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 31.8.2002JUDGMENTand 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 JUDGMENTbankruptcy, 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:-
(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;JUDGMENT
(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 JUDGMENTSection 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),JUDGMENTwith 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.
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 cooperate 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.