Holding

Section 24A vests the exclusive power to compound offences punishable under the SEBI Act in the Securities Appellate Tribunal or the court before which proceedings are pending, and SEBI’s consent is not a statutory requirement, though its view must be given deference.

Summary

Prakash Gupta, a director of Ideal Hotels & Industries Ltd, was prosecuted by SEBI for alleged price rigging and insider trading during the company's 1995 IPO. Gupta applied to have the offence under Section 24 of the SEBI Act compounded under Section 24A, but the trial judge and the Delhi High Court rejected the application, upholding SEBI's objection that its consent was required. The Supreme Court examined whether Section 24A mandates SEBI's consent and who holds the exclusive power to compound such offences. It held that the power to compound rests solely with the Securities Appellate Tribunal or the court hearing the case, and the statute is silent on any requirement of SEBI's consent, though the court must consider SEBI's view with deference. Given the serious nature of the alleged market manipulation, the Court found no justification to allow compounding. Consequently, the appeal was dismissed and the High Court's order upheld.

Issues considered

Whether Section 24A of the SEBI Act requires SEBI's consent for the SAT or a court to compound an offence.
Who has exclusive authority to compound offences under Section 24A – the Securities Appellate Tribunal or the court.
Whether the guidelines issued by SEBI are binding on the SAT or the court in compounding applications.
Whether the public or private nature of the offence influences the decision to compound.
Effect of the non‑obstante clause in Section 24A on the applicability of Section 320 of the CrPC.

Legislation cited

Code of Criminal Procedure, 1973s. 320, s. 4(2), s. 482
Companies Act, 1956s. 211(7), s. 621-A
Depositories Act, 1996s. 22A
Negotiable Instruments Act, 1881s. 147
Securities and Exchange Board of India Act, 1992s. 11, s. 11B, s. 15, s. 15A, s. 15B, s. 15C, s. 15D, s. 15E, s. 15F, s. 15G, s. 15H, s. 15I, s. 15J, s. 15T, s. 15Z, s. 24, s. 24A, s. 24B, s. 26
Securities Contracts (Regulation) Act, 1956s. 23N

Subjects

compounding of offencesSEBI ActSecurities Appellate Tribunalinsider tradingprice riggingpublic intereststatutory interpretationnon‑obstante clauseregulatory enforcement

Judgment

862 [2021]
SUPREME COURT 4 S.C.R. 862
REPORTS [2021] 4 S.C.R.

A PRAKASH GUPTA
v.
SECURITIES AND EXCHANGE BOARD OF INDIA
(Criminal Appeal No 569 Of 2021)
B JULY 23, 2021
[DR. DHANANJAYA Y CHANDRACHUD
AND M. R. SHAH, JJ.]
Securities and Exchange Board of India Act, 1992:
ss. 24 and 24A – Compounding of offence under – On facts,
C allegations against appellant-director of a company of price rigging
and insider trading in the scrip of the Company – Prosecution of
the appellant u/s. 24(1) – Appellant sought the compounding of the
offence u/s. 24A – Rejection of, by the trial judge upholding the
objection of the Securities and Exchange Board of India (SEBI)
D that the offence could not be compounded without its consent –
Upheld by the High Court holding that the trial has reached the
stage of final arguments and the application for compounding cannot
be allowed without SEBI’s consent – On appeal, held: Power to
compound offences u/s. 24A rests exclusively with the Securities
Appellate Tribunal-SAT or a court before which such proceedings
E are pending and SEBI’s consent for compounding offences is not
mandatory – However, the SAT or the concerned courts must seek
and consider the view of SEBI on matters related to the compounding
of offences – Allegations involved serious acts which impinged upon
the protection of investors and the stability of the securities’ market
F – Thus, SEBI justified in opposing the request for the compounding
of the offences – Decision taken by SEBI is not mala fide nor does
it suffer from manifest arbitrariness – Thus, an order for
compounding not warranted – Order of the High Court is upheld.
Objects and reasons of enactment – Held: Is to provide for
the establishment of a Board to protect the interests of investors in
G securities and to promote the development of and to regulate the
securities market.
s. 24A – Ingredients of – Explained.
s. 24A – Compounding of offence under – Held: s. 24A
specifies the authorities vested with the powers to compound offences
H
862
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 863
OF INDIA

under the SEBI Act – s. 24A, by incorporating a non-obstante A
provision indicates a legislative intent to the effect that the power
to compound offences punishable under the SEBI Act is not
trammeled by the provisions of s. 320 CrPC – Power to compound
u/s. 24A is confined to offences punishable under the SEBI Act –
Power is entrusted solely to the SAT or to the Court, before which
B
the proceedings are pending – Hence, the non-obstante provision
contained in s. 24A must be given its natural meaning and effect.
s. 24A – Requirement of the consent of SEBI – Held: s. 24A
does not stipulate that the consent of SEBI is necessary for the SAT
or the Court before which such proceedings are pending to
compound an offence – Where Parliament intended that a C
recommendation by SEBI is necessary, it has made specific provisions
in that regard in the same statute, as in s. 24B – Section 24A 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 D
consent cannot be mandatory before SAT or the Court before which
the proceeding is pending, for exercising the power of compounding
u/s. 24A.
Securities and Exchange Board of India – Power and
functions of – Held: SEBI has been ascribed role as a regulatory, E
adjudicatory and prosecuting agency – Thus, the SEBI Act and the
rules, regulations and circulars made or issued under the legislation,
are constantly evolving with a concerted aim to enforce order in the
securities market and promote its healthy growth while protecting
investor wealth – Powers of the SAT and the Court would necessarily
have to align with SEBI’s larger existential purpose – Thus, in line F
with the object of the SEBI Act, s. 24A to be interpreted in a manner
that furthers the statutory role of SEBI, rather than one which thwarts
its considered course of action – Therefore, before taking a decision
on whether to compound an offence punishable u/s. 24(1), the SAT
or the Court must obtain the views of SEBI for furnishing guidance G
to its ultimate decision – These views, unless manifestly arbitrary or
mala fide, must be accorded a high degree of deference – Court
must be wary of substituting its own wisdom on the gravity of the
offence or the impact on the markets, while discarding the expert
opinion of the SEBI.
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864 SUPREME COURT REPORTS [2021] 4 S.C.R.

A s. 24A – Compounding of offence under – Guidelines laid
down for Securities Appellate Tribunal-SAT or such courts in the
matter of adjudicating an application for compounding of the
offence u/s. 24A – To consider the factors in SEBI’s circular dated
20.04.2007; to give deference to the opinion of High powered
advisory committee-HPAC, and SAT or court to differ only when the
B
reasons provided are malafide or manifestly arbitrary; to ensure
that application u/s. 24A are not for quashing u/s. 482 CrPC; and
to consider whether the offence is private or public in nature and
the non-prosecution.
Code of Criminal Procedure, 1973: s. 320 – Compounding
C of offences – Principle underlying s. 320 – Stated – s. 320 provides
for the compounding of offences only under the IPC – Hence, in
respect of offences which lie outside the IPC, compounding may be
permitted only if the statute which creates the offence contains an
express provision for compounding before such an offence can be
D made compoundable – Power of compounding must, be expressly
conferred by the statute which creates the offence.
Criminal law: Compounding of offences – Jurisprudential
basis for – Discussed.
Words and phrases: Expression “compounding crime” –
E Definition of.
Disposing of the appeal, the Court
HELD: 1.1 Section 24A of the Securities and Exchange
Board of India Act, 1992, which provides for the compounding of
F certain offences, contains certain characteristic features: firstly,
Section 24A begins with a non-obstante clause, “notwithstanding
anything contained in the Code of Criminal Procedure 1973”;
secondly, any offence punishable under the SEBI Act can be
compounded, provided it is not an offence which is punishable
only with imprisonment or with imprisonment and fine. Therefore,
G only where a fine is an alternative to imprisonment does the
provision apply; thirdly, the offence may be compounded either
before or after the institution of any proceeding; and fourthly, the
offence may be compounded by SAT or by a Court, before which
such proceedings are pending. [Para 36][894-D-F]
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PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 865
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1.2 Offences punishable under sub-Section (1) of Section A
24 are compoundable for the reason that the punishment which
has been stipulated is for a certain term of imprisonment or with
fine or with both (the term of imprisonment and the quantum of
fine has been enhanced). Whether an offence under Sub-section
(2) of Section 24 is compoundable under Section 24A depends on
B
the construction which is to be placed on the words “or with fine”.
One option would be to construe these words as an alternative
to the whole of the preceding words which appear immediately
before namely “he shall be punishable with imprisonment for a
term which shall not be less than one month but which may extend
to ten years”. The second option is that the words “or with fine” C
are an alternative to any sentence imposed above the minimum
of one month. Prima facie, it appears that for offences under sub-
Section (2) of Section 24, prescribing imprisonment for a term
which shall not be less than one month is mandatory. While the
imprisonment may extend up to ten years, for any period in excess
D
of one month a fine of up to Rs 25 crores is an alternative or in
the cumulative. [Para 37][894-F-H; 895-A-B]
2.1 Section 24A provides for the compounding of an offence
either before or after the institution of any proceeding. Since
Section 24A provides for compounding prior to the institution of
proceedings, the legislature has stipulated that an application can E
be made to SAT. However, once a proceeding has been instituted
before a Court which is seized of it, it is the imprimatur of the
Court that is required in such a situation. The expression “or a
court before which such proceedings are pending” would indicate
that once proceedings have been instituted before it, the F
Court has exclusive jurisdiction to compound offences.
[Para 38][895-C-E]
2.2 In a circular dated 20 April 2007, SEBI issued guidelines
for consent orders under Sections 15T of the SEBI Act and Section
23A of the Depositories Act, 1996, and for compounding of G
offences under Section 24A of the SEBI Act, Section 22A of the
Depositories Act and Section 23N of the Securities Contracts
(Regulation) Act, 1956. It noted that compounding of an offence
“may cover appropriate prosecution cases filed by SEBI before
the criminal courts” and “can take place after filing criminal
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866 SUPREME COURT REPORTS [2021] 4 S.C.R.

A complaint by SEBI”. Finally, it notes the procedure to be followed
by an accused person while seeking compounding. SEBI amended
the circular dated 20 April 2007 through a circular dated 25 May
2012. While the circular primarily issues new guidelines in
relations to consent orders, it also provides a list of offences
which SEBI shall not settle. [Paras 39, 41][895-E-G; 897-C]
B
<https://www.sebi.gov.in/legal/circulars/apr-2007/
guidelines-for-consent-orders-and-for-considering-
requests-for-composition-of-offences_9254.html>
accessed on 20 July 2021; <https://www.sebi.gov.in/
sebi_data/commondocs/consentord-
C faq1_p.pdf>accessed on 20 July 2021; <https://
www.sebi.gov.in/legal/circulars/may-2012/amendment-
to-t he-co ns ent -circul ar-da ted -20 th -ap ri l-
2007_22808.html> accessed on 20 July 2021 –
referred to.
D 2.3 A combined reading of the two circulars and FAQs issued
by SEBI clarifies the following: firstly, a party can seek
compounding under Section 24A at any stage once the criminal
complaint has been filed by SEBI; secondly, the party shall have
to file the application for compounding before the Court where
E the criminal complaint is pending; thirdly, a copy of the application
for compounding must also be sent to SEBI, which will place it
before the High Powered Advisory Committee (HPAC); and
fourthly, the HPAC’s decision on the application, be it an
acceptance or an objection, shall be placed by SEBI before the
appropriate Court, which will have to pass appropriate orders.
F Hence, this makes it abundantly clear that while the HPAC’s
decision on a party’s application for compounding under Section
24A must be placed before the appropriate Court, the final decision
must remain in the domain of the Court. [Para 42][897-E-G]
3.1 In tracing the history of compounding, its origins in
G English common law is to be seen. The original discussions
surrounding compounding (or composition) of offences in the
English common law do not occur in its context as a procedural
tool (as understood today) but rather as an offence itself. Under
such an offence, a prosecutor or a victim would accept
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PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 867
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consideration in return for not prosecuting an offence. [Para A
44][898-B-C]
Percy Henry Winfield, The Present Law of Abuse of
Legal Procedure (Cambridge University Press, 2013)
at page 117; Blacks’ Law Dictionary 5th Edition, at
page 259; P Ramanatha Aiyar’s Advanced Law Lexicon B
3rd Edition, Reprint 2007, at page 932 – referred to.
3.2 While the “exception” to the provisions of Sections
213 and 214 Penal Code, 1860 make the provisions inapplicable
to offences which may be compounded, it is important to note
that the “exception” was only introduced through an amendment C
in 1882 (Act 8 of 1882). On the other hand, it was in 1872, when
the Code of Criminal Procedure was amended, that compounding
was first introduced as a procedural tool in Indian criminal law.
As is evident, the above provision only provided that compounding
of offences was possible out of Court, or in Court with its
permission. However, while it referred to offences which may be D
“lawfully compounded”, the decision on those was left to judicial
discretion. When the Code of Criminal Procedure was amended
in 1882, it enumerated a list of offences which could be
compounded by the Courts in Section 345. This list was expanded
when the Code of Criminal Procedure was amended again in 1898. E
Finally, in its current form, the compounding of offences is
permissible under Section 320 of the CrPC. [Paras 47-49]
[900-D-H; 901-A]
3.3 The provisions of Section 320 indicate that there are
three categories of offences: those offences which can be F
compounded by the parties themselves; those offences which
can be compounded by the parties but for which the permission
of the Court is required; and offences which cannot be
compounded at all. [Para 50][902-C-E]
3.4 Sub-section (1) of Section 320 of the CrPC stipulates
G
that offences punishable under the sections of the IPC in the
first two columns of the appended table may be compounded by
the persons mentioned in the third column of that table, without
the permission of the Court. Broadly speaking, the offences
covered by sub- Section (1) of Section 320 are relatively of a
minor nature directed against an individual without affecting the H
868 SUPREME COURT REPORTS [2021] 4 S.C.R.

A society at large. The maximum sentence for these offences may
vary from five to seven years’ imprisonment. Almost all the
offences are bailable and several are non-cognizable. Sub-Section
(2) of Section 320 provides for offences where compounding
requires the permission of the Court before which a prosecution
for the offence is pending. A provision for the permission of the
B Court has been introduced in respect of offences governed by
sub-Section (2) of Section 320 since the legislature has viewed
those offences to be of a more serious nature as compared to the
offences governed by sub-Section (1) of Section 320. Sub-Section
(3) of Section 320 provides that where an offence is compoundable
C under the provision, the abetment of such an offence or attempt
to commit such an offence or where the accused is liable under
Section 34 or Section 149 of the IPC may also be compounded in
a like manner. Sub-Sections (4a) provides that where the person
who would otherwise be competent to compound the offence
under the provision is under the age of 18 or “is an idiot or a
D lunatic” a person competent to contract on their behalf may, with
the permission of the Court, compound the offence. Similarly,
under sub-Section 4(b), where the person who would otherwise
be competent to compound the offence under the provision is
dead, their legal representative as defined under the Code of
E Civil Procedure, 1908 may, with the consent of the Court,
compound the offence. Sub-Section (5) provides that where the
accused has been committed for trial or when the accused has
been convicted and an appeal has been pending, no compounding
shall be allowed without the leave of the Court to which the
accused is committed or of the Court before which the appeal is
F to be heard. Under sub-Section (6), the High Court or Court of
Sessions is empowered to allow a person to compound an offence
in the exercise of its revisional powers which such a person is
competent to compound under the provision otherwise. Sub-
Section (7) provides that compounding will not be permitted when
the accused is liable either to enhanced punishment or to a
G punishment of a different kind for such offence for a previous
conviction. Sub- Section (8) provides that the effect of
compounding under this provision would have the same effect as
the acquittal of the accused. Finally, sub-Section (9) provides that
no offence shall be compounded except as provided by the
H provision. [Paras 51-53][902-E-H; 903-A-G]
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 869
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3.5 It is evident that that legislative sanction for A
compounding of offences is based upon two contrasting principles:
first, that private parties should be allowed to settle a dispute
between them at any stage (with or without the permission of the
Court, depending on the offence), even of a criminal nature, if
proper restitution has been made to the aggrieved party; and
B
second, that, however, this should not extend to situations where
the offence committed is of a public nature, even when it may
have directly affected the aggrieved party. The first of these
principles is crucial so as to allow for amicable resolution of
disputes between parties without the adversarial role of Courts,
and also to ease the burden of cases coming before the Courts. C
However, the second principle is equally important because even
an offence committed against a private party may affect the fabric
of society at large. Non-prosecution of such an offence may affect
the limits of conduct which is acceptable in the society. The Courts
play an important role in setting these limits through their
D
adjudication and by prescribing punishment in proportion to how
far away from these limits was the offence which was committed.
As such, in deciding on whether to compound an offence, a Court
does not just have to understand its effect on the parties before
it but also consider the effect it will have on the public. Hence,
societal interest in the prosecution of crime which has a wider E
social dimension must be borne in mind. [Para 59][906-A-E]
Biswabahan Das vs Gopen Chandra Hazarika AIR
1967 SC 895:1967 SCR 447; Sheonandan Paswan vs
State of Bihar (1987) 1 SCC 288 : [1987] 1 SCR 702 –
referred to. F
Keir vs F. Leeman and Pearson (1844) 6 Queen’s
Bench Reports 308; Public Prosecutor vs Norzian bin
Bintat [1995] SGHC 207 – referred to.
Ryan David Lim and Selene Yap ‘Composition: Legal
and Theoretical Foundations’ (2015) 27 SAcLJ 462 – G
referred to.
<https://lawcommissionofindia.nic.in/reports/report237.pdf>
accessed on 20 July 2021 – referred to.

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870 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 3.6 Section 320 provides for the compounding of offences
only under the IPC. Hence, in respect of offences which lie outside
the IPC, compounding may be permitted only if the statute which
creates the offence contains an express provision for
compounding before such an offence can be made compoundable.
The power of compounding must, be expressly conferred by the
B
statute which creates the offence. [Para 62][907-C-D]
4.1 Section 24A of the SEBI Act commences with a non-
obstante provision which operates notwithstanding anything
contained in the CrPC. Sub-Sections (1) and (2) of Section 320 of
the CrPC dealt with the compounding of offences under the IPC,
C while sub-Section (9) stipulates that no offence shall be
compounded except as provided in the Section. However, the
stipulation contained in sub-Section (9) of Section 320 ceases to
have effect in relation to the compounding of offences under the
SEBI Act by virtue of a specific non-obstante provision contained
D in Section 24A providing for the compounding by offences
punishable under that legislation. Section 24A, by incorporating
a non-obstante provision indicates a legislative intent to the effect
that the power to compound offences punishable under the SEBI
Act is not trammeled by the provisions of Section 320 of the CrPC.
[Para 80][918-A-D]
E
4.2 The ingredients of Section 24A of the SEBI Act must
be delineated. Section 24 A contains five ingredients when it
specifies: the offences which can be compounded (“any offence
punishable in this Act”); the exceptions which the statutory
provision carves out (“not being an offence punishable with
F imprisonment only or with imprisonment and also with fine”);
the stage at which compounding may take place (“either before
or after the institution of any proceedings”); the forum before
which the compounding act takes place (“a Securities Appellate
Tribunal or the Court before which such proceedings are
G pending”); and the entrustment of the power to compound to the
SAT or the Court. [Para 81][918-D-G]
4.3 The entrustment of the exclusive power to compound
offences under Section 24A of the SEBI Act to the SAT or the
Court before which such a proceeding is pending is evinced by
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PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 871
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the expression “be compounded by a Securities Appellate A
Tribunal or a court before which such proceedings are pending”.
Section 24A thus contains a departure from the modalities which
are prescribed in sub-Sections (1) and (2) of Section 320 of the
CrPC. Section 320 of the CrPC, permits the compounding only
of certain specified offences under the IPC. Section 320 contains
B
a two-fold distinction between offences punishable under the IPC
which can be compounded: (i) without the leave of the Court;
and (ii) with the leave of the Court. In contrast, the power to
compound under Section 24A is confined to offences punishable
under the SEBI Act. The power is entrusted solely to the SAT or
to the Court, before which the proceedings are pending. Hence, C
the non-obstante provision contained in Section 24A must
be given its natural meaning and effect. [Para 82][918-G-H;
919-A-C]
4.4 The plain language of section 24 A does not provide for
the consent of SEBI. The issue is whether this Court should read D
the requirement of the consent of SEBI into the provision, on
the ground that this is a casus omissus. This would, however,
amount to re-writing the statutory provision by introducing
language which has not been employed by the legislature.
[Para 83][919-C-D]
E
Union of India vs Rajiv Kumar (2003) 6 SCC 516 :
[2003] (1) Suppl. SCR 597 – referred to.
4.5 It is evident that Section 24A does not stipulate that
the consent of SEBI is necessary for the SAT or the Court before
which such proceedings are pending to compound an offence. F
Where Parliament intended that a recommendation by SEBI is
necessary, it has made specific provisions in that regard in the
same statute. Section 24B provides a useful contrast. Section
24B(1) empowers the Union Government on the recommendation
of SEBI, if it is satisfied that a person who has violated the Act or
the Rules or Regulations has made a full and true disclosure in G
respect of the alleged violation, to grant an immunity from
prosecution for an offence subject to such conditions as it may
impose. The second proviso clarifies that the recommendation
of SEBI would not be binding upon the Union Government. In
other words, Section 24B has provided for the exercise of powers H
872 SUPREME COURT REPORTS [2021] 4 S.C.R.

A by the Central Government to grant immunity from prosecution
on the recommendation of SEBI. In contrast, Section 24A 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
B
which the proceeding is pending, for exercising the power of
compounding u/s. 24A. However, it is also important to remember
that proceedings for the trial of offences under the SEBI Act are
initiated on a complaint made by SEBI by virtue of Section 26 of
the SEBI Act. SEBI is a regulatory and prosecuting agency under
C the legislation. Hence, while the statutory provisions do not
entrust SEBI with an authority in the nature of a veto under the
provisions of Section 24A, it is equally necessary to understand
the importance of its role and position. [Paras 84, 85][920-B-G]
JIK Industries Limited vs. Amarlal v. Jumani (2012) 3
D SCC 255 : [2012] 3 SCR 114; VLS Finance Limited vs.
Union of India (2013) 6 SCC 278 : [2013] 8 SCR 849;
Damodar S Prabhu vs Sayed Babalal 2010 5 SCC 663
: [2010] 5 SCR 678; Meters and Instruments Pvt. Ltd.
vs Kanchan Mehta (2018) 1 SCC 560 : [2017] 10 SCR
66; N H Securities Limited vs Securities and Exchange
E Board ofIndia 2018 SCC OnLine Bom 4040; Re:
Expeditious Trial of cases under Section 136 of
Negotiable Instruments Act 1881 Suo Motu Writ
Petition (Crl) No. 2 of 2020 – referred to.
5.1 The provisions of the SEBI Act would indicate the
F importance of the role which has been ascribed to it as a
regulatory, adjudicatory and prosecuting agency. SEBI has vital
functions to discharge in the context of maintaining an orderly
and stable securities’ market so as to protect the interests of
investors. SEBI was established in 1988 by a government
G resolution, to urgently respond to the rapid growth of capital
markets. Therefore, the SEBI Act and the rules, regulations and
circulars made or issued under the legislation, are constantly
evolving with a concerted aim to enforce order in the securities
market and promote its healthy growth while protecting investor
wealth. [Paras 86-87][920-G-H; 921-A; 924-E-F]
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PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 873
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Sahara India Real Estate Corporation Ltd. vs SEBI A
(2013) 1 SCC 1 : [2012] (12) SCR 1; B S E Brokers’
Forum vs Securities and Exchange Board of India
(2001) 3 SCC 482 – referred to.
5.2 This Court has been mindful of the public interest that
guides the functioning of SEBI and has refrained from substituting B
its own wisdom over the actions of SEBI. Its wide regulatory and
adjudicatory powers, coupled with its expertise and information
gathering mechanisms, imprints its decisions with a degree of
credibility. The powers of the SAT and the Court would necessarily
have to align with SEBI’s larger existential purpose. Therefore,
in line with the object of the SEBI Act and the precedents, it C
would be the task to interpret s. 24A in a manner that furthers
the statutory role of SEBI, rather than one which thwarts its course
of action. [Para 88][926-A-B; 927-D]
5.3 Section 24(1) is an omnibus provision for all offences
punishable for contravention (or attempts or abetments) of the D
provisions of the Act or of any rule or regulation made under it.
Prior to Amending Act 59 of 2002 which came into effect from 29
October 2002, the punishment for offences extended to a period
of one year of imprisonment, or with fine, or with both under
Section 24(1). The term of imprisonment has been extended to E
up to ten years and a fine of Rs twenty-five crores by the amending
legislation of 2002. The rationale for this amendment, as evinced
from its Statement of objects and reasons, was to provide an
effective deterrent for potential wrongdoers. Offences punishable
under sub- Section (1) of Section 24 would cover a range of
violations from the venial to the serious. The entrustment of the F
power to compound offences either before or after the institution
of any proceeding is to SAT or a Court before which such
proceedings are pending. The provisions of Section 24A must be
read in a manner consistent with the object and purpose
underlying the position of SEBI as an expert regulator. SEBI, as G
the regulator, is entrusted with diverse roles and functions
including the power to regulate the securities’ market, make
regulations and to enforce the provisions of the Act. Its functions
have been recognized in a panoply of statutory provisions.
Independent of initiating a prosecution, SEBI has been entrusted
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874 SUPREME COURT REPORTS [2021] 4 S.C.R.

A with wide ranging powers and functions including the power to
investigate, to issue directions and levy penalties and make cease
and desist orders. [Para 89][927-E-H; 928-A-B]
SEBI vs Kishore R Ajmera (2016) 6 SCC 368 : [2016] 1
SCR 1118; Securities and Exchange Board of India vs
B Ajay Agarwal (2010) 3 SCC 765 : [2010] 3 SCR 70; G
L Sultania vs Securities & Exchange Board of India
(2007) 5 SCC 133 : [2007] 6 SCR 1152; PGF Ltd vs
Union of India (2015) 13 SCC 50 : [2013] 6 SCR 32;
SEBI vs Akshya Infrastructure (P) Ltd. (2014) 11 SCC
112 : [2014] 13 SCR 402; SEBI vs Saikala Associates
C Ltd. (2009) 7 SCC 432 : [2009] 6 SCR 798 – referred
to.
5.4 While the statute has entrusted the powers of
compounding offences to SAT or to the Court, as the case may
be, before which the proceedings are pending, the view of SEBI
D as an expert regulator must necessarily be borne in mind by the
SAT and the Court, and would be entitled to a degree of deference.
While SEBI does not have a veto, having regard to the language
of Section 24A, its views must be elicited. The view of SEBI, an
envisaged in the FAQs accompanying SEBI’s circular dated 20
E April 2007, must undoubtedly be sought by the SAT or the Court,
to decide on whether an offence should be compounded. For SEBI
can provide an expert view on the nature and gravity of the offence
and its implication upon the protection of investors and the
stability of the securities’ market. These considerations and
others which SEBI may place before the SAT or the Court, would
F be of relevance in determining as to whether an application for
compounding should be allowed. Therefore, before taking a
decision on whether to compound an offence punishable under
Section 24 (1), the SAT or the Court must obtain the views of
SEBI for furnishing guidance to its ultimate decision. These views,
G unless manifestly arbitrary or mala fide, must be accorded a high
degree of deference. The Court must be wary of substituting its
own wisdom on the gravity of the offence or the impact on the
markets, while discarding the expert opinion of the SEBI.
[Para 90][928-B-E]

H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 875
OF INDIA

5.5 It is also important to note that the legislative scheme A
of the SEBI Act delineates several actions that are liable for
penalty under Section 15, but includes a common sentencing
provision under Section 24. Therefore, Section 24 would be the
sentencing provision for the most banal of offences, to the most
egregious of market disruptions and frauds. The maximum
B
punishment prescribed under Section 24 has also seen an
amendment and increase by the Amending Act 59 of 2002, in
order to ensure effective deterrence. In exercising the power of
compounding under Section 24A, 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 C
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.
[Para 91][928-F-H; 929-A]
D
6. Section 24A only provides the SAT or the Court before
which proceedings are pending with the power to compound the
offences, without providing any guideline as to when should this
take place. Hence, it is necessary to elucidate upon some
guidelines which SAT or such Courts must take into account while
adjudicating an application under Section 24A: E

(i) They should consider the factors enumerated in SEBI’s
circular dated 20 April 2007 and the accompanying FAQs,
while deciding whether to allow an application for a consent
order or an application for compounding. These factors are
non-exhaustive. F

(ii) According to the circular dated 20 April 2007 and the
accompanying FAQs, an accused while filing their
application for compounding has to also submit a copy to
SEBI, so it can be placed before the HPAC. The
recommendation of the HPAC is then filed before the SAT G
or the Court, as the case may be. As such, the SAT or the
Court must give due deference to such opinion. The opinion
of HPAC and SEBI indicates their position on the effect of
non-prosecution on maintainability of market structures.
Hence, the SAT or the Court must have cogent reasons to H
876 SUPREME COURT REPORTS [2021] 4 S.C.R.

A differ from the opinion provided and should only do so when
it believes the reasons provided by SEBI/HPAC are mala
fide or manifestly arbitrary.
(iii) The SAT or Court should ensure that the proceedings
under Section 24A do not mirror a proceeding for quashing
B the criminal complaint under Section 482 of the CrPC,
thereby providing the accused an opportunity. The principle
behind compounding, is that the aggrieved party has been
restituted by the accused and it consents to end the dispute.
Since the aggrieved party is not present before the SAT or
the Court and most of the offences are of a public character,
C it should be circumspect in its role. In the generality of
instances, it should rely on the SEBI’s opinion as to whether
such restitution has taken place.
(iv) Finally, the SAT or the Court should consider whether
the offence committed by the party submitting the
D application under Section 24A is private in nature, or it is
of a public character, the non-prosecution of which will affect
others at large. As such, the latter should not be
compounded, even if restitution has taken place.
[Para 92][929-B-D; 930-E-H; 931-A-D]
E 7. In the instant case, the nature of the allegations against
the appellant are such so as to preclude a decision to compound
the offences. They have been adverted, in a considerable amount
of detail, to the circumstances which have been narrated in the
counter affidavit filed by SEBI. There is merit in the submissions
F that 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
G 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
H of the offences. The matter was referred to the HPAC constituted
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 877
OF INDIA

by SEBI and presided over by a former judge of the Bombay A
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, an order for compounding
was not warranted. The judgment of the High Court is upheld.
B
[Paras 93-94][931-D-H; 932-A-B]
Case Law Reference
[2012] 3 SCR 114 referred to Para 17
[2013] 8 SCR 849 referred to Para 20 (iii)
C
1967 SCR 447 referred to Para 57
[1987] 1 SCR 702 referred to Para 58
[2010] 5 SCR 678 referred to Para 67
[2017] 10 SCR 66 referred to Para 77
D
[2003] (1) Suppl. SCR 597 referred to Para 83
[2012] (12) SCR 1 referred to Para 86
(2001) 3 SCC 482 referred to Para 87
[2007] 6 SCR 1152 referred to Para 88
E
[2013] 6 SCR 32 referred to Para 88
[2014] 13 SCR 402 referred to Para 88
[2009] 6 SCR 798 referred to Para 88
[2016] 1 SCR 1118 referred to Para 88
[2010] 3 SCR 70 referred to Para 88 F

CRIMINAL APPELLATE JURISDICTION : Criminal Appeal
No. 569 of 2021.
From the Judgment and Order dated 01.04.2019 of the High Court
of Delhi at New Delhi in CRL. REV. P. No.1076 of 2018. G
Shyam Divan, Sr. Adv., Rajiv Garg, T. L. Garg, Advs. for the
appellant.
C. U. Singh, Mahesh Jethmalani, Sr. Advs., Abhishek Baid, Anup
Jain, Praneet Das, Vijay Aggarwal, Sandeep Kapur, Ravi Sharma, Mudit
H
878 SUPREME COURT REPORTS [2021] 4 S.C.R.

A Jain, Ashul Agarwal, Mridul Yadav, Aashneet Singh Anand, Siddhant
Krishnan Singh, M/s. Karanjawala & Co., Advs. for the respondent.
The Judgment of the Court was delivered by
DR. DHANANJAYA Y CHANDRACHUD, J.
B This judgment has been divided into sections to facilitate analysis.
They are:
A The Appeal
B The IPO, SEBI’s Investigation and the criminal complaint
C Application for Compounding
C
D Counsel’s submissions
E Analysis
E.1 Structure of the SEBI Act
D E.2 SEBI Circulars in relation to Section 24A
E.3 Jurisprudential basis for ‘Compounding’
E.4 Compounding outside of CrPC
E.5 Regulatory role of SEBI
E F Guidelines for Compounding under Section 24A
G Analysis on facts and conclusion
A The Appeal
1. The appellant is being prosecuted for an offence under Section
F 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. By an order dated 15 November 2018, the Additional
Sessions Judge – 02 Central District at Tis Hazari Courts, Delhi (“Trial
Judge”), rejected the application, upholding the objection of the Securities
and Exchange Board of India that the offence could not be compounded
G without its consent. By a judgment of a Single Judge of the High Court
of Delhi dated 1 April 2019 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.
H The reasons of the High Court are extracted below:
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 879
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

“6. Compounding at the initial stage has to be encouraged, but not A
at the final stage. The object of the SEBI Act has to be kept in
mind. A stable and orderly functioning of the securities market
has to be ensured. It will not be in the interest of justice to discharge
the accused at the final stage of the proceedings by allowing the
application for compounding without the consent of SEBI Act as
B
it will defeat the objective of the SEBI Act. Though the
Adjudicating Officer has found that the alleged violation committed
by petitioner has not resulted in any loss to the investors, but this
by itself would not justify discharge of accused at the fag end of
trial. After considering the Supreme Court’s decision in Meters
and Instruments Private. Limited (Supra), and the view expressed C
by High Court of Bombay in N.H. Securities Ltd. (Supra) as well
as the facts and circumstances of this case, I find no justification
to allow petitioner’s application under Section 24A of the SEBI
Act, 1992.”
This view of the High Court has been called into question in these D
proceedings.
B The IPO, SEBI’s Investigation and the criminal complaint
2. The appellant is the director and promoter of a company by the
name of Ideal Hotels & Industries Limited (“the Company”), which
owns a 3-star hotel in Varanasi. While it was incorporated initially as a E
private limited company under the Companies Act, 1956 on 17 December
1985, the status of the company was changed to that of a public limited
company with the approval of the Department of Company Affairs on 4
May 1994.
3. In 1995, the Company made an Initial Public Offer (“IPO”) F
inviting a subscription to 38 lac equity shares at a par value of Rs 10 per
share, aggregating to Rs 380 lacs. This offer was pursuant to a prospectus
dated 6 October 1995. The IPO opened on 15 November 1995 and
closed on 24 November 1995. The prospectus specified that the holding
of the promoters of the Company after the IPO was 22 lac shares G
representing 32.83 per cent of the paid-up capital of 67 lac shares, with
the shareholding of the appellant being 1,400 shares representing 0.02
per cent of the paid-up capital. The Company got listed in the stock
exchanges at Delhi, Mumbai, Ahmedabad and Chennai, with the UP
stock exchange being the parent exchange.
H
880 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 4. On 27 June 1996, SEBI received a complaint from one Mr
Vijay Miglani alleging that certain Delhi/Bombay based brokers had, on
the instructions of the Company, purchased its shares and that huge
deliveries were kept outstanding in the grey market. SEBI also received
an anonymous complaint in October 1996, alleging price rigging and
insider trading in the scrip of the Company. After a preliminary inquiry
B
between 1996 and 1999, SEBI initiated an investigation against the
Company on 2 February 1999. The Company was investigated for the
period between 28 January 1996 and 29 February 1996. This was the
period immediately preceding the listing of the scrip of the Company.
This scrip moved from a low of Rs 11.25 on 30 January 1996 to a high of
C Rs 23.25 on 13 February 1996. The traded volume was unusually high
during this period, with a daily turnover of 1,00,000 shares on many
days. Thereafter, the price of the scrip registered a steep decline to Rs
17 on 29 February 1996, and the daily turnover also reduced to an average
of a few hundred shares.
D 5. During its investigation, SEBI obtained the details of the top
brokers who traded in the shares of the Company during this period on
the Delhi Stock Exchange and Bombay Stock Exchange, and also of
their clients who had made significant purchases or sales on the scrip.
Consequently, SEBI came up with the name of six entities who had
purchased approximately 51 per cent of the 38 lac equity shares on
E offer during the period between 28 January 1996 and 29 February 1996.
They were found to have continued buying shares even after that period,
and had ultimately purchased 28,38,000 equity shares, which was
approximately 75 per cent of the post issue floating stock of the Company.
As such, it was assumed that these entities were, therefore, responsible
F for the upward price movement in the scrip.
6. When SEBI issued summons to these six entities, it was the
appellant who replied to them. In a statement given to SEBI on 7 June
1999, the appellant admitted that these entities were directly/indirectly
related to the Company and its directors, and that he managed their day-
G to-day affairs. He also admitted that approximately Rs 4.5 to 5 crores
was invested by these entities in the purchasing the shares of the
Company, for which funds were made available either from funds of the
Company out of the proceeds of the IPO or from Inter Corporate
Deposits raised by the entities from the market on personal verbal
guarantees of the appellant and the Chairman and Managing Director of
H the Company (which had all been repaid subsequently).
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 881
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

7. On 24 August 1999, summons were issued by SEBI to the A
appellant under Section 11(3) of the SEBI Act regarding a potential
violation of Regulations 4(a) and 4(e) of the Securities and Exchange
Board of India (Prohibition of Fraudulent and Unfair Trade Practices
relating to Securities Market) Regulations, 1995 (“1995 PFUTP
Regulations”); Regulations 6(1), 6(3), 8(1), 10(1) and 10(2) of the SEBI
B
(Substantial Acquisition of Shares and Takeovers) Regulations, 1994
(“1994 Takeover Regulations”) and Regulation 10 of the SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations, 1997
(“1997 Takeover Regulations”). On 18 November 1999, the
Chairperson of SEBI appointed an Adjudicating Officer (“AO”) to
adjudicate upon the above allegations. C
8. Prior to the decision of the AO, SEBI filed a criminal complaint1
on 29 March 2000 before the Additional Chief Metropolitan Magistrate,
Tis Hazari Court, Delhi alleging violations of Regulations 4(a) and 4(e)
of the 1995 PFUTP Regulations, read with Regulations 6(1), 6(3), 8(1),
10(1) and 10(2) of the 1994 Takeover Regulations, which are punishable D
under Sections 24 and 27 of the SEBI Act.
9. While the proceedings were pending before the AO, on 22
September 2000, SEBI’s Chairperson passed an order under Section
11B read with Section 4(iii) of the SEBI Act accepting the proposal of
the appellant and others to make an offer to purchase the shares owned E
by the shareholders of the Company who are not its promoters. The
order directed that the offer presented would be at Rs 12 per share,
which was higher than Rs 10 per share at which the shares of the
Company were listed during the IPO. The appellant has stated that in
compliance of the order, the promoters/directors of the Company acquired
equity shares which raised their holding to the extent of about 95 per F
cent of the Company (post IPO). Thereafter, the Company also got its
shares delisted from various stock exchanges.
10. On 19 June 2001, the AO passed an order in which it noted
that the six entities were managed by the appellant, which can be
determined from the fact that: (i) he received the summons sent to them; G
(ii) he had admitted in his statement on 7 June 1999 that he or his relatives
were the directors in these entities; (iii) they purchased these shares on
the basis of an oral commitment made by the appellant and by using
funds obtained from the Company or on the basis of Inter Corporate
1
Complaint No. 152 of 2000 H
882 SUPREME COURT REPORTS [2021] 4 S.C.R.

A Debtors obtained on the guarantee of the appellant, Chairman and
Managing Director of the Company; (iv) the shares purchased were
lying in the office of the appellant; and (v) it had also been admitted by
the Chairman and Managing Director of the Company in his statement
to SEBI on 5 July 1999 that this was done after due consultation with
him. As such, it held, inter alia, that the appellant had failed to comply
B
with Regulations 8(1), 8(2) and 10 of the 1997 Takeover Regulations,
and had thus violated the provisions of Section 15H of the SEBI Act.
11. The AO also noted the order of SEBI’s Chairman under Section
11B of the SEBI Act, and observed that:
C “In response to that order [SEBI’s Chairman’s order], vide letter
dated 25.05.2001, the acquirers have submitted that they have
already acquired 95% of the total equity share capital of the
company. They are planning to get the scrip of Ideal Hotels delisted
from the rolls of all the Stock Exchanges where the scrips have
been listed.”
D
The AO further observed:
“In terms of the above order issued under section 11B of the
SEBI Act, all the investors were offered an exit route at Rs.12/-
per share. This was higher than the public issue price of Rs.10/-.
E Thus in the ultimate analysis I find there was no loss to any
investor.”
However, according to the AO, the offer ought to have been made
by the appellant/promoters on their own accord and not when proceedings
under Section 11B were pending. Consequently, the AO levied a penalty
F of Rs. 20,000 on the appellant and two co-promoters. According to the
appellant the penalty was paid.
12. Pursuant to SEBI’s criminal complaint dated 29 March 2000,
the Additional Chief Metropolitan Magistrate summoned the accused on
the same day. In 2006-07, the appellant together with the other accused
instituted proceedings under Section 482 of the Code of Criminal
G
Procedure, 1973 (“CrPC”) before the High Court of Delhi for quashing
the complaint case and the summoning order. The proceedings under
Section 482 remained pending before the High Court for about six years,
until they were eventually dismissed on 26 August 2013.

H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 883
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

C Application for Compounding A
13. On 12 September 2013, the appellant and the other accused
persons filed a ‘consent application’ with SEBI, which was returned on
27 September 2013 with the intimation that the appellant and other
accused persons could file an appropriate application for compounding
in the criminal case. B
14. On 14 October 2013, an application under Section 24A of the
SEBI Act was filed before the Additional Chief Metropolitan Magistrate,
Tis Hazari, Delhi by the appellant and other accused persons seeking
the compounding of the offence in the criminal complaint filed by SEBI
since they had already purchased the shares from the public in C
accordance with the order of SEBI Chairperson under Section 11B and
had paid the penalty levied by the AO.
15. SEBI referred the compounding application for seeking the
views of its High Powered Advisory Committee (“HPAC”) headed by
a former Judge of the High Court of Bombay. The HPAC has been D
constituted for examining proposals for compounding offences. The
HPAC recommended that the offences should not be compounded
following which an intimation was furnished to the Trial Judge and
recorded in an order dated 7 May 2016.
16. In the interregnum, the criminal complaint was listed for E
recording the evidence of the complainant, but after the evidence was
adduced, the appellant declined to cross-examine the witness until the
compounding application was decided. The appellant also filed an
application on 6 November 2017 before the Trial Judge, praying that the
compounding application be decided before further evidence of the
complainant was recorded in the criminal complaint. F
17. By an order dated 15 November 2018, the Trial Judge dismissed
the compounding application and the criminal complaint was listed for
the cross-examination of the complainant’s witness by the accused
persons. The Trial Judge placed reliance on the decision of this Court in
JIK Industries Limited vs Amarlal v. Jumani2 (“JIK Industries”)for G
holding that no application for compounding an offence could be allowed
without the consent of the complainant. A revision petition was filed by
the appellant before the High Court of Delhi to challenge the order of

2
(2012) 3 SCC 255 H
884 SUPREME COURT REPORTS [2021] 4 S.C.R.

A the Trial Judge which, as stated earlier, has been dismissed by a Single
Judge of the High Court of Delhi on 1 April 2019.
D Counsel’s submissions
18. Mr Shyam Divan, learned Senior Counsel appearing on behalf
of the appellant has urged the following submissions:
B
(i) The Chairperson of SEBI in the order under Section 11B
dated 22 September 2000 accepted the proposal of the
appellant and co-promoters, that they would buy the
remaining shares of the Company from the allotees/existing
shareholders in the public issue at the rate of Rs 12 per
C share. This has provided an exit option;
(ii) The AO took note of the submission of the acquirers that
they had already acquired 99 per cent of the total equity
share capital of the Company and were planning to get the
scrip de-listed from the rolls of the stock exchanges;
D
(iii) In terms of the order under Section 11B, all the investors
were offered an exit route at Rs 12 per share, which was
higher than the public issue price of Rs. 10; hence, in the
ultimate analysis the AO held that no loss has been caused
to any investor;
E
(iv) Contrary to the finding of the High Court, the application
for compounding was not filed at the end of the trial but in
2013 after the petition under Section 482 of the CrPC was
dismissed by the High Court of Delhi;
(v) The promoters are, even at this stage, ready and willing to
F
make a further mop-up offer;
(vi) The criminal complaint was filed on 29 March 2000, prior
to the order of SEBI’s Chairperson under Section 11B dated
22 September 2000 and the order of the AO dated 19 June
2001, which concluded that no loss has been caused to the
G investors;
(vii) The purpose of the SEBI Act is to ensure the protection of
the investors, which has been met by the deposit of penalty;
(viii) Section 24A confers adequate powers on Securities
H Appellate Tribunal (“SAT”) and the Court to compound
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 885
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

offences, and there is no provision in the statute for the A
consent of SEBI. Compounding should be allowed if, after
an assessment of the overall facts, there is no reason to
deny it;
(ix) The order of the Trial Judge is manifestly erroneous when
it holds that “there is nothing on record to show that the B
investors have been duly compensated”. Moreover, the
observation that the offence could not be compounded under
Section 24A without the consent of SEBI is contrary to the
plain terms of the statute which do not contemplate the
consent of SEBI; and
C
(x) In the facts of the present case, the application for
compounding should be allowed since:
a. The appellant is a senior citizen;
b. The Company has been de-listed on the stock
exchanges; and D
c. No loss is shown to have been caused to the investors.
19. Mr CU Singh, learned Senior Counsel appearing on behalf of
SEBI opposed the submissions on the ground that:
(i) The criminal complaint which was filed on 29 March 2000 E
sets out the element of criminality involving:
a. Mis-utilization of the proceeds of the IPO to purchase
the shares of the Company through the six related
entities;
b. Manipulation of the price of the scrip in which the F
IPO took place;
c. The artificial increase in the price of the shares of
the Company to Rs. 23.5 per share, which was
subsequently brought down;
G
d. The IPO was over-subscribed by four times, which
implies that 75 per cent of the applicants were unable
to obtain the shares of the Company;
(ii) The order of the Chairperson of SEBI dated 22 September
2000, in fact arrived at the following conclusions:
H
886 SUPREME COURT REPORTS [2021] 4 S.C.R.

A “In these circumstances, it can be concluded that the
associate concern of IHL were mere front entities of
IHL and its promoters and the entire exercise of transfer
of public proceeds to associate concerns was for the
purchase of its own shares. Transfer of shares is a part
of their design to manipulate the price of the shares…
B
IHL and its promoters were also afforded an opportunity
of personal hearing to make their submissions.
Accordingly, Shri L.R. Maurya and Shri Prakash Gupta
appeared before me. The said individuals offered a
proposal that they would buy the remaining shares of
C the company from the allottees/ existing shareholders in
the public issue at the rate of Rupees Twelve per share.
I have considered the said proposal of the promoters
and I find that this provides a way to exit to the allottees/
existing shareholders of IHL.”
D (iii) SEBI’s investigation revealed that the Company had mis-
utilized the funds which were raised in the IPO for buying
back of its own shares. These funds of the public issue
were made available to the six entities which were group
companies managed by the appellant or to promoters or
E directors of group companies to purchase the shares. The
dealing in the shares of the Company by these entities led
to an increase in the price of its shares. The purchases by
those entitles also cumulatively constituted almost the entire
purchase made at the Delhi Stock Exchange, and a
substantial part of the floating stock of the Company. Hence,
F these entities purchased a substantial equity in the shares
of the company without disclosures to the public. Therefore,
a violation of the 1995 PFUTP Regulations and of the 1994
Takeover Regulations was found to have been committed.
This, in substance, constitutes the basis of the criminal
G complaint;
(iv) The conduct of the appellant is also significant: after the
criminal complaint was lodged on 29 March 2000, petitions
under Section 482 of the CrPC were filed in 2006-07. They
remained pending for seven years, until they were dismissed
H on 26 August 2013 by the High Court of Delhi. Once the
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 887
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

Trial Judge took cognizance of the criminal complaint, the A
application for compounding was then submitted belatedly
on 14 October 2013 when the evidence was being recorded;
and
(v) A case does not exist for the interference of this Court
under Article 136 of the Constitution. B
20. Mr Mahesh Jethmalani, learned Senior Counsel has intervened
in these proceedings and has urged submissions on the issue as to whether
the power of compounding offences under Section 24A of the SEBI Act
requires the consent of SEBI. Learned Senior Counsel submitted that:
(i) Section 24A refers to only two authorities – SAT and a C
Court – before which the proceedings are pending. Section
24A has no reference to SEBI, and it does not condition the
power of the Court or SAT of compounding offences to the
prior consent of SEBI;
(ii) It is a well settled principle of statutory construction that D
while interpreting a statutory provision, no addition or
subtraction from it is permissible;
(iii) The submission of SEBI that its consent is mandatory in
order to compound an offence under Section 24A would, if
accepted, result in re-writing the provisions of the statute. E
While considering Section 621-A of the Companies Act,
1956, which was inserted by an amending Act of 1988, this
Court in VLS Finance Limited vs Union of India3 (“VLS
Finance”) held that in the absence of a requirement of the
sanction or prior permission of the Court before an offence F
is compounded by the Company Law Board, such a
requirement of prior permission could not be implied since
it would be contrary to the terms of the statute; and
(iv) The decision in JIK Industries (supra), is an authority for
the principle that a scheme under Section 391 of the
G
Companies Act, 1956 does not amount to the compounding
of an offence under Section 138 of the Negotiable
Instruments Act, 1888 (“NI Act”). In the case of the NI
Act, Section 147 merely states that offences under the Act
3
(2013) 6 SCC 278 H
888 SUPREME COURT REPORTS [2021] 4 S.C.R.

A shall be compoundable whereas Section 24A of the SEBI
Act specifically provides for the power of SAT and the
Court to compound offences.
21. These rival submissions now fall for our consideration.
E Analysis
B
E.1 Structure of the SEBI Act
22. The long title to the SEBI Act stipulates that it has been 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
C the securities market and for matters connected therewith or incidental
thereto”. The Statement of Objects and Reasons accompanying the
introduction of the Bill in Parliament notes that SEBI was established in
1988 through a government resolution to promote the orderly and healthy
growth of the securities market and for the protection of investors. SEBI
had been monitoring the activities of stock exchanges, mutual funds,
D merchant bankers and other activities to achieve these goals. The
Statement of Objects and Reasons elucidates that:
“The capital market has witnessed tremendous growth in recent
times, characterized particularly by the increasing participation of
the public. Investors’ confidence in the capital market can be
E sustained largely by ensuring investors’ protection. With this end
in view, Government decided to vest SEBI immediately with
statutory powers required to deal effectively with all matters
relating to capital market. As Parliament was not in session, and
there was an urgent need to instill a sense of confidence in the
F public in the growth and stability of the capital market, the President
promulgated the Securities and Exchange Board of India
Ordinance, 1992 (No. 5 of 1992) on the 30th January, 1992.”
23. Chapter IV of the SEBI Act delineates the power and functions
of SEBI. Within this chapter, Section 11 stipulates the functions of SEBI.
Sub-Section (1) casts upon SEBI the duty to protect the interests of
G
investors in securities and to promote the development and regulation of
the securities market, through such measures as it deems fit. Among the
functions which are specified in sub-Section (2) are:
(i) Regulating the business in stock exchanges and any other
stock exchange markets (clause (a));
H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 889
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

(ii) Prohibiting fraudulent and unfair trade practices relating to A
securities markets (clause (e));
(iii) Prohibiting insider trading in securities (clause (g)); and
(iv) Regulating substantial acquisition of shares and takeover
of companies (clause (h)).
B
24. Under sub-Section (2a) (inserted with effect from 29 October
2002), SEBI is empowered to undertake the inspection of any book,
register, document or record of any listed public company or a public
company which intends to get its securities listed on any recognized
stock exchange, where SEBI has reasonable grounds to believe that
such company has been indulging in insider trading or fraudulent and C
unfair trade practices relating to the securities market. Sub-Section (4)
empowers SEBI to take certain measures in the interest of investors or
the securities market either pending an investigation or inquiry or on its
completion.
25. Section 11A deals with the power of SEBI to make regulations D
or to issue general or special orders prohibiting the issue of documents
or advertisements soliciting money from the public for the issue of
securities. Section 11B empowers SEBI to issue directions and to levy
penalties. Section 11C enunciates the powers of investigation entrusted
to SEBI. E
26. Chapter VA, which incorporates Section 12A, contains a
prohibition of manipulative and deceptive devices, insider trading and
substantial acquisition of securities or control in contravention of the
provision of the Act and the Regulations.
27. Chapter VIA deals with penalties and adjudication. SEBI is F
empowered to impose penalties in a range of diverse situations including:
(i) Penalty for failure to furnish information, returns,
documents or reports (Section 15A);
(ii) Penalty for failure to redress investors’ grievances (Section
15C); G

(iii) Penalty for defaults in the case of mutual funds (Section
15D);
(iv) Penalty for default in case of stock brokers (Section 15F);
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890 SUPREME COURT REPORTS [2021] 4 S.C.R.

A (v) Penalty for insider trading (Section 15G);
(vi) Penalty for non-disclosure of acquisition of shares (Section
15H);
(vii) Penalty for fraudulent and unfair trade practices (Section
15 HA);
B
(viii) Penalty for alteration, destruction of records and failure to
protect the electronic database of the Board (Section
15HAA); and
(ix) Penalty for contravention where no separate penalty has
C been provided (Section 15HB).
28. Section 15-I has made provisions elucidating the power to
adjudicate in the following terms:
“15-I Power to adjudicate: (1) For the purpose of adjudging
under sections 15A, 15B, 15C, 15D, 15E, 15-EA, 15-EB, 15F,
D 15G,15H, 15HA and 15HB, the Board may appoint any officer
not below the rank of a Division Chief to be an adjudicating officer
for holding an inquiry in the prescribed manner after giving any
person concerned a reasonable opportunity of being heard for the
purpose of imposing any penalty.
E (2) While holding an inquiry the adjudicating officer shall have
power to summon and enforce the attendance of any person
acquainted with the facts and circumstances of the case to give
evidence or to produce any document which in the opinion of the
adjudicating officer, may be useful for or relevant to the subject-
matter of the inquiry and if, on such inquiry, he is satisfied that the
F
person has failed to comply with the provisions of any of the
sections specified in subsection (1), he may impose such penalty
as he thinks fit in accordance with the provisions of any of those
sections.
(3) The Board may call for and examine the record of any
G proceedings under this section and if it considers that the order
passed by the adjudicating officer is erroneous to the extent it is
not in the interests of the securities market, it may, after making
or causing to be made such inquiry as it deems necessary, pass an
order enhancing the quantum of penalty, if the circumstances of
H the case so justify:
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 891
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

Provided that no such order shall be passed unless the person A
concerned has been given an opportunity of being heard in the
matter:
Provided further that nothing contained in this sub-section shall
be applicable after an expiry of a period of three months from the
date of the order passed by the adjudicating officer or disposal of B
the appeal under section 15T, whichever is earlier.”
Section 15JB provides for settlement of administrative and civil
proceedings in the following terms:
“15-JB Settlement of administrative and civil proceedings: (1)
Notwithstanding anything contained in any other law for the time C
being in force, any person, against whom any proceedings have
been initiated or may be initiated under Section 11, Section 11-B,
Section 11-D, sub-section (3) of Section 12 or Section 15-I, may
file an application in writing to the Board proposing for settlement
of the proceedings initiated or to be initiated for the alleged defaults. D
(2) The Board may, after taking into consideration the nature,
gravity and impact of defaults, agree to the proposal for settlement,
on payment of such sum by the defaulter or on such other terms
as may be determined by the Board in accordance with the
regulations made under this Act. E
(3) The settlement proceedings under this section shall be
conducted in accordance with the procedure specified in the
regulations made under this Act.
(4) No appeal shall lie under Section 15-T against any order passed
by the Board or adjudicating officer, as the case may be, under F
this section.
(5) All settlement amounts, excluding the disgorgement amount
and legal costs, realised under this Act shall be credited to the
Consolidated Fund of India.”
29. Chapter VIB provides for the establishment, jurisdiction, G
authority and the procedure of SAT. Section 15T provides for an appeal
to SAT:
“15T. Appeal to the Securities Appellate Tribunal. (1) Save
as provided in sub-section (2), any person aggrieved, — (a) by an
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892 SUPREME COURT REPORTS [2021] 4 S.C.R.

A order of the Board made, on and after the commencement of the
Securities Laws (Second Amendment) Act, 1999, under this Act,
or the rules or regulations made thereunder; or (b) by an order
made by an adjudicating officer under this Act; or (c) by an order
of the Insurance Regulatory and Development Authority or the
Pension Fund Regulatory and Development Authority, may prefer
B
an appeal to a Securities Appellate Tribunal having jurisdiction in
the matter…”
30. An appeal lies to this Court, under Section 15Z, from a decision
of SAT on a question of law:
C “15Z Appeal to Supreme Court—Any person aggrieved by any
decision or order of the Securities Appellate Tribunal may file an
appeal to the Supreme Court within sixty days from the date of
communication of the decision or order of the Securities Appellate
Tribunal to him on any question of law arising out of such order:
D Provided that the Supreme Court may, if it is satisfied that the
appellant was prevented by sufficient cause from filing the appeal
within the said period, allow it to be filed within a further period
not exceeding sixty days.”
31. As distinct from the provisions for penalties and adjudication
E in Chapter VIA, Chapter VII, which is titled ‘Miscellaneous’ deals with
offences in Section 24. Section 24 as it stands presently, is in the following
terms:
“24. Offences.—(1) Without prejudice to any award of penalty
by the Adjudicating Officer or the Board under this Act, if any
F person contravenes or attempts to contravene or abets the
contravention of the provisions of this Act or of any rules or
regulations made thereunder, he shall be punishable with
imprisonment for a term which may extend to ten years, or with
fine, which may extend to twenty-five crore rupees or with both.
(2) If any person fails to pay the penalty imposed by the
G
Adjudicating Officer or the Board or fails to comply with any
directions or orders, he shall be punishable with imprisonment for
a term which shall not be less than one month but which may
extend to ten years, or with fine, which may extend to twenty-
five crore rupees or with both.”
H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 893
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

32. Section 24 was substituted by Act 9 of 1995 with effect from A
25 January 1995. Prior to its amendment by Act 59 of 2002 with effect
from 29 October 2002, Section 24 stipulated that offences punishable
under sub-Section (1) would be punishable with imprisonment for a term
which may extend to one year or with fine or with both. This provision
was substituted by Amending Act 59 of 2002 to provide for imprisonment
B
for a term of ten years or with fine which may extend to Rs 25 crores or
with both. Similarly, the punishment under sub-Section (2) prior to
Amending Act 59 of 2002 was for three years or with fine which shall
not be less than Rs 2000 but which may extend to Rs 10,000 or with
both. By Amending Act 59 of 2002, it has been enhanced to ten years or
with fine which may extend to Rs 25 crores or with both. C
33. Section 24A, inserted for the first time by the Amending Act
59 of 2002, provides for the compounding of offences:
“24A. Composition of certain offences— Notwithstanding
anything contained in the Code of Criminal Procedure, 1973 (2 of
1974), any offence punishable under this Act, not being an offence D
punishable with imprisonment only, or with imprisonment and also
with fine, may either before or after the institution of any
proceeding, be compounded by a Securities Appellate Tribunal or
a court before which such proceedings are pending”
34. Section 26 stipulates that: E
“26. Cognizance of offences by courts—(1) No court shall
take cognizance of any offence punishable under this Act or any
rules or regulations made thereunder, save on a complaint made
by the Board.”
35. Section 27 provides for contraventions by companies: F
“27. Contravention by companies —(1) Where a contravention
of any of the provisions of this Act or any rule, regulation, direction
or order made thereunder has been committed by a company,
every person who at the time the contravention was committed
was in charge of, and was responsible to, the company for the G
conduct of the business of the company, as well as the company,
shall be deemed to be guilty of the contravention and shall be
liable to be proceeded against and punished accordingly:
Provided that nothing contained in this sub-section shall render
any such person liable to any punishment provided in this Act, if H
894 SUPREME COURT REPORTS [2021] 4 S.C.R.

A he proves that the contravention was committed without his
knowledge or that he had exercised all due diligence to prevent
the commission of such contravention.
(2) Notwithstanding anything contained in sub-section (1), where
an contravention under this Act has been committed by a company
B and it is proved that the contravention has been committed with
the consent or connivance of, or is attributable to any neglect on
the part of, any director, manager, secretary or other officer of
the company, such director, manager, secretary or other officer
shall also be deemed to be guilty of the contravention and shall be
liable to be proceeded against and punished accordingly.
C
Explanation.—For the purposes of this section,—
(a) “company” means any body corporate and includes a firm or
other association of individuals; and
(b) “director”, in relation to a firm, means a partner of the firm.”
D
36. Section 24A, which provides for the compounding of certain
offences, contains certain characteristic features which need to be
understood while interpreting its provisions: firstly, Section 24A begins
with a non-obstante clause, “notwithstanding anything contained in the
Code of Criminal Procedure 1973”; secondly, any offence punishable
E under the SEBI Act can be compounded, provided it is not an offence
which is punishable only with imprisonment or with imprisonment and
fine. Therefore, only where a fine is an alternative to imprisonment does
the provision apply; thirdly,the offence may be compounded either before
or after the institution of any proceeding; and fourthly, the offence may
F be compounded by SAT or by a Court, before which such proceedings
are pending.
37. Offences punishable under sub-Section (1) of Section 24 are
compoundable for the reason that the punishment which has been
stipulated is for a certain term of imprisonment or with fine or with both
(the term of imprisonment and the quantum of fine has been enhanced
G
as we have seen earlier but that is not of relevance to this part of the
interpretation). Whether an offence under sub-Section (2) of Section 24
is compoundable under Section 24A depends on the construction which
is to be placed on the words “or with fine”. One option would be to
construe these words as an alternative to the whole of the preceding
H words which appear immediately before namely “he shall be punishable
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 895
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

with imprisonment for a term which shall not be less than one month but A
which may extend to ten years”. The second option is that the words “or
with fine” are an alternative to any sentence imposed above the minimum
of one month. Prima facie, it appears that for offences under sub-
Section (2) of Section 24, prescribing imprisonment for a term which
shall not be less than one month is mandatory. While the imprisonment
B
may extend up to ten years, for any period in excess of one month a fine
of up to Rs 25 crores is an alternative or in the cumulative. However,
since the present matter does not turn on the construction of the Section
24(2), it is not necessary to express any final view on whether an offence
under that provision is compoundable.
E.2 SEBI Circulars in relation to Section 24A C

38. Section 24A provides for the compounding of an offence either
before or after the institution of any proceeding. Since Section 24A
provides for compounding prior to the institution of proceedings, the
legislature has stipulated that an application can be made to SAT. However,
once a proceeding has been instituted before a Court which is seized of D
it, it is the imprimatur of the Court that is required in such a situation.
The expression “or a court before which such proceedings are pending”
would indicate that once proceedings have been instituted before it, the
Court has exclusive jurisdiction to compound offences. It would be
instructive to also look at the circulars issued by SEBI in order to better E
understand the practical implications of the language of Section 24A.
39. In a circular dated 20 April 20074, SEBI issued guidelines for
consent orders under Sections 15T of the SEBI Act and Section 23A of
the Depositories Act, 1996, and for compounding of offences under
Section 24A of the SEBI Act, Section 22A of the Depositories Act and F
Section 23N of the Securities Contracts (Regulation) Act, 1956. It noted
that compounding of an offence”may cover appropriate prosecution
cases filed by SEBI before the criminal courts” and “can take place
after filing criminal complaint by SEBI”. Finally, it notes the procedure
to be followed by an accused person while seeking compounding, in the
following terms: G
“Any party who wishes to compound an offence shall file an
appropriate application before the court where complaint is pending
4
Available at <https://www.sebi.gov.in/legal/circulars/apr-2007/guidelines-for-consent-
orders-and-for-considering-requests-for-composition-of-offences_9254.html> accessed
on 20 July 2021 H
896 SUPREME COURT REPORTS [2021] 4 S.C.R.

A with a copy addressed to the Prosecution Division, Enforcement
Department of SEBI’s Mumbai office (address is given above)
which will forward the application/ request to be placed before
the High Powered Committee. The terms of compounding as
recommended by the Committee and approved by the Panel
of WTMs would be placed before the court by the
B
Prosecution Division by way of written submissions or
application, as appropriate, for passing orders as the court
deems fit.”
Emphasis supplied
C 40. Accompanying this circular were certain Frequently Asked
Questions (“FAQ”) issued by SEBI5. The relevant ones are extracted
below:
“Q6. What is the objective of Compounding of Offence?
A. Compounding of offence allows the accused to avoid a lengthy
D process of criminal prosecution, which would save cost, time,
mental agony, etc in return for payment of compounding charges.
[…]
Q14. At what stage Compounding of Offence can take place?
E A. At any stage after filing criminal complaint by SEBI. Where a
criminal complaint has not yet been filed but is envisaged, the
process for consent orders will be followed rather than the one
for compounding.
[…]
F Q 16 What is the process for passing consent orders/ compounding
of offences?
A. … Any party who wishes to compound an offence shall file an
appropriate application before the court where complaint is pending
with a copy addressed to the Prosecution Division, Enforcement
G Department of SEBI’s Mumbai office which will forward the
application/ request to be placed before the high powered
Committee. The terms of compounding as recommended by the
Committee and approved by the Competent Authority would be
5
Available at <https://www.sebi.gov.in/sebi_data/commondocs/consentord-faq1_p.pdf>
H accessed on 20 July 2021
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 897
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

placed before the court by the Prosecution Division by way of A
written submissions or application, as appropriate, for passing
orders as the court deems fit…
[…]
Q23. What will be the consequences of non-acceptance?
B
A. …In cases where SEBI is not inclined to accept Settlement/
Compounding of offence, SEBI would file its objections before
SAT/Court for consideration.”
41. SEBI amended the circular dated 20 April 2007 through a
circular dated 25 May 20126. While the circular primarily issues new C
guidelines in relations to consent orders, it also provides a list of offences
which SEBI shall not settle, which includes:
“ii. Serious fraudulent and unfair trade practices which, in the
opinion of the Board, cause substantial losses to investors and/or
affects their rights, especially retail investors and small D
shareholders or have or may have market wide impact, except
those defaults where the entity makes good the losses due to the
investors;”
42. A combined reading of the two circulars and FAQs issued by
SEBI clarifies the following: firstly, a party can seek compounding under
E
Section 24A at any stage once the criminal complaint has been filed by
SEBI; secondly, the party shall have to file the application for
compounding before the Court where the criminal complaint is pending;
thirdly, a copy of the application for compounding must also be sent to
SEBI, which will place it before the HPAC7; and fourthly, the HPAC’s
decision on the application, be it an acceptance or an objection, shall be F
placed by SEBI before the appropriate Court, which will have to pass
appropriate orders. Hence, this makes it abundantly clear that while the
HPAC’s decision on a party’s application for compounding under Section
24A must be placed before the appropriate Court, the final decision must
remain in the domain of the Court.
G
6
Available at <https://www.sebi.gov.in/legal/circulars/may-2012/amendment-to-the-
consent-circular-dated-20th-april-2007_22808.html> accessed on 20 July 2021
7
Constituted under circular dated 25 May 2012 to “consist of a retired Judge of a High
Court and three other external experts, as may be decided by the Board from time to
time”.
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898 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 43. However, since SEBI has argued before us that its consent
must be deemed mandatory for compounding an offence under Section
24A, we must also independently evaluate the argument on its merits. In
order to do that, we must first understand the jurisprudential basis for
compounding of offences.
B E.3 Jurisprudential basis for ‘Compounding’
44. In tracing the history of compounding, we must begin with its
origins in English common law. Curiously, the original discussions
surrounding compounding (or composition) of offences in the English
common law do not occur in its context as a procedural tool (as we
understand today) but rather as an offence itself. Under such an offence,
C a prosecutor or a victim would accept consideration in return for not
prosecuting an offence8.
45. Indeed, Blacks’ Law Dictionary9 contains a definition of the
expression “compounding crime” as follows:
“Compounding Crime. Compounding crime consists of the
D receipt of some property or other consideration in return for an
agreement not to prosecute or inform on one who has committed
a crime. There are three elements to this offense at common law,
and under the typical compounding statute: (1) the agreement not
to prosecute; (2) knowledge of the actual commission of a crime;
E and (3) the receipt of some consideration.
The offense committed by a person who, having been directly
injured by a felony, agrees with the criminal that he will not
prosecute him, on condition of the latter’s making reparation, or
on receipt of a reward or bribe not to prosecute.
F The offense of taking a reward for forbearing to prosecute a
felony; as where a party robbed takes his goods again, or other
amends, upon agreement not to prosecute.”
46. Similarly, P Ramanatha Aiyar’s Advanced Law Lexicon 10
defines the expression “Compounding a crime” in the following terms:
G “The offence of either agreeing not to prosecute a crime that one
knows has been committed or agreeing to hamper the
prosecution.— Also termed theft-bote. (Black, 7th Edn., 1999)
8
Percy Henry Winfield, The Present Law of Abuse of Legal Procedure
(Cambridge University Press, 2013) at page 117
9 th
5 Edition, at page 259
10 rd
H 3 Edition, Reprint 2007, at page 932
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 899
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

“If a prosecuting attorney should accept money from another to A
induce the officer to prevent the finding of an indictment against
that person this would be compounding a crime if the officer knew
the other was guilty of an offense, but would be bribery whether
he had such knowledge or not.” Rollin M. Perkins & Ronald N.
Boyce, Criminal Law 539 (3d ed. 1982).”
B
47. In this context we may refer to Sections 213 and 214 of the
Indian Penal Code, 1860 (“IPC”) which also introduce a similar crime
in India, in the following terms:
“213. Taking gift, etc., to screen an offender from
punishment.—Whoever accepts or attempts to obtain, or agrees C
to accept, any gratification for himself or any other person, or any
restitution of property to himself or any other person, in
consideration of his concealing an offence or of his screening any
person from legal punishment for any offence, or of his not
proceeding against any person for the purpose of bringing him to
legal punishment, D

if a capital offence.—shall, if the offence is punishable with death,
be punished with imprisonment of either description for a term
which may extend to seven years, and shall also be liable to fine;
if punishable with imprisonment for life, or with imprisonment.— E
and if the offence is punishable with imprisonment for life, or with
imprisonment which may extend to ten years, shall be punished
with imprisonment of either description for a term which may
extend to three years, and shall also be liable to fine;
and if the offence is punishable with imprisonment not extending F
to ten years, shall be punished with imprisonment of the description
provided for the offence for a term which may extend to one-
fourth part of the longest term of imprisonment provided for the
offence, or with fine, or with both.
214. Offering gift or restoration of property in consideration
G
of screening offender.—Whoever gives or causes, or offers or
agrees to give or cause, any gratification to any person, or restores
or causes the restoration of any property to any person, in
consideration of that person’s concealing an offence, or of his
screening any person from legal punishment for any offence, or
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900 SUPREME COURT REPORTS [2021] 4 S.C.R.

A of his not proceeding against any person for the purpose of bringing
him to legal punishment,
if a capital offence.—shall, if the offence is punishable with death,
be punished with imprisonment of either description for a term
which may extend to seven years, and shall also be liable to fine;
B if punishable with imprisonment for life, or with imprisonment.—
and if the offence is punishable with imprisonment for life, or with
imprisonment which may extend to ten years, shall be punished
with imprisonment of either description for a term which may
extend to three years, and shall also be liable to fine;
C and if the offence is punishable with imprisonment not extending
to ten years, shall be punished with imprisonment of the description
provided for the offence for a term which may extend to one-
fourth part of the longest term of imprisonment provided for the
offence, or with fine, or with both.
D Exception.—The provisions of Sections 213 and 214 do not extend
to any case in which the offence may lawfully be compounded.”
While the “exception” to the provisions of Sections 213 and 214
make the provisions inapplicable to offences which may be compounded,
it is important to note that the “exception” was only introduced through
E an amendment in 1882 (Act 8 of 1882).
48. On the other hand, it was in 1872, when the Code of Criminal
Procedure was amended, that compounding was first introduced as a
procedural tool in Indian criminal law. Section 188 therein stated:
“Section 188 Compounding offences - In the case of offences
F
which may lawfully be compounded, injured persons may
compound the offence out of Court, or in Court with the permission
of the Court.”
As is evident, the above provision only provided that compounding
of offences was possible out of Court, or in Court with its
G permission. However, while it referred to offences which may be
“lawfully compounded”, the decision on those was left to judicial
discretion.
49. When the Code of Criminal Procedure was amended in 1882,
it enumerated a list of offences which could be compounded by the
H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 901
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

Courts in Section 345. This list was expanded when the Code of Criminal A
Procedure was amended again in 1898. Finally, in its current form, the
compounding of offences is permissible under Section 320 of the CrPC.
The relevant parts of Section 320 are extracted below:
“320. Compounding of offences—(1) The offences punishable
under the sections of the Indian Penal Code (45 of 1860) specified B
in the first two columns of the Table next following may be
compounded by the persons mentioned in the third column of that
Table…
(2) The offences punishable under the sections of the Indian Penal
Code (45 of 1860) specified in the first two columns of the Table C
next following may, with the permission of the Court before which
any prosecution for such offence is pending, be compounded by
the persons mentioned in the third column of that Table…
(3) When an offence is compoundable under this section, the
abetment of such offence or an attempt to commit such offence D
(when such attempt is itself an offence) or where the accused is
liable under Sections 34 or 149 of the Indian Penal Code (45 of
1860) may be compounded in like manner.
(4)(a) When the person who would otherwise be competent to
compound an offence under this section is under the age of eighteen E
years or is an idiot or a lunatic, any person competent to contract
on his behalf may, with the permission of the Court, compound
such offence.
(b) When the person who would otherwise be competent to
compound an offence under this section is dead, the legal F
representative, as defined in the Code of Civil Procedure, 1908 (5
of 1908), of such person may, with the consent of the Court,
compound such offence.
(5) When the accused has been committed for trial or when he
has been convicted and an appeal is pending, no composition for
G
the offence shall be allowed without the leave of the Court to
which he is committed, or, as the case may be, before which the
appeal is to be heard.
(6) A High Court or Court of Session acting in the exercise of its
powers of revision under Section 401 may allow any person to
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902 SUPREME COURT REPORTS [2021] 4 S.C.R.

A compound any offence which such person is competent to
compound under this section.
(7) No offence shall be compounded if the accused is, by reason
of a previous conviction, liable either to enhanced punishment or
to a punishment of a different kind for such offence.
B (8) The composition of an offence under this section shall have
the effect of an acquittal of the accused with whom the offence
has been compounded.
(9) No offence shall be compounded except as provided by this
section.”
C
50. Broadly speaking, the provisions of Section 320 indicate that
there are three categories of offences:
(i) Those offences which can be compounded by the parties
themselves;
D (ii) Those offences which can be compounded by the parties
but for which the permission of the Court is required; and
(iii) Offences which cannot be compounded at all.
51. Sub-section (1) of Section 320 of the CrPC stipulates that
offences punishable under the sections of the IPC in the first two columns
E of the appended table may be compounded by the persons mentioned in
the third column of that table, without the permission of the Court. Column
1 of this table describes the offences, column 2 indicates the corresponding
section of the IPC and column 3 provides the person by whom the offence
may be compounded. Column 3 indicates that the compounding of the
F offence is essentially at the instance of a victim, person aggrieved or the
injured person. Broadly speaking, the offences covered by sub-Section
(1) of Section 320 are relatively of a minor nature directed against an
individual without affecting the society at large. The maximum sentence
for these offences may vary from five to seven years’ imprisonment.
Almost all the offences are bailable and several are non-cognizable.
G
52. Sub-Section (2) of Section 320 provides for offences where
compounding requires the permission of the Court before which a
prosecution for the offence is pending. As in the case of offences
governed by sub-Section (1) of Section 320, column 1 of the table
appended to sub-Section (2) describes the offences, column 2 specifies
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PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 903
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

the corresponding section of the IPC and column 3 indicates the person A
by whom the offence may be compounded. A provision for the permission
of the Court has been introduced in respect of offences governed by
sub-Section (2) of Section 320 since the legislature has viewed those
offences to be of a more serious nature as compared to the offences
governed by sub-Section (1) of Section 320.
B
53. Sub-Section (3) of Section 320 provides that where an offence
is compoundable under the provision, the abetment of such an offence
or attempt to commit such an offence or where the accused is liable
under Section 34 or Section 149 of the IPC may also be compounded in
a like manner. Sub-Sections (4a) provides that where the person who
would otherwise be competent to compound the offence under the C
provision is under the age of 18 or “is an idiot or a lunatic” a person
competent to contract on their behalf may, with the permission of the
Court, compound the offence. Similarly, under sub-Section 4(b), where
the person who would otherwise be competent to compound the offence
under the provision is dead, their legal representative as defined under D
the Code of Civil Procedure, 1908 may, with the consent of the Court,
compound the offence. Sub-Section (5) provides that where the accused
has been committed for trial or when the accused has been convicted
and an appeal has been pending, no compounding shall be allowed without
the leave of the Court to which the accused is committed or of the Court
before which the appeal is to be heard. Under sub-Section (6), the High E
Court or Court of Sessions is empowered to allow a person to compound
an offence in the exercise of its revisional powers which such a person
is competent to compound under the provision otherwise. Sub-Section
(7) provides that compounding will not be permitted when the accused is
liable either to enhanced punishment or to a punishment of a different F
kind for such offence for a previous conviction. Sub-Section (8) provides
that the effect of compounding under this provision would have the same
effect as the acquittal of the accused. Finally, sub-Section (9) provides
that no offence shall be compounded except as provided by the provision.
54. In explaining the basis for the provision of compounding an G
offence in Section 345 of the 1898 Act, the Law Commission of India in
its 41st Report stated as follows11:

11
Available at <https://lawcommissionofindia.nic.in/1-50/Report41.pdf> accessed on
20 July 2021
H
904 SUPREME COURT REPORTS [2021] 4 S.C.R.

A “24.66…The broad principle that forms the basis of the present
scheme is that where the offence is essentially of a private
nature and relatively not serious, it is compoundable.”
emphasis supplied
55. The Law Commission of India in its 154th Report on the CrPC,
B explained the rationale for Section 320 in the following terms12:
“2. The rationale for compounding of offences is that the chastened
attitude of the accused and the praiseworthy attitude of the
complainant in order to restore peace and harmony in society,
must be given effect to in the composition of offences.”
C
However, it also goes on to then note:
“9. We recommend that as a matter of policy more offences be
brought under the category of offences compoundable by the
parties themselves without the intervention of the court. However,
D offences against the public at large, however small they may
be, should not be compoundable.”
Emphasis supplied
56. Thereafter, in its 237th Report on Compounding of (IPC)
Offences, the Law Commission of India explained the rationale for
E compounding as follows13:
“1.2 Compounding in the context of criminal law means
forbearance from the prosecution as a result of an amicable
settlement between the parties. As observed by Calcutta High
Court in a vintage decision in Murray [(1894)21 ILR 103 at 112],
F compounding of an offence signifies “that the person against whom
the offence has been committed has received some gratification,
not necessarily of a pecuniary character, to act as an inducement
of his desiring to abstain from a prosecution”. The victim may
have received compensation from the offender or the attitude of
the parties towards each other may have changed for good. The
G victim is prepared to condone the offensive conduct of the accused
who became chastened and repentant. Criminal law needs to be
12
Available at <https://lawcommissionofindia.nic.in/101-169/Report154Vol1.pdf>
accessed on 20 July 2021
13
Available at <https://lawcommissionofindia.nic.in/reports/report237.pdf> accessed
H on 20 July 2021
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 905
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

attuned to take note of such situations and to provide a remedy to A
terminate the criminal proceedings in respect of certain types of
offences. That is the rationale behind compounding of offences.”
57. In Biswabahan Das vs Gopen Chandra Hazarika14, a three
judge Bench of this Court held that the principle underlying Section 320
is that wrongs of certain classes which affects the person mainly in their B
individual capacity or character may be sufficiently redressed by
compounding.
58. In Sheonandan Paswan vs State of Bihar15, a Constitution
Bench of this Court was interpreting Section 321 of the CrPC. While
drawing an analogy between Sections 320 and 321, Justice V. Khalid, C
speaking for himself and Justice Natarajan observed:
“85. The scope of Section 321 can be tested from another angle
and that is with reference to Section 320 which deals with
“compounding of offences”. Both these sections occur in Chapter
24 under the heading “General Provisions as to Enquiries and D
Trials”…
86. These two sub-sections use the expression “with the permission
of the court” and “with the consent of the court” which are more
or less ejusdem generis. On a fair reading of the
abovementioned sub-sections it can be safely presumed that E
the sections confer only a supervisory power on the court
in the matter of compounding of offences in the manner
indicated therein, with this safeguard that the accused does
not by unfair or deceitful means, secure a composition of
the offence. Viewed thus I do not think that a plea can be
successfully put forward that granting permission or giving consent F
under sub-section (4)(a) or (4)(b) for compounding of an offence,
the court is enjoined to make a serious detailed evaluation of the
evidence or assessment of the case to be satisfied that the case
would result in acquittal or conviction. It is necessary to bear
in mind that an application for compounding of an offence G
can be made at any stage..”
Emphasis supplied

14
AIR 1967 SC 895
15
(1987) 1 SCC 288 H
906 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 59. Analyzing the above decisions, it is evident that that legislative
sanction for compounding of offences is based upon two contrasting
principles: first, that private parties should be allowed to settle a dispute
between them at any stage (with or without the permission of the Court,
depending on the offence), even of a criminal nature, if proper restitution
has been made to the aggrieved party; and second, that, however, this
B
should not extend to situations where the offence committed is of a
public nature, even when it may have directly affected the aggrieved
party. The first of these principles is crucial so as to allow for amicable
resolution of disputes between parties without the adversarial role of
Courts, and also to ease the burden of cases coming before the Courts.
C However, the second principle is equally important because even an
offence committed against a private party may affect the fabric of society
at large. Non-prosecution of such an offence may affect the limits of
conduct which is acceptable in the society. The Courts play an important
role in setting these limits through their adjudication and by prescribing
punishment in proportion to how far away from these limits was the
D
offence which was committed. As such, in deciding on whether to
compound an offence, a Court does not just have to understand its effect
on the parties before it but also consider the effect it will have on the
public. Hence, societal interest in the prosecution of crime which has a
wider social dimension must be borne in mind.
E 60. This formulation of this principle is also in alignment with the
position under English common law, where in a judgment of the Queen’s
Bench in Keir vs F. Leeman and Pearson, Lord Denman CJ held16:
“We shall probably be safe in laying it down that the law will
permit a compromise of all offences, though made the subject of
F a criminal prosecution, for which offences the injured party might
sue and recover damages in an action. It is often the only manner
in which he can obtain redress. But, if the offence is of a public
nature, no agreement can be valid that is founded on the
consideration of stifling a prosecution for it.”
G Emphasis supplied
61. Singapore, where the procedure for compounding of offences
was introduced in a manner similar to India17, follows an analogous
16
(1844) 6 Queen’s Bench Reports 308
17
Ryan David Lim and Selene Yap, ‘Composition: Legal and Theoretical Foundations’
H (2015) 27 SAcLJ 462
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 907
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

principle. In the Singapore High Court’s decision in Public Prosecutor A
vs Norzian bin Bintat18, Chief Justice Yong Pung How held:
“55. …Thus, in a case where the public interest is involved,
it is proper to withhold consent to composition…
[…]
B
57. On the other hand, the cases also show that, in the absence of
aggravating factors, the courts should lean towards the granting
of consent in cases where the public interest does not figure
strongly…” (emphasis supplied)
62. However, Section 320 provides for the compounding of C
offences only under the IPC. Hence, in respect of offences which lie
outside the IPC, compounding may be permitted only if the statute which
creates the offence contains an express provision for compounding before
such an offence can be made compoundable. The power of compounding
must, in other words, be expressly conferred by the statute which creates
the offence. D
E.4 Compounding outside of CrPC
63. The provisions contained in Section 147 of the NI Act for
compounding of offences came up for consideration before a two judge
Bench of this Court in JIK Industries (supra). Section 147 of the NI
E
Act is in the following terms:
“147. Offences to be compoundable.- Notwithstanding anything
contained in the Code of Criminal Procedure, 1973 (2 of 1974),
every offence punishable under this Act shall be compoundable.”
64. In that case, the High Court had rejected several writ petitions F
challenging the processes which were issued by the Trial Judge on a
complaint filed by the respondent in proceedings under Section 138 read
with Section 141. The High Court held that the sanctioning of a scheme
under Section 391 of the Companies Act, 1956 did not automatically
amount to the compounding of an offence under Section 138 read with
Section 141 of the NI Act. In other words, the sanctioning of the scheme G
under Section 391 of the Act of 1956 was held not to have the effect of
terminating the proceedings for an offence under Section 138 of the NI
Act. Justice AK Ganguly, speaking for the two judge Bench, observed

18
[1995] SGHC 207 H
908 SUPREME COURT REPORTS [2021] 4 S.C.R.

A that in most of the cases the offence under the NI Act had been committed
prior to the scheme:
“19. In the instant appeal in most of the cases the offence under
the NI Act has been committed prior to the scheme. Therefore,
the offence which has already been committed prior to the scheme
B does not get automatically compounded only as a result of the
said scheme. Therefore, even by relying on the ratio of the
aforesaid judgment in J.K. (Bombay) (P) Ltd. [AIR 1970 SC
1041], this Court cannot accept the appellant’s contention that the
scheme under Section 391 of the Companies Act will have the
effect of automatically compounding the offence under the NI
C Act.”
Reiterating further, the Court held:
“27. The compounding of an offence is always controlled by
statutory provision. There are various features in the compounding
D of an offence and those features must be satisfied before it can
be claimed by the offender that the offence has been compounded.
Thus, compounding of an offence cannot be achieved indirectly
by the sanctioning of a scheme by the Company Court.”
65.The submission of the appellant in the decision in JIK
E Industries (supra) was that a scheme of compromise under Section
391 of the Companies Act, 1956 operates as a ‘deemed compounding’
of an offence under the NI Act. This submission was rejected by the
Court. Distinguishing between quashing of a case and compounding, the
Court observed:
“43. Quashing of a case is different from compounding. In quashing
F
the court applies it but in compounding it is primarily based on
consent of the injured party. Therefore, the two cannot be equated.
It is clear from the discussion made hereinabove that Duncans
Agro case [(1996) 5 SCC 591 : 1996 SCC (Cri) 1045] was not
one relating to compounding of offence. Apart from that the Court
G found that the dues of the banks have been satisfied by receiving
the money and the suits filed by the bank in the civil court have
been compromised. The FIRs were filed in 1987-1988 and the
investigation had not been completed till 1991. On those facts the
Court, rendering the judgment in July 1996, felt that having regard
to the lapse of time and also having regard to the fact that there is
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PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 909
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

a compromise decree satisfying the banks’ dues, there is no A
purpose in allowing the criminal prosecution to proceed. On those
consideration, this Court, in the “special facts of the case”, did not
interfere with the order of the High Court dated 23-12-1992
whereby the criminal prosecution was quashed.”
66. The Court then noted the submission of the complainant that B
there is no concept of “deemed compounding under the criminal law and
that under the very concept of compounding, it cannot take place without
the explicit consent of the complainant or the person aggrieved”. Holding
that the “Court finds a lot of substance in the aforesaid submission”,
Justice Ganguly observed:
C
“54. Compounding of an offence is statutorily provided under
Section 320 of the Code. If we look at the list of offences which
are specified in the table attached to Section 320 of the Code, it
would be clear that there are basically two categories of offences
under the provisions of the Penal Code which have been made
compoundable. There is a category of offence for the compounding D
of which leave of the court is required and there is another category
of the offences where for compounding the leave of the court is
not required. But all cases of compounding can take place at the
instance of the persons mentioned in the Third Column of the
Table. If the said Table is perused, it will be clear that compounding E
can only be possible at the instance of the person who is either a
complainant or who has been injured or is aggrieved.”
67. The above observations interpret the statutory provisions of
section 320 which specify the person at whose instance compounding is
permissible. Before moving forward, it is important to note a judgment
of a three judge Bench of this Court in Damodar S Prabhu vs Sayed F
Babalal H19 (“Damodar S Prabhu”), dealing with the provisions of
Section 147 of the NI Act, where the Court held:
“10. …At this point, it would be apt to clarify that in view of the
non obstante clause, the compounding of offences under the
Negotiable Instruments Act, 1881 is controlled by Section 147 G
and the scheme contemplated by Section 320 of the Code of
Criminal Procedure (hereinafter “CrPC”) will not be applicable
in the strict sense since the latter is meant for the specified offences
under the Penal Code, 1860.”
19
2010 5 SCC 663 H
910 SUPREME COURT REPORTS [2021] 4 S.C.R.

A The Court then noted that:
“12. Section 147 of the Negotiable Instruments Act, 1881 is in
the nature of an enabling provision which provides for the
compounding of offences prescribed under the same Act, thereby
serving as an exception to the general rule incorporated in sub-
B section (9) of Section 320 CrPC which states that “No offence
shall be compounded except as provided by this section”. A bare
reading of this provision would lead us to the inference that
offences punishable under laws other than the Penal Code also
cannot be compounded. However, since Section 147 was inserted
by way of an amendment to a special law, the same will override
C the effect of Section 320(9) CrPC, especially keeping in mind
that Section 147 carries a non obstante clause.”
68. The Court in Damodar S Prabhu (supra) observed that the
permissibility of the compounding of an offence is linked to the perceived
seriousness of the offence, and the nature of the remedy provided. In an
D offence involving the dishonor of a cheque, “it is the compensatory aspect
of the remedy which should be given priority over the punitive aspect”.
At the same time, it was highlighted before the Court by the Attorney
General, who appeared as amicus curiae, that cheque dishonor cases
were being compounded or settled at the late stages of litigation, thereby
E contributing to delay in the delivery of justice. This, in part, was due to
the fact that unlike Section 320 of the CrPC, Section 147 of the NI Act
provides no explicit guidance on the stage at which compounding can or
cannot be done and where compounding can be done at the instance of
the complainant or with the leave of the Court. As a result, accused
persons are willing to take a chance of progressing through various stages
F of a prosecution and to opt for the route of compounding only when no
other option remains. Having regard to this problem, the Court prescribed
certain guidelines to be followed in compounding, in exercise of its
jurisdiction under Article 142 of the Constitution. The Court clarified
that it was issuing these guidelines “which could be seen as an act of
G judicial law making and therefore an intrusion into the legislature domain”
because Section 147 did not carry any guidance on how to proceed with
the compounding of offence under the NI Act. The Court again reiterated
that it had “already explained that the scheme contemplated under Section
320 CrPC cannot be followed in the strict sense” and the jurisdiction
under Article 142 was being exercised due to the presence of a legislative
H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 911
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

vacuum in the NI Act, in order to discourage litigants from unduly delaying A
the compounding of offence in cases involving Section 138. The Court
in its guidelines indicated a scheme by imposing costs as a means for
encouraging compounding at an early stage of the litigation.
69. The judgment in Damodar S Parabhu (supra) was cited before
the two judge Bench in JIK Industries (supra) in support of the B
proposition that Section 147 of the NI Act, which is a special statute,
does not incorporate the requirement of consent of the person aggrieved
while compounding, as contemplated in Section 320 of the CrPC. This
submission was however rejected by observing that though offences
under the NI Act, which were previously non-compoundable in view of
Section 320(9) of the CrPC, have now become compoundable, that did C
not do away with all the guidelines of Section 320:
“68. It is clear from a perusal of the aforesaid Statement of Objects
and Reasons that offence under the NI Act, which was previously
non-compoundable in view of Section 320 sub-section (9) of the
Code has now become compoundable. That does not mean that D
the effect of Section 147 is to obliterate all statutory provisions of
Section 320 of the Code relating to the mode and manner of
compounding of an offence. Section 147 will only override Section
320(9) of the Code insofar as offence under Section 147 of the
NI Act is concerned. This is also the ratio in Damodar [(2010) 5 E
SCC 663 : (2010) 2 SCC (Civ) 520 : (2010) 2 SCC (Cri) 1328]
(see para 12). Therefore, the submission of the learned counsel
for the appellant to the contrary cannot be accepted.”
70. The Court then relied on Section 4 of the CrPC, which is the
governing statute in India for investigation, enquiry and trial of offences. F
Section 4, the Court held, deals both with offences under the IPC in sub-
Section (1) and with offences under any other law in sub-Section (2).
Hence, it was held that in the absence of a special procedure in the NI
Act for compounding of offences, the procedure relating to compounding
under Section 320 shall automatically apply in view of the clear mandate
of sub-Section (2) of Section 4, which reads as follows: G
“4. (2) All offences under any other law shall be investigated,
inquired into, tried, and otherwise dealt with according to the same
provisions, but subject to any enactment for the time being in force
regulating the manner or place of investigating, inquiring into, trying
or otherwise dealing with such offences.” H
912 SUPREME COURT REPORTS [2021] 4 S.C.R.

A In conclusion, the Court held:
“82. A perusal of Section 320 makes it clear that the provisions
contained in Section 320 and the various sub-sections is a code by
itself relating to compounding of offence. It provides for the various
parameters and procedures and guidelines in the matter of
B compounding. If this Court upholds the contention of the appellant
that as a result of incorporation of Section 147 in the NI Act, the
entire gamut of procedure of Section 320 of the Code are made
inapplicable to compounding of an offence under the NI Act, in
that case the compounding of offence under the NI Act will be
left totally unguided or uncontrolled. Such an interpretation apart
C from being an absurd or unreasonable one will also be contrary to
the provisions of Section 4(2) of the Code, which has been discussed
above. There is no other statutory procedure for compounding of
offence under the NI Act. Therefore, Section 147 of the NI Act
must be reasonably construed to mean that as a result of the said
D section the offences under the NI Act are made compoundable,
but the main principle of such compounding, namely, the consent
of the person aggrieved or the person injured or the complainant
cannot be wished away nor can the same be substituted by virtue
of Section 147 of the NI Act.”
E 71. However, before we can apply the decision in JIK Industries
(supra), it is important to acknowledge that there is a clear distinction
between the provisions of Section 147 of the NI Act and Section 24A of
the SEBI Act. A comparison of the provisions of Section 147 of the NI
Act with Section 24A of the SEBI Act would indicate that both sets of
statutory provisions begin with a non-obstante provision overriding the
F
provisions of the CrPC, insofar as the compounding of offence is
concerned. Having stipulated a non-obstante clause in Section 147 of
the NI Act, Parliament has provided that “every offence punishable under
this Act shall be compoundable”. Section 147 of the NI Act does not
expressly incorporate the permission of the Court for compounding,
G conceivably because the impact of the crime is against an individual.
Section 24A of the SEBI Act, while containing a similar non-obstante
clause, excludes certain categories of offences, namely offences
punishable with imprisonment only or with imprisonment and also with
fine. Section 24A stipulates that an offence punishable under the Act
may be compounded by SAT or a Court before which such proceedings
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PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 913
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

are pending. The power to compound is recognized either before or A
after the institution of any proceeding.
72. Hence, it is evident that Section 24A specifies the authorities
vested with the powers to compound offences under the SEBI Act,
while Section 147 of the NI Act merely states that the offence under the
Act shall be compoundable. In a complaint filed under the NI Act, the B
complainant is an aggrieved party, invariably being the payee in a
dishonored instrument. The consideration which weighed with the two
judge Bench while interpreting the provisions of Section 147 of the NI
Act in JIK Industries (supra) will therefore not be ipso facto attracted
while construing the provisions of Section 24A of the SEBI Act. Further,
since the two statutory provisions are not in pari materia, it is not C
necessary for this Court to express any opinion on the issue as to whether
the judgment in JIK Industries (supra), which is of a two judge Bench,
is contrary to the earlier three judge Bench decision in Damodar S
Prabhu (supra). We are concerned in the present case with interpreting
the provisions of Section 24A of the SEBI Act, and hence it is not D
necessary for this Court to construe Section 147 of the NI Act.
73. Subsequent to the decision in JIK Industries (supra), there
is a decision of another two-judge Bench of this Court in VLS Finance
(supra). The Company Judge of the Delhi High Court had dismissed an
appeal assailing an order of the Company Law Board allowing an offence E
under Section 211(7) of Companies Act, 1956 to be compounded. A
complaint was filed by the Registrar of Companies in the Court of the
CMM, alleging that though the company had obtained certain land from
the municipal corporation on a yearly license fee, the land had been
shown in the schedule of fixed assets, which was not a fair view and
was hence punishable under Section 211(7) of the Companies Act, 1956. F
Before the Court in seisin of the case could proceed with the complaint,
an application was filed before the CLB for compounding. Through the
CLB’s order, the offence was compounded against the payment of a
fine.
74. For the purposes of the present discussion, it is material to G
note that the provision for compounding of offences was contained in
Section 621-A of the Companies Act, 1956, in the following terms:
“621-A. Composition of certain offences — (1) Notwithstanding
anything contained in the Code of Criminal Procedure, 1973 (2 of
H
914 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 1974), any offence punishable under this Act (whether committed
by a company or any officer thereof), not being an offence
punishable with imprisonment only, or with imprisonment and also
with fine, may, either before or after the institution of any
prosecution, be compounded by—
B (a) the Company Law Board; or
(b) where the maximum amount of fine which may be imposed
for such offence does not exceed five thousand rupees, by the
Regional Director, on payment or credit, by the company or the
officer, as the case may be, to the Central Government of such
C sum as that Board or the Regional Director, as the case may be,
may specify:
Provided that the sum so specified shall not, in any case, exceed
the maximum amount of the fine which may be imposed for the
offence so compounded:
D Provided further that in specifying the sum required to be paid or
credited for the compounding of an offence under this sub-section,
the sum, if any, paid by way of additional fee under sub-section
(2) of Section 611 shall be taken into account.”
Sub-Section (7) of Section 621-A provided as follows:
E
“(7) Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974)—
(a) any offence which is punishable under this Act with
imprisonment or with fine, or with both, shall be compoundable
with the permission of the court, in accordance with the procedure
F
laid down in that Act for compounding of offences;
(b) any offence which is punishable under this Act with
imprisonment only or with imprisonment and also with fine shall
not be compoundable.”
G 75. It was argued before this Court that when the Court was in
seisin in the matter, it was only the Magistrate who could compound the
offence. Further, in any event, the CLB had to seek the permission of
the Court before it could compound. Dealing with the argument, Justice
C K Prasad, speaking for the Bench, held:

H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 915
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

“17. Ordinarily, the offence is compounded under the provisions A
of the Code of Criminal Procedure and the power to accord
permission is conferred on the court excepting those offences for
which the permission is not required. However, in view of the non
obstante clause, the power of composition can be exercised by
the court or the Company Law Board. The legislature has
B
conferred the same power on the Company Law Board which
can exercise its power either before or after the institution of any
prosecution whereas the criminal court has no power to accord
permission for composition of an offence before the institution of
the proceeding. The legislature in its wisdom has not put the rider
of prior permission of the court before compounding the offence C
by the Company Law Board and in case the contention of the
appellant is accepted, same would amount to addition of the words
“with the prior permission of the court” in the Act, which is not
permissible.”
76. The Court held that while interpreting the provisions of the D
statute, the words must be construed in their ordinary sense without any
addition; and in that context it observed:
“18. As is well settled, while interpreting the provisions of a statute,
the court avoids rejection or addition of words and resorts to that
only in exceptional circumstances to achieve the purpose of the E
Act or give purposeful meaning. It is also a cardinal rule of
interpretation that words, phrases and sentences are to be given
their natural, plain and clear meaning. When the language is clear
and unambiguous, it must be interpreted in an ordinary sense and
no addition or alteration of the words or expressions used is
permissible. As observed earlier, the aforesaid enactment was F
brought in view of the need of leniency in the administration of
the Act because a large number of defaults are of technical nature
and many defaults occurred because of the complex nature of
the provision.”
Hence, the powers under sub-Sections (1) and (7) of Section 621- G
A were held to be parallel powers to be exercised by the CLB or the
authorities mentioned, and the prior permission of the Court was not
necessary for compounding an offence when the power was exercised
by the CLB.
H
916 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 77. Mr. Shyam Divan, learned senior Counsel, appearing on behalf
of the appellant, has adverted, during the course of his submissions, to
the judgment of a two Judge Bench of this Court in Meters and
Instruments Pvt. Ltd. vs Kanchan Mehta 20 (“Meters and
Instruments”) where this Court observed that an offence under Section
138 of the NI Act “is primarily a civil wrong”. It was held that the object
B
of the NI Act being primarily compensatory, compounding at the initial
stage has to be encouraged but is not debarred at a later stage subject to
appropriate compensation as may be acceptable to the parties and the
Court. Moreover, Justice A K Goel, speaking for the Bench, held that:
“18.3. Though compounding requires consent of both parties, even
C in absence of such consent, the court, in the interests of justice,
on being satisfied that the complainant has been duly compensated,
can in its discretion close the proceedings and discharge the
accused.”
78. Our attention has been drawn to the judgment of the
D Constitution Bench in Re: Expeditious Trial of cases under Section
136 of Negotiable Instruments Act 1881 in Suo Motu Writ Petition
(Crl) No. 2 of 2020. The Constitution Bench considered the decision in
Meters and Instruments (supra), where the two Judge Bench of the
Court took the view that Section 143 of the NI Act confers an implied
E power on the Magistrate to discharge the accused if the complainant is
compensated to the satisfaction of the Court. On that analogy, it was
held that apart from compounding by consent of the parties, the Trial
Court has jurisdiction to pass the jurisdictional order under Section 143
in exercise of its inherent power. The Constitution Bench, while
disagreeing with the view in Meters and Instruments (supra) observed:
F
“20. Section 143 of the Act mandates that the provisions of
summary trial of the Code shall apply “as far as may be” to trials
of complaints under Section 138. Section 258 of the Code
empowers the Magistrate to stop the proceedings at any stage
for reasons to be recorded in writing and pronounce a judgment
G of acquittal in any summons case instituted otherwise than upon
complaint. Section 258 of the Code is not applicable to a summons
case instituted on a complaint. Therefore, Section 258 cannot come
into play in respect of the complaints fled under Section 138 of
the Act. The judgment of this Court in Meters and
20
H (2018) 1 SCC 560
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 917
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

Instruments (supra) in so far as it conferred power on the A
Trial Court to discharge an accused is not good law. Support
taken from the words “as far as may be” in Section 143 of
the Act is inappropriate. The words “as far as may be” in
Section 143 are used only in respect of applicability of
Sections 262 to 265 of the Code and the summary
B
procedure to be followed for trials under Chapter XVII.
Conferring power on the court by reading certain words
into provisions is impermissible. A judge must not rewrite
a statute, neither to enlarge nor to contract it. Whatever
temptations the statesmanship of policy-making might
wisely suggest, construction must eschew interpolation and C
evisceration. He must not read in by way of creation [J.
Frankfurter, “Of Law and Men: Papers and Addresses of Felix
Frankfurter”]. The Judge’s duty is to interpret and apply the law,
not to change it to meet the Judge’s idea of what justice requires
[Dupont Steels Ltd. v. Sirs (1980) 1 All ER 529 (HL)]. The court
D
cannot add words to a statute or read words into it which are not
there [Union of India v. Deoki Nandan Aggarwal 1992 Supp (1)
SCC 323].”
Emphasis supplied
79. Before parting with the discussion on this aspect, it is necessary
for us to refer to the judgment of the Bombay High Court in N H E
Securities Limited vs Securities and Exchange Board of India21,
where it was held that the consent of SEBI was necessary before an
application of compounding could be allowed under Section 24A. A
special leave petition challenging this judgment was filed before this
Court22. This was disposed of by a two Judge Bench this Court through F
an order dated 17 September 2019, wherein SEBI agreed to
“compounding of the offence subject to any penalty which may be
imposed under Section 24(2)” of the SEBI Act. This was also allowed
by this Court, keeping in mind the age of the directors of the appellant.
Pertinently, however, this Court noted that they “have not commented
one way or the other on the larger questions sought to be raised by the G
appellants”, i.e., on whether the consent of SEBI was necessary for
compounding an offence under Section 24A. As such, the judgment and

21
2018 SCC OnLine Bom 4040
22
Criminal Appeal No.1407 of 2019 (Arising out of S.L.P. (Criminal) No.1132 of 2019)
H
918 SUPREME COURT REPORTS [2021] 4 S.C.R.

A this Court’s order have not adjudicated on the issue involved in the present
case.
80. Section 24A of the SEBI Act commences with a non-obstante
provision which operates notwithstanding anything contained in the CrPC.
Sub-Sections (1) and (2) of Section 320 of the CrPC dealt with the
B compounding of offences under the IPC, while sub-Section (9) stipulates
that no offence shall be compounded except as provided in the Section.
However, the stipulation contained in sub-Section (9) of Section 320
ceases to have effect in relation to the compounding of offences under
the SEBI Act by virtue of a specific non-obstante provision contained
in Section 24A providing for the compounding by offences punishable
C under that legislation. Section 24A, by incorporating a non-obstante
provision indicates a legislative intent to the effect that the power to
compound offences punishable under the SEBI Act is not trammeled by
the provisions of Section 320 of the CrPC.
81. At this stage, the ingredients of Section 24A of the SEBI Act
D must be delineated. Section 24 A contains five ingredients when it
specifies:
(i) The offences which can be compounded (“any offence
punishable in this Act”);
(ii) The exceptions which the statutory provision carves out
E
(“not being an offence punishable with imprisonment only
or with imprisonment and also with fine”);
(iii) The stage at which compounding may take place (“either
before or after the institution of any proceedings”);
F (iv) The forum before which the compounding act takes place
(“a Securities Appellate Tribunal or the Court before which
such proceedings are pending”); and
(v) The entrustment of the power to compound to the SAT or
the Court.
G 82. The entrustment of the exclusive power to compound offences
under Section 24A of the SEBI Act to the SAT or the Court before
which such a proceeding is pending is evinced by the expression “be
compounded by a Securities Appellate Tribunal or a court before which
such proceedings are pending”. Section 24A thus contains a departure
H from the modalities which are prescribed in sub-Sections (1) and (2) of
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 919
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

Section 320 of the CrPC. Section 320 of the CrPC, as we have noticed A
earlier, permits the compounding only of certain specified offences under
the IPC. Section 320 contains a two-fold distinction between offences
punishable under the IPC which can be compounded: (i) without the
leave of the Court; and (ii) with the leave of the Court. In contrast, the
power to compound under Section 24A is confined to offences punishable
B
under the SEBI Act. The power is entrusted solely to the SAT or to the
Court, before which the proceedings are pending. Hence, the non-obstante
provision contained in Section 24A must be given its natural meaning
and effect.
83. The plain language of Section 24A does not provide for the
consent of SEBI. The issue is whether this Court should read the C
requirement of the consent of SEBI into the provision, on the ground
that this is a casus omissus. This would, however, amount to re-writing
the statutory provision by introducing language which has not been
employed by the legislature. In a two Judge Bench judgment of this
Court in Union of India vs Rajiv Kumar23, Justice Arijit Pasayat speaking D
for the Court held:
“22. While interpreting a provision, the court only interprets the
law and cannot legislate it. If a provision of law is misused and
subjected to the abuse of process of law, it is for the legislature to
amend, modify or repeal it, if deemed necessary. (See CST v. E
Popular Trading Co. [(2000) 5 SCC 511]) The legislative casus
omissus cannot be supplied by judicial interpretative
process.
23. Two principles of construction — one relating to casus omissus
and the other in regard to reading the statute/statutory provision F
as a whole — appear to be well settled. Under the first principle
a casus omissus cannot be supplied by the court except in
the case of clear necessity and when reason for it is found
in the four corners of the statute itself. But, at the same
time a casus omissus should not be readily inferred and for
that purpose all the parts of a statute or section must be G
construed together and every clause of a section should be
construed with reference to the context and other clauses
thereof so that the construction to be put on a particular
provision makes a consistent enactment of the whole
23
(2003) 6 SCC 516 H
920 SUPREME COURT REPORTS [2021] 4 S.C.R.

A statute. This would be more so if literal construction of a
particular clause leads to manifestly absurd or anomalous
results which could not have been intended by the
legislature…”
Emphasis supplied
B 84. In the present case, it is evident that Section 24A does not
stipulate that the consent of SEBI is necessary for the SAT or the Court
before which such proceedings are pending to compound an offence.
Where Parliament intended that a recommendation by SEBI is necessary,
it has made specific provisions in that regard in the same statute. Section
C 24B provides a useful contrast. Section 24B(1) empowers the Union
Government on the recommendation of SEBI, if it is satisfied that a
person who has violated the Act or the Rules or Regulations has made a
full and true disclosure in respect of the alleged violation, to grant an
immunity from prosecution for an offence subject to such conditions as
it may impose. The second proviso clarifies that the recommendation of
D SEBI would not be binding upon the Union Government. In other words,
Section 24B 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 is conspicuously silent in regard to the
consent of SEBI before the SAT or, as the case may be, the Court
E 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.
85. However, it is also important to remember that proceedings
F for the trial of offences under the SEBI Act are initiated on a complaint
made by SEBI by virtue of Section 26 of the SEBI Act. SEBI is a
regulatory and prosecuting agency under the legislation. Hence, while
the statutory provisions do not entrust SEBI with an authority in the
nature of a veto under the provisions of Section 24A, it is equally
necessary to understand the importance of its role and position.
G
E.5 Regulatory role of SEBI
86. The provisions of the SEBI Act, as analyzed earlier in this
judgment, would indicate the importance of the role which has been
ascribed to it as a regulatory, adjudicatory and prosecuting agency. SEBI
has vital functions to discharge in the context of maintaining an orderly
H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 921
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

and stable securities’ market so as to protect the interests of investors. A
SEBI was established in 1988 by a government resolution, to urgently
respond to the rapid growth of capital markets. In Sahara India Real
Estate Corporation Ltd. vs SEBI24 a two judge bench of this Court,
considered this history in order to guide its interpretative exercise over
the statutory provisions. Justice J S Khehar (as the learned Chief justice
B
then was) noted in his concurring opinion that:
“298. The Securities and Exchange Board of India (SEBI) was
established in 1988 by way of a government resolution to promote
orderly and healthy growth of the securities market and for
investors’ protection. On account of tremendous growth of the
capital market characterized particularly by increasing participation C
of the public, to sustain confidence in the capital market it was
considered essential to ensure investors’ protection. Accordingly,
it was decided to vest SEBI with statutory powers, so as to enable
it to deal effectively with all matters relating to the capital market.”
Justice Khehar also reproduced the rationale for the Amending D
Act of 2002, which would have a bearing on our present determination
to the extent that it increased the quantum of imprisonment and monetary
penalty that can be imposed under Section 24. The Court held:
“300. The SEBI Act was again amended in 1999, but insofar as
the present controversy is concerned, the amendment of the SEBI E
Act in 2002 is of utmost relevance. The relevant part of the
Statement of Objects and Reasons of the amendment of the SEBI
Act in 2002 is being reproduced below:
“2. Recently many shortcomings in the legal provisions of the
Securities and Exchange Board of India Act, 1992 have been F
noticed, particularly with respect to inspection, investigation
and enforcement. Currently, the SEBI can call for information,
undertake inspections, conduct enquiries and audits of stock
exchanges, mutual funds, intermediaries, issue directions, initiate
prosecution, order suspension or cancellation of registration. G
Penalties can also be imposed in case of violation of the
provisions of the Act or the Rules or the Regulations. However,
the SEBI has no jurisdiction to prohibit issue of securities or
preventing siphoning of funds or assets stripping by any
24
(2013) 1 SCC 1 H
922 SUPREME COURT REPORTS [2021] 4 S.C.R.

A company. While the SEBI can call for information from
intermediaries, it cannot call for information from any bank
and other authority or board or corporation established or
constituted by or under any Central, State or Provincial Act.
The SEBI cannot retain books of account, documents, etc., in
its custody. Under the existing provisions contained in the
B
Securities and Exchange Board of India Act, 1992, the SEBI
cannot issue commissions for the examination of witnesses or
documents. Further, the SEBI has pointed out that existing
penalties are too low and do not serve as effective
deterrents. At present, under Section 209-A of the Companies
C Act, 1956, the SEBI can conduct inspection of listed companies
only for violations of the provisions contained in sections
referred to in Section 55-A of that Act but it cannot conduct
inspection of any listed public company for violation of the
SEBI Act or Rules or Regulations made thereunder.
D 3. In addition, growing importance of the securities markets in the
economy has placed new demands upon the SEBI in terms of
organizational structure and institutional capacity. A need was,
therefore, felt to remove these shortcomings by
strengthening the mechanisms available to the SEBI for
investigation and enforcement so that it is better equipped
E to investigate and enforce against market malpractices.
4. In view of the above, the Securities and Exchange Board of
India (Amendment) Ordinance, 2002 (6 of 2002) was promulgated
on 29-10-2002 to amend the Securities and Exchange Board of
India Act, 1992.
F
5. It is now proposed to replace the Ordinance by a Bill, with,
inter alia, the following features—
(a) increasing the number of members of the SEBI from six
(including Chairman) to nine (including Chairman);
G (b) conferring power upon the Board for—
(i) calling for information and record from any bank or other
authority or Board or corporation established or constituted by
or under any Central, State or Provincial Act in respect of any
transaction in securities which are under investigation or inquiry
H by the Board;
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 923
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

(ii) passing an order for reasons to be recorded in writing, in A
the interest of investors or securities market, either pending
investigation or enquiry or on completion of such investigation
or inquiry for taking any of the following measures, namely,
to—
(A) suspend the trading of any security in a recognised B
stock exchange;
(B) restrain persons from accessing the securities market
and prohibit any person associated with securities market
to buy, sell or deal in securities;
(C) suspend any office-bearer of any stock exchange or C
self-regulatory organisation from holding such position;
(D) impound and retain the proceeds or securities in respect
of any transaction which is under investigation;
(E) attach, after passing of an order on an application made D
for approval by the Judicial Magistrate of the First Class
having jurisdiction, for a period not exceeding one month,
one or more bank account or accounts of any intermediary
or any person associated with the securities market in any
manner involved in violation of any of the provisions of this
Act, or the Rules or the Regulations made thereunder; E
(F) direct any intermediary or any person associated with
the securities market in any manner not to dispose of or
alienate an asset forming part of any transaction which is
under investigation;
F
(iii) regulating or prohibiting for the protection of investors, issue
of prospectus, offer document or advertisement soliciting
money for issue of securities;
(iv) directing any person to investigate the affairs of intermediary
or person associated with the securities market and to search
and seize books, registers, other documents and records G
considered necessary for the purposes of the investigation, with
the prior approval of a Magistrate of the First Class;
(v) passing an order requiring any person who has violated or
is likely to violate, any provision of the SEBI Act or any Rules
H
924 SUPREME COURT REPORTS [2021] 4 S.C.R.

A or Regulations made thereunder to cease and desist for
committing any (sic act) causing such violation;
(c) prohibiting manipulative and deceptive devices, insider
trading, fraudulent and manipulative trade practices, market
manipulation and substantial acquisition of securities and
B control;
(d) crediting sums realised by way of penalties to the
Consolidated Fund of India;
(e) amending the composition of the Securities Appellate
Tribunal from one person to three persons;
C
(f) changing the qualifications for appointment as Presiding
Officer and members of the Securities Appellate Tribunal;
(g) composition of certain offences by the Securities
Appellate Tribunal;
D (h) conferring power upon the Central Government to grant
immunity;
(i) appeal to the Supreme Court from the orders of the
Securities Appellate Tribunal;
(j) enhancing the penalties specified in the SEBI Act.”
E
(emphasis supplied)
87. Therefore, the SEBI Act and the rules, regulations and circulars
made or issued under the legislation, are constantly evolving with a
concerted aim to enforce order in the securities market and promote its
F healthy growth while protecting investor wealth. A three judge bench of
this Court, in B S E Brokers’ Forum vs Securities and Exchange
Board of India25, appreciated the extent of the powers and functions
that had been entrusted with the SEBI and held:
“17…. The Act in question is an Act to provide for the establishment
of a Board to protect the interests of investors in securities and to
G
promote the development of, and to regulate, the securities market
and for matters connected therewith or incidental thereto. The
Board is established under Section 3 of the Act. Section 11 of the
Act defines the powers and functions of the Board which mandates
that it shall be the duty of the Board to protect the interests of
H 25
(2001) 3 SCC 482
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 925
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

investors in securities and to promote the development of, and to A
regulate the securities market by such measures as it thinks fit.
Sub-section (2) of the said section enumerates the various areas
in which the Board is mandated to take measures to fulfil the
objects of the Act. They include such measures as (i) regulating
the business in stock exchanges and any other securities markets;
B
(ii) registering and regulating the working of stockbrokers and
other intermediaries; (iii) registering and regulating the working
of the depositories etc.; (iv) registering and regulating the working
of venture capital funds and collective investment schemes,
including mutual funds; (v) promoting and regulating self-regulatory
organizations; (vi) prohibiting fraudulent and unfair trade practices C
relating to securities markets; (vii) promoting investors’ education
and training of intermediaries; (viii) prohibiting insider trading in
securities; (ix) regulating substantial acquisition of shares and
takeover of companies; (x) collection of information, inspection,
conducting inquiries and audits of the stock exchanges, mutual
D
funds, other persons associated with the securities market and
other intermediaries and self-regulatory organizations in the
securities market; (xi) performing such other functions as are
delegated to it by the Central Government; (xii) conducting
research for the above purposes; (xiii) providing necessary
information for the efficient discharge of the functions of the E
organizations with securities markets etc. The said Board is also
vested with certain powers of the civil courts under the Code of
Civil Procedure, 1908 in regard to discovery, production,
summoning and enforcing the attendance of persons and inspection
of books, registers etc. Section 11(2)(k) of the Act empowers the
F
Board to levy fees or other charges for carrying out the purposes
enumerated in Section 11 of the Act. Section 12 requires the
stockbrokers, sub-brokers, share-transfer agents, bankers to an
issue, trustees of trust deeds, registrars to an issue, merchant
bankers, underwriters, portfolio managers, investment advisors
and such other intermediaries who may be associated with the G
securities market to get themselves registered and obtain a
certificate of registration from the Board in accordance with the
Regulations made under this Act. Section 12(2) empowers the
Board to collect such fees as may be determined by the Regulations
from the applicants who seek registration.”
H
926 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 88. In a consistent line of precedent, this Court has been mindful
of the public interest that guides the functioning of SEBI and has refrained
from substituting its own wisdom over the actions of SEBI26. Its wide
regulatory and adjudicatory powers, coupled with its expertise and
information gathering mechanisms, imprints its decisions with a degree
of credibility. The powers of the SAT and the Court would necessarily
B
have to align with SEBI’s larger existential purpose. A two judge bench
of this Court, in SEBI vs Kishore R Ajmera27, had echoed this
understanding when speaking through Justice Kurian Joseph, it held:
“25. The SEBI Act and the Regulations framed thereunder are
intended to protect the interests of investors in the Securities Market
C which has seen substantial growth in tune with the parallel
developments in the economy. Investors’ confidence in the capital/
securities market is a reflection of the effectiveness of the
regulatory mechanism in force. All such measures are intended
to pre-empt manipulative trading and check all kinds of
D impermissible conduct in order to boost the investors’ confidence
in the capital market. The primary purpose of the statutory
enactments is to provide an environment conducive to increased
participation and investment in the securities market which is vital
to the growth and development of the economy. The provisions of
the SEBI Act and the Regulations will, therefore, have to be
E understood and interpreted in the above light.”
Similarly, a two judge bench of this Court, in Securities and
Exchange Board of India vs Ajay Agarwal28, while determining the
scope of the regulatory body’s powers under Section 11(B) to restrain
persons from accessing the securities market, had elaborated on the
F special nature of the legislation and implored the Courts to exercise their
interpretative role in a manner that furthers SEBI’s statutory objectives.
The Court, speaking through Justice A K Ganguly, held:
“33. If we look at the legislative intent for enacting the said Act, it
transpires that the same was enacted to achieve the twin purposes
G
26
G L Sultania vs Securities & Exchange Board of India, (2007) 5 SCC 133, para
84; PGF Ltd vs Union of India, (2015) 13 SCC 50, paras 46-58; SEBI vs Akshya
Infrastructure (P) Ltd., (2014) 11 SCC 112; SEBI vs Saikala Associates Ltd., (2009)
7 SCC 432, para 16
27
(2016) 6 SCC 368
28
H (2010) 3 SCC 765
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 927
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

of promoting orderly and healthy growth of securities market and A
for protecting the interest of the investors. The requirement of
such an enactment was felt in view of substantial growth in the
capital market by increasing the participation of the investors. In
fact such enactment was necessary in order to ensure the
confidence of the investors in the capital market by giving them
B
some protection.
34. The said Act is pre-eminently a social welfare legislation
seeking to protect the interests of common men who are small
investors. It is a well-known canon of construction that when the
court is called upon to interpret provisions of a social welfare
legislation the paramount duty of the court is to adopt such an C
interpretation as to further the purposes of law and if possible
eschew the one which frustrates it….”
Therefore, in line with the object of the SEBI Act and the
precedents of this Court, it would be our task to interpret Section 24A in
a manner that furthers the statutory role of SEBI, rather than one which D
thwarts its considered course of action.
89. Section 24(1) is an omnibus provision for all offences punishable
for contravention (or attempts or abetments) of the provisions of the Act
or of any rule or regulation made under it. As we have seen earlier, prior
to Amending Act 59 of 2002 which came into effect from 29 October E
2002, the punishment for offences extended to a period of one year of
imprisonment, or with fine, or with both under Section 24(1). The term
of imprisonment has been extended to up to ten years and a fine of Rs
twenty-five crores by the amending legislation of 2002. The rationale
for this amendment, as evinced from its Statement of objects and reasons, F
was to provide an effective deterrent for potential wrongdoers. Offences
punishable under sub-Section (1) of Section 24 would cover a range of
violations from the venial to the serious. The entrustment of the power
to compound offences either before or after the institution of any
proceeding is to SAT or a Court before which such proceedings are
pending. The provisions of Section 24A must be read in a manner G
consistent with the object and purpose underlying the position of SEBI
as an expert regulator. SEBI, as the regulator, is entrusted with diverse
roles and functions including the power to regulate the securities’ market,
make regulations and to enforce the provisions of the Act. Its functions
H
928 SUPREME COURT REPORTS [2021] 4 S.C.R.

A have been recognized in a panoply of statutory provisions. Independent
of initiating a prosecution, SEBI has been entrusted with wide ranging
powers and functions including the power to investigate, to issue directions
and levy penalties and make cease and desist orders.
90. While the statute has entrusted the powers of compounding
B offences to SAT or to the Court, as the case may be, before which the
proceedings are pending, the view of SEBI as an expert regulator must
necessarily be borne in mind by the SAT and the Court, and would be
entitled to a degree of deference. While SEBI does not have a veto,
having regard to the language of Section 24A, its views must be elicited.
The view of SEBI, an envisaged in the FAQs accompanying SEBI’s
C circular dated 20 April 2007, must undoubtedly be sought by the SAT or
the Court, to decide on whether an offence should be compounded. For
SEBI can provide an expert view on the nature and gravity of the offence
and its implication upon the protection of investors and the stability of
the securities’ market. These considerations and others which SEBI
D may place before the SAT or the Court, would be of relevance in
determining as to whether an application for compounding should be
allowed. We, therefore, hold that before taking a decision on whether to
compound an offence punishable under Section 24 (1), the SAT or the
Court must obtain the views of SEBI for furnishing guidance to its ultimate
decision. These views, unless manifestly arbitrary or mala fide, must be
E accorded a high degree of deference. The Court must be wary of
substituting its own wisdom on the gravity of the offence or the impact
on the markets, while discarding the expert opinion of the SEBI.
91. It is also important to note that the legislative scheme of the
SEBI Act delineates several actions that are liable for penalty under
F Section 15, but includes a common sentencing provision under Section
24. Therefore, Section 24 would be the sentencing provision for the
most banal of offences, to the most egregious of market disruptions and
frauds. The maximum punishment prescribed under Section 24 has also
seen an amendment and increase by the Amending Act 59 of 2002, in
G order to ensure effective deterrence. In exercising the power of
compounding under Section 24A, 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
H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 929
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

view on the compounding would become all the more important, in this A
light.
FGuidelines for Compounding under Section 24A
92. Section 24A only provides the SAT or the Court before which
proceedings are pending with the power to compound the offences, B
without providing any guideline as to when should this take place. Hence,
we deem it necessary to elucidate upon some guidelines which SAT or
such Courts must take into account while adjudicating an application
under Section 24A:
(i) They should consider the factors enumerated in SEBI’s C
circular dated 20 April 2007 and the accompanying FAQs,
while deciding whether to allow an application for a consent
order or an application for compounding. These factors,
which are non-exhaustive, are:
“Following factors, which are only indicative, may be D
taken into consideration for the purpose of passing
Consent Orders and also in the context of compounding
of offences under the respective statute:
1. Whether violation is intentional.
E
2. Party’s conduct in the investigation and disclosure of
full facts.
3. Gravity of charge i.e. charge like fraud, market
manipulation or insider trading.
F
4. History of non-compliance. Good track record of the
violator i.e. it had not been found guilty of similar or
serious violations in the past.
5. Whether there were circumstances beyond the control
of the party. G
6. Violation is technical and/or minor in nature and
whether violation warrants penalty.
7. Consideration of the amount of investors’ harm or
party’s gain.
H
930 SUPREME COURT REPORTS [2021] 4 S.C.R.

A 8. Processes which have been introduced since the
violation to minimize future violations/lapses.
9. Compliance schedule proposed by the party.
10. Economic benefits accruing to a party from delayed
B or avoided compliance.
11. Conditions where necessary to deter future non-
compliance by the same or another party.
12. Satisfaction of claim of investors regarding payment
C of money due to them or delivery of securities to them.
13. Compliance of the civil enforcement action by the
accused.
14. Party has undergone any other regulatory
D enforcement action for the same violation.
15. Any other factors necessary in the facts and
circumstances of the case.”
(ii) According to the circular dated 20 April 2007 and the
accompanying FAQs, an accused while filing their
E
application for compounding has to also submit a copy to
SEBI, so it can be placed before the HPAC. The
recommendation of the HPAC is then filed before the SAT
or the Court, as the case may be. As such, the SAT or the
Court must give due deference to such opinion. As
F mentioned above, the opinion of HPAC and SEBI indicates
their position on the effect of non-prosecution on
maintainability of market structures. Hence, the SAT or the
Court must have cogent reasons to differ from the opinion
provided and should only do so when it believes the reasons
G provided by SEBI/HPAC are mala fide or manifestly
arbitrary;
(iii) The SAT or Court should ensure that the proceedings under
Section 24A do not mirror a proceeding for quashing the
criminal complaint under Section 482 of the CrPC, thereby
H
PRAKASH GUPTA v. SECURITIES AND EXCHANGE BOARD 931
OF INDIA [DR. DHANANJAYA Y CHANDRACHUD, J.]

providing the accused a second bite at the cherry. The A
principle behind compounding, as noted before in this
judgment, is that the aggrieved party has been restituted by
the accused and it consents to end the dispute. Since the
aggrieved party is not present before the SAT or the Court
and most of the offences are of a public character, it should B
be circumspect in its role. In the generality of instances, it
should rely on the SEBI’s opinion as to whether such
restitution has taken place; and
(iv) Finally, the SAT or the Court should consider whether the
offence committed by the party submitting the application C
under Section 24A is private in nature, or it is of a public
character, the non-prosecution of which will affect others
at large. As such, the latter should not be compounded, even
if restitution has taken place.
G Analysis on facts and conclusion D

93. In the present case, we are clearly of the view that the nature
of the allegations against the appellant are such so as to preclude a
decision to compound the offences. We have adverted, in a considerable
amount of detail, to the circumstances which have been narrated in the
counter affidavit filed by SEBI. We find merit in the submissions which E
has been urged before the Court by learned Senior Counsel who appeared
on behalf of SEBI that 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 F
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
G
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
H
932 SUPREME COURT REPORTS [2021] 4 S.C.R.

A suffer from manifest arbitrariness. On the contrary, having due regard
to the nature of the allegations, we are of the view that an order for
compounding was not warranted.
94. For the above reasons, we affirm the judgment of the High
Court of Delhi, however, for the reasons which have been indicated in
B this judgment.

95. The appeal shall stand disposed of in the above terms.
96. Impleadment and interventions allowed. Pending application(s),
if any, stand disposed of.
C
Nidhi Jain Appeal disposed of.

D

E

F

G

H