The Securities and Exchange Board of India Act, 1992 [15 of 1992] came into force on 30 January 1992 . It provided for an establishment of a Board to protect the interests of investors in securities and to promote the development of, and to regulate, the securities market and for matters connected therewith or incidental thereto.

There have been amendments in the Act to make it stronger and give teeth to it. There is also a provision in the Act for prosecuting offenders in the court of criminal jurisdiction. The amended Act that provides for prosecution of offenders in terms of Section 24 of the Act after amendment by SEBI Amendment Act 2002 is reproduced hereunder for the sake of facility of reference: 24. Offences.- (1)

Without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made there under, 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 adjudicating officer or fails to comply with any of his 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.

There is also a provision for ‘compounding of the offences’ by the Court in Section 24 A of the Act, which is reproduced hereunder: Composition of certain offences. 24A. Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act, not being an offence 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 Circular No EFD/ED/Cir-1/2007 dated 20.04.2007 of the Securities and Exchange Board of India provided guidelines for consent orders and for considering requests for composition of offences.

This circular of the SEBI was amended by its circular No EFD/1/2012 dated 25.05.2012 In this article we are only confining ourselves to powers vested in the Special Court for compounding of offences under the SEBI Act. It will be seen that only offences under Section 24 (1) of the Act only be compounded and not the ones under Section 24(2). Compounding can be affected under Section 24 A as therein the minimum punishment is not provided for in so far as imprisonment is concerned and compounding can take effect only where no compulsory punishment is provided for.

The question which arises is whether the designated SEBI Court is bound to follow the procedure laid down in Section 320 of the Code of Criminal Procedure to exercise its jurisdiction under Section 24 A of the Act or not.

Section 320 of the Code of Criminal Procedure permits compounding of certain offences. Certain offences can be compounded with the consent of the persons mentioned therein and certain offences can be compounded with the consent of the such persons with the permission of the court.

Therefore, the consent of the complainant has been made compulsory for compounding of offences under Section 320. But can a complaint under Section 24 A of the Act be compounded by the designated special court without the consent of the SEBI?

It is submitted that the Special SEBI Court is not bound by the provisions of Code of Criminal Procedure because of the words/clause used in Section 24 A of the Act, ‘Notwithstanding anything contained in the Code of Criminal Procedure, 1973(2 of 1974’, and if the Court were to seek the consent of the complainant in line with the provisions of Section 320 of the Code of Criminal Procedure, the use of the words/ clause ‘Notwithstanding anything contained in the Code of Criminal Procedure, 1973(2 of 1974’, shall become otiose .

The designated Court has in fact been vested with a special jurisdiction under the SEBI Act inclusive of the jurisdiction to compound offences under the SEBI Act without even the consent from the complainant.

It has been held in the latest Supreme Court judgment in the matter of Criminal Appeal No 1731 of 2017 (Arising out of Special Leave Petition (Crl.) No.5451 of 2017) entitled M/s.Meters & Instruments Private Limited & Anr Vs Kanchan Mehta, judgment dated 05.10.2017 reported as (2018) 1 SCC 560 in a matter under Negotiable Instruments Act that the Hon’ble Court can direct compounding, in the interest of justice, even without the ‘consent’ of the complainant .

The relevant para of the said judgment is reproduced hereunder: “Though compounding requires consent of both parties, even 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.”

It has been held in the matter of K.M.Ibrahim Vs K.P.Mohammed and another Criminal Appeal No.2281 of 2009 on 02.12.2009 by the Hon’ble Supreme Court reported as (2009 ) 7 Supreme 627 that the ‘non-obstante clause’ in a special statute prevails.

It was held: “As far as the non-obstante clause included in Section 147 of the 1881 Act is concerned, the 1881 Act being a special statute, the provisions of Section 147 will have an overriding effect over the provisions of the Code relating to compounding of offences. The various decisions cited by Mr. Rohtagi on this issue does not add to the above position.”

The issue came up for consideration for the first time in the matter of N.H. Securities Ltd Vs SEBI and Anr. wherein it was, inter alia held by the Hon’ble High Court of Judicature at Bombay as under: “Section 24 A of the SEBI Act which is quoted herein above indeed stipulates that notwithstanding anything contained in the Code of Criminal Procedure any offence punishable under the SEBI act not being an offence punishable imprisonment only or with imprisonment or also with fine may either before or after the institution of any proceedings be compounded by Securities Appellate Tribunal or Court before which such proceedings are pending.

The interpretation of the said provision would not mean that whenever an application is preferred by the accused such offences has to be compounded or that the prosecution agency cannot oppose such an application. It would also not mean that the prosecuting agency viz. SEBI can be compelled to concede for allowing compounding application.

The Division Bench of this Court in the case of Shilpa Stock Broker (supra) has taken into consideration the scope of the Act and the responsibility of SEBI in protecting the interest of the investors and in the light of the said circumstances, it was observed that SEBI cannot be compelled to settle the dispute. Whether a dispute should be resolved or whether the wider public interest in ensuring regulatory compliance requires that proceedings should be initiated and if initiated should be followed to that logical conclusion is the matter falls within the discretion of SEBI or a person who apprehends that action will be initiated by SEBI has no vested right to insist that the dispute be resolved in terms of consensual settlement.

The Respondent No.1 has constituted as an expert regulator to ensure the stable and orderly functioning of the securities market. Acting as a regulator of the securities market decisions taken by SEBI impact upon the economy and financial stability.

SEBI is vested with statutory powers in the public interest and the exercise of power must therefore be guided by the public interest that SEBI is vested with the power to protect.

Although, the Division Bench of this Court in the said decision was not dealing with the provisions under Section 24A of the SEBI Act, the observations made therein which are reproduced herein above can be applied to the provision 53 of 55 Sknair wp-1894- 18.odt under Section 24A of the Act.

Merely on the ground that the embargo laid down under Section 320 of Code of Criminal Procedure may not be applicable to the provision of Section 24A, it cannot be said that without the consent of SEBI the proceedings can be compounded.

Or else the statutory authority will be rendered to be a mute spectator in the event of such an application is preferred by the accused for compounding. The discretion lies with the Court as well as with the prosecuting agency. The nature of the dispute which is the subject matter of the prosecution initiated by Respondent No.1 against the applicant/accused is not a private individual dispute. The prosecution is initiated for violations of the order passed by the Adjudicating Officer.

Adjudicating Officer was required to pass such an order in the light of the factual matrix and for the reasons stated in the adjudication order. It cannot be accepted that the proceedings were in the nature of recovery and therefore the application for compounding ought to be allowed.

The Special Judge has rightly rejected the application. The factual aspects and for all the reasons stated herein I am not inclined to allow the application for compounding in exercise of inherent powers under section 482 of Code of Criminal Procedure when the Respondent No.1 has not consented 54 of 55 Sknair wp-1894-18.odt for compouding the said offence.

“Considering the aforesaid circumstances and more particularly in view of the observations of the Division Bench of this Court in the case of Shilpa Stock Broker and also in the light of scope powers of Respondent No.1 being the regulatory authority or the statutory authority it cannot be said that the proceedings can be compounded in the absence of the consent of Respondent No.1. I do not find any infirmity in the order passed by the Special Court rejecting the application preferred by the petitioner. Considering factual the matrix and the observations made herein above even in exercise of powers under Section 482 of Code of Criminal Procedure, I am not inclined to grant any relief as prayed in the present petition. Hence, petition is devoid of merits and the same is dismissed.”

This judgment in the matter of N.H. Securities Ltd. (Supra ) was referred to by the Delhi High Court in Crl Revision No 1076 of 2018 in the matter of Prakash Gupta Vs SEBI decided on 01.04.2019 wherein it was, inter alia, held as under: “Learned counsel for petitioner relies upon recent Supreme Court’s decision in Meters and Instruments Private Limited and Another Vs. Kanchan Mehta (2018) 1 SCC 560 to submit that consent of respondent to permit compounding is not required.

So, it is submitted that the impugned order be set aside and trial court be directed to decide petitioner’s application under Section 24A of the SEBI Act, 1992 on merits.

“On the contrary, learned counsel for respondents relies upon Single Bench decision of High Court of Bombay in N.H.Securities Ltd.Vs. Securities and Exchange Board of India 2018 SCC OnLine Bom 4040 to support the impugned order and submits that the object of the SEBI Act would be lost if compounding is permitted by this Court, as the allegations levelled against petitioner are of artificially jerking the price of the share of petitioner’s company.

“In rebuttal, learned counsel for petitioner draws the attention of this Court to an order of 19th June, 2001 (Annexure P-3 colly) to point out that all the investors were offered an exit route at ?12/- per share which was higher than the public issue price of ?10/- and thus, in the ultimate analysis, there was no loss caused to any investor. So, it is submitted that petitioner’s application under Section 24A of the SEBI Act, 1992 deserves to be allowed.

Upon hearing and on perusal of impugned order, material on record and the decisions cited, I find that Supreme Court in Meters and Instruments Private Limited and Another (Supra), had declared that for compounding in proceedings under Section 138 of Negotiable Instruments Act, 1881 consent of both parties is not required and even in the absence of such consent, the court, in the interest of justice, can in its discretion close the proceedings and discharge the accused. No doubt, that petitioner had filed an application for compounding way back in the year 2013 and it remained pending, but now, the proceedings before the trial court have reached the stage of final arguments.

“Compounding at the initial stage has to be encouraged, but not 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 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 ratio of Supreme Court’s decision in Meters and Instruments Private Limited (Supra), and the view expressed 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. 7.

Consequentially, petitioner’s application under Section 24A of the SEBI Act is declined, while not commenting on merits of this case.” It would be pertinent to mention herein that the Petitioners in the matters of N.H. Securities Ltd.(Supra ) and Prakash Gupta (Supra) were carried by the respective Petitioners to the Hon’ble Supreme Court of India by way of Special Leave to Appeal (Crl) No 1132/2019 and Special Leave to Appeal (Crl) No 4728/2019 respectively.

In the matter of N.H. Securities Ltd. (Supra ) the Hon’ble Supreme Court was pleased to stay the final judgment in the matter before the trial court in the said matter.

The orders dated 15.03.2019 of the Hon’ble Supreme Court are reproduced hereunder: I.A.No.33137/2019 : Issue notice. Learned counsel appearing on behalf of the respondent- SEBI accepts notice. Heard learned counsel. We are of the view that the trial can be concluded, but let the judgment be not pronounced till the final view is taken in the main matter.

Application for direction stands disposed of. SLP(C) No.1132/2019: Learned counsel for the petitioners seeks and is granted two weeks’ time to file rejoinder affidavit. List after three weeks. Learned counsel for the respondent-SEBI has handed over in Court a chart of the interconnected cases, in some of which the petitioners are involved, with a copy to the learned counsel for the petitioner, so that this aspect is dealt with in the rejoinder affidavit.

The Hon’ble Supreme Court is seized of the matter and after its final view is rendered, the same will be binding on the subordinate courts in view of the Article 141 of the Constitution of India It is this writer’s view that in light of the authoritative binding judicial dicta in the matter of M/s. Meters & Instruments Private Limited & Anr Vs Kanchan Mehta (2018) 1 SCC 560; K.M.Ibrahim Vs K.P. Mohammed and another (2009 ) 7 Supreme 627, the consent of SEBI for compounding of the offence under Section 24 (1) of the Act is not requisite and the designated court is fully competent to effect compounding dehors the consent of SEBI.

Had it been otherwise, there was no need to add the ‘non obstante clause’ and the effect of Code of Criminal Procedure Code would have continued. In fact the view of Bombay High Court and Delhi High Court are contrary to the view of Hon’ble Supreme Court in the matter of M/s. Meters & Instruments Private Limited & Anr (Supra) K.M. Ibrahim Vs K.P. Mohammed and another (Supra).

In the considered view of the author the Special Judge SEBI in appropriate cases on the facts and circumstances of the case for justifiable reasons can compound the offence under Section 24 A of the Act, even without the consent of the SEBI.

(The writer is Advocate, Delhi High Court.)