Summary
The Court held that SEBI’s consent was not a statutory prerequisite to compounding under Section 24A, but its expert views had to be obtained and accorded substantial deference. The power belonged to the Securities Appellate Tribunal or the court seized of the proceedings. Nevertheless, compounding was properly refused here because the alleged price manipulation implicated investor protection and market integrity; an exit offer and claimed absence of investor loss did not erase that concern. The High Court’s result was affirmed on these reasons.
Issues
- Whether SEBI had a veto over compounding under Section 24A.
- What considerations governed the statutory compounding discretion.
- Whether the alleged market manipulation warranted compounding in this case.
Provisions considered
- Sections 24(1) and 24A, Securities and Exchange Board of India Act, 1992The statutory forum held the compounding power without a mandatory SEBI-consent condition, but had to obtain and give high deference to the regulator’s views. (¶¶ 31, 32, 33, 36, 37, 38, 80, 81, 82, 83, 84, 85, 90, 91, 92, 93)
Held
- Section 24A overrides the CrPC compounding framework and identifies the eligible offences, exceptions, timing and decision-making forum. Offences under Section 24(1) were compoundable in principle. The Court expressly left the different construction issue concerning Section 24(2) undecided. (¶¶ 33, 36, 37, 80, 81, 82)
- The statutory language did not make SEBI’s consent mandatory, and the courts could not add such a condition. Unlike the NI Act provision considered in JIK Industries, Section 24A expressly entrusted compounding to designated judicial forums. Once proceedings were pending before a court, that court held the compounding jurisdiction. (¶¶ 38, 71, 72, 80, 82, 83, 84)
- SEBI’s absence of a veto did not make its position dispensable. The forum must elicit its expert assessment of gravity, investor interests and market consequences, and give it a high degree of deference. Departure required cogent reasons grounded in manifest arbitrariness or mala fides. (¶¶ 85, 86, 87, 88, 89, 90, 91, 92)
- Relevant factors included intentionality, gravity, cooperation, prior compliance, gains and harm, restitution, subsequent safeguards and deterrence. Compounding was distinct from quashing proceedings and required attention to public consequences, not merely settlement with directly affected investors. Public-character offences whose non-prosecution would affect others at large should not be compounded merely because restitution occurred. (¶¶ 59, 62, 92)
- The alleged diversion of issue proceeds and price rigging implicated market stability and investor wealth. The exit opportunity at twelve rupees per share and observation concerning absence of investor loss did not eliminate the alleged wrongdoing. SEBI and its advisory committee had rationally opposed compounding, so refusal was affirmed on these grounds. (¶¶ 6, 8, 9, 10, 11, 15, 93, 94, 95)
Result
Appeal disposed of; refusal to compound affirmed on the Court’s stated reasons, while rejecting the proposition that SEBI’s consent was invariably mandatory.