In a judgment dated 05.07.2022, the Madras High Court opined that even if Act 24(2) was not specifically used to formulate the charge, the authority nonetheless imposed the punishment while bearing in mind the provisions of the section. The matter was between Kunnamkulam Paper Mills Ltd. and ors v. Securities and Exchange Board of India (Crl.A.No.626 of 2019) and was presided over by Hon’ble Mr. Justice D. Bharatha Chakravarthy.
FACTS OF THE CASE:
1,73,995 equity shares at Rs. 10 each were distributed to 163 people by the appellant company. Since the terms of the SEBI (Disclosure and Investor Protection) Guidelines 2000 were violated by this allocation, SEBI investigated the situation and ordered the appellant to return the funds raised under the issue to the investors within 30 days and provide a compliance report within 15 days. The appellants would lose access to the capital market for a period of five years if they didn’t follow the aforementioned instruction, and they would also be subject to a fine under Section 15HB and legal action under Section 24 of the SEBI Act.
The directives were also not followed. The trial court found the appellants guilty of the offence under Section 24(1) of the SEBI Act and fined each of them Rs. 50,000 and sentenced them to one year of simple imprisonment if the fine wasn’t paid. They thus went to the High Court.
The Hon’ble court agreed that there have been violations with regards to the allotment of the shares by the appellant and thus were liable under Sec 24(1) of the SEBI Act. Furthermore, the appellants failed to comply with the directions of the SEBI and thus constituted an offence under Section 24(2) of the SEBI Act.
As the second violation was done after the amendment the appellants were punishable as per the amended act. The Hon’ble Court further noted that although a specific accusation for the second offence was not formulated, the charge nonetheless contained the elements and circumstances of that offence. Not drafting a precise accusation resulted in nothing more than a simple omission to cite the applicable legal provision, and the accused was not in any way prejudiced. Thus, the second act as committed after the amendment would make them liable under Sec 24(2) of the Act.
The court lastly added that the fine imposed must be done rationally and since the trial court hasn’t provided a reason for the same the High Court imposed a penalty of 17,39,950 which was the amount initially ordered to be refunded.The amount was to be paid jointly and separately payable by all the accused and in default they were liable to undergo a simple imprisonment for a period of one year.
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JUDGMENT REVIEWED BY ADITI PRIYADARSHI