Bombay High Court Examines Challenge to SEBI Special Court's Rejection of Compounding Application Under Section 24A of SEBI Act. Writ Petition Filed Against Order Denying Compounding of Offence Under Section 24(2) for Non-Payment of Penalty Without SEBI Consent.

Criminal writ petition under Article 227 of Constitution and Section 482 CrPC to quash order of SEBI Special Court rejecting application for compounding of offence under Section 24A of SEBI Act.

Petitioners sought quashing of order dated 27 December 2017 passed by SEBI Special Court and compounding of the offence under Section 24(2) of SEBI Act.

The SEBI Special Court had rejected the application for compounding the offence despite the petitioners' willingness to pay the penalty amount with interest and costs, on the grounds that consent of SEBI was required and SEBI opposed compounding.

Adjudicating Officer imposed penalty of Rs.1,50,000 on 27 April 2003; appeal dismissed by Securities Appellate Tribunal on 9 January 2007; partial payment tendered but not accepted; complaint filed on 14 January 2013 under Section 26 read with 24(2) and 27 of SEBI Act; application for compounding filed on 8 December 2017, rejected on 22 December 2017.

Whether Section 24A of the SEBI Act empowers the Special Court to compound an offence under Section 24(2) without the consent of SEBI? Whether the Special Court erred in rejecting the compounding application on the ground that SEBI's consent was necessary? Whether the guidelines issued by SEBI for consent orders and composition of offences are relevant in deciding compounding under Section 24A? Whether the offence under Section 24(2) of SEBI Act (non-payment of penalty) is compoundable under Section 24A? Whether the power to compound under Section 24A is unfettered and does not require the complainant's consent unlike Section 320 CrPC?

Section 24(2) offence provides for imprisonment and fine and hence is compoundable under Section 24A. Section 24A does not require consent of SEBI; power to compound is with the court, and complainant's consent is of no consequence. Unlike Section 320 CrPC, Section 24A does not mandate consent of any particular person, showing legislative intent to give unfettered power to the court. SEBI's refusal to consent for compounding was arbitrary and without reasons; the complaint was only for non-payment of penalty, and no investor suffered loss. Section 24(2) is analogous to Section 138 NI Act, creating deterrence against non-payment; relying on Damodar Prabhu v. Sayed Babalal, courts should encourage compounding if accused willing to pay. SEBI's own circular dated 20 April 2017 and settlement regulations do not bar compounding without consent; the Special Judge ought to have considered that the case deserved compounding. The original breach was technical, had no impact on investors or stock market, and petitioners made no profits; quantum of penalty (Rs.1,50,000) indicates minor gravity. Failure to pay was not willful but due to financial distress; continuation of prosecution serves no fruitful purpose and deprives SEBI of penalty recovery. High Court has ample powers under writ jurisdiction and Section 482 CrPC to quash proceedings in the interest of justice. Consent of SEBI is not a sine qua non for compounding under Section 24A; the provision overrides the procedure under CrPC, being a special statute. Power to compound is given only to Securities Appellate Tribunal and court, without mandating SEBI's prior consent.

This petition is preferred by invoking Article 227 of Constitution of India and inherent powers under section 482 of Code of Criminal Procedure, 1973 to quash the order dated 27th December, 2017 passed by SEBI Special Court at Mumbai in SEBI Special Case No. 219 of 2014 rejecting the application preferred by the petitioners under Section 24A of the Securities and Exchange Board of India Act, 1992. The learned Special Judge failed to appreciate that unlike Section 320 of Code of Criminal Procedure Section 24(A) of SEBI Act does not provide that the compounding can be permitted with the consent of any particular person. The consent of SEBI is not sine qua non to compound the proceedings within the spirit of the provision under Section 24 A of the said Act. The fact that the no such provision is provided shows that the intent of the statute is to provide unfettered power to the Court to compound the offence irrespective of the consent provided by the Respondent-complainant.

On 27 April 2003, Adjudicating Officer imposed a penalty of Rs.1,50,000 on petitioner No.1 for violation of takeover regulations. The appeal filed by petitioner No.1 before Securities Appellate Tribunal was dismissed on 9 January 2007. On 26 February 2007, petitioner No.1 forwarded part payment of penalty by demand draft, but SEBI returned it. On 14 January 2013, SEBI filed a complaint before the Metropolitan Magistrate under Section 26 read with 24(2) and 27 of SEBI Act for non-payment of penalty. The complaint was transferred to SEBI Special Court. On 8 December 2017, petitioners filed an application for compounding before the SEBI Special Court. The application was rejected on 22 December 2017. Petitioners then filed the present writ petition challenging the rejection order.

• Securities and Exchange Board of India Act, 1992: 24(2), 24A, 26, 27, 15(A)(b)
• Code of Criminal Procedure, 1973: 482, 320
• Negotiable Instruments Act, 1881: 138
• Constitution of India: 227
• Companies Act, 1956: