Supreme Court of India
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD OF INDIAversusBHAVESH PABARI
- Citation
- 2019 INSC 289
- Decided
- 28 February 2019
- Disposal
- Disposed off
Holding
Clauses (a), (b) and (c) of Section 15‑J are illustrative, not exhaustive, and the adjudicating officer retains discretion to consider other relevant circumstances; Section 15‑J is not eclipsed by the penalty provisions of Sections 15‑A to 15‑HA.
Summary
The Supreme Court examined the scope of Sections 15‑J and 15‑A to 15‑HA of the Securities and Exchange Board of India Act, 1992 in a series of appeals arising from penalties imposed on Bhavesh Pabari, Shree Radhe and other respondents for violations of SEBI regulations. The principal issue was whether the factors listed in clauses (a), (b) and (c) of Section 15‑J are exhaustive or merely illustrative for the adjudicating officer’s discretion in fixing the quantum of penalty. The Court held that the clauses are illustrative, allowing the officer to consider additional circumstances, and that Section 15‑J is not eclipsed by the substantive penalty provisions. It further clarified that the term “repetitive” in clause (c) refers to recurring defaults, not a continuous default, and that the explanatory amendment of 2017 restores the officer’s discretion. Applying these principles, the Court affirmed the penalties imposed under Sections 15‑HA, 15‑HB and related provisions and dismissed the appeals. The orders were disposed of without any cost order.
Issues considered
- Whether clauses (a), (b) and (c) of Section 15‑J of the SEBI Act are exhaustive in governing the adjudicating officer’s discretion to determine the quantum of penalty
- Whether the discretion conferred by Section 15‑J is eclipsed by the penalty provisions contained in Sections 15‑A to 15‑HA
- Interpretation of the term “repetitive nature of the default” in clause (c) of Section 15‑J – does it include a continuing default
- Validity of the penalties imposed on the appellants under Sections 15‑HA, 15‑HB and other penalty provisions
Legislation cited
- Amendment Act No. 27 of 2014 (SEBI Act)
- Amendment Act No. 59 of 2002 (SEBI Act)
- Amendment Act No. 7 of 2017 (SEBI Act)
- Securities and Exchange Board of India Act, 1992s. 15-A, s. 15-HA, s. 15-HB, s. 15-I, s. 15-J, s. 15-Z
Subjects
SEBI Actpenalty provisionadjudicating officer discretionSection 15-Jillustrative factorsquantum of penaltycontinuing offencerepetitive defaultharmonious constructionsecurities regulation
Judgment
898 [2019]REPORTS
SUPREME COURT 18 S.C.R. 898 [2019] 18 S.C.R.
A ADJUDICATING OFFICER, SECURITIES AND EXCHANGE
BOARD OF INDIA
v.
BHAVESH PABARI
B (Civil Appeal No.11311 of 2013)
FEBRUARY 28, 2019
[RANJAN GOGOI, CJI, DEEPAK GUPTA AND
SANJIV KHANNA, JJ.]
Securities and Exchange Board of India Act, 1992 – s.15-J,
C
Cl. (a), (b) & (c) – Whether conditions stipulated in Clauses (a), (b)
and (c) of s.15-J are exhaustive to govern the discretion in the
Adjudicating Officer to decide on the quantum of penalty or the
said conditions are merely illustrative – Held: Provisions of Clauses
(a), (b) and (c) of s.15-J are illustrative in nature and have to be
D taken into account whenever such circumstances exist – But this is
not to say that there can be no other circumstance(s) beyond those
enumerated in Clauses (a), (b) and (c) of s.15-J that the Adjudicating
Officer is precluded in law from considering while deciding on the
quantum of penalty to be imposed – A narrow view would be in
direct conflict with the provisions of s.15-I(2) which vests jurisdiction
E
in the Adjudicating Officer, who is empowered on completion of the
inquiry to impose “such penalty as he thinks fit in accordance with
the provisions of any of those sections.”– The above apart, the
circumstances enumerated in Clauses (a), (b) and (c) of s.15-J may
have no relevance and may never arise in case of contraventions
F contemplated by certain provisions of the SEBI Act, for instance
s.15-A, 15-B or 15-C – Therefore, to understand the conditions
stipulated in Clauses (a), (b) and (c) of s.15-J to be exhaustive and
admitting of no exception or vesting any discretion in the
Adjudicating Officer would be virtually to admit / concede that in
adjudications involving penalties u/ss.15-A, 15-B and 15-C, s.15-J
G
will have no application – Such a result could not have been intended
by the legislature – Conditions stipulated in Clauses (a), (b) and (c)
of s.15-J are not exhaustive and in the given facts of a case, there
can be circumstances beyond those enumerated by Clauses (a), (b)
and (c) of s.15-J which can be taken note of by the Adjudicating
H Officer while determining the quantum of penalty.
898
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE 899
BOARD OF INDIA v. BHAVESH PABARI
Securities and Exchange Board of India Act, 1992 – s.15-J, A
Cl. (a), (b) & (c) and ss.15-A to 15-HA – Whether conditions
stipulated in Clauses (a) to (c) of s.15-J (which enumerates the
“factors to be taken into account by the Adjudicating Officer” while
adjudging the quantum of penalty) are mandatory conditions which
must be read into ss.15-A to 15-HA (the penalty provisions) in the
B
sense that unless the conditions specified in Clauses (a) to (c) are
satisfied, penalty cannot be imposed by the Adjudicating Officer
under the substantive provisions of ss.15-A to 15-HA – Held: The
argument is too far-fetched to be accepted – s.15-J enumerates by
way of illustration(s) the factors which the Adjudicating Officer
should take into consideration for determining the quantum of C
penalty imposable – Imposition of penalty depends upon satisfaction
of the substantive provisions as contained in s.15-A to s.15-HA.
Securities and Exchange Board of India Act, 1992 – s.15-J,
Cl. (c) – Default under – Nature of – Continuing or repetitive –
Held: Clause(c) of s.15-J refers to repetitive nature of default and D
not a continuing default – The word “repetitive” as used therein
would refer to a recurring or successive default – This dictum,
however, does not mean that factum of continuing default is not a
relevant factor as Clauses (a) to (c) in s.15-J of the Act are merely
illustrative and are not the only grounds/factors which can be taken
into consideration while determining the quantum of penalty – Words E
and Phrases – “repetitive”.
Securities and Exchange Board of India Act, 1992 – s.15-J,
Cl. (a), (b) & (c) and ss.15-A to 15-HA – Whether power and
discretion vested by s.15-J to decide on the quantum of penalty,
stands eclipsed by the penalty provisions contained in s.15-A to F
s.15-HA – Held: ss.15-A(a) to 15-HA have to be read along with
s.15-J in a manner to avoid any inconsistency or repugnancy –
Need to avoid conflict and head-on-clash and construe the said
provisions harmoniously – Explanation to s.15-J added by
Amendment Act No.7 of 2017, has clarified and vested in the G
Adjudicating Officer a discretion u/s.15-J on the quantum of penalty
to be imposed while adjudicating defaults u/ss.15-A to 15-HA –
Explanation to s.15-J, which was introduced / added in 2017 for
removal of doubts created as a result of pronouncement in M/s.
Roofit Industries Ltd. case, also states that the Adjudicating Officer
H
900 SUPREME COURT REPORTS [2019] 18 S.C.R.
A shall always have deemed to have exercised and applied the
provision – Therefore, provisions of s.15-J were never eclipsed and
had continued to apply in terms thereof to the defaults u/s.15-A(a).
Securities and Exchange Board of India Act, 1992 – s.15-J
and s.15A(e) – Applicability of s.15J, in context of s.15A(a) as it
B was between 29th October, 2002 till 7th September, 2014 – Expression
“whichever is less” therein – Meaning and effect – Legislative intent
behind s.15A(a) as amended by Amendment Act No.7 of 2014 and
Clarificatory Explanation added by Act No.7 of 21017 to s.15J
explained – Held: M/s Roofit Industries Ltd. case had erroneously
held that s.15-J would not be applicable after s.15-A(a) was
C amended with effect from 29th October, 2002 till 7th September, 2014
when s.15-A(a) of the SEBI Act was again amended – Insertion of
Explanation to s.15-J added by Amendment Act No.7 of 2017 would
reflect that the legislative intent, in spite of the use of the expression
“whichever is less” in s.15-A(a) as it existed during the period 29th
D October 2002 till 7 th September 2014, was not to curtail the
discretion of the Adjudicating Officer u/s.15J on the quantum of
penalty to be imposed while adjudicating defaults – The legislative
intent is also clear as s.15A(a) was amended by Amendment Act
No.27 of 2014 to state that the penalty could extend to Rs.1 lakh
for each day during which the failure continues subject to a maximum
E penalty of Rs. 1 crore – This amendment in 2014 was not
retrospective and therefore, clarificatory and for removal of doubt
Explanation to s.15-J was added by Act No. 7 of 2017 – Normally
the expression “whichever is less” would connote absence of
discretion by prescribing the minimum mandatory penalty, but in
F the context of s.15A(a) as it was between 29th October,2002 till 7th
September, 2014, read along with Explanation to s.15-J added by
Act No.7 of 2017, the legislative intent was not to prescribe minimum
mandatory penalty of Rs.1 lakh per day during which the default
and failure had continued – s.15-A(a) as it was between 25 th October,
2002 and 7th September, 2014 has to be read and interpreted in line
G with the Amendment Act 27 of 2014 as giving discretion to the
Adjudicating Officer to impose minimum penalty of Rs.1 lakh subject
to maximum penalty of Rs.1 crore, keeping in view the period of
default as well as aggravating and mitigating circumstances
including those specified in s.15-J.
H
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE 901
BOARD OF INDIA v. BHAVESH PABARI
Criminal Law – Offence – “Continuing offence” and “Repeat A
offence” – Distinction between – Held: The continuing offence is a
one which is of a continuous nature as distinguished from one which
is committed once and for all – In case of continuing offence, the
liability continues until the rule or its requirement is obeyed or
complied with – On every occasion when disobedience or non-
B
compliance occurs and reoccurs, there is an offence committed –
Continuing offence constitutes a fresh offence every time or occasion
it occurs – A recurring or successive wrong, on the other hand, are
those which occur periodically with each wrong giving rise to a
distinct and separate cause of action.
Interpretation of Statutes – Doctrine of Harmonious C
construction – Invocation of – Held: Provision of one section cannot
be used to nullify and obtrude another unless it is impossible to
reconcile the two provisions.
Interpretation of Statutes – Explanation to provision –
Clarificatory Explanation – Explanation to s.15-J was introduced / D
added by Amendment Act No.7 of 2017 for removal of doubts created
as a result of pronouncement in M/s. Roofit Industries Ltd. case –
Explanation to s.15-J so added by Amendment Act No.7 of 2017
has clarified and vested in the Adjudicating Officer a discretion
u/s.15-J on the quantum of penalty to be imposed while adjudicating E
defaults u/ss.15-A to 15-HA – Securities and Exchange Board of
India Act, 1992 – s.15-J, Explanation to.
Securities and Exchange Board of India through its
Chairman v. Roofit Industries Limited (2016) 12 SCC
125 – overruled. F
State of Bihar v. Deokaran Nenshi & Ors. (1972) 2 SCC
890 : [1973] 3 SCR 1004 and Union of India & Anr. v.
Tarsem Singh (2008) 8 SCC 648 : [2008] 12 SCR 104
– relied on.
Siddharth Chaturvedi v. Securities and Exchange Board G
of India (2016) 12 SCC 119; Securities and Exchange
Board of India v. Rakhi Trading (P) Ltd. (2018) 13 SCC
753; and Securities and Exchange Board of India v.
Kishore R. Ajmera (2016) 6 SCC 368: [2016] 1 SCR
1118 – referred to.
H
902 SUPREME COURT REPORTS [2019] 18 S.C.R.
A Case Law Reference
(2016) 12 SCC 119 referred to Para 2
(2016) 12 SCC 125 overruled Para 2
[1973] 3 SCR 1004 relied on Para 13
B [2008] 12 SCR 104 relied on Para 13
(2018) 13 SCC 753 referred to Para 43
[2016] 1 SCR 1118 referred to Para 43
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 11311
C of 2013.
From the Judgment and Order dated 10.09.2013 of the Securities
Appellate Tribunal, Mumbai in Appeal No. 71 of 2012.
With
D
C.A. No. 1824 of 2014, C.A. No. 9798 of 2014, C.A. No. 9797 of
2014, C.A. No. 9799 of 2014, C.A. No. 14728 of 2015, C.A. No. 14730
of 2015, C.A. No. 14729 of 2015, C.A. No. 33 of 2017, C.A. No. 1009
of 2017, C.A. No. 2641 of 2017, C.A. No. 6160 of 2018 and C.A. No.
9563 of 2018.
E
Mr. C.U. Singh, Sr. Adv. Sahil Khanna, J.D. Baruah, Praveen
Kumar, Harish Pandey, Abhishek Anand, M.P. Devanatha, Ms. Ruchi
Kohli, Pradeep Aggarwal, Lal Pratap Singh, Arjun Aggarwal, P.N. Sharma,
Atanu Mukherjee, Sarad Kumar Singhania, Purvish Jitendra Malkan,
F Prakash Shah, Ms. Dharita Purvish Malkan, Ms. Khushboo V. Malkan,
Alok Kumar, Raghaev R. Ms. Deepa Gorasia, Tanmaya Agarwal, Nipun
Goel, Sudarsh Menon, Ms. Nimisha Menon, Suryodaya Prakash Tiwari,
Sanjay Kumar Dubey, Advs. for the Appellants.
Chander Uday Singh, Sr. Adv. Pratap Venugopal, Ms. Surekha
G
Raman, Purushottam Kumar Jha, Ms. Remya Raj, M/s K J John and
Co., Harish Pandey, Pradeep Aggarwal, Lal Pratap Singh, Umesh Pratap
Singh, Arjun Aggarwal, P.N. Sharma, Ms. Ruchi Kohli, Advs. for the
Respondents.
H
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 903
OF INDIA v. BHAVESH PABARI
The Judgment of the Court was delivered by A
SANJIV KHANNA, J.
1. Delay condoned.
2. Two primary questions, in a way interconnected, have been
referred by the Referral judgment and order dated 14th March, 2016 B
passed in Siddharth Chaturvedi Vs. Securities and Exchange Board
of India1. The correctness of the view expressed on the said two
questions by a numerical smaller bench of this Court in Securities and
Exchange Board of India through its Chairman vs. Roofit Industries
Limited2 would coincidentally arise. The questions referred can be
enumerated and summarized as follows: C
(i) Whether the conditions stipulated in clauses (a), (b) and (c) of
Section 15-J of the Securities and Exchange Board of India Act, 1992
(hereinafter referred to as “SEBI Act”) are exhaustive to govern the
discretion in the Adjudicating Officer to decide on the quantum of penalty
or the said conditions are merely illustrative? D
(ii) Whether the power and discretion vested by Section 15-J of
the SEBI Act to decide on the quantum of penalty, regardless of the
manner in which the first question is answered, stands eclipsed by the
penalty provisions contained in Section 15-A to Section 15-HA of the
SEBI Act? E
3. The SEBI Act, as the object of its enactment would indicate,
was enacted “to provide for the establishment of a Board to protect
the interests of investors in securities and to promote the
development of, and to regulate, the securities market and for
matters connected therewith or incidental thereto.” F
4. For the purposes of the present reference, we may proceed to
consider the provisions contained in Chapter VI-A of the SEBI Act.
Sections 15-A to 15-HA are the penalty provisions whereas Section 15-
I deals with the power of adjudication and Section 15-J enumerates the
“factors to be taken into account by the Adjudicating Officer” G
while adjudging the quantum of penalty.
5. Section 15-A, illustratively, as existing prior to its amendment
by Act No.59 of 2002, as amended by Act No.59 of 2002 and thereafter
1
(2016) 12 SCC 119
2
(2016) 12 SCC 125 H
904 SUPREME COURT REPORTS [2019] 18 S.C.R.
A as amended by Act No.27 of 2014 and Section 15-J are required to be
specifically noticed at this stage.
Section 15A as existing prior to Amendment Act No.59 of 2002
“15A. Penalty for failure to furnish information, return, etc.
- If any person, who is required under this Act or any rules or
B regulations made thereunder, -
(a) to furnish any document, return or report to the Board,
fails to furnish the same, he shall be liable to a penalty not exceeding
one lakh and fifty thousand rupees for each such failure;
C (b) to file any return or furnish any information, books or
other documents within the time specified therefor in the
regulations, fails to file return or furnish the same within the time
specified therefor in the regulations, he shall be liable to a penalty
not exceeding five thousand rupees for every day, during which
such failure continues;
D
(c) to maintain books of account or records, fails to maintain
the same, he shall be liable to a penalty not exceeding ten thousand
rupees for every day during which the failure continues.”
Section 15A as amended by Act No.59 of 2002
E “15A. Penalty for failure to furnish information, return, etc.
- If any person, who is required under this Act or any rules or
regulations made thereunder, -
(a) to furnish any document, return or report to the Board,
fails to furnish the same, he shall be liable to a penalty of one lakh
F rupees for each day during which such failure continues or one
crore rupees, whichever is less;
(b) to file any return or furnish any information, books or
other documents within the time specified therefor in the
regulations, fails to file return or furnish the same within the time
G specified therefor in the regulations, he shall be liable to a penalty
of one lakh rupees for each day during which such failure continues
or one crore rupees, whichever is less;
(c) to maintain books of account or records, fails to maintain
the same, he shall be liable to a penalty of one lakh rupees for
H
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 905
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
each day during which such failure continues or one crore rupees, A
whichever is less.”
Section 15A as amended by Amendment Act No.27 of 2014
“15-A. Penalty for failure to furnish information, return, etc.
- If any person, who is required under this Act or any rules or
regulations made thereunder,- B
(a) to furnish any document, return or report to the Board
fails to furnish the same, he shall be liable to a penalty which shall
not be less than one lakh rupees but which may extend to one
lakh rupees for each day during which such failure continues
subject to a maximum of one crore rupees; C
(b) to file any return or furnish any information, books or
other documents within the time specified therefor in the
regulations, fails to file return or furnish the same within the time
specified therefor in the regulations, he shall be liable to a penalty
which shall not be less than one lakh rupees but which may extend D
to one lakh rupees for each day during which such failure continues
subject to a maximum of one crore rupees;
(c) to maintain books of account or records, fails to maintain
the same, he shall be liable to a penalty which shall not be less
than one lakh rupees but which may extend to one lakh rupees for E
each day during which such failure continues subject to a maximum
of one crore rupees.
Section 15 J
“15-J. Factors to be taken into account by the adjudicating officer.-
F
While adjudging the quantum of penalty under section 15-I, the
adjudicating officer shall have due regard to the following factors,
namely:-
(a) the amount of disproportionate gain or unfair advantage,
wherever quantifiable, made as a result of the default;
G
(b) the amount of loss caused to an investor or group of
investors as a result of the default;
(c) the repetitive nature of the default.
H
906 SUPREME COURT REPORTS [2019] 18 S.C.R.
A Explanation - for the removal of doubts, it is clarified that the
power of an adjudicating officer to adjudge the quantum of penalty
under sections 15-A to 15-E, clauses (b) and (c) of section 15-F,
15-G, 15-H and 15-HA shall be and shall always be deemed to
have been exercised under the provisions of this section.”
B [Explanation added by Act No. 7 of 2017]
6. Insofar as the second question is concerned, if the penalty
provisions are to be understood as not admitting of any exception or
discretion and the penalty as prescribed in Section 15-A to Section 15-
HA of the SEBI Act is to be mandatorily imposed in case of default/
C failure, Section 15-J of the SEBI Act would stand obliterated and eclipsed.
Hence, the question referred. Sections 15-A(a) to 15-HA have to be
read along with Section 15-J in a manner to avoid any inconsistency or
repugnancy. We must avoid conflict and head-on-clash and construe the
said provisions harmoniously. Provision of one section cannot be used to
nullify and obtrude another unless it is impossible to reconcile the two
D provisions. The explanation to Section 15-J of the SEBI Act added by
Act No.7 of 2017, quoted above, has clarified and vested in the
Adjudicating Officer a discretion under Section 15-J on the quantum of
penalty to be imposed while adjudicating defaults under Sections 15-A
to 15-HA. Explanation to Section 15-J was introduced/added in 2017 for
E the removal of doubts created as a result of pronouncement in
M/s. Roofit Industries Ltd. case (supra). We are in agreement with
the reasoning given in reference order dated 14th March, 2016 that
M/s Roofit Industries Ltd. had erroneously and wrongly held that Section
15-J would not be applicable after Section 15-A(a) was amended with
effect from 29th October, 2002 till 7th September, 2014 when Section 15-
F A(a) of the SEBI Act was again amended. It is beyond any doubt that
the second referred question stands fully answered by clarification through
the medium of enacting the Explanation to Section 15-J vide Act No.7 to
2017, which also states that the Adjudicating Officer shall always have
deemed to have exercised and applied the provision. We, therefore, deem
G it appropriate to hold that the provisions of Section 15-J were never
eclipsed and had continued to apply in terms thereof to the defaults
under Section 15-A(a) of the SEBI Act.
7. Reference Order in Siddharth Chaturvedi & Ors. (supra)
on the said aspect has observed that Section 15-A(a) could apply even
H to technical defaults of small amounts and, therefore, prescription of
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 907
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
minimum mandatory penalty of Rs.1 lakh per day subject to maximum A
of Rs.1 crore, would make the Section completely disproportionate and
arbitrary so as to invade and violate fundamental rights. Insertion of the
Explanation would reflect that the legislative intent, in spite of the use of
the expression “whichever is less” in Section 15-A(a) as it existed during
the period 29th October 2002 till 7th September 2014, was not to curtail
B
the discretion of the Adjudicating Officer by prescribing a minimum
mandatory penalty of not less than Rs. 1 lakh per day till compliance
was made, notwithstanding the fact that the default was technical, no
loss was caused to the investor(s) and no disproportionate gain or unfair
advantage was made. The legislative intent is also clear as Section 15A(a)
was amended by the Amendment Act No.27 of 2014 to state that the C
penalty could extend to Rs. 1 lakh for each day during which the failure
continues subject to a maximum penalty of Rs. 1 crore. This amendment
in 2014 was not retrospective and therefore, clarificatory and removal
of doubt Explanation to Section 15-J was added by the Act No. 7 of
2017. Normally the expression “whichever is less” would connote absence
D
of discretion by prescribing the minimum mandatory penalty, but in the
context of Section 15A(a) as it was between 29th October,2002 till 7th
September, 2014, read along with Explanation to Section 15-J added by
Act No.7 of 2017, we would hold the legislative intent was not to prescribe
minimum mandatory penalty of Rs.1 lakh per day during which the default
and failure had continued. We would prefer read and interpret Section E
15-A(a) as it was between 25th October, 2002 and 7th September, 2014
in line with the Amendment Act 27 of 2014 as giving discretion to the
Adjudicating Officer to impose minimum penalty of Rs.1 lakh subject to
maximum penalty of Rs.1 crore, keeping in view the period of default as
well as aggravating and mitigating circumstances including those specified
F
in Section 15-J of the SEBI Act.
8. This will require us to consider the first question referred.
Having dealt with the submissions advanced by the rival parties, (both
parties have actually canvassed for a wider and more expansive
interpretation of Section 15-J), we are inclined to take the view that the
provisions of clauses (a), (b) and (c) of Section 15-J are illustrative in G
nature and have to be taken into account whenever such circumstances
exist. But this is not to say that there can be no other circumstance(s)
beyond those enumerated in clauses (a), (b) and (c) of Section 15-J that
the Adjudicating Officer is precluded in law from considering while
deciding on the quantum of penalty to be imposed. H
908 SUPREME COURT REPORTS [2019] 18 S.C.R.
A 9. A narrow view would be in direct conflict with the provisions of
Section 15-I(2) of the SEBI Act which vests jurisdiction in the
Adjudicating Officer, who is empowered on completion of the inquiry to
impose “such penalty as he thinks fit in accordance with the
provisions of any of those sections.”
B 10. The above apart, the circumstances enumerated in clauses
(a), (b) and (c) of Section 15-J of the SEBI Act may have no relevance
and may never arise in case of contraventions contemplated by certain
provisions of the SEBI Act, for instance Section 15-A, 15-B or 15-C of
the SEBI Act. Failure to furnish information, return, etc.; failure to enter
into agreement with clients; and failure to redress investors’ grievances
C cannot give rise to the circumstances set out in clauses (a), (b) and (c)
of Section 15-J.
11. Therefore, to understand the conditions stipulated in clauses
(a), (b) and (c) of Section 15-J to be exhaustive and admitting of no
exception or vesting any discretion in the Adjudicating Officer would be
D virtually to admit/concede that in adjudications involving penalties under
Sections 15-A, 15-B and 15-C, Section 15-J will have no application.
Such a result could not have been intended by the legislature. We,
therefore, hold and take the view that conditions stipulated in clauses
(a), (b) and (c) of Section 15-J are not exhaustive and in the given facts
E of a case, there can be circumstances beyond those enumerated by
clauses (a), (b) and (c) of Section 15-J which can be taken note of by
the Adjudicating Officer while determining the quantum of penalty.
12. At this stage, we must also deal with and reject the argument
raised by some of the private appellants that the conditions stipulated in
F clauses (a) to (c) of Section 15-J are mandatory conditions which must
be read into Sections 15-A to 15-HA in the sense that unless the conditions
specified in clauses (a) to (c) are satisfied, penalty cannot be imposed
by the Adjudicating Officer under the substantive provisions of Sections
15-A to 15-HA of the SEBI Act. The argument is too far-fetched to be
accepted. Section 15-J of the SEBI Act enumerates by way of
G illustration(s) the factors which the Adjudicating Officer should take into
consideration for determining the quantum of penalty imposable. The
imposition of penalty depends upon satisfaction of the substantive
provisions as contained in Sections 15-A to Section 15-HA of the SEBI
Act.
H
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 909
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
13. There is a distinction between a continuing offence and a A
repeat offence. The continuing offence is a one which is of a continuous
nature as distinguished from one which is committed once and for all.
The term “continuing offence” was explained and elucidated by giving
several illustrations in State of Bihar vs. Deokaran Nenshi & Ors.3.
In case of continuing offence, the liability continues until the rule or its
B
requirement is obeyed or complied with. On every occasion when
disobedience or non-compliance occurs and reoccurs, there is an offence
committed. Continuing offence constitutes a fresh offence every time
or occasion it occurs. In Union of India & Anr. Vs. Tarsem Singh4,
continuing offence or default in service law was explained as a single
wrongful act which causes a continuing injury. A recurring or successive C
wrong, on the other hand, are those which occur periodically with each
wrong giving rise to a distinct and separate cause of action. We have
made reference to this legal position in view of clause (c) of Section 15-
J of the SEBI Act which refers to repetitive nature of default and not a
continuing default. The word “repetitive” as used therein would refer to
D
a recurring or successive default. This factum has to be taken into
consideration while deciding upon the quantum of penalty. This dictum,
however, does not mean that factum of continuing default is not a relevant
factor, as we have held that clauses (a) to (c) in Section 15-J of the
SEBI Act are merely illustrative and are not the only grounds/factors
which can be taken into consideration while determining the quantum of E
penalty.
14. We now proceed to consider each of the case as, in our
considered view, such exercise would be appropriate to finally terminate/
decide the appeals under consideration.
C.A. No. 9797 of 2014 (Bhavesh Pabari Vs. The Adjudicating F
Officer, SEBI)
C.A. No. 9798 of 2014 (M/s. Shree Radhe Vs. The Adjudicating
Officer, SEBI)
C.A. No. 9799 of 2014 (Hemant Sheth Vs. The Adjudicating G
Officer, SEBI)
15. These appeals arise from a common order dated 10 th
September, 2013 passed by the Securities Appellate Tribunal, Mumbai,
3
(1972) 2 SCC 890
4
(2008) 8 SCC 648 H
910 SUPREME COURT REPORTS [2019] 18 S.C.R.
A (“Appellate Tribunal” for short), on appeals preferred by Mr. Bhavesh
Pabari, M/s Shree Radhe, and Mr. Hemant Sheth impugning three
separate orders all dated 30th December, 2011 passed by the Adjudicating
Officer under Section 15-I of the SEBI Act.
16. Impugned order passed by the Appellate Tribunal confirms
B penalty of Rs.20,00,000 (Rupees twenty lakhs only) each as imposed on
the appellants by the Adjudicating Officer under Section 15-HA of the
Act for violation of Regulation Nos.4(2)(a), (b) and (g) of the SEBI
(Prohibition of Fraudulent and Unfair Trade Practices relating to
Securities Market) Regulations, 2003 (“PFUTP Regulations” for short).
C 17. Factual findings, as observed by the Adjudicating Officer and
accepted by the Appellate Tribunal as un-controvertible, are mentioned
below:
(i) Bhavesh Pabari in his name and as sole proprietor of M/s.
Shree Radhe, Hemant Sheth and one Neeraj Sanghvi had
D indulged in synchronized/structured and reversed trade in
the scrips of M/s. Gulshan Polyols Ltd. (erstwhile Gulshan
Sugar and Chemicals Ltd.) (“GPL” for short) from 10th
April, 2006 to 8th September, 2006.
(ii) Connection/complicity between Bhavesh Pabari/M/s. Shree
E Radhe, Hemant Sheth and one Neeraj Sanghvi was
established and was not disputed. Hemant Sheth and
Bhavesh Pabari/M/s. Shree Radhe had a common
introducer in the “Know Your Customer” documentation.
(iii) Scrips of GPL opened at Rs.44.75 on 12th January, 2006,
F touched a peak high of Rs.103.40 on 30th August, 2006 and
closed at Rs. 31.70 on 29th December, 2006. The share
price of the scrips during the period 1st December, 2005 to
11 January, 2006 was in the range of Rs.31.50 to Rs. 49.90
with an average daily volume of 8,255 shares.
(iv) The three appellants along with Neeraj Sanghvi, during the
G
period 10th April, 2006 to 8th September, 2006 had traded
with each other in 18,48,081 shares of the GPL which had
accounted for around 16.29% of the total traded volume in
this period.
H
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 911
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
(v) About 45% of the total shares, i.e., 8,34,453 shares were A
executed via structured orders, i.e., buy and sell orders
which were placed within a gap of one minute. Out of this,
trade in 5,97,835 shares (32% of the total shares traded)
were through synchronized orders as the rate and quantity
of the buy and sell order were identical.
B
(vi) On 64 trading dates between 10 th April, 2006 to 8 th
September, 2006, a reverse trading pattern was espied in
15,18,204 shares, which had accounted for 13.38% of the
total market value and was more than 20% of the market
volume in the aforesaid period.
C
(vii) On 24 days between the period from 10 April, 2006 to 8th
September, 2006, the quantity traded in the GPL scrips
between the connected persons was more than 50% of the
market volume.
(viii) On 1st August, 2006, the connected transactions were D
83.79% of the market volume.
(ix) Bhavesh Pabari had indulged in self trade in 60,203 GPL
shares (5.1% of the total traded quantity from 18th April,
2006 to 25th August, 2006).
(x) Bhavesh Pabari had executed reversal trades with M/s. E
Shree Radhe and Hemant Sheth for 7,73,810 shares during
the period 18th April, 2006 to 25th August, 2006 which was
66% of the total traded quantity.
(xi) Bhavesh Pabari had entered into 96 buy trades in 1,22,324
shares which were found to be synchronized by price and F
time and 69 buy trades in 1,43,170 shares synchronized by
price, time and quantity with his sole proprietorship M/s.
Shree Radhe in the period 18th April, 2006 to 25th August,
2006.
(xii) Bhavesh Pabari had entered into 282 sell trades in 2,16,578 G
shares which were synchronized by price and time, and 32
sell trades for 43,626 shares which was found to be
synchronized by price, time and quantity with M/s Shree
Radhe during the period 18th April, 2006 to 25th August,
2006.
H
912 SUPREME COURT REPORTS [2019] 18 S.C.R.
A (xiii) Bhavesh Pabari had entered into 28 buy trades for 55,915
shares synchronized by price and time and 21 buy trades
for 39,350 shares synchronized by price, time and quantity
with Hemant Sheth in the period 18th April, 2006 to 25th
August, 2006.
B (xiv) Bhavesh Pabari had entered into 22 sell trades for 41,500
shares which were found to be synchronized by price and
time and 16 sell trades for 40,422 shares which were
synchronized by price, time and quantity with Hemant Sheth
in the period 18th April, 2006 to 25th August, 2006.
C (xv) Similarly, there were 13 buy and sell trades with Neeraj
Sanghvi.
18. The sole contention of the learned counsels appearing on behalf
of Bhavesh Pabari and M/s Shree Radhe is that penalties of Rs.20,00,000
(Rupees twenty lakhs only) each should not have been separately
D imposed on Bhavesh Pabari and M/s Shree Radhe, of which he was the
sole proprietor.
19. This contention superficially seems attractive, but on an in-
depth reflection should be rejected as Bhavesh Pabari had indulged in
trading in its personal name and as also the sole proprietor of M/s. Shree
E Radhe. This is clear from inter se transactions and transactions with
connected persons. Thus, Bhavesh Pabari had transacted in two different
capacities, i.e., in his personal name and as sole proprietor of M/s. Shree
Radhe. It is in this background that total penalty of Rs.40 lakhs (Rupees
forty lakhs only) under Section 15-HA of the SEBI Act had been imposed
for violation of Regulations 4(2)(a), (b) and (g) of the PFUTP Regulations
F as the transactions were in two different names, though belonging to the
same individual.
20. Accordingly, C.A. No.9798/2014 preferred by M/s Shree
Radhe and C.A. No.9797/2014 preferred by Bhavesh Pabari hold no
merit and are dismissed affirming the order passed by the Appellate
G Tribunal and confirming the penalty of Rs.20,00,000/- (Rupees twenty
lakhs only) each imposed under Section 15-HA of the Act. C.A. No.
9799/2014 by Hemant Sheth must also fail. In the given facts, we are
not inclined to show indulgence and leniency to the three appellants, as
the facts found are highly ignominious and scandalous.
H
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 913
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
C.A. No. 11311 of 2013 (A.O., Securities and Exchange Board A
of India vs. Bhavesh Pabari)
C.A. No. 1824 of 2014 (Securities & Exchange Board of India
Vs. M/s. Shree Radhe)
21. SEBI has filed cross appeals aggrieved by the order of
Appellate Tribunal dated 10th September, 2013 deleting the penalty of B
Rs.10,00,000 (Rupees ten lakhs only) each imposed on Bhavesh Pabari
and M/s Shree Radhe under Section 15-A(a) of the SEBI Act for violating
Section 11-C(3) and 11-C(5) of SEBI Act.
22. The relevant portion of the impugned order passed by the
Appellate Tribunal reads: C
“Additional challenge in Appeal No. 71 of 2012 and 72 of
2012, relates to imposition of Rs.10 lac penalty upon each appellant
for violating Section 11C (3) and 11C (5) of SEBI Act. Grievance
of appellants is that failure to furnish requisite information was
due to circumstances beyond control viz. grandmother of Bhavesh D
Pabari (Appellant in Appeal No. 71 of 2012) who is proprietor of
M/s. Shree Radhe (Appellant in Appeal No. 72 of 2012) had
expired during the relevant period and, therefore, he was in
disturbed mind at the material time. Though, explanation given
does not inspire confidence in the facts of present case, where E
penalty of Rs. 20 lac has already been upheld, in our opinion, it
would be just and proper to delete penalty of Rs. 10 lac imposed
upon both appellants”.
23. Submission of the SEBI that the impugned order did not record
any reason for deleting the said penalty, in spite of observing that the F
explanation given by Bhavesh Pabari did not inspire confidence, would
be a just and fair criticism and a good challenge. We clearly have
reservations on the ground stated or rather lack of reasoning given by
the Appellate Tribunal, especially in the light of the language of Sections
15-A(a) and Section 15-J of the Act. However, during the hearing, the
learned counsel appearing for Bhavesh Pabari had drawn our attention G
to his reply dated 28th September, 2009 stating that Bhavesh Pabari’s
grandmother had expired and, therefore, he had requested for time to
make an appearance. It was stated at the Bar that grandmother of
Bhavesh Pabari had expired on 19th September, 2009, and this aspect
was highlighted and made known to the authorities. Furthermore, Bhavesh
H
914 SUPREME COURT REPORTS [2019] 18 S.C.R.
A Pabari/ M/s. Shree Radhe had submitted part information vide letter
dated 2nd November, 2009. These aspects and explanations have not
been considered by the Appellate Tribunal.
24. Adjudicating Officer, while imposing penalty had referred to
the letter dated 6th May, 2009 by which Bhavesh Pabari and M/s. Shree
B Radhe were required to furnish information of details regarding trading
in the GPL scrips, connection/relation with the GPL, its promoters/
directors, connection/relation between Hemant Sheth, etc. but the said
notice was not complied with. Thereafter, reminders dated 21st July,
2009 and 14th August, 2009 were issued, but again of no avail. This was
followed by summons dated 4th September, 2009, 23rd September 2009,
C 20th October, 2009 and 5th November, 2009.
25. Given the aforesaid facts, we should have remitted the matter
to the Appellate Tribunal for a fresh adjudication and examination but
would refrain from doing so in view of the time gap, the quantum of fine
imposed, and, as we have upheld the total penalty of Rs.40,00,000/-
D (Rupees forty lakhs only) imposed on the appellant under Section 15-
HA of the SEBI Act. We would rather close the proceedings.
Accordingly, appeals preferred by SEBI, i.e., C.A. No.11311 of 2013
and C.A. No.1824 of 2014 are also disposed of.
C.A. No.14728/2015 (Ankur Chaturvedi vs. Securities and
E Exchange Board of India);
C.A. No.14729/2019 (Jay Kishore Chaturvedi vs. Securities and
Exchange Board of India); and
C.A. No.14730/2015 (Siddharth Chaturvedi vs. Securities and
F Exchange Board of India); and
26. The above-captionedappellants are Promotors-cum- Directors
of M/s. Brij Laxmi Leasing and Finance Co. Ltd., a company whose
shares were listed on the Bombay Stock Exchange.
27. It is accepted and admitted that the appellants Ankur
G Chaturvedi, Sidharth Chaturvedi and Jay Kishore Chaturvedi having
purchased shares of M/s. Brij Laxmi Leasing and Finance Co. Ltd. on
2, 3 and 6 occasions respectively, were required but had failed to make
necessary disclosures to the stock exchange as stipulated and statutorily
mandated by Regulations 13(4) and 13(4A) read with Regulation 13(5)
of the Securities and Exchange Board of India (Probation of Insider
H Trading) Regulations, 1992 (“PIT Regulations” for short).
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 915
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
28. For the said violations, penalty of Rs.5,00,000/- (Rupees five A
lakhs only) in the case of Ankur Chaturvedi and Sidharth Chaturvedi
and Rs.11,00,000/- (Rupees eleven lakhs only) in the case of Jay Kishore
Chaturvedi were imposed under Section 15-A(b) of the SEBI Act. Ankur
Chaturvedi had also suffered penalty of Rs.2,00,000/- (Rupees two lakhs
only) under Section 15-HB of the SEBI Act as he had sold 45,032 shares
B
after acquiring 45,000 shares on 29th January, 2013, which was in violation
of Clause 4.2 of the Model Code of Conduct for Prevention of Insider
Trading for Listed Companies as set out in Schedule I, Part A of the PIT
Regulations.
29. The aforesaid penalties were affirmed in the impugned order
passed by the Appellate Tribunal, rejecting the contention that the penalty C
so imposed was harsh and deserved substantial reduction as there was
no intention on the part of the appellants to suppress purchase or sale or
that non-disclosure had not caused profits to appellants or otherwise a
loss to the investors and that the failure to make disclosure was an
inadvertent error without mala fide intention. D
30. The Appellate Tribunal, considering the factual matrix, has
held that the maximum penalty stipulated in the PIT Regulations was
Rs.1,00,000/- (Rupees one lakh only) for each day during which the
failure continued or Rs.1,00,00,000/- (Rupees one crore only), whichever
was less. The penalty imposed by the Adjudicating Authority took into E
consideration the mitigating factors and cannot be said to be excessively
harsh or unreasonable.
31. In view of the factual background and the reasoning given by
the Appellate Tribunal, we do not find any good ground and reason to
interfere with the quantum of penalty confirmed by the impugned order F
passed by the Appellate Tribunal.
C.A. No.33/2017 (Akshat Tandon and Others vs. Securities and
Exchange Board of India); and
C.A. No.9563/2018, (Badri Vishal Tandon vs. Securities and
Exchange Board of India). G
32. We have jointly dealt with these two appeals as they both
relate to shares of M/s Bhawani Paper Mills Ltd. (“the Target Company”
in short).
H
916 SUPREME COURT REPORTS [2019] 18 S.C.R.
A 33. In the first appeal, Akshat Tandon and 14 others are aggrieved
by the order dated 5th October, 2016 passed by the Appellate Tribunal
wherein their appeal against order dated 31st July, 2014 passed by the
Adjudicating Officer imposing penalty between Rs.3,00,000/- (Rupees
three lakhs only) to Rs.6,00,000/- (Rupees six lakhs only) for each of the
15 violations of Regulation Nos. 3(3) and 3(4) of the Securities and
B
Exchange Board of India (Substantial Acquisition of Shares and Takeover)
Regulations, 1997 (“SAST Regulations” for short) was upheld.
34. The appellants were promotors of the target company and
together were holding 54% of the paid-up shares of the target company,
which were acquired on various dates. The acquisition was in excess of
C the limits prescribed under Regulations 3(3) and 3(4) of SAST Regulations.
Failure to notify/submit report to the concerned authorities within the
stipulated time in terms of Regulations 3(3) and 3(4) is accepted. The
case of the appellants is predicated on the principle of proportionality,
for it is asserted that the quantum of penalty imposed is excessive and
D unreasonably harsh. Similar contentions were raised before the Appellate
Tribunal with the submission that the target company had incurred huge
losses and that it was a sick company. Furthermore, there was an absence
of disproportionate gain or unfair advantage to the appellants or otherwise
a loss to the investors. Contentions were rejected on the ground that the
penalty imposed was reasonable and not harsh. To justify the quantum,
E reference was made to Sections 15-A(a) and (b) of the SEBI Act, which
stipulate that the penalty could be Rs.1,00,000 (Rupees one lakh only)
for each day during which the violation continued and could be as high
as Rs.1,00,00,000/- (Rupees one crore only) for each violation.
35. This court, in the exercise of its jurisdiction under Section 15-
F Z of the SEBI Act, cannot go into the proportionality and quantum of the
penalty imposed, unless the same is distinctly disproportionate to the
nature of the violation which makes it offensive, tyrannous or intolerable.
Penalty by the very nature of the provision is penal. We can interfere
only where the quantum is wholly arbitrary and harsh which no
G reasonable man would award. In the instant case, the factual findings
are not denied and, thus, we are not inclined to intermeddle with the
quantum of penalty. The penalty imposed is just, fair and reasonable
and, thus, upheld.
36. The appellants have also contended that in the absence of any
H prescribed limitation period, SEBI should have issued show cause notice
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 917
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
within a reasonable time and there being a delay of about 8 years in A
issuance of show cause notice in 2014, the proceedings should have
been dropped. This contention was not raised before the Adjudicating
Officer in the written submissions or the reply furnished. It is not clear
whether this contention was argued before the Appellate Tribunal. There
are judgments which hold that when the period of limitation is not
B
prescribed, such power must be exercised within a reasonable time.
What would be reasonable time, would depend upon the facts and
circumstances of the case, nature of the default/statute, prejudice caused,
whether the third-party rights had been created etc. The show cause
notice in the present case had specifically referred to the respective
dates of default and the date of compliance, which was made between C
30th August, 2011 to 29th November, 2011 (delay was between 927 days
to 1897 days). Only upon compliance being made that the defaults had
come to notice. In the aforesaid background, and so noticing the quantum
of fine/penalty imposed, we do not find good ground and reason to
interfere.
D
37. Now coming to the second appeal, Badri Vishal Tandon has
impugned the order dated 20th June, 2018 passed by the Appellate Tribunal
affirming the order dated 29th December, 2017 passed by the Adjudicating
Officer, whereby he has been saddled with penalty of Rs. 1,50,000/-
(Rupees one lakh fifty thousand only) for violation of Regulation 7(1A)
read with Regulation 7(2) of the SAST Regulations. The appellant as E
Karta of Ram Mohandas Tandon (HUF) was allotted 22,50,000 shares
of the target company by way of preferential allotment, which constituted
6.46% of its total share capital. The shares were allotted pursuant to the
approval given by the Board of Directors vide letter dated 25th June,
2011. The letter of allotment was received by him on 27th June, 2011, F
and 22,50,000 shares of the Target Company were transferred to his
demat account on 12th August, 2011.
38. The Appellate Tribunal has affirmed the factual findings that
there was a delay in disclosure, which was required to be made within
two days of the receipt of intimation of allotment of shares, as per G
Regulations 7(1A) and 7(2) of the SAST Regulations. The intimation/
letter from the Target Company about the said acquisition was received
by the Bombay Stock Exchange only on 11th July, 2011.
39. Maximum penalty imposable on Badri Vishal Tandon was upto
Rs.1,00,00,000/- (Rupees one crore only). In this backdrop, we do not H
918 SUPREME COURT REPORTS [2019] 18 S.C.R.
A find any reason to interfere with the quantum of penalty of Rs.1,50,000/
- (Rupees one lakh and fifty thousand only) as imposed in exercise of
jurisdiction under Section 15-Z of the SEBI Act.
C.A. No.1009/2017 (Magnum Equity Broking Ltd. Vs.
Securities and Exchange Board of India).
B 40. The appellant has assailed the order of the Adjudicating Officer
dated 18th July, 2014, which was affirmed by the Appellate Tribunal vide
order dated 28th November, 2016, whereby penalty of Rs.3,00,000/-
(Rupees three lakhs only) was imposed on the appellant for violation of
Clause A(2) of the Code of Conduct for Stock Brokers. The said penalty
C was imposed pursuant to investigation into trading in scrips of M/s Aarey
Drugs and Pharmaceuticals Ltd. (“ADPL” in short) and M/s Winsome
Textile Industries Ltd. (“WTIL” in short) during the period 1 st January,
2009 to 31st August, 2009.
41. The brief facts are that the appellant was a stock broker and
D member of the Bombay Stock Exchange Limited. The appellant had
executed synchronized trades in the aforesaid scrips on behalf of its
clients - Mr. Ronak Choski, Mr. Shailesh Patel, Ms. Nitaben Patel and
Ms. Kapilaben Patel, acting both as a stock broker as well as party
stock broker. Total volume of symphonized trade in the scrip of WTIL
was 68,02,131 shares, which were executed on one day. Total volume
E of 88,89,052 shares in the case of scrip of ADPL were transacted over
a period of five days. The appellate order succinctly refers to the figures
and details of such transactions, for example, on 19th February, 2009, the
appellant’s clients had executed 18 trades in the scrip of WTIL, which
constituted 68% of the total number of shares traded on that date and
F 38% of the trades executed on that date. For 7 out of 18 synchronized
trades, the buy and sell orders were perfectly matching in price and
quantity. Similarly, on 20th March, 2009, there were 73 synchronized
trades in the scrip of ADPL amounting to 43.8% of the shares traded
and 63.4% of the trades executed. The appellate order observes that
such synchronized trades create an artificial volume, leading to ratcheting
G up in the trading of the scrip and cause price fluctuations, thereby
misleading the potential investors. Such transactions create a deceptive
appearance as to the quantum of trading in the scrip which could be
understood as a viable investment opportunity when it is not. This hurts
and damages sanctity of the securities market. Reference was specifically
H made to the factum that the synchronized trade on different dates was
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 919
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
amounting to 3.4%, 7.17%, 20.4% and 15.12% of the total market volume A
on 25th March, 2009, 23rd March, 2009, 26th March, 2009 and 27th March,
2009 respectively.
42. The appellant does not controvert the transactions/trades. The
case of the appellant is that the trades were executed within a normal
price range and did not lead to an artificial price movement. Reliance B
was placed on SEBI’s circular dated 14th September, 1999 that cross
deals executed between two clients of the same broker can be conducted
through the screen mechanism of the stock exchange. Submission was
that the synchronized trade was not a result of any illicit scheme.
However, Appellate Tribunal had rejected the contentions as the
transactions/trades made by the appellants were between family C
members restricted to two scrips of WTIL and ADPL spread over a
period of 6 days and had referred to the factual matrix of the case.
43. Reference to the Securities and Exchange Board of India
vs. Rakhi Trading (P) Ltd.5 which refers to an earlier decision in the
Securities and Exchange Board of India vs.Kishore R. Ajmera6 is D
misconceived, for the said decisions do not hold that a broker cannot be
proceeded against for violation of Regulation 7 of the SEBI (Stock
Brokers and Sub-Brokers) Regulations, 1992 (“Stock Broker
Regulations” for short) for violation of Clause A(2) of the Code of
Conduct for Stock Brokers. The decisions hold that a broker would not E
be liable merely because he had facilitated the transactions, in the absence
of any material to suggest negligence and connivance on the part of the
broker. Thus, the matter would be different as observed in the concurring
judgment of Banumathi, J. in Rakhi Trading Pvt. Ltd. (Supra), where
there was evidence to show involvement and meeting of minds of the
share broker with the client to indulge in egregious and foul transactions, F
in which circumstances the stock broker would be held liable. While
proximity of time in an isolated case may not be conclusive, but huge
volume of trading between same set/group of brokers can in a given
case reasonably point to some kind of a fraudulent and manipulative
exercise with prior meeting of minds. Further, there is a difference G
between synchronized trading involving bulk quantities and negotiated
trades as a result of consensual bargaining involving synchronization of
buy and sell orders resulting in matching thereof as per permissible
5
(2018) 13 SCC 753 (paragraph 40)
6
(2016) 6 SCC 368 H
920 SUPREME COURT REPORTS [2019] 18 S.C.R.
A parameters which are programmed accordingly. Test of preponderance
of probability applies for the adjudication and determination of civil liability
for violation of the SEBI Act or the provisions of the Regulations framed
thereunder (see para 65 to 69 in Rakhi Trading Pvt. Ltd.). Keeping the
aforesaid parameters in mind, the adjudicating authority had imposed
penalty of Rs.3,00,000/- (Rupees three lakhs only) under Section 15-HB
B
of the SEBI Act, which has been upheld by the Appellate Tribunal being
commensurate with the violation.
44. For the aforesaid reasons, we do not find any infirmity with
the concurrent findings or with the quantum of penalty imposed and the
same is upheld.
C
C.A. No.2641/2017 (M/s Quantum Global Securities & Leasing
Company Ltd. vs. Securities and Exchange Board of India).
45. In the present appeal, the appellant is the registered stock
broker and had indulged, as per the findings recorded in the adjudication
D order dated 22nd July, 2014 and upheld by the Appellate Tribunal vide
order dated 18th January, 2017, in synchronized trades, circular trades
and reversal trades in the scrips of M/s Gangotri Textiles Ltd. during the
period 7th April, 2006 to 31st May, 2006. Accordingly, the appellant had
violated Sections 12A (a), (b), (c) of the SEBI Act and Regulations 3(a),
(b), (c), (d), 4(1), 4(2)(a), (e) and (g) of the PFUTP Regulations and
E Regulation 7 read with Clauses A(1), (2), (3), (4) and (5) of the Code of
Conduct for Stock Brokers specified under Schedule II of the Stock
Broker Regulations. Consequently, penalty of Rs.60,00,000/- (Rupees
sixty Lakhs only) was imposed under Section 15-HA for violation of the
provisions of the SEBI Act and the PFUTP Regulations and the penalty
F of Rs.15,00,000/- (Rupees fifteen lakhs only) was imposed under Section
15-HB of the SEBI Act for the violation of the provisions of the Code of
Conduct for Stock Brokers.
46. The appellant did not dispute the factual findings of having
indulged in synchronized trade, circular trade and reversal trade in the
G scrips of M/s. Gangotri Textiles Ltd. They pleaded leniency claiming
that they had no mala fide intention and their annual turnover for several
years was around Rs.5,00,000/- (Rupees five lakhs only). Lastly, their
contribution towards Last Traded Price (LTP) variation was nominal.
The contentions have to be rejected as the appellant was a part of the
larger game plan along with other entities who had indulged in
H
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 921
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
synchronized, circular and reversal trading leading to a total cumulative A
positive and negative LTP contribution of Rs.999.25 and Rs.1007.25
respectively. It is to be further noted that the penalty imposable under
15-HA of the SEBI Act could be upto Rs.25,00,00,000/- (Rupees twenty-
five crores only) or three times the amount of profit made out of such
practices whichever was higher. Thus, the penalty of Rs.60,00,000/-
B
(Rupees sixty lakhs only) was not unreasonable and excessive. Similarly,
penalty of Rs.15,00,000/- (Rupees fifteen lakhs only) for failing to adhere
to the standards required to be maintained by the stock brokers which
could be as high as Rs.1,00,00,000/- (Rupees one crore only) was not
excessive, unreasonable or harsh. Penalty was also imposed on others
who had participated in the nefarious plan. Findings are correct and C
unchallengeable. We do not find any good ground and reason to interfere
with the quantum of penalty.
C.A. No.6160/2018 (Durga Prasad Yadav & Anr. vs. Securities
and Exchange Board of India).
47. Durga Prasad Yadav and Jai Hind Kumar have filed the present D
appeal having suffered penalty of Rs.1,00,00,000/- (Rupees one crore
only) under Section 15-A(a) of the SEBI Act for violation of Section 11-
C(3) of the SEBI Act vide adjudication order dated 20th January, 2016
which stands affirmed by the Appellate Tribunal in its order dated 15th
January, 2018. E
48. The appellants were required to furnish particulars about the
plans/schemes offered to the public, funds mobilized, Memorandum of
Association, details of Directors, etc. in order to examine the matter
under Section 11-AA of the SEBI Act and the SEBI (Collective
Investment Schemes), Regulations, 1999 (“CIS Regulations” for short). F
For this purpose, various letters dated 22nd November, 2012, 11th January,
2013, 7th November, 2013 and 20th February, 2014 were written by SEBI
to the two appellant Directors, two other Directors and M/s Skylark
Land Developers & Infrastructure India Pvt. Ltd. for furnishing of
information /documents/reports. Since there was an inordinate delay,
default and failure in furnishing information and responding to these letters, G
fresh summons were issued on 30th July, 2014 under Section 11-C(3) of
the SEBI Act requiring them to furnish the details to which again there
was no response. Consequently, second summons dated 12 th September,
2014 were issued for furnishing information by 22nd September, 2014, to
which yet again there was no response. Thereafter, show cause notice H
922 SUPREME COURT REPORTS [2019] 18 S.C.R.
A on 30th June, 2015 was issued to which a part reply was given by the
appellants on 23rd September, 2015. An email dated 30th November, 2015
was also sent by SEBI asking them to reply before 10th December, 2015,
with an opportunity to appear on 15th December, 2015. This was also
communicated by forwarding the notice through Speed Post AD, which
was returned undelivered in case of Durga Prasad. Thus, several
B
opportunities were given to ensure compliance by the appellants.
Afterwards, on 15th December, 2015 Subodh Kumar Gupta, authorized
representative of the appellants and others had appeared and sought
adjournment for 22nd December, 2015, on which date a reply was filed.
Subsequently, an additional reply dated 30th December, 2015 was
C furnished. Appellants in the aforesaid replies had stated that their offices
were sealed and, therefore, the required details and information could
not be furnished. Further, SEBI had not provided them necessary
documents including the copy of complaint, affidavit, evidence against
them and the investigation report.
D 49. We would now refer to the background of the case and why
notices/summons were issued. The aforesaid notices and summons were
issued pursuant to orders passed by the High Court of Madhya Pradesh
in the year 2010 in Public Interest Litigation against various companies
including M/s Skylark Land Developer and Infrastructure India Pvt. Ltd.
for cheating thousands of investors in fraudulent schemes by promising
E high returns. Pursuant to orders passed by the High Court, different
authorities including SEBI were given liberty to take appropriate action
in accordance with law. Central Bureau of Investigation was also directed
to conduct investigation. Therefore, SEBI had issued notice to the
aforesaid company, the two appellants and two other Directors to provide
F information of documents for alleged violation of Section 11-C of the
SEBI Act.
50. During the course of hearing by SEBI, most details as provided
by the appellants were general in nature. We would observe that in case
there was no violation pertaining to mobilization of funds from the public
G under various schemes/arrangements, this could have been so stated in
clear and categoric terms. Moreover, the contention that the offices
were sealed which rendered them incapable to furnish information has
been rejected for two good reasons. First, this stand is belated and held
to be an afterthought when it could have been raised at the first instance
when the reply dated 5th December, 2012 was furnished, given that the
H
ADJUDICATING OFFICER, SECURITIES AND EXCHANGE BOARD 923
OF INDIA v. BHAVESH PABARI [SANJIV KHANNA, J. ]
records were seized by the police on 5th May, 2011. Second, assertion A
was contradicted by their own conduct when during the proceedings
they had submitted a few documents, which were incomplete and not as
desired. They did not make any distinction as to the documents within
their possession and as to those with the police. Appellate Tribunal had
in these circumstances affirmed the finding that there was a lack of
B
good faith and failure in complying with the aforesaid notices/letters/
summons/emails. Adjudicating Officer had, therefore, rightly recorded
that non-compliance of summons had hampered the further course of
investigation. The failure was without any justification. Agreeing with
the said findings, the Appellate Tribunal has observed that details were
withheld with a view to delay the investigation being conducted by SEBI C
to the detriment of investors from whom funds were collected by the
appellants in contravention of CIS Regulations.
51. We do not find any fault with the reasoning given. We are of
the opinion that the fault squarely lied with the appellants and, thus, penalty
of Rs.1,00,00,000/- (Rupees one crore only) for violation of Section 11- D
C(3) under Section 15-A(a) of the SEBI Act does not call for any
interference.
52. The reference made vide order dated 14th March, 2016 and
the above captioned Civil Appeals are, accordingly, disposed of. In the
facts and circumstances of the cases, there shall be no order as to costs. E
Bibhuti Bhushan Bose Appeals disposed of.
F
G
H
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