Summary
While investigating the rigging of Shonkh Technologies shares by Ketan Parekh's entities, SEBI's investigating authority summoned the appellants, two companies allotted those shares, repeatedly in 2001–2002 and again in April 2003 for information, documents and personal appearance. They did not comply. The Adjudicating Officer imposed a penalty of Rs. 1 crore on each under Section 15A(a) of the SEBI Act, as amended with effect from 29 October 2002, and the SAT upheld it. The Supreme Court dismissed their appeals. Non-compliance with the fresh April 2003 summons was a fresh default, so the amended provision applied and no question of retrospectivity arose. Default for over 100 days attracted the Rs. 1 crore maximum. By the Explanation to Section 15J, the factors in that section are presumed considered. A penalty is interfered with only if it is wholly arbitrary or harsh.
Issues
- Whether the enhanced penalty under the amended Section 15A(a) of the SEBI Act could be imposed for non-compliance with summons issued after the amendment, where earlier summons predated it
- Whether the penalty of Rs. 1 crore was disproportionate or imposed without regard to Section 15J
- Whether the investigating authority could summon the appellants under Section 11C(3)
Provisions considered
- Section 15A(a) (as amended with effect from 29 October 2002), Securities and Exchange Board of India Act, 1992Failure to furnish documents attracts Rs. 1 lakh a day up to a maximum of Rs. 1 crore. Non-compliance with the fresh 2003 summons, continuing beyond 100 days, justified the maximum under the amended provision. (¶¶ 25, 32, 33, 34, 36)
- Section 15J and its Explanation, Securities and Exchange Board of India Act, 1992The adjudicating officer is deemed to have exercised the power to fix the quantum under Section 15J. Its factors are illustrative, not exhaustive, and may be irrelevant to failures to furnish information (Bhavesh Pabari). (¶¶ 40, 41, 42, 43)
- Sections 11C(3), 15Z and 19, Securities and Exchange Board of India Act, 1992The appellants, as persons associated with the securities market, could be required to furnish information and appear. Penalty quantum is reviewed under Section 15Z only if wholly arbitrary or harsh. (¶¶ 44, 45, 46)
Held
- Having not proceeded against the appellants for the 2001–2002 defaults, SEBI issued fresh summons in April 2003. Non-compliance with those summons was a fresh offence committed after the amendment, so the amended Section 15A(a) applied and no question of retrospective operation arose. (¶¶ 32, 35, 36)
- Rs. 1 crore is the maximum where the failure continues beyond 100 days. Since the defaults ran for more than 100 days before the penalty orders, the maximum was rightly applied. (¶¶ 33, 34)
- The appellants never challenged SEBI's final finding that they facilitated Ketan Parekh's market manipulation. Their earlier partial responses did not excuse non-compliance with later summons, and their obstruction hampered the investigation. Given the gravity of the matter, the penalty was proportionate. A penalty is interfered with under Section 15Z only if wholly arbitrary, harsh or distinctly disproportionate (Bhavesh Pabari, MBL and Company). (¶¶ 38, 39, 40, 43, 44)
- The appellants, under investigation for aiding market manipulation, were 'persons associated with the securities market in any manner' within Section 11C(3), and the investigating authority acting under delegation from SEBI could summon them. (¶¶ 45, 46)
Result
Appeals dismissed. The penalties of Rs. 1 crore each under Section 15A(a) were upheld; parties to bear their own costs.