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SEBI’s Discretion in deciding Quantum of Penalty

Finsec Law Advisors

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Section 15A of the SEBI Act empowers SEBI to impose penalties for failure to furnish information, make disclosures, etc. In relation to the interpretation of this section as it stood after its amendment in 2002 and before it was again amended in 2014, a division bench of the Supreme Court, in SEBI v. Roofit Industries Limited, had recently held that, an adjudicating officer was conferred no discretion while deciding the quantum of penalties to be imposed for violations that took place during the said period. As the consequence of this decision was the imposition of a penalty of Rs. 1 crore for any failure to make disclosure or any disclosure delayed by a 100 days or more, it is set to have far reaching implications on the securities market in India. However, another division bench of the Supreme Court, in its recent order passed in the matter of Siddharth Chaturvedi v. SEBI, stated that it does not subscribe to the rationale laid down in the Roofit case.

In the Siddharth Chaturvedi case, the question of the interplay between Section 15A and Section 15J of the SEBI Act, 1992, was considered. Section 15J provides various factors which the Adjudicating Officer of SEBI has to take into consideration while deciding the quantum of penalty. The Supreme Court stated that it is difficult to appreciate as to how the imposition of penalty under Section 15A, as amended in 2002, may be construed in isolation without giving regard to factors to be considered under Section 15J. The court further added that if we were to subscribe to the interpretation suggested in the Roofit case, it would be very difficult for Section 15A to be construed as a reasonable provision, as it would then arbitrarily and disproportionately invade the appellants’ fundamental rights and may lead to anomalous results.

In this light, it was decided that these matters deserve consideration at the hands of a larger bench and the case has been placed before the Hon'ble Chief Justice of India to this end. As both judgements are from division benches of the Supreme Court, the Siddharth Chaturvedi case does not overrule the views expressed in the Roofit case. Therefore, it is hoped the Supreme Court expedites the process and provides clarity on the discretion available to Adjudicating Officers.