Supreme Court of India
S.E.B.IversusSAIKALA ASSOCIATES LTD.
- Citation
- 2009 INSC 576
- Decided
- 21 April 2009
- Disposal
- Appeal(s) allowed
- Bench
- ARIJIT PASAYAT
Holding
The Tribunal cannot modify the penalty imposed by SEBI because the SEBI Act and its regulations limit the penalty for violation of Section 12(1) and Rule 3 to suspension or cancellation of the registration certificate, and the Tribunal lacks authority to impose a monetary penalty.
Summary
The respondents, Saikala Associates Ltd and others, acted as unregistered sub‑brokers in violation of Section 12(1) of the SEBI Act and Rule 3 of the Stock Brokers and Sub‑Brokers Rules, prompting SEBI to suspend their registration certificates. The Securities Appellate Tribunal (SAT) altered the penalty, substituting a monetary fine for the suspension, reasoning that the charges were not serious enough. The appellants challenged this modification before the Supreme Court, contending that the SAT lacked authority to change the nature of the penalty. The Court held that the SEBI Act and its regulations prescribe only suspension or cancellation of registration as penalties for such contraventions, with no provision for monetary fines, and that the SAT, being a statutory body, cannot exceed the powers conferred by the Act. Consequently, the Court set aside the SAT's order, restored SEBI's original suspension, and allowed the appeals.
Issues considered
- Whether the Securities Appellate Tribunal has jurisdiction to modify the penalty imposed by SEBI for violation of Section 12(1) and Rule 3, including imposing a monetary fine.
- Whether the SEBI Act and its regulations provide for a monetary penalty for contravention of Section 12(1) and Rule 3.
- Whether the discretionary powers under Section 15T(4) of the SEBI Act and Rule 21 of the SAT Rules permit the Tribunal to alter the statutory penalty scheme.
Legislation cited
- Securities and Exchange Board of India Act, 1992s. 12(1), s. 12(3), s. 15A, s. 15B, s. 15K, s. 15T(4)
- Securities and Exchange Board of India (Stock Brokers and Sub-Brokers) Rules, 1992s. Rule 3
Subjects
Securities and Exchange Board of India ActSecurities Appellate Tribunalpenalty modificationregistration suspensionsub‑broker registrationstatutory interpretationdiscretionary powerRegulation 13Rule 3Section 12monetary penalty
Judgment
[2009] 6 S.C.R. 798
A S.E.B.I
v.
SAIKALA ASSOCIATES LTD.
(Civil Appeal No. 3696 of 2005)
APRIL 21, 2009.
B
[DR. ARIJIT PASAYAT AND LOKESHWAR SINGH
PANTA, JJ.]
Securities and Exchange Board of India Act, 1992 - ss.
c 12(1) and 15T(4) - Power of Securities Appellate Tribunal -
To modify penalty imposed by SEBI - Penalty of suspension
of cerlificate of registration by SEBI for violation of s. 12(1) rl
w r.3of1992 Rules - Modification of, to monetary penalty by
the Tribunal - Held: Tribunal was not right in modifying the
D penalty · - The statute provides penalty only of suspension ..
or cancellation of cerlificate of registrat'on - Tribunal being a
statutory body could not have travelled beyond the scope of
the statute taking shelter under a discretionary power -
Securities and Exchange Board of India, (Stock Brokers and
E Sub Brokers) Rules,· 1992 - r.3 - Securities and Exchange
Board of India (Prucedure for Holding Enquiry by Enquiry
Officer and Imposing Penalty) Regulation, 2002 -
Regulations 13(1)(a) (iv)/13(4) and 13(1)(b)(i) - Securities
Appellate Tribunal (Procedure) Rules, 2000 - r.21.
F The respondents had respectively acted as sub-
brokers without registration in breach of s. 12 of
Securities and Exchange Board of India Act, 1992, rlw r.
3 of Securities and Exchange Board of India (Stock
Brokers and Sub Brokers) Rules, 1992, and Securities
4
G and Exchange Board of India Regulations and Circulars ~
of SEBI (Stock Brokers and Sub Brokers). SEBI imposed
penalty of suspension of certificate of registration.
Securities Appellate Tribunal modified the\penalty holding
that the proved charges were not serious enough ~o
H 798
S.E.B.I v. SAi KALA ASSOCIATES LTD. 799
warrant suspension of certificate of registration and A
imposed monetary penalty. Hence the present appeals.
(
Allowing the appeals, the Court
HELD: 1. As per provisions of Regulations 13 (1) (a)
(iv) r/w Regulation, 13(4) of Securities and Exchange B
Board of India (Procedure for Holding Inquiry by Inquiry
Officer and Imposing Penalty) Regulation, 2002 SEBI can
·'- impose a minor penalty of suspension of the certificate
of registration of the concerned Stock Broker or Sub-
Broker upto three months and can impose major penalty c
under Regulation 13(1)(b)(i) of cancellation of the
certificate of registration and suspension of the certificate
of registration of the concerned Stock Broker or Sub- ·
Broker exceeding three months. From the above
provisions, it is clear that in case of contravention of D
Section 12(1) of Securities and Exchange Board of India
• Act, 1992 and/or Rule 3 of Securities and Exchange
Board of India (Stock Brokers and Sub Brokers) Rules,
1992 the only penalty provided under the Act and the
Regulations is of either suspension or cancellation of the
E
certificate of registration as set out in Section 12(3) of the
Act. There is no power even on the Board to impose any
monetary penalty. [Para 11] [807-D-G]
2. The Tribunal has been constituted u/s. 15K of
Securities and Exchange Board of India Act, 1992 and is F
thus a creation of the said statute and as such the
Tribunal is to exercise the jurisdiction, powers and
t authority conferred on it by or under the Act or any other
law for the time being in force. Under Secticn 15 T(4) of
.. .. ~he Act Tribunal has been empowered to pass such G
orders on the appeal as it thinks fit, confirming, modifying
or setting aside the order appealed against. Under Rule
21 of Securities Appellate Tribunal (Procedure) Rules,
2000, the Tribunal may make such orders or such
directions as may .be necessary or expedient to give effect H
800 SUPREME COURT REPORTS [2009) 6 S.C.R.
A to its orders or to prevent abuse of its process or to seek
the ends of justice. [Para 13, 14 and 15) [808-A-D]
3. In the instant case, the position of Broker/sub-
Broker in case of violation, is statutorily provided u/s. 12
of the Act, which has to be read along with Rule 3 of
B Securities and Exchange Board of India (Stock Brokers
and Sub-Brokers) Rules, 1992. No power is conferred on
the Tribunal to travel beyond the areas covered by
Section 12 and Rule 3. When something is to be done
statutorily in a particular way, it can only be done that
c way. There is no scope for taking shelter under a
discretionary power. [Para 16) [808-D-E]
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
3696 of 2005.
D From the Judgment & Order dated 21.04.2005 of the
Securities Appellate Tribunal in Appeal No. 21 of 2005.
WITH
C.A. No. 4640 of 2006.
E
Bhargava V. Desai, Rahul Gupta and Reema Sharma for
the Appellant(s).
Ranjeet Kumar, Rana Mukherjee, Siddharth Gautam,
Goodwill lndeevar, Dhanesh Relan, Anil Shah, Deepak Shah,
F Vipin K. Saxena, Shefali Bhatnagar, Jyoti Saxena, Dr. Kailash
Chand, Ravikesh K. Sinha, Nishant Dutta and Abhijat P.Medh
for the Respondent(s).
The Judgment of the Court was delivered by
G DR. ARIJIT PASAYAT, J. 1. In both these appeals .. •
common points are involved and are, therefore, taken up
together for disposal. In both these appeals challenge by the
Securities and Exchange Board of India (in short 'SEBI') is to
the order passed by the Securities Appellate Tribunal (in short
H the 'Tribunal').
S.E.B.I v. SAIKALA ASSOCIATES LTD. 801
[DR. ARIJIT PASAYAT, J.]
2. Factual Position is almost undisputed and in respect of A
the appellants stand as follows:
(I) C.A. No. 3696 of 2005:
The Respondent has acted as a sub-broker at the National
Stock Exchange with 2 NSE Members, MIS PCS Securities B
Limited & MIS Zen Securities Ltd. without being registered as
a sub-broker with the SEBI with the said Exchange for the
Period from the years 2000-01, 2001-02 and from April, 2002
to May, 2002 and created the value of Rs.403.29 Crores, in
breach of Section 12(1) of the Securities and Exchange Board C
of India Act, 1992 (hereinafter referred to as the "Act") read with
Rule 3 of the Securities and Exchange Board of India (Stock
Brokers & Sub Brokers) Rules, 1992 (hereinafter referred to
as the " Rules" )
D
(II) C.A. No. 4640 of 2006 ( SEBI Vs SHILPA STOCK
BROKERS P. LTD & M/S MEHTA VAKIL & Co)
Tribunal .has recorded the fair concession of the
Respondent that the Respondent registered as a broker with
the SEBI while executing trades on behalf of their client E
Kamlesh Shroff, had dealt with M/s Jairam Enterprises, an
unregistered sub-broker, which is admittedly in violation of the
Circular No. SMD/I POLICY /CIRCULAR/3-97 dated 31.3.1997
issued by SEBI in exercise of powers under Section 11 of the
Act. As regards the second charge, the Tribunal did not uphold F
the finding of the Appellant SEBI.
(iii) As regards M/s. Mehta Vakil & Co P. Ltd. (Appeal No.
11 of 2000 before the Tribunal) the respondent-co. were
" . involved in purchase of 19400 shares and Sale of 800
shares of V.B. Financial which had been transacted by the
said broker on behalf of their sub-broker, namely, Akshay
G
Dalal, who was registered as a sub broker only with effect
from 14.1.2000 but had dealt with him since December, I
1998 in breach of the Act. Rules Securities and Exchange H
802 SUPREME COURT REPORTS [2009] 6 S.C.R.
A Board of India Regulations & Circulars of SEBI, (Stock
Brokers and Sub-Brokers) (Hereinafter referred to as
"Regulation").
3. The only question is whether Tribunal has power to
B modify the penalty imposed '1y SEBI? According to the
appellant the Tribunal had no jurisdiction to modify the
sentence. The Tribunal in each case held that the proved
charges against the respondent were not serious enough to
warrant suspension of certificate bf registration.
C 4. The respondent, on the other hand, supports the order
of the Tribunal and contends that proportional penalty can be
leveled and the modification done is clearly within the scheme
and framework of the Act. It is submitted that when a regulator
chooses to elect a particular form of authority, amongst various
D available penalties which is available and it is appealable the
Tribunal has the right to modify it. Reference in this context is •
made to Section 15(T) of the Act.
5. There is no dispute that there was violation of the
E provisions of Section 12(1) of the Act read with Rule 3 of the
Rules.
6. Section 12, 15A, 15B, Rule 3 of the Rules and
Regulation 25 of the Regulation are relevant and read as
follows:
F
"Regulation of stock brokers, sub-brokers, share transfer
agents, etc.
12. (1) No stock broker, sub-broker, share transfer agent,
banker to an issue, trustee of trust deed, registrar to an
G issue, merchant banker, underwriter, portfolio manager,
investment adviser and such other intermediary who may
•
be associated with securities market shall buy, sell or deal
in securities except under, and in accordance with, the
conditions of a certificate of registration obtained from the
H Board in accordance with the regulations made under this
S.E.B.I v. SAIKALA ASSOCIATES LTD. 803
[DR. ARIJIT PASAYAT, J.]
Act: A
Provided that a person buying or selling securities or
otherwise dealing with the securities market as a stock
broker, sub-broker, share transfer agent, banker to an
issue, trustee of trust deed, registrar to an issue, merchant
B
banker, underwriter, portfolio manager, investment adviser
and such other intermediary who may be associated with
securities marketimmediately before the establishment of
the Board for which no registration certificate was·
necessary prior to such establishment, may continue to do
so for a period of three months from such establishment
c
or, if he has made an application for such registration within
the said period of three months, till the dispo~al of such
application:
Provided further that any certificate of registration, D
·~ obtained immediately before the commencement of the
Securities Laws (Amendment) Act, 1995, shall be deemed
to have been obtained from the Board in accordance with
the regulations providing for such registration.
E
(1 A) No depository, [participant,] custodian of
securities, foreign institutional investor, credit rating agency
or any other intermediary associated with the securities
market as the Board may by notification in this behalf
specify, shall buy or sell or deal in securities except under
and in accordance with the conditions of a certificate of
F
registration obtained from the Board in accordance with
the regulations made under this Act:
Provided that a person buying or selling securities
or otherwise dealing with the securities market as a G
. • depository, [participant,] custodian of securities, foreign
institutional investor or credit rating agency immediately
before the commencement of the Securities Laws
(Amendment) Act, 1995, for which no certificate of
registration was required prior to such commencement, H
I
804 SUPREME COURT REPORTS [2009) 6 S.C.R.
A may continue to buy or sell securities or otherwise deal
with the securities market until such time regulations are
made under clause (d) of sub-section (2) of section 30.
( 1B) No person shall sponsor or cause to be
sponsored or carry on or cause to be carried on any
B
venture capital funds or collective investment schemes
including mutual funds, unless he obtains a certificate of
registration from the Board in accordance with the ...
regulations:
c Provided that any person sponsoring or causing to
be sponsored, carrying on or causing to be carried on any
venture capital funds or collective investment schemes
operating in ·the securities market immediately before the
commencement of the Securities Laws (Amendment) Act,
D 1995, for which no certificate of registration was required
prior to such commencement, may continue to operate till
such time regulations are made under clause (d) of sub-
section (2) of section 30.)
(2) Every application for registration shall be in such
E
manner and on payment of such fees as may be
determined by regulations.
(3) The Board may, by order, suspend or cancel a
certificate of registration in such manner as may be
F determined by regulations.
Provided that no order under this sub-section shall
be made unless the person concerned has been given a
reasonable opportunity of being heard.
G 15A. Penalty for failure to furnish information, return, etc.-
If any person, who is required under this Act or any rules
~ ...
or regulations made thereunder,-
(a) to furnish any document, return or report to the Board,
H fails to furnish the same, he shall be liable to [a penalty of
S.E.B.I v. SAIKALA ASSOCIATES LTD. 805
[DR. ARIJIT PASAYAT, J.]
one lakh rupees for each day during which such failure A
continues or one crore rupees, whichever is less];
(b) to file any return or furnish any information, books or
other documents within the time specified therefor in the
regulations, fails to file return or furnish the same within the 8
time specified therefor in the regulations, he shall be liable
1
to [a penalty of one lakh rupees for each day during which
such failure continues or one crore rupees, whichever is
less]; ·
(c) to maintain books of accounts or records, fails to C
maintain the same, he shall be liable to [a penalty of one
lakh rupees for each day during which such failure
continues or one crore rupees, whichever is less,]
158. Penalty for failure by any person to enter into an D
agreement with clients.- If any person, who is registered
as an intermediary and is required under this Act or any
rules or regulations made thereunder to enter into an
agreement with his client, fails to enter into such
agreement, he shall be liable to [a penalty of one lakh E
rupees for each day during which such failure continues
or one crore rupees, whichever is less.)
Rule 3 - No stock broker or sub-broker shall buy, sell, deal
in securities, unless he holds a certificate granted by the
Board under the Regulations: F
Provided that such person may continue to buy, sell or deal
in securities if he has made an application for such
registration til the disposal of such application."
G
"Regulation 25. Liability for contravention of the Act, rules
or the regulations-
A stock broker or a sub-broker who contravenes any of the
provisions of
H
806 SUPREME COURT REPORTS [2009] 6 S.C.R.
A the Act, rules or regulations framed thereunder shall be
liable for any or more of the following actions:
(i) Monetary penalty under Chapter VIA of the Act.
(ii) Penalties as specified under Securities and Exchange
B Board of India (Procedure for Holding Enquiry Officer and
Imposing Penalty) Regulation, 2002 including suspension
or cancellation of certificate of registration as a stock
broker or a sub-broker ~
c (iii) Prosecution under section 24 of the Act.·
7. It is the stand of the appellant-Board that in terms of
Regulati.on 25 which was applicable prior to the amendment
with effect from 2.11.2003, it was provided that any
contravention of any provisions of the Act, Rules and
D Regulations is to be dealt with in the manner provided in
Regulations 26 to 32 of the Regulation prior to the amendment
with effect from 27.9.2002. Therefore, Regulation 25 prior to
amendment with effect from 20.11.2003 is applicable which
provides that any contravention of any provision of the Act, Rules
E and Regulation is to be dealt with under the Securities and
Exchange B0ard of India (Procedure For Holding Enquiry By
Enquiry Officer and Imposing Penalty) Regulation, 2002
(hereinafter referred to as the '2002 Regulations).
F 8. The provisions of section 12(3) of the Act confer power
on the Board, by an order, to suspend or cancel a certificate
of Registration in such manner as may be determined by
Regulations, provided that no order under 'the said section will
be made unless the person concerned has been given a
G reasonable opportunity of being heard.
9. Rule 3 prohibits any broker sub-broker from buying,
selling, dealing in securities, unless he holds a certificate
granted by the Board under the Regulations, provided however,
those who were already in the said business on the date of
H coming into force of the Rules (i.e. 20.08.1992) & Regulations,
S.E.B.I v. SAIKALA ASSOCIATES LTD. 807
[DR. ARIJIT PASAYAT, J.]
were allowed to continue with their business during the period A
till application for registration was disposed of. This means that
the existing brokers & sub-brokers, in business were allowed
to continue pending registration but no new person
commencing the business of the broker or sub-broker after
20.08.1992 could do the business pending registration and B
could commence only after being registered.
,. 10. Regulation 25 is the crucial Regulation. Applicable
regulations prior to amendment (w.ef.20.11.2003) provide that
any contravention .of any provision of the Act, Rules &
Regulation is to be dealt with in the manner provided in c
Regulations 26 to 32 of Regulations prior to amendment w.e.f
27.09.2002 and thereafter the Regula.tion 25 of the Regulations
prior to amendment w.e.f 20.11.2003 provides that any
contravention of any provision of the Act, Rules & Regulation
is to be dealt with under the 2002 Regulations. D
"
11. As per provisions of Regulations 13(1 )(a) (iv) read with
Regulation, 13(4) of the 2002 Regulations, SEBI. can impose
a minor penalty of suspension of the Certificate of Registration
of the concerned Stock Broker or Sub-Broker upto three E
months and can impose major penalty under Regulation
13(1)(b)(i) of cancellation of the Certificate of Registration and
suspension of the Certificate of Registration of the concerned
• stock Broker or Sub-Broker exceeding three months. From the
above provisions, it is clear that in case of contravention of F
Section 12(1) and/or Rule 3 of- the Rules, the only penalty
provided under the Act & the Regulations is of either suspension
or cancellation of the certificate of Registration as set out in
Section '12(3) of the Act. There is no power even on the Board
to impose any monetary penalty.
G
"
12. According to respondents, a Tribunal constituted under
Section 15K of the Act in exercise of powers under Section 15T
of the Act read with Regulation 21 of the Securities Appellate
Tribunal [Procedure] Rules, 2000. (hereinafter referred to as the
"SAT Rules, 2000") can modify the order of SEBI so as to H
808 SUPREME COURT REPORTS [2009] 6 S.C.R.
A modify the nature of penalty not provided for under the
provisions of the Statutes in respect of the concerned violations.
13. The Tribunal has been constituted under section 15K
of the Act and is thus a creation of the said Statute and as such
B the Tribunal is to exercise the jurisdiction, powers and authority
conferred on it by or under the Act or any other law for the time
being in force.
14. Under Section 15 T (4) of the Act Tribunal has been
empowered to pass such orders on the Appeal as it thinks fit,
C confirming, modifying or setting aside the order appealed
against.
· 15. Under Rule 21 of the SAT Rules, 2000 the Tribunal may
make such orders or such directions as may be necessary or
0 expedient to give effect to its Orders or to prevent abuse of its
process or to seek the ends of justice.
16. In the instant case, the position of Broker/Sub-Broker
in case of violation is statutorily provided under Section 12 of
the Act, which has to be read along with Rule 3 of the Rules.
E No power is conferred on the Tribunal to travel beyond the areas
covered by Section 12 and Rule 3. When something is to be
done statutorily in a particular way, it can only be done that way.
There is no scope for taking shelter under a discretionary
power.
F
17. Above being the position the appeals are bound to
succeed, which we direct. The orders of the Tribunal are set
aside and that of SEBI stands restored.
18. Appeals are allowed.
G
K.K.T. Appeals allowed.
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