The SEBI is not a regular complainant, it is the custodian of the investors’ interests, it is a regulatory body! Great importance has to be accorded to SEBI in compounding offences: The Supreme Court of India
Though the consent of the SEBI for the compounding is not mandatory Court, it must give due deference to opinion. SAT or the Court must have cogent reasons provided by SEBI/HPAC are mala fide or manifestly arbitrary. The aforesaid was laid down by the Supreme court of India in the case of Prakash Gupta vs. Securities and Exchange Board of India [CrA 569 of 2021] which was adjudicated upon by a two-judge bench comprising Justices DY Chandrachud and MR Shah on 23rd July 2021.
The facts of the case are as follows. was considering an SLP arising out of an April, 2019 order of the Delhi High Court by which the petitioner’s application under Section 24A of the SEBI Act for compounding of offences (where the allegations against the petitioner are of artificially jerking the price of the share of petitioner’s company) was declined. It may be noted that after the SEBI informed that it did not consent to the compounding of the offence, the Trial court, in the inst ant case, had rejected the petitioner’s application under Section 24A while relying upon Supreme Court’s decision in JIK Industries Ltd. (2012)where a 2-judge bench had held that obtaining the consent of the complainant to compound an offence for dishonour of a cheque is sacrosanct, and that cannot be wished away by Section 147 of the NI Act (which says that notwithstanding anything contained in the CrPC, every offence punishable under this Act shall be compoundable). Though the Adjudicating Officer has found that the alleged violation committed by petitioner has not resulted in any loss to the investors, but this by itself would not justify discharge of accused at the fag end of trial”, the High Court said.
The court analysed the SEBI act and gave the following conclusions. “Compounding is the mirror-image of a compromise in civil law. Great importance has to be accorded to SEBI in compounding offences, yes! But to lift it to a point where without its consent, there can be no compounding and where the SEBI can veto any compounding, I have my doubts”. “In the facts at hand, if we finally decide that no case for compounding is made out, then we may only add a line that the fact that SEBI had refused its consent for compounding need not be gone into. But if we say that the offence in the present case can be compounded, then we will have to squarely deal with the issue We can say that the power of compounding under section 24A has to be exercised in public interest. After all, these are not private offences. The power under section 24A of the SEBI Act has to be exercised in the spirit of the Act. he objects of the SEBI Act are to protect the investors’ interests and to ensure a stable securities market. The courts have to consider whether in exercising the power of compounding, the Act would be defeated.” The Supreme Court laid down certain guidelines for Securities Appellate Tribunal (“SAT”) in the matter of adjudicating an application for compounding of the offence under Section 24A of Securities and Exchange Board of India Act, 1992.