On February 28, 2019, in the matter of SEBI v. Bhavesh Pabari, the Supreme Court finally settled the question of interplay between Section 15A and Section 15J of the SEBI Act raised in the Roofit and Siddharth Chaturvedi cases.
Prior to the amendment to the SEBI Act in 2014, the relevant portion dealing with imposition of penalty in Section 15A of the SEBI Act, which provides for imposition of penalty for failure to furnish information, provides that a penalty “of one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less” shall be imposed. In SEBI v. Roofit Industries, the Supreme Court held that, as the law stood between 2002 and 2014, an Adjudicating Officer of SEBI (“AO”) had no discretion and could not consider the factors laid down in Section 15J while deciding the quantum of penalty to be levied against an offender under Section 15A. As a result, SEBI was forced to pass orders imposing penalties of Rs. 1 crore even for minor violations of disclosure requirements, committed during the said period, where disclosures were made with delays of greater than 100 days.
In Siddharth Chaturvedi v. SEBI, the question of the interplay between Section 15A and Section 15J was again considered, and the Supreme Court did not subscribe to the rationale laid down in the Roofit case. The Supreme Court had 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 light of this, the matter was referred to a larger bench of the Supreme Court.
However, before the larger bench arrived at a decision, the Finance Act, 2017 amended Section 15J of the SEBI Act. An explanation has been inserted which states that the power of an adjudicating officer of SEBI to adjudicate the quantum of penalty under relevant sections, including section 15A, “shall be and shall always be deemed to have been exercised under the provisions of this section”. This explanation makes it clear that SEBI must consider the factors laid down under Section 15J for determining the quantum of penalty even for violations which were committed between 2002 and 2014.
In the current case, the Supreme Court, interpreting the legislative intention, held that the intent was not to prescribe a minimum penalty of Rs. 1 lakh for every day during which the default and failure continued. The aggravating and mitigating circumstances, including those provided under Section 15J are required to be considered. Further, the Supreme Court rejected a narrow view of Section 15J and held that the provisions of Section 15J are merely illustrative, and where such circumstances exist, the adjudicating officer is not precluded from considering other factors while deciding the quantum of penalty.
As the explanation inserted by the Finance Act, 2017 had settled the question of law raised in Roofit and Siddharth Chaturvedi cases, this judgement is merely academic in nature. Nonetheless, this ruling reiterates and clarifies the applicability of the said explanation.