 1,43,000 shares. Having taken over the business activities of STIL, SYIL changed its name to STIL with effect from 27.07.2000.
5. Investigations further revealed that the appellants had transferred the shares of STIL to a Company under the name and style of Sai Mangal Investrade Pvt. Ltd. (for short ‘SMIPL’). Similarly, entities like Classic Credit Limited, Goldfish Computers Ltd. and Luminant Investment Pvt. Ltd. had also received shares of STIL from various entities which had been allotted shares by SYIL. SMIPL and the other entities referred to above were all controlled and managed by a person named, Ketan Parekh, who had rigged the securities market in the years 2000 and 2001.
6. By an Order dated 12.12.2003 passed by SEBI, Ketan Parekh and the companies controlled by him had been prohibited from buying, selling or dealing in securities in any manner directly or indirectly for a period of fourteen years. That Order was upheld by SAT on 14.07.2006 and the appeal filed before this Court was also dismissed.
7. In view of the aforesaid investigations, SEBI initiated proceedings against several entities including the appellants herein. By a separate Order dated 16.10.2007, SEBI found that large quantities of shares of STIL were made available to entities associated with Ketan Parekh during the period between October, 2000 and April, 2001 and that facilitated them to create artificial volumes in the said scrip in the securities market. SEBI also found that the entities associated with Ketan Parekh had sold a large number of shares of STIL in the securities market in a synchronized manner with a view to create an artificial market in the said shares. SEBI came to the conclusion that the appellants and other entities had facilitated Ketan Parekh and his companies in manipulating the securities market and had thereby violated Regulation 4 of the Regulations. SEBI restrained them from accessing the securities market for a period of five years and also prohibited them from buying, selling or dealing in securities either directly or indirectly for the same period. SEBI found that a series of unauthorized activities starting from the allotment of shares of STIL to various people including Ketan Parekh entities through a web of transfers virtually wrecked the i
