Delhi High Court
Sanjay Kumar vs Securities And Exchange Board Of India on 14 January, 2025
Author: Subramonium Prasad
Bench: Subramonium Prasad
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Date of decision: 14th JANUARY, 2025
IN THE MATTER OF:
+ CRL.M.C. 507/2022 & CRL.M.A. 2212/2022
SANJAY KUMAR .....Petitioner
Through: Mr. Jagdeep Singh Bakshi, Sr.
Advocate with Ms. Anshika
Maheshwari, Ms. Varada Bhutani,
Mr. Mudit Jain, Mr. Amitesh Singh
Bakshi, Mr. Navroop Singh Bakshi,
Ms. Mahima Malhotra and Mr.
Neetej, Advocates.
versus
SECURITIES AND EXCHANGE BOARD OF INDIA
.....Respondent
Through: Ms. Pinky Anand, Sr. Advocate with
Mr. Ashish Aggarwal and Ms. Asees
Jasmine Kaur, Advocates.
CORAM:
HON'BLE MR. JUSTICE SUBRAMONIUM PRASAD
JUDGMENT
1. The Petitioner has approached this Court for quashing/setting aside of
the Order dated 26.11.2021 passed by the Ld. Additional Sessions Judge,
Tiz Hazari, dismissing an application filed by the Petitioner under Section
91 Cr.P.C. The Petitioner had filed the said application seeking directions to
the Respondent-Security and Exchange Board of India (hereinafter “SEBI”)
to place on record all the statements/findings/documents considered by the
High Powered Advisory Committee (hereinafter “HPAC”) and the panel of
Whole Time Members (WTC) while rejecting the request of the Petitioner
herein for compounding the offence alleged in the complaint against the
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Petitioner herein.
2. Shorn of unnecessary details, the facts leading to the filing of the
present petition are as under”-
a. On 28.05.2004, a criminal complaint, being Criminal
Complaint No.12/2016, was filed by the Responder under
Section 200 of the CrPC read with Section 26 of the SEBI Act,
1992 before the learned trial Court against the Petitioner and
another accused Mr. Vivek Nagpal under Section 11C(6) read
with Section 27 of the SEBI Act, 1992.
b. It is stated that the allegations against the Petitioner and Mr.
Vivek Nagpal are that they were found actively involved in
fraudulent and unfair transactions/activities manipulating the
market in the script of “Padmini Technologies”. It is stated that
the allegations in the complaint is that the Petitioner and Mr.
Vivek Nagpal failed to respond to the summons received by
them. The role of the Petitioner is that the Petitioner played an
active role in facilitating an irregular preferential allotment in
order to manipulate the market and create artificial price rise of
the shares of “Padmini Technologies”. It is stated that the
Petitioner is an accused of creating forged and fabricated
documents to achieve the aforesaid objective and also that the
Petitioner has forged a sale bill of one M/s Shivesh Computers,
allegedly to whom one of the allottees namely Alok Khetan had
sold his allotment at the instance of the Petitioner. It is stated
that M/s Shivesh Computers has denied buying shares of the
Company and did not know Mr. Alok Khetan. The signatures of
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Mr. R. K. Surinder Kumar Verma, one of the Directors of M/s
Shivesh Computers Pvt. Ltd. was also found to have been
forged on the sale bill. It is stated that a separate complaint has
also been filed by the Complainant against M/s Padmini
Technologies and various other entities including accused
persons herein, for violation of Regulations 3, 4 and 6 of SEBI
(Substantial Acquisition of Shares and Takeovers) Regulations,
1995 and Section 23(1)(b) of Securities Contracts (Regulations)
Act, 1956.
c. It is stated that during the pendency of the complaint, the
Petitioner filed an application under Section 24-A of the SEBI
Act seeking compounding of offences in the criminal complaint
pending before the Ld. Trial Court for alleged violation of
Section 11C(6) of SEBI Act, 1992. SEBI (Settlement
Proceedings) Regulations, 2018 has been framed for the
purpose of compounding. It is stated that a High Powered
Advisory Committee (HPAC) has been constituted under
Section 11C(6) of the SEBI Act. The HPAC gave its opinion on
the compounding of the offences. It transpires that the HPAC
after considering the compounding application, recommended
that the offence should not be compounded. The report of the
Committee has been submitted before the Panel of Whole Time
Members of SEBI and the Panel of Whole Time Members of
SEBI has concurred with the recommendation of the HPAC not
to compound the offence.
d. A reply was filed by the Respondent in the Court opposing the
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compounding. Pursuant to the aforesaid reply filed by the
Respondent, the Petitioner moved an application under Section
91 of the Cr.P.C. seeking directions from the Court to the
Respondent to place on record all the
statements/documents/findings considered by the HPAC in its
meeting dated 27.12.2019 and the Whole Time Members of
SEBI, while advising/recommending upon the compounding
application of the Petitioner so that it can place its arguments
for adjudication of the application under Section 24A of the
SEBI Act.
e. The said application has been rejected vide Order dated
26.11.2021. The Ld. Trial Court while placing reliance upon
Regulations 29(2) of the Settlement Regulations, 2018 has
stated that regulations clearly talk about any proposals,
information submitted, or representation made by the Petitioner.
The Ld. Trial Court is of the onion that the reply filed by the
SEBI not only contains the decision of rejection but also about
the circumstances that led to the rejection of request for
compounding the application. The Ld. Trial Court held that
prayer to compound the offence under the SEBI Act shall be
considered by the Court, uninfluenced by the rejection of
similar request by the authorities of SEBI. It is this Judgment
which is under challenge in the Petition.
3. Notice in the present Petition was issued on 03.02.2022. Reply has
been filed by the Respondent/SEBI
4. Learned Senior Counsel for the Petitioner submits that penal actions
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are attracted for the violation of Section 11C(6) read with Section 27 of the
SEBI and the Petitioner is entitled to know the reasons which have been
given by the HPAC to come to the conclusion that the SEBI must not agree
for compounding the offence. He submits that it is open for the Petitioner to
contend that the decision taken by the HPAC is arbitrary and has been
arrived at without considering the necessary documents. He contends that
the decision of the Committee is not binding on the Trial Court and
therefore, it is always open for the Petitioner to challenge these findings in
the application under Section 24A of the SEBI Act. He states that for
placing an effective challenge, the Petitioner has to peruse the
recommendations of the HPAC. Learned Senior Counsel for the Petitioner
places reliance on the judgment passed by the Apex Court in Prakash Gupta
vs. SEBI, (2021) 17 SCC 451 and T. Takano v. SEBI, (2022) 8 SCC 162.
He contends that the Apex Court in T. Takano (supra) has held that it is the
duty of SEBI to disclose investigative material and all the information which
is relevant to the proceedings initiated against a person as a matter of right.
The learned Senior Counsel for the Petitioner places reliance on a Judgment
passed by the High Court of Bombay in Vasant Jagivandas Kotak and
Others vs. SEBI and Ors., 2021 OnLine Bom 2931, where the SEBI has
agreed to place on record documents relied upon by the HPAC before the
High Court of Bombay. He states that in the present case, the SEBI has
taken a contrary stand by refusing to do the same.
5. Per contra, learned Senior Counsel appearing for the SEBI contends
that the entire decision of the Panel of Whole Time Members of SEBI has
been placed in the form of reply to compounding application along with the
reasons thereto and therefore, there is no necessity for providing the
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documents as sought for by the Petitioner. He contends that there is
confidentiality attached to the record of proceedings which cannot be made
public under Clause 29 of the Settlement Regulations. He states that in case
the Court wants the documents, the same can be provided to the Court for
the Court’s perusal at the time of arguments. Learned Senior Counsel for the
Respondent places reliance on Regulations 29(2) of the Settlement
Regulations which states that the material placed before the HPAC or the
Board cannot be used as evidence before any Court or Tribunal.
6. Heard the learned Senior Counsels for the parties and perused the
material on record.
7. Section 24A of the SEBI Act provides that the Securities Appellate
Tribunal (hereinafter referred to as “the SAT”) or the Court, before which
the proceedings are pending for adjudication of offence under the SEBI Act,
has the power to compound the offences. The Apex Court in Prakash Gupta
(supra) has held that the proceedings for trial under the SEBI Act are
initiated on the complaint made by the SEBI by virtue of Section 26 of the
SEBI Act. SEBI is a regulatory and prosecuting agency under the
legislation. However, Section 24A does not stipulate that the consent of
SEBI is necessary for the Court before which the proceedings are pending to
compound the offence. Relevant portions of the said judgment reads as
under:
“93. In the present case, it is evident that Section 24-A
does not stipulate that the consent of SEBI is necessary
for 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 24-B provides aSignature Not Verified
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useful contrast. Section 24-B(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 SEBI would not be
binding upon the Union Government. In other words,
Section 24-B has provided for the exercise of powers
by the Central Government to grant immunity from
prosecution on the recommendation of SEBI. In
contrast, Section 24-A is conspicuously silent in regard
to the consent of SEBI before 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 which the proceeding is pending, for exercising
the power of compounding under Section 24-A.
94. 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 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 24-A, it is equally necessary to understand the
importance of its role and position.”
8. In the abovementioned Judgment, the Apex Court, after making the
aforesaid observation, has further observed that due weightage has to be
given to the opinion of the Committee and the Court must be wary of giving
its own wisdom on the gravity of the offence or the impact on the markets
while discarding the expert opinion of the SEBI. Paragraph No.102 of the
said Judgment reads as under:
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“102. 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 as an expert regulator must
necessarily be borne in mind by 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 24-A, its views must be elicited. The view of
SEBI, as envisaged in the FAQs accompanying SEBI’s
Circular dated 20-4-2007, must undoubtedly be sought
by 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 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), 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 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 SEBI.”
9. By virtue of its application, the Petitioner has prayed for a direction to
the SEBI to place on record all the statements/findings/documents
considered by the HPAC in its meeting. This Court is of the opinion that
while considering the application for compounding the offence it would be
necessary for the Court to understand the factors that have to be taken into
account for compounding the offence. The application of the Petitioner for a
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direction to produce the documents cannot be said to be only an exercise to
delay the trial or proceedings as these documents would be important to
decide the application for compounding. The Apex Court in Prakash Gupta
(supra) has laid down the factors for compounding and the same reads as
under:
“104. Section 24-A only provides 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, we
deem it necessary to elucidate upon some guidelines
which SAT or such courts must take into account while
adjudicating an application under Section 24-A:
104.1. They should consider the factors enumerated in
SEBI’s Circular dated 20-4-2007 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
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.
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.
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.
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5. Whether there were circumstances beyond the
control of the party.
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.
8. Processes which have been introduced since the
violation to minimise future violations/lapses.
9. Compliance schedule proposed by the party.
10. Economic benefits accruing to a party from
delayed 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 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
enforcement action for the same violation.
15. Any other factors necessary in the facts and
circumstances of the case.”
104.2. According to the Circular dated 20-4-2007 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 HPAC. The
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recommendation of HPAC is then filed before SAT or
the court, as the case may be. As such, SAT or the
court must give due deference to such opinion. As
mentioned above, the opinion of HPAC and SEBI
indicates their position on the effect of non-prosecution
on maintainability of market structures. Hence, SAT or
the court must have cogent reasons to 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.
104.3. SAT or court should ensure that the proceedings
under Section 24-A do not mirror a proceeding for
quashing the criminal complaint under Section
482CrPC, thereby providing the accused a second bite
at the cherry. The 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 SAT or the court and most of the
offences are of a public character, it should be
circumspect in its role. In the generality of instances, it
should rely on SEBI’s opinion as to whether such
restitution has taken place.
104.4. Finally, SAT or the court should consider
whether the offence committed by the party submitting
the application under Section 24-A 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.”
10. The fact that there is no direction by the Supreme Court to the SEBI
in Prakash Gupta (supra) to produce the documents does not mean that the
Court does not have the power under Section 91 to summon these
documents. In fact, the SEBI, in its reply, has stated that it does not have any
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objection in producing the documents before the Court if the Court wants to
see the documents. In the considered opinion of this Court, the documents
will be necessary for the Court to consider the application of the Petitioner
to quash the complaint in view of the guidelines laid down by the Apex
Court.
11. The issue as to whether these documents should be supplied to the
Petitioner or not, does it contain such sensitive material, which, according to
the SEBI, cannot be shared with the Petitioner herein, is a fact that the
competent Court has to consider while dealing the application by the
accused challenging the opinion of the HPAC. In any event, the documents
are only relevant for the purpose of compounding the offence.
12. Learned Counsel for the SEBI has placed reliance on Regulation 29 of
the Settlement Regulation which reads as under:
“29. (1) All information submitted and discussions
held in pursuance of the settlement proceedings
under these regulations shall be deemed to have
been received or made in a fiduciary capacity and
the same may not be released to the public, if the same
prejudices the Board and/or the applicant.
(2) Where an application is rejected or withdrawn, the
applicant and the Board shall not rely upon or
introduce as evidence before any court or Tribunal,
any proposals made or information submitted or
representation made by the applicant under these
regulations:
Provided that this sub-regulation shall not apply where
the settlement order is revoked or withdrawn under
these regulations.
Explanation. – When any fact is discovered in
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consequence of information received from a person in
pursuance of an application, so much of such
information, whether it amounts to an admission or
not, as relates distinctly to the fact thereby discovered,
may be proved”
13. Regulation 29(1) of the Settlement Regulation provides that these
documents cannot be given to public if the same prejudices the Board and/or
the applicant. Regulation 29(2) of the Settlement Regulation provides that
these documents cannot be used as evidence before any court or Tribunal. In
the opinion of this Court, these Regulations cannot prohibit any Court to
look into the material which was placed before the HPAC or the SEBI Board
before it comes to the conclusion, to agree for compounding or not to agree
for compounding of the offence. Under Regulation 29 of the Settlement
Regulation, the decision taken by the Board is not binding on the Court even
if HPAC recommends for compounding of the offence. The Court can take a
different view and reject the compounding if they do not meet the guidelines
as laid down by the Apex Court as laid down in Prakash Gupta (supra).
14. In view of the above, the materials sought by the Petitioner become
exceedingly important for the Court to take a decision as to allow or not
allow the compounding application of the Petitioner.
15. In view of the above, this Court is inclined to set aside the Order
dated 26.11.2021, passed by the Ld. Additional Sessions Judge, Tiz Hazari,
dismissing an application filed by the Petitioner under Section 91 Cr.P.C.
The SEBI is directed to produce all the documents before the Court. These
documents can be given in a sealed cover and it is for the Court to take a
decision as to whether these documents should be supplied to the Petitioner
or not.
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16. With these directions, the Petition is disposed of along with the
pending applications, if any.
SUBRAMONIUM PRASAD, J
JANUARY 14, 2024
RJ/Rahul
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