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Prakash Gupta Vs. Securities and Exchange Board of India - (Supreme Court) (23 Jul 2021)

SEBI's consent cannot be mandatory before SAT or the Court before which the proceeding is pending, for compounding of offence under Section 24A of SEBI Act


Capital Market

The Appellant is being prosecuted for an offence under Section 24(1) of the Securities and Exchange Board of India Act, 1992 ("SEBI Act"). The Appellant sought the compounding of the offence under Section 24A. 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, 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.

Section 24B of Act has provided for the exercise of powers by the Central Government to grant immunity from prosecution on the recommendation of SEBI. In contrast, Section 24A of Act is conspicuously silent in regard to the consent of SEBI before the SAT or, as the case may be, the Court before which the proceeding is pending can exercise the power. Hence, it is clear that SEBI's consent cannot be mandatory before SAT or the Court before which the proceeding is pending, for exercising the power of compounding under Section 24A of Act.

In exercising the power of compounding under Section 24A of Act, the SAT or the Court must be conscious of the gravity of the offences that the Accused are being prosecuted for, considering that the legislative scheme does not individually prescribe separate sentencing provisions which would otherwise have provided an insight into the gravity and gradation of the offences. Hence, SEBI's view on the compounding would become all the more important, in this light.

The allegations in the present case involved serious acts which impinged upon the protection of investors and the stability of the securities' market. The observation in the order of adjudication of the Chairperson of the SEBI dated 22 September 2000, that no loss has been caused to the investors as a result of the proposal which was submitted by the promoters to purchase the shares at the rate of Rs. 12 per share, would not efface the element of alleged wrong doing. Such alleged acts of price rigging and manipulation of the prices of the shares have a vital bearing on investors' wealth and the orderly functioning of the securities market. SEBI was, therefore, justified in opposing the request for the compounding of the offences.

The matter was referred to the HPAC constituted by SEBI and presided over by a former judge of the Bombay High Court, which denied the request for compounding. This decision which has been taken by SEBI is not mala fide nor does it suffer from manifest arbitrariness. On the contrary, having due regard to the nature of the allegations, present Court is of the view that an order for compounding was not warranted. The judgment of the High Court is affirmed. The appeal disposed of.


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