Reportable

IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISDICTION

Criminal Appeal No 569 of 2021

(Arising out of SLP (Crl) No. 4728 of 2019)

Prakash Gupta .... Appellant

Versus

Securities and Exchange Board of India .... Respondent

Signature Not Verified

Digitally signed by
Sanjay Kumar
Date: 2021.07.23
14:49:37 IST
Reason:

1
 JUDGMENT

Dr Dhananjaya Y Chandrachud, J

This judgment has been divided into sections to facilitate analysis. They are:

A The Appeal

B The IPO, SEBI’s Investigation and the criminal complaint

C Application for Compounding

D Counsel’s submissions

E Analysis

E.1 Structure of the SEBI Act

E.2 SEBI Circulars in relation to Section 24A

E.3 Jurisprudential basis for ‘Compounding’

E.4 Compounding outside of CrPC

E.5 Regulatory role of SEBI

F Guidelines for Compounding under Section 24A

G Analysis on facts and conclusion

2
 PART A

A The Appeal

1 The appellant is being prosecuted for an offence under Section 24(1) of the

Securities and Exchange Board of India Act, 1992 (“SEBI Act”). The appellant

sought the compounding of the offence under Section 24A. By an order dated 15

November 2018, the Additional Sessions Judge – 02 Central District at Tis Hazari

Courts, Delhi (“Trial Judge”), rejected the application, upholding the objection of the

Securities and Exchange Board of India that the offence could not be compounded

without its consent. By a judgment of a Single Judge of the High Court of Delhi

dated 1 April 2019 the order of the Trial Judge has been affirmed in revision. The

High Court has held that the trial has reached the stage of final arguments and the

application for compounding cannot be allowed without Securities and Exchange

Board of India’s (“SEBI”) consent. The reasons of the High Court are extracted

below:

“6. 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 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.”

This view of the High Court has been called into question in these proceedings.

3
 PART B

B The IPO, SEBI’s Investigation and the criminal complaint

2 The appellant is the director and promoter of a company by the name of Ideal

Hotels & Industries Limited (“the Company”), which owns a 3-star hotel in Varanasi.

While it was incorporated initially as a private limited company under the Companies

Act, 1956 on 17 December 1985, the status of the company was changed to that of

a public limited company with the approval of the Department of Company Affairs on

4 May 1994.

3 In 1995, the Company made an Initial Public Offer (“IPO”) inviting a

subscription to 38 lac equity shares at a par value of Rs 10 per share, aggregating to

Rs 380 lacs. This offer was pursuant to a prospectus dated 6 October 1995. The

IPO opened on 15 November 1995 and closed on 24 November 1995. The

prospectus specified that the holding of the promoters of the Company after the IPO

was 22 lac shares representing 32.83 per cent of the paid-up capital of 67 lac

shares, with the shareholding of the appellant being 1,400 shares representing 0.02

per cent of the paid-up capital. The Company got listed in the stock exchanges at

Delhi, Mumbai, Ahmedabad and Chennai, with the UP stock exchange being the

parent exchange.

4 On 27 June 1996, SEBI received a complaint from one Mr Vijay Miglani

alleging that certain Delhi/Bombay based brokers had, on the instructions of the

Company, purchased its shares and that huge deliveries were kept outstanding in

the grey market. SEBI also received an anonymous complaint in October 1996,

4
 PART B

alleging price rigging and insider trading in the scrip of the Company. After a

preliminary inquiry between 1996 and 1999, SEBI initiated an investigation against

the Company on 2 February 1999. The Company was investigated for the period

between 28 January 1996 and 29 February 1996. This was the period immediately

preceding the listing of the scrip of the Company. This scrip moved from a low of Rs

11.25 on 30 January 1996 to a high of Rs 23.25 on 13 February 1996. The traded

volume was unusually high during this period, with a daily turnover of 1,00,000

shares on many days. Thereafter, the price of the scrip registered a steep decline to

Rs 17 on 29 February 1996, and the daily turnover also reduced to an average of a

few hundred shares.

5 During its investigation, SEBI obtained the details of the top brokers who

traded in the shares of the Company during this period on the Delhi Stock Exchange

and Bombay Stock Exchange, and also of their clients who had made significant

purchases or sales on the scrip. Consequently, SEBI came up with the name of six

entities who had purchased approximately 51 per cent of the 38 lac equity shares on

offer during the period between 28 January 1996 and 29 February 1996. They were

found to have continued buying shares even after that period, and had ultimately

purchased 28,38,000 equity shares, which was approximately 75 per cent of the

post issue floating stock of the Company. As such, it was assumed that these

entities were, therefore, responsible for the upward price movement in the scrip.

6 When SEBI issued summons to these six entities, it was the appellant who

replied to them. In a statement given to SEBI on 7 June 1999, the appellant admitted

5
 PART B

that these entities were directly/indirectly related to the Company and its directors,

and that he managed their day-to-day affairs. He also admitted that approximately

Rs 4.5 to 5 crores was invested by these entities in the purchasing the shares of the

Company, for which funds were made available either from funds of the Company

out of the proceeds of the IPO or from Inter Corporate Deposits raised by the entities

from the market on personal verbal guarantees of the appellant and the Chairman

and Managing Director of the Company (which had all been repaid subsequently).

7 On 24 August 1999, summons were issued by SEBI to the appellant under

Section 11(3) of the SEBI Act regarding a potential violation of Regulations 4(a) and

4(e) of the Securities and Exchange Board of India (Prohibition of Fraudulent and

Unfair Trade Practices relating to Securities Market) Regulations, 1995 (“1995

PFUTP Regulations”); Regulations 6(1), 6(3), 8(1), 10(1) and 10(2) of the SEBI

(Substantial Acquisition of Shares and Takeovers) Regulations, 1994 (“1994

Takeover Regulations”) and Regulation 10 of the SEBI (Substantial Acquisition of

Shares and Takeovers) Regulations, 1997 (“1997 Takeover Regulations”). On 18

November 1999, the Chairperson of SEBI appointed an Adjudicating Officer (“AO”)

to adjudicate upon the above allegations.

8 Prior to the decision of the AO, SEBI filed a criminal complaint 1 on 29 March

2000 before the Additional Chief Metropolitan Magistrate, Tis Hazari Court, Delhi

alleging violations of Regulations 4(a) and 4(e) of the 1995 PFUTP Regulations,

1
Complaint No. 152 of 2000

6
 PART B

read with Regulations 6(1), 6(3), 8(1), 10(1) and 10(2) of the 1994 Takeover

Regulations, which are punishable under Sections 24 and 27 of the SEBI Act.

9 While the proceedings were pending before the AO, on 22 September 2000,

SEBI’s Chairperson passed an order under Section 11B read with Section 4(iii) of

the SEBI Act accepting the proposal of the appellant and others to make an offer to

purchase the shares owned by the shareholders of the Company who are not its

promoters. The order directed that the offer presented would be at Rs 12 per share,

which was higher than Rs 10 per share at which the shares of the Company were

listed during the IPO. The appellant has stated that in compliance of the order, the

promoters/directors of the Company acquired equity shares which raised their

holding to the extent of about 95 per cent of the Company (post IPO). Thereafter,

the Company also got its shares delisted from various stock exchanges.

10 On 19 June 2001, the AO passed an order in which it noted that the six

entities were managed by the appellant, which can be determined from the fact that:

(i) he received the summons sent to them; (ii) he had admitted in his statement on 7

June 1999 that he or his relatives were the directors in these entities; (iii) they

purchased these shares on the basis of an oral commitment made by the appellant

and by using funds obtained from the Company or on the basis of Inter Corporate

Debtors obtained on the guarantee of the appellant, Chairman and Managing

Director of the Company; (iv) the shares purchased were lying in the office of the

appellant; and (v) it had also been admitted by the Chairman and Managing Director

of the Company in his statement to SEBI on 5 July 1999 that this was done after

7
 PART B

due consultation with him. As such, it held, inter alia, that the appellant had failed to

comply with Regulations 8(1), 8(2) and 10 of the 1997 Takeover Regulations, and

had thus violated the provisions of Section 15H of the SEBI Act.

11 The AO also noted the order of SEBI’s Chairman under Section 11B of the

SEBI Act, and observed that:

“In response to that order [SEBI’s Chairman’s order], vide

letter dated 25.05.2001, the acquirers have submitted that
they have already acquired 95% of the total equity share
capital of the company. They are planning to get the scrip of
Ideal Hotels delisted from the rolls of all the Stock Exchanges
where the scrips have been listed.”

The AO further observed:

“In terms of the above order issued under section 11B of the
SEBI Act, all the investors were offered an exit route at
Rs.12/- per share. This was higher than the public issue price
of Rs.10/-. Thus in the ultimate analysis I find there was no
loss to any investor.”

However, according to the AO, the offer ought to have been made by the

appellant/promoters on their own accord and not when proceedings under Section

11B were pending. Consequently, the AO levied a penalty of Rs. 20,000 on the

appellant and two co-promoters. According to the appellant the penalty was paid.

12 Pursuant to SEBI’s criminal complaint dated 29 March 2000, the Additional

Chief Metropolitan Magistrate summoned the accused on the same day. In 2006-07,

the appellant together with the other accused instituted proceedings under Section

8
 PART C

482 of the Code of Criminal Procedure, 1973 (“CrPC”) before the High Court of

Delhi for quashing the complaint case and the summoning order. The proceedings

under Section 482 remained pending before the High Court for about six years, until

they were eventually dismissed on 26 August 2013.

C Application for Compounding

13 On 12 September 2013, the appellant and the other accused persons filed a

‘consent application’ with SEBI, which was returned on 27 September 2013 with the

intimation that the appellant and other accused persons could file an appropriate

application for compounding in the criminal case.

14 On 14 October 2013, an application under Section 24A of the SEBI Act was

filed before the Additional Chief Metropolitan Magistrate, Tis Hazari, Delhi by the

appellant and other accused persons seeking the compounding of the offence in the

criminal complaint filed by SEBI since they had already purchased the shares from

the public in accordance with the order of SEBI Chairperson under Section 11B and

had paid the penalty levied by the AO.

15 SEBI referred the compounding application for seeking the views of its High

Powered Advisory Committee (“HPAC”) headed by a former Judge of the High Court

of Bombay. The HPAC has been constituted for examining proposals for

compounding offences. The HPAC recommended that the offences should not be

compounded following which an intimation was furnished to the Trial Judge and

recorded in an order dated 7 May 2016.

9
 PART D

16 In the interregnum, the criminal complaint was listed for recording the

evidence of the complainant, but after the evidence was adduced, the appellant

declined to cross-examine the witness until the compounding application was

decided. The appellant also filed an application on 6 November 2017 before the Trial

Judge, praying that the compounding application be decided before further evidence

of the complainant was recorded in the criminal complaint.

17 By an order dated 15 November 2018, the Trial Judge dismissed the

compounding application and the criminal complaint was listed for the cross-

examination of the complainant’s witness by the accused persons. The Trial Judge

placed reliance on the decision of this Court in JIK Industries Limited vs Amarlal

v. Jumani 2 (“JIK Industries”) for holding that no application for compounding an

offence could be allowed without the consent of the complainant. A revision petition

was filed by the appellant before the High Court of Delhi to challenge the order of

the Trial Judge which, as stated earlier, has been dismissed by a Single Judge of

the High Court of Delhi on 1 April 2019.

D Counsel’s submissions

18 Mr Shyam Divan, learned Senior Counsel appearing on behalf of the

appellant has urged the following submissions:

(i) The Chairperson of SEBI in the order under Section 11B dated 22

September 2000 accepted the proposal of the appellant and co-promoters,

2
(2012) 3 SCC 255

10
 PART D

that they would buy the remaining shares of the Company from the

allotees/existing shareholders in the public issue at the rate of Rs 12 per

share. This has provided an exit option;

(ii) The AO took note of the submission of the acquirers that they had already

acquired 99 per cent of the total equity share capital of the Company and

were planning to get the scrip de-listed from the rolls of the stock

exchanges;

(iii) In terms of the order under Section 11B, all the investors were offered an

exit route at Rs 12 per share, which was higher than the public issue price

of Rs. 10; hence, in the ultimate analysis the AO held that no loss has

been caused to any investor;

(iv) Contrary to the finding of the High Court, the application for compounding

was not filed at the end of the trial but in 2013 after the petition under

Section 482 of the CrPC was dismissed by the High Court of Delhi;

(v) The promoters are, even at this stage, ready and willing to make a further

mop-up offer;

(vi) The criminal complaint was filed on 29 March 2000, prior to the order of

SEBI’s Chairperson under Section 11B dated 22 September 2000 and the

order of the AO dated 19 June 2001, which concluded that no loss has

been caused to the investors;

(vii) The purpose of the SEBI Act is to ensure the protection of the investors,

which has been met by the deposit of penalty;

11
 PART D

(viii) Section 24A confers adequate powers on Securities Appellate Tribunal

(“SAT”) and the Court to compound offences, and there is no provision in

the statute for the consent of SEBI. Compounding should be allowed if,

after an assessment of the overall facts, there is no reason to deny it;

(ix) The order of the Trial Judge is manifestly erroneous when it holds that

“there is nothing on record to show that the investors have been duly

compensated”. Moreover, the observation that the offence could not be

compounded under Section 24A without the consent of SEBI is contrary to

the plain terms of the statute which do not contemplate the consent of

SEBI; and

(x) In the facts of the present case, the application for compounding should be

allowed since:

a. The appellant is a senior citizen;

b. The Company has been de-listed on the stock exchanges; and

c. No loss is shown to have been caused to the investors.

19 Mr CU Singh, learned Senior Counsel appearing on behalf of SEBI opposed

the submissions on the ground that:

(i) The criminal complaint which was filed on 29 March 2000 sets out the

element of criminality involving:

a. Mis-utilization of the proceeds of the IPO to purchase the shares of the

Company through the six related entities;

b. Manipulation of the price of the scrip in which the IPO took place;

12
 PART D

c. The artificial increase in the price of the shares of the Company to Rs.

23.5 per share, which was subsequently brought down;

d. The IPO was over-subscribed by four times, which implies that 75 per

cent of the applicants were unable to obtain the shares of the

Company;

(ii) The order of the Chairperson of SEBI dated 22 September 2000, in fact

arrived at the following conclusions:

"In these circumstances, it can be concluded that the

associate concern of IHL were mere front entities of IHL and
its promoters and the entire exercise of transfer of public
proceeds to associate concerns was for the purchase of its
own shares. Transfer of shares is a part of their design to
manipulate the price of the shares…

IHL and its promoters were also afforded an opportunity of

personal hearing to make their submissions. Accordingly, Shri
L.R. Maurya and Shri Prakash Gupta appeared before me.
The said individuals offered a proposal that they would buy
the remaining shares of the company from the allottees/
existing shareholders in the public issue at the rate of Rupees
Twelve per share. I have considered the said proposal of the
promoters and I find that this provides a way to exit to the
allottees/existing shareholders of IHL."
(iii) SEBI’s investigation revealed that the Company had mis-utilized the funds

which were raised in the IPO for buying back of its own shares. These

funds of the public issue were made available to the six entities which

were group companies managed by the appellant or to promoters or

directors of group companies to purchase the shares. The dealing in the

shares of the Company by these entities led to an increase in the price of

its shares. The purchases by those entitles also cumulatively constituted

almost the entire purchase made at the Delhi Stock Exchange, and a

13
 PART D

substantial part of the floating stock of the Company. Hence, these entities

purchased a substantial equity in the shares of the company without

disclosures to the public. Therefore, a violation of the 1995 PFUTP

Regulations and of the 1994 Takeover Regulations was found to have

been committed. This, in substance, constitutes the basis of the criminal

complaint;

(iv) The conduct of the appellant is also significant: after the criminal complaint

was lodged on 29 March 2000, petitions under Section 482 of the CrPC

were filed in 2006-07. They remained pending for seven years, until they

were dismissed on 26 August 2013 by the High Court of Delhi. Once the

Trial Judge took cognizance of the criminal complaint, the application for

compounding was then submitted belatedly on 14 October 2013 when the

evidence was being recorded; and

(v) A case does not exist for the interference of this Court under Article 136 of

the Constitution.

20 Mr Mahesh Jethmalani, learned Senior Counsel has intervened in these

proceedings and has urged submissions on the issue as to whether the power of

compounding offences under Section 24A of the SEBI Act requires the consent of

SEBI. Learned Senior Counsel submitted that:

(i) Section 24A refers to only two authorities – SAT and a Court – before

which the proceedings are pending. Section 24A has no reference to

14
 PART D

SEBI, and it does not condition the power of the Court or SAT of

compounding offences to the prior consent of SEBI;

(ii) It is a well settled principle of statutory construction that while interpreting

a statutory provision, no addition or subtraction from it is permissible;

(iii) The submission of SEBI that its consent is mandatory in order to

compound an offence under Section 24A would, if accepted, result in re-

writing the provisions of the statute. While considering Section 621-A of

the Companies Act, 1956, which was inserted by an amending Act of

1988, this Court in VLS Finance Limited vs Union of India 3 (“VLS

Finance”) held that in the absence of a requirement of the sanction or

prior permission of the Court before an offence is compounded by the

Company Law Board, such a requirement of prior permission could not be

implied since it would be contrary to the terms of the statute; and

(iv) The decision in JIK Industries (supra), is an authority for the principle that

a scheme under Section 391 of the Companies Act, 1956 does not amount

to the compounding of an offence under Section 138 of the Negotiable

Instruments Act, 1888 (“NI Act”). In the case of the NI Act, Section 147

merely states that offences under the Act shall be compoundable whereas

Section 24A of the SEBI Act specifically provides for the power of SAT and

the Court to compound offences.

21 These rival submissions now fall for our consideration.

3
(2013) 6 SCC 278

15
 PART E

E Analysis

E.1 Structure of the SEBI Act

22 The long title to the SEBI Act stipulates that it has been enacted “to provide

for the 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”. The Statement of Objects and Reasons

accompanying the introduction of the Bill in Parliament notes that SEBI was

established in 1988 through a government resolution to promote the orderly and

healthy growth of the securities market and for the protection of investors. SEBI had

been monitoring the activities of stock exchanges, mutual funds, merchant bankers

and other activities to achieve these goals. The Statement of Objects and Reasons

elucidates that:

“The capital market has witnessed tremendous growth in

recent times, characterized particularly by the increasing
participation of the public. Investors' confidence in the capital
market can be sustained largely by ensuring investors'
protection. With this end in view, Government decided to vest
SEBI immediately with statutory powers required to deal
effectively with all matters relating to capital market. As
Parliament was not in session, and there was an urgent need
to instill a sense of confidence in the public in the growth and
stability of the capital market, the President promulgated the
Securities and Exchange Board of India Ordinance, 1992 (No.
5 of 1992) on the 30th January, 1992.”

23 Chapter IV of the SEBI Act delineates the power and functions of SEBI.

Within this chapter, Section 11 stipulates the functions of SEBI. Sub-Section (1)

16
 PART E

casts upon SEBI the duty to protect the interests of investors in securities and to

promote the development and regulation of the securities market, through such

measures as it deems fit. Among the functions which are specified in sub-Section (2)

are:

(i) Regulating the business in stock exchanges and any other stock exchange

markets (clause (a));

(ii) Prohibiting fraudulent and unfair trade practices relating to securities

markets (clause (e));

(iii) Prohibiting insider trading in securities (clause (g)); and

(iv) Regulating substantial acquisition of shares and takeover of companies

(clause (h)).

24 Under sub-Section (2a) (inserted with effect from 29 October 2002), SEBI is

empowered to undertake the inspection of any book, register, document or record of

any listed public company or a public company which intends to get its securities

listed on any recognized stock exchange, where SEBI has reasonable grounds to

believe that such company has been indulging in insider trading or fraudulent and

unfair trade practices relating to the securities market. Sub-Section (4) empowers

SEBI to take certain measures in the interest of investors or the securities market

either pending an investigation or inquiry or on its completion.

25 Section 11A deals with the power of SEBI to make regulations or to issue

general or special orders prohibiting the issue of documents or advertisements

17
 PART E

soliciting money from the public for the issue of securities. Section 11B empowers

SEBI to issue directions and to levy penalties. Section 11C enunciates the powers of

investigation entrusted to SEBI.

26 Chapter VA, which incorporates Section 12A, contains a prohibition of

manipulative and deceptive devices, insider trading and substantial acquisition of

securities or control in contravention of the provision of the Act and the Regulations.

27 Chapter VIA deals with penalties and adjudication. SEBI is empowered to

impose penalties in a range of diverse situations including:

(i) Penalty for failure to furnish information, returns, documents or reports

(Section 15A);

(ii) Penalty for failure to redress investors’ grievances (Section 15C);

(iii) Penalty for defaults in the case of mutual funds (Section 15D);

(iv) Penalty for default in case of stock brokers (Section 15F);

(v) Penalty for insider trading (Section 15G);

(vi) Penalty for non-disclosure of acquisition of shares (Section 15H);

(vii) Penalty for fraudulent and unfair trade practices (Section 15 HA);

(viii) Penalty for alteration, destruction of records and failure to protect the

electronic database of the Board (Section 15HAA); and

(ix) Penalty for contravention where no separate penalty has been provided

(Section 15HB).

18
 PART E

28 Section 15-I has made provisions elucidating the power to adjudicate in the

following terms:

“15-I Power to adjudicate: (1) For the purpose of adjudging

under sections 15A, 15B, 15C, 15D, 15E, 15-EA, 15-EB, 15F,
15G,15H, 15HA and 15HB, the Board may appoint any officer
not below the rank of a Division Chief to be an adjudicating
officer for holding an inquiry in the prescribed manner after
giving any person concerned a reasonable opportunity of
being heard for the purpose of imposing any penalty.

(2) While holding an inquiry the adjudicating officer shall have

power to summon and enforce the attendance of any person
acquainted with the facts and circumstances of the case to
give evidence or to produce any document which in the
opinion of the adjudicating officer, may be useful for or
relevant to the subject-matter of the inquiry and if, on such
inquiry, he is satisfied that the person has failed to comply
with the provisions of any of the sections specified in
subsection (1), he may impose such penalty as he thinks fit in
accordance with the provisions of any of those sections.

(3) The Board may call for and examine the record of any
proceedings under this section and if it considers that the
order passed by the adjudicating officer is erroneous to the
extent it is not in the interests of the securities market, it may,
after making or causing to be made such inquiry as it deems
necessary, pass an order enhancing the quantum of penalty,
if the circumstances of the case so justify:

Provided that no such order shall be passed unless the

person concerned has been given an opportunity of being
heard in the matter:

Provided further that nothing contained in this sub-section

shall be applicable after an expiry of a period of three months
from the date of the order passed by the adjudicating officer
or disposal of the appeal under section 15T, whichever is
earlier.”

Section 15JB provides for settlement of administrative and civil proceedings in the

following terms:

19
 PART E

“15-JB Settlement of administrative and civil proceedings: (1)

Notwithstanding anything contained in any other law for the
time being in force, any person, against whom any
proceedings have been initiated or may be initiated under
Section 11, Section 11-B, Section 11-D, sub-section (3) of
Section 12 or Section 15-I, may file an application in writing to
the Board proposing for settlement of the proceedings
initiated or to be initiated for the alleged defaults.

(2) The Board may, after taking into consideration the nature,
gravity and impact of defaults, agree to the proposal for
settlement, on payment of such sum by the defaulter or on
such other terms as may be determined by the Board in
accordance with the regulations made under this Act.

(3) The settlement proceedings under this section shall be

conducted in accordance with the procedure specified in the
regulations made under this Act.

(4) No appeal shall lie under Section 15-T against any order
passed by the Board or adjudicating officer, as the case may
be, under this section.

(5) All settlement amounts, excluding the disgorgement

amount and legal costs, realised under this Act shall be
credited to the Consolidated Fund of India.”

29 Chapter VIB provides for the establishment, jurisdiction, authority and the

procedure of SAT. Section 15T provides for an appeal to SAT:

“15T. Appeal to the Securities Appellate Tribunal. (1)

Save as provided in sub-section (2), any person aggrieved, —
(a) by an order of the Board made, on and after the
commencement of the Securities Laws (Second Amendment)
Act, 1999, under this Act, or the rules or regulations made
thereunder; or (b) by an order made by an adjudicating officer
under this Act; or (c) by an order of the Insurance Regulatory
and Development Authority or the Pension Fund Regulatory
and Development Authority, may prefer an appeal to a
Securities Appellate Tribunal having jurisdiction in the
matter…”

20
 PART E

30 An appeal lies to this Court, under Section 15Z, from a decision of SAT on a

question of law:

“15Z Appeal to Supreme Court—Any person aggrieved by

any decision or order of the Securities Appellate Tribunal may
file an appeal to the Supreme Court within sixty days from the
date of communication of the decision or order of the
Securities Appellate Tribunal to him on any question of law
arising out of such order:

Provided that the Supreme Court may, if it is satisfied that the

appellant was prevented by sufficient cause from filing the
appeal within the said period, allow it to be filed within a
further period not exceeding sixty days.”

31 As distinct from the provisions for penalties and adjudication in Chapter VIA,

Chapter VII, which is titled ‘Miscellaneous’ deals with offences in Section 24. Section

24 as it stands presently, is in the following terms:

“24. Offences.—(1) Without prejudice to any award of penalty

by the Adjudicating Officer or the Board 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 thereunder, 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 the Board or fails to comply with any
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.”

32 Section 24 was substituted by Act 9 of 1995 with effect from 25 January 1995.

Prior to its amendment by Act 59 of 2002 with effect from 29 October 2002, Section

21
 PART E

24 stipulated that offences punishable under sub-Section (1) would be punishable

with imprisonment for a term which may extend to one year or with fine or with both.

This provision was substituted by Amending Act 59 of 2002 to provide for

imprisonment for a term of ten years or with fine which may extend to Rs 25 crores

or with both. Similarly, the punishment under sub-Section (2) prior to Amending Act

59 of 2002 was for three years or with fine which shall not be less than Rs 2000 but

which may extend to Rs 10,000 or with both. By Amending Act 59 of 2002, it has

been enhanced to ten years or with fine which may extend to Rs 25 crores or with

both.

33 Section 24A, inserted for the first time by the Amending Act 59 of 2002,

provides for the compounding of offences:

“24A. Composition of certain offences— 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”

34 Section 26 stipulates that:

“26. Cognizance of offences by courts—(1) No court shall

take cognizance of any offence punishable under this Act or
any rules or regulations made thereunder, save on a
complaint made by the Board.”

22
 PART E

35 Section 27 provides for contraventions by companies:

“27. Contravention by companies —(1) Where a

contravention of any of the provisions of this Act or any rule,
regulation, direction or order made thereunder has been
committed by a company, every person who at the time
the contravention was committed was in charge of, and was
responsible to, the company for the conduct of the business
of the company, as well as the company, shall be deemed to
be guilty of the contravention and shall be liable to be
proceeded against and punished accordingly:

Provided that nothing contained in this sub-section shall

render any such person liable to any punishment provided in
this Act, if he proves that the contravention was committed
without his knowledge or that he had exercised all due
diligence to prevent the commission of such contravention.

(2) Notwithstanding anything contained in sub-section (1),

where an contravention under this Act has been committed by
a company and it is proved that the contravention has been
committed with the consent or connivance of, or is attributable
to any neglect on the part of, any director, manager, secretary
or other officer of the company, such director, manager,
secretary or other officer shall also be deemed to be guilty of
the contravention and shall be liable to be proceeded against
and punished accordingly.

Explanation.—For the purposes of this section,—

(a) “company” means any body corporate and includes a firm

or other association of individuals; and

(b) “director”, in relation to a firm, means a partner of the

firm.”

36 Section 24A, which provides for the compounding of certain offences,

contains certain characteristic features which need to be understood while

interpreting its provisions: firstly, Section 24A begins with a non-obstante clause,

“notwithstanding anything contained in the Code of Criminal Procedure 1973”;

secondly, any offence punishable under the SEBI Act can be compounded, provided

23
 PART E

it is not an offence which is punishable only with imprisonment or with imprisonment

and fine. Therefore, only where a fine is an alternative to imprisonment does the

provision apply; thirdly, the offence may be compounded either before or after the

institution of any proceeding; and fourthly, the offence may be compounded by SAT

or by a Court, before which such proceedings are pending.

37 Offences punishable under sub-Section (1) of Section 24 are compoundable

for the reason that the punishment which has been stipulated is for a certain term of

imprisonment or with fine or with both (the term of imprisonment and the quantum of

fine has been enhanced as we have seen earlier but that is not of relevance to this

part of the interpretation). Whether an offence under sub-Section (2) of Section 24 is

compoundable under Section 24A depends on the construction which is to be

placed on the words “or with fine”. One option would be to construe these words as

an alternative to the whole of the preceding words which appear immediately before

namely “he shall be punishable with imprisonment for a term which shall not be less

than one month but which may extend to ten years”. The second option is that the

words “or with fine” are an alternative to any sentence imposed above the minimum

of one month. Prima facie, it appears that for offences under sub-Section (2) of

Section 24, prescribing imprisonment for a term which shall not be less than one

month is mandatory. While the imprisonment may extend up to ten years, for any

period in excess of one month a fine of up to Rs 25 crores is an alternative or in the

cumulative. However, since the present matter does not turn on the construction of

24
 PART E

the Section 24(2), it is not necessary to express any final view on whether an

offence under that provision is compoundable.

E.2 SEBI Circulars in relation to Section 24A

38 Section 24A provides for the compounding of an offence either before or after

the institution of any proceeding. Since Section 24A provides for compounding prior

to the institution of proceedings, the legislature has stipulated that an application can

be made to SAT. However, once a proceeding has been instituted before a Court

which is seized of it, it is the imprimatur of the Court that is required in such a

situation. The expression “or a court before which such proceedings are pending”

would indicate that once proceedings have been instituted before it, the Court has

exclusive jurisdiction to compound offences. It would be instructive to also look at

the circulars issued by SEBI in order to better understand the practical implications

of the language of Section 24A.

39 In a circular dated 20 April 2007 4, SEBI issued guidelines for consent orders

under Sections 15T of the SEBI Act and Section 23A of the Depositories Act, 1996,

and for compounding of offences under Section 24A of the SEBI Act, Section 22A of

the Depositories Act and Section 23N of the Securities Contracts (Regulation) Act,

1956. It noted that compounding of an offence “may cover appropriate prosecution

cases filed by SEBI before the criminal courts” and “can take place after filing

4
Available at <https://www.sebi.gov.in/legal/circulars/apr-2007/guidelines-for-consent-orders-and-for-
considering-requests-for-composition-of-offences_9254.html> accessed on 20 July 2021

25
 PART E

criminal complaint by SEBI”. Finally, it notes the procedure to be followed by an

accused person while seeking compounding, in the following terms:

“Any party who wishes to compound an offence shall file an

appropriate application before the court where complaint is
pending with a copy addressed to the Prosecution Division,
Enforcement Department of SEBI’s Mumbai office (address is
given above) which will forward the application/ request to be
placed before the High Powered Committee. The terms of
compounding as recommended by the Committee and
approved by the Panel of WTMs would be placed before
the court by the Prosecution Division by way of written
submissions or application, as appropriate, for passing
orders as the court deems fit.”
Emphasis supplied

40 Accompanying this circular were certain Frequently Asked Questions (“FAQ”)

issued by SEBI 5. The relevant ones are extracted below:

“Q6. What is the objective of Compounding of Offence?

A. Compounding of offence allows the accused to avoid a
lengthy process of criminal prosecution, which would save
cost, time, mental agony, etc in return for payment of
compounding charges.

[…]

Q14. At what stage Compounding of Offence can take place?

A. At any stage after filing criminal complaint by SEBI. Where
a criminal complaint has not yet been filed but is envisaged,
the process for consent orders will be followed rather than the
one for compounding.

[…]

Q 16 What is the process for passing consent orders/

compounding of offences?
A. … Any party who wishes to compound an offence shall file
an appropriate application before the court where complaint is

5
Available at <https://www.sebi.gov.in/sebi_data/commondocs/consentord-faq1_p.pdf> accessed on 20
July 2021

26
 PART E

pending with a copy addressed to the Prosecution Division,

Enforcement Department of SEBI’s Mumbai office which will
forward the application/ request to be placed before the high
powered Committee. The terms of compounding as
recommended by the Committee and approved by the
Competent Authority would be placed before the court by the
Prosecution Division by way of written submissions or
application, as appropriate, for passing orders as the court
deems fit…

[…]

Q23. What will be the consequences of non-acceptance?

A. …In cases where SEBI is not inclined to accept
Settlement/Compounding of offence, SEBI would file its
objections before SAT/Court for consideration.”

41 SEBI amended the circular dated 20 April 2007 through a circular dated 25

May 2012 6. While the circular primarily issues new guidelines in relations to consent

orders, it also provides a list of offences which SEBI shall not settle, which includes:

“ii. Serious fraudulent and unfair trade practices which, in the

opinion of the Board, cause substantial losses to investors
and/or affects their rights, especially retail investors and small
shareholders or have or may have market wide impact,
except those defaults where the entity makes good the losses
due to the investors;”

42 A combined reading of the two circulars and FAQs issued by SEBI clarifies

the following: firstly, a party can seek compounding under Section 24A at any stage

once the criminal complaint has been filed by SEBI; secondly, the party shall have to

file the application for compounding before the Court where the criminal complaint is

pending; thirdly, a copy of the application for compounding must also be sent to

6
Available at <https://www.sebi.gov.in/legal/circulars/may-2012/amendment-to-the-consent-circular-
dated-20th-april-2007_22808.html> accessed on 20 July 2021

27
 PART E

SEBI, which will place it before the HPAC 7; and fourthly, the HPAC’s decision on the

application, be it an acceptance or an objection, shall be placed by SEBI before the

appropriate Court, which will have to pass appropriate orders. Hence, this makes it

abundantly clear that while the HPAC’s decision on a party’s application for

compounding under Section 24A must be placed before the appropriate Court, the

final decision must remain in the domain of the Court.

43 However, since SEBI has argued before us that its consent must be deemed

mandatory for compounding an offence under Section 24A, we must also

independently evaluate the argument on its merits. In order to do that, we must first

understand the jurisprudential basis for compounding of offences.

E.3 Jurisprudential basis for ‘Compounding’

44 In tracing the history of compounding, we must begin with its origins in

English common law. Curiously, the original discussions surrounding compounding

(or composition) of offences in the English common law do not occur in its context

as a procedural tool (as we understand today) but rather as an offence itself. Under

such an offence, a prosecutor or a victim would accept consideration in return for not

prosecuting an offence 8.

7
Constituted under circular dated 25 May 2012 to “consist of a retired Judge of a High Court and three
other external experts, as may be decided by the Board from time to time”.
8
Percy Henry Winfield, The Present Law of Abuse of Legal Procedure (Cambridge University Press,
2013) at page 117

28
 PART E

45 Indeed, Blacks’ Law Dictionary 9 contains a definition of the expression

“compounding crime” as follows:

“Compounding Crime. Compounding crime consists of the

receipt of some property or other consideration in return for
an agreement not to prosecute or inform on one who has
committed a crime. There are three elements to this offense
at common law, and under the typical compounding statute:
(1) the agreement not to prosecute; (2) knowledge of the
actual commission of a crime; and (3) the receipt of some
consideration.

The offense committed by a person who, having been directly

injured by a felony, agrees with the criminal that he will not
prosecute him, on condition of the latter’s making reparation,
or on receipt of a reward or bribe not to prosecute.

The offense of taking a reward for forbearing to prosecute a

felony; as where a party robbed takes his goods again, or
other amends, upon agreement not to prosecute.”

46 Similarly, P Ramanatha Aiyar’s Advanced Law Lexicon 10 defines the

expression “Compounding a crime” in the following terms:

“The offence of either agreeing not to prosecute a crime that

one knows has been committed or agreeing to hamper the
prosecution.— Also termed theft-bote. (Black, 7th Edn., 1999)

“If a prosecuting attorney should accept money from another

to induce the officer to prevent the finding of an indictment
against that person this would be compounding a crime if the
officer knew the other was guilty of an offense, but would be
bribery whether he had such knowledge or not.” Rollin M.
Perkins & Ronald N. Boyce, Criminal Law 539 (3d ed. 1982).”

9 th
5 Edition, at page 259
10 rd
3 Edition, Reprint 2007, at page 932

29
 PART E

47 In this context we may refer to Sections 213 and 214 of the Indian Penal

Code, 1860 (“IPC”) which also introduce a similar crime in India, in the following

terms:

“213. Taking gift, etc., to screen an offender from

punishment.—Whoever accepts or attempts to obtain, or
agrees to accept, any gratification for himself or any other
person, or any restitution of property to himself or any other
person, in consideration of his concealing an offence or of his
screening any person from legal punishment for any offence,
or of his not proceeding against any person for the purpose of
bringing him to legal punishment,

if a capital offence.—shall, if the offence is punishable with

death, be punished with imprisonment of either description for
a term which may extend to seven years, and shall also be
liable to fine;

if punishable with imprisonment for life, or with

imprisonment.—and if the offence is punishable with
imprisonment for life, or with imprisonment which may extend
to ten years, shall be punished with imprisonment of either
description for a term which may extend to three years, and
shall also be liable to fine;

and if the offence is punishable with imprisonment not

extending to ten years, shall be punished with imprisonment
of the description provided for the offence for a term which
may extend to one-fourth part of the longest term of
imprisonment provided for the offence, or with fine, or with
both.

214. Offering gift or restoration of property in

consideration of screening offender.—Whoever gives or
causes, or offers or agrees to give or cause, any gratification
to any person, or restores or causes the restoration of any
property to any person, in consideration of that person's
concealing an offence, or of his screening any person from
legal punishment for any offence, or of his not proceeding
against any person for the purpose of bringing him to legal
punishment,

30
 PART E

if a capital offence.—shall, if the offence is punishable with

death, be punished with imprisonment of either description for
a term which may extend to seven years, and shall also be
liable to fine;

if punishable with imprisonment for life, or with

imprisonment.—and if the offence is punishable with
imprisonment for life, or with imprisonment which may extend
to ten years, shall be punished with imprisonment of either
description for a term which may extend to three years, and
shall also be liable to fine;

and if the offence is punishable with imprisonment not

extending to ten years, shall be punished with imprisonment
of the description provided for the offence for a term which
may extend to one-fourth part of the longest term of
imprisonment provided for the offence, or with fine, or with
both.

Exception.—The provisions of Sections 213 and 214 do not

extend to any case in which the offence may lawfully be
compounded.”

While the “exception” to the provisions of Sections 213 and 214 make the provisions

inapplicable to offences which may be compounded, it is important to note that the

“exception” was only introduced through an amendment in 1882 (Act 8 of 1882).

48 On the other hand, it was in 1872, when the Code of Criminal Procedure was

amended, that compounding was first introduced as a procedural tool in Indian

criminal law. Section 188 therein stated:

“Section 188 Compounding offences - In the case of

offences which may lawfully be compounded, injured persons
may compound the offence out of Court, or in Court with the
permission of the Court.”

31
 PART E

As is evident, the above provision only provided that compounding of offences was

possible out of Court, or in Court with its permission. However, while it referred to

offences which may be “lawfully compounded”, the decision on those was left to

judicial discretion.

49 When the Code of Criminal Procedure was amended in 1882, it enumerated a

list of offences which could be compounded by the Courts in Section 345. This list

was expanded when the Code of Criminal Procedure was amended again in 1898.

Finally, in its current form, the compounding of offences is permissible under Section

320 of the CrPC. The relevant parts of Section 320 are extracted below:

“320. Compounding of offences—(1) The offences

punishable under the sections of the Indian Penal Code (45 of
1860) specified in the first two columns of the Table next
following may be compounded by the persons mentioned in
the third column of that Table…

(2) The offences punishable under the sections of the Indian

Penal Code (45 of 1860) specified in the first two columns of
the Table next following may, with the permission of the Court
before which any prosecution for such offence is pending, be
compounded by the persons mentioned in the third column of
that Table…

(3) When an offence is compoundable under this section, the

abetment of such offence or an attempt to commit such
offence (when such attempt is itself an offence) or where the
accused is liable under Sections 34 or 149 of the Indian Penal
Code (45 of 1860) may be compounded in like manner.

(4)(a) When the person who would otherwise be competent to

compound an offence under this section is under the age of
eighteen years or is an idiot or a lunatic, any person
competent to contract on his behalf may, with the permission
of the Court, compound such offence.

(b) When the person who would otherwise be competent to

compound an offence under this section is dead, the legal

32
 PART E

representative, as defined in the Code of Civil Procedure,

1908 (5 of 1908), of such person may, with the consent of the
Court, compound such offence.

(5) When the accused has been committed for trial or when
he has been convicted and an appeal is pending, no
composition for the offence shall be allowed without the leave
of the Court to which he is committed, or, as the case may be,
before which the appeal is to be heard.

(6) A High Court or Court of Session acting in the exercise of

its powers of revision under Section 401 may allow any
person to compound any offence which such person is
competent to compound under this section.

(7) No offence shall be compounded if the accused is, by

reason of a previous conviction, liable either to enhanced
punishment or to a punishment of a different kind for such
offence.

(8) The composition of an offence under this section shall

have the effect of an acquittal of the accused with whom the
offence has been compounded.

(9) No offence shall be compounded except as provided by

this section.”

50 Broadly speaking, the provisions of Section 320 indicate that there are three

categories of offences:

(i) Those offences which can be compounded by the parties themselves;

(ii) Those offences which can be compounded by the parties but for which the

permission of the Court is required; and

(iii) Offences which cannot be compounded at all.

51 Sub-section (1) of Section 320 of the CrPC stipulates that offences

punishable under the sections of the IPC in the first two columns of the appended

table may be compounded by the persons mentioned in the third column of that

33
 PART E

table, without the permission of the Court. Column 1 of this table describes the

offences, column 2 indicates the corresponding section of the IPC and column 3

provides the person by whom the offence may be compounded. Column 3 indicates

that the compounding of the offence is essentially at the instance of a victim, person

aggrieved or the injured person. Broadly speaking, the offences covered by sub-

Section (1) of Section 320 are relatively of a minor nature directed against an

individual without affecting the society at large. The maximum sentence for these

offences may vary from five to seven years’ imprisonment. Almost all the offences

are bailable and several are non-cognizable.

52 Sub-Section (2) of Section 320 provides for offences where compounding

requires the permission of the Court before which a prosecution for the offence is

pending. As in the case of offences governed by sub-Section (1) of Section 320,

column 1 of the table appended to sub-Section (2) describes the offences, column 2

specifies the corresponding section of the IPC and column 3 indicates the person by

whom the offence may be compounded. A provision for the permission of the Court

has been introduced in respect of offences governed by sub-Section (2) of Section

320 since the legislature has viewed those offences to be of a more serious nature

as compared to the offences governed by sub-Section (1) of Section 320.

53 Sub-Section (3) of Section 320 provides that where an offence is

compoundable under the provision, the abetment of such an offence or attempt to

commit such an offence or where the accused is liable under Section 34 or Section

149 of the IPC may also be compounded in a like manner. Sub-Sections (4a)

34
 PART E

provides that where the person who would otherwise be competent to compound the

offence under the provision is under the age of 18 or “is an idiot or a lunatic” a

person competent to contract on their behalf may, with the permission of the Court,

compound the offence. Similarly, under sub-Section 4(b), where the person who

would otherwise be competent to compound the offence under the provision is dead,

their legal representative as defined under the Code of Civil Procedure, 1908 may,

with the consent of the Court, compound the offence. Sub-Section (5) provides that

where the accused has been committed for trial or when the accused has been

convicted and an appeal has been pending, no compounding shall be allowed

without the leave of the Court to which the accused is committed or of the Court

before which the appeal is to be heard. Under sub-Section (6), the High Court or

Court of Sessions is empowered to allow a person to compound an offence in the

exercise of its revisional powers which such a person is competent to compound

under the provision otherwise. Sub-Section (7) provides that compounding will not

be permitted when the accused is liable either to enhanced punishment or to a

punishment of a different kind for such offence for a previous conviction. Sub-

Section (8) provides that the effect of compounding under this provision would have

the same effect as the acquittal of the accused. Finally, sub-Section (9) provides that

no offence shall be compounded except as provided by the provision.

35
 PART E

54 In explaining the basis for the provision of compounding an offence in Section

345 of the 1898 Act, the Law Commission of India in its 41st Report stated as

follows 11:

“24.66…The broad principle that forms the basis of the

present scheme is that where the offence is essentially of a
private nature and relatively not serious, it is
compoundable.”
emphasis supplied

55 The Law Commission of India in its 154th Report on the CrPC, explained the

rationale for Section 320 in the following terms 12:

“2. The rationale for compounding of offences is that the

chastened attitude of the accused and the praiseworthy
attitude of the complainant in order to restore peace and
harmony in society, must be given effect to in the composition
of offences.”

However, it also goes on to then note:

“9. We recommend that as a matter of policy more offences

be brought under the category of offences compoundable by
the parties themselves without the intervention of the court.
However, offences against the public at large, however
small they may be, should not be compoundable.”

Emphasis supplied

56 Thereafter, in its 237th Report on Compounding of (IPC) Offences, the Law

Commission of India explained the rationale for compounding as follows 13:

11
Available at <https://lawcommissionofindia.nic.in/1-50/Report41.pdf> accessed on 20 July 2021
12
Available at <https://lawcommissionofindia.nic.in/101-169/Report154Vol1.pdf> accessed on 20 July
2021

36
 PART E

“1.2 Compounding in the context of criminal law means

forbearance from the prosecution as a result of an amicable
settlement between the parties. As observed by Calcutta High
Court in a vintage decision in Murray [(1894)21 ILR 103 at
112], compounding of an offence signifies “that the person
against whom the offence has been committed has received
some gratification, not necessarily of a pecuniary character,
to act as an inducement of his desiring to abstain from a
prosecution”. The victim may have received compensation
from the offender or the attitude of the parties towards each
other may have changed for good. The victim is prepared to
condone the offensive conduct of the accused who became
chastened and repentant. Criminal law needs to be attuned to
take note of such situations and to provide a remedy to
terminate the criminal proceedings in respect of certain types
of offences. That is the rationale behind compounding of
offences.”

57 In Biswabahan Das vs Gopen Chandra Hazarika 14, a three judge Bench of

this Court held that the principle underlying Section 320 is that wrongs of certain

classes which affects the person mainly in their individual capacity or character may

be sufficiently redressed by compounding.

58 In Sheonandan Paswan vs State of Bihar 15, a Constitution Bench of this

Court was interpreting Section 321 of the CrPC. While drawing an analogy between

Sections 320 and 321, Justice V. Khalid, speaking for himself and Justice Natarajan

observed:

“85. The scope of Section 321 can be tested from another

angle and that is with reference to Section 320 which deals
with “compounding of offences”. Both these sections occur in
Chapter 24 under the heading “General Provisions as to
Enquiries and Trials”…

13
Available at <https://lawcommissionofindia.nic.in/reports/report237.pdf> accessed on 20 July 2021
14
AIR 1967 SC 895
15
(1987) 1 SCC 288

37
 PART E

86. These two sub-sections use the expression “with the

permission of the court” and “with the consent of the court”
which are more or less ejusdem generis. On a fair reading of
the abovementioned sub-sections it can be safely
presumed that the sections confer only a supervisory
power on the court in the matter of compounding of
offences in the manner indicated therein, with this
safeguard that the accused does not by unfair or deceitful
means, secure a composition of the offence. Viewed thus I
do not think that a plea can be successfully put forward that
granting permission or giving consent under sub-section (4)(a)
or (4)(b) for compounding of an offence, the court is enjoined
to make a serious detailed evaluation of the evidence or
assessment of the case to be satisfied that the case would
result in acquittal or conviction. It is necessary to bear in
mind that an application for compounding of an offence
can be made at any stage..”

Emphasis supplied

59 Analyzing the above decisions, it is evident that that legislative sanction for

compounding of offences is based upon two contrasting principles: first, that private

parties should be allowed to settle a dispute between them at any stage (with or

without the permission of the Court, depending on the offence), even of a criminal

nature, if proper restitution has been made to the aggrieved party; and second, that,

however, this should not extend to situations where the offence committed is of a

public nature, even when it may have directly affected the aggrieved party. The first

of these principles is crucial so as to allow for amicable resolution of disputes

between parties without the adversarial role of Courts, and also to ease the burden

of cases coming before the Courts. However, the second principle is equally

important because even an offence committed against a private party may affect the

fabric of society at large. Non-prosecution of such an offence may affect the limits of

conduct which is acceptable in the society. The Courts play an important role in

38
 PART E

setting these limits through their adjudication and by prescribing punishment in

proportion to how far away from these limits was the offence which was committed.

As such, in deciding on whether to compound an offence, a Court does not just have

to understand its effect on the parties before it but also consider the effect it will

have on the public. Hence, societal interest in the prosecution of crime which has a

wider social dimension must be borne in mind.

60 This formulation of this principle is also in alignment with the position under

English common law, where in a judgment of the Queen’s Bench in Keir vs F.

Leeman and Pearson, Lord Denman CJ held 16:

“We shall probably be safe in laying it down that the law will
permit a compromise of all offences, though made the subject
of a criminal prosecution, for which offences the injured party
might sue and recover damages in an action. It is often the
only manner in which he can obtain redress. But, if the
offence is of a public nature, no agreement can be valid
that is founded on the consideration of stifling a
prosecution for it.”

Emphasis supplied

61 Singapore, where the procedure for compounding of offences was introduced

in a manner similar to India 17, follows an analogous principle. In the Singapore High

16
(1844) 6 Queen's Bench Reports 308
17
Ryan David Lim and Selene Yap, 'Composition: Legal and Theoretical Foundations’ (2015) 27 SAcLJ
462

39
 PART E

Court’s decision in Public Prosecutor vs Norzian bin Bintat 18, Chief Justice Yong

Pung How held:

“55. …Thus, in a case where the public interest is

involved, it is proper to withhold consent to
composition…

[…]

57. On the other hand, the cases also show that, in the
absence of aggravating factors, the courts should lean
towards the granting of consent in cases where the public
interest does not figure strongly…” (emphasis supplied)

62 However, Section 320 provides for the compounding of offences only under

the IPC. Hence, in respect of offences which lie outside the IPC, compounding may

be permitted only if the statute which creates the offence contains an express

provision for compounding before such an offence can be made compoundable. The

power of compounding must, in other words, be expressly conferred by the statute

which creates the offence.

E.4 Compounding outside of CrPC

63 The provisions contained in Section 147 of the NI Act for compounding of

offences came up for consideration before a two judge Bench of this Court in JIK

Industries (supra). Section 147 of the NI Act is in the following terms:

“147. Offences to be compoundable.- Notwithstanding

anything contained in the Code of Criminal Procedure, 1973 (2

18
[1995] SGHC 207

40
 PART E

of 1974), every offence punishable under this Act shall be

compoundable.”

64 In that case, the High Court had rejected several writ petitions challenging the

processes which were issued by the Trial Judge on a complaint filed by the

respondent in proceedings under Section 138 read with Section 141. The High Court

held that the sanctioning of a scheme under Section 391 of the Companies Act,

1956 did not automatically amount to the compounding of an offence under Section

138 read with Section 141 of the NI Act. In other words, the sanctioning of the

scheme under Section 391 of the Act of 1956 was held not to have the effect of

terminating the proceedings for an offence under Section 138 of the NI Act. Justice

AK Ganguly, speaking for the two judge Bench, observed that in most of the cases

the offence under the NI Act had been committed prior to the scheme:

“19. In the instant appeal in most of the cases the offence

under the NI Act has been committed prior to the scheme.
Therefore, the offence which has already been committed
prior to the scheme does not get automatically compounded
only as a result of the said scheme. Therefore, even by
relying on the ratio of the aforesaid judgment in J.K.
(Bombay) (P) Ltd. [AIR 1970 SC 1041], this Court cannot
accept the appellant's contention that the scheme under
Section 391 of the Companies Act will have the effect of
automatically compounding the offence under the NI Act.”

Reiterating further, the Court held:

“27. The compounding of an offence is always controlled by

statutory provision. There are various features in the
compounding of an offence and those features must be
satisfied before it can be claimed by the offender that the
offence has been compounded. Thus, compounding of an

41
 PART E

offence cannot be achieved indirectly by the sanctioning of a

scheme by the Company Court.”

65 The submission of the appellant in the decision in JIK Industries (supra) was

that a scheme of compromise under Section 391 of the Companies Act, 1956

operates as a ‘deemed compounding’ of an offence under the NI Act. This

submission was rejected by the Court. Distinguishing between quashing of a case

and compounding, the Court observed:

“43. Quashing of a case is different from compounding. In

quashing the court applies it but in compounding it is primarily
based on consent of the injured party. Therefore, the two
cannot be equated. It is clear from the discussion made
hereinabove that Duncans Agro case [(1996) 5 SCC 591 :
1996 SCC (Cri) 1045] was not one relating to compounding of
offence. Apart from that the Court found that the dues of the
banks have been satisfied by receiving the money and the
suits filed by the bank in the civil court have been
compromised. The FIRs were filed in 1987-1988 and the
investigation had not been completed till 1991. On those facts
the Court, rendering the judgment in July 1996, felt that
having regard to the lapse of time and also having regard to
the fact that there is a compromise decree satisfying the
banks' dues, there is no purpose in allowing the criminal
prosecution to proceed. On those consideration, this Court, in
the “special facts of the case”, did not interfere with the order
of the High Court dated 23-12-1992 whereby the criminal
prosecution was quashed.”

66 The Court then noted the submission of the complainant that there is no

concept of “deemed compounding under the criminal law and that under the very

concept of compounding, it cannot take place without the explicit consent of the

complainant or the person aggrieved”. Holding that the “Court finds a lot of

substance in the aforesaid submission”, Justice Ganguly observed:

42
 PART E

“54. Compounding of an offence is statutorily provided under

Section 320 of the Code. If we look at the list of offences
which are specified in the table attached to Section 320 of the
Code, it would be clear that there are basically two categories
of offences under the provisions of the Penal Code which
have been made compoundable. There is a category of
offence for the compounding of which leave of the court is
required and there is another category of the offences where
for compounding the leave of the court is not required. But all
cases of compounding can take place at the instance of the
persons mentioned in the Third Column of the Table. If the
said Table is perused, it will be clear that compounding can
only be possible at the instance of the person who is either a
complainant or who has been injured or is aggrieved.”

67 The above observations interpret the statutory provisions of section 320 which

specify the person at whose instance compounding is permissible. Before moving

forward, it is important to note a judgment of a three judge Bench of this Court in

Damodar S Prabhu vs Sayed Babalal H 19 (“Damodar S Prabhu”), dealing with the

provisions of Section 147 of the NI Act, where the Court held:

“10. …At this point, it would be apt to clarify that in view of

the non obstante clause, the compounding of offences
under the Negotiable Instruments Act, 1881 is controlled by
Section 147 and the scheme contemplated by Section 320
of the Code of Criminal Procedure (hereinafter “CrPC”) will
not be applicable in the strict sense since the latter is meant
for the specified offences under the Penal Code, 1860.”

The Court then noted that:

“12. Section 147 of the Negotiable Instruments Act, 1881 is

in the nature of an enabling provision which provides for the
compounding of offences prescribed under the same Act,
thereby serving as an exception to the general rule
incorporated in sub-section (9) of Section 320 CrPC which

19
2010 5 SCC 663

43
 PART E

states that “No offence shall be compounded except as

provided by this section”. A bare reading of this provision
would lead us to the inference that offences punishable
under laws other than the Penal Code also cannot be
compounded. However, since Section 147 was inserted by
way of an amendment to a special law, the same will
override the effect of Section 320(9) CrPC, especially
keeping in mind that Section 147 carries a non obstante
clause.”

68 The Court in Damodar S Prabhu (supra) observed that the permissibility of

the compounding of an offence is linked to the perceived seriousness of the offence,

and the nature of the remedy provided. In an offence involving the dishonor of a

cheque, “it is the compensatory aspect of the remedy which should be given priority

over the punitive aspect”. At the same time, it was highlighted before the Court by

the Attorney General, who appeared as amicus curiae, that cheque dishonor cases

were being compounded or settled at the late stages of litigation, thereby

contributing to delay in the delivery of justice. This, in part, was due to the fact that

unlike Section 320 of the CrPC, Section 147 of the NI Act provides no explicit

guidance on the stage at which compounding can or cannot be done and where

compounding can be done at the instance of the complainant or with the leave of the

Court. As a result, accused persons are willing to take a chance of progressing

through various stages of a prosecution and to opt for the route of compounding only

when no other option remains. Having regard to this problem, the Court prescribed

certain guidelines to be followed in compounding, in exercise of its jurisdiction under

Article 142 of the Constitution. The Court clarified that it was issuing these

guidelines “which could be seen as an act of judicial law making and therefore an

44
 PART E

intrusion into the legislature domain” because Section 147 did not carry any

guidance on how to proceed with the compounding of offence under the NI Act. The

Court again reiterated that it had “already explained that the scheme contemplated

under Section 320 CrPC cannot be followed in the strict sense” and the jurisdiction

under Article 142 was being exercised due to the presence of a legislative vacuum

in the NI Act, in order to discourage litigants from unduly delaying the compounding

of offence in cases involving Section 138. The Court in its guidelines indicated a

scheme by imposing costs as a means for encouraging compounding at an early

stage of the litigation.

69 The judgment in Damodar S Parabhu (supra) was cited before the two judge

Bench in JIK Industries (supra) in support of the proposition that Section 147 of the

NI Act, which is a special statute, does not incorporate the requirement of consent of

the person aggrieved while compounding, as contemplated in Section 320 of the

CrPC. This submission was however rejected by observing that though offences

under the NI Act, which were previously non-compoundable in view of Section

320(9) of the CrPC, have now become compoundable, that did not do away with all

the guidelines of Section 320:

“68. It is clear from a perusal of the aforesaid Statement of

Objects and Reasons that offence under the NI Act, which
was previously non-compoundable in view of Section 320
sub-section (9) of the Code has now become compoundable.
That does not mean that the effect of Section 147 is to
obliterate all statutory provisions of Section 320 of the Code
relating to the mode and manner of compounding of an
offence. Section 147 will only override Section 320(9) of the
Code insofar as offence under Section 147 of the NI Act is
concerned. This is also the ratio in Damodar [(2010) 5 SCC

45
 PART E

663 : (2010) 2 SCC (Civ) 520 : (2010) 2 SCC (Cri) 1328] (see
para 12). Therefore, the submission of the learned counsel for
the appellant to the contrary cannot be accepted.”

70 The Court then relied on Section 4 of the CrPC, which is the governing statute

in India for investigation, enquiry and trial of offences. Section 4, the Court held,

deals both with offences under the IPC in sub-Section (1) and with offences under

any other law in sub-Section (2). Hence, it was held that in the absence of a special

procedure in the NI Act for compounding of offences, the procedure relating to

compounding under Section 320 shall automatically apply in view of the clear

mandate of sub-Section (2) of Section 4, which reads as follows:

“4. (2) All offences under any other law shall be investigated,
inquired into, tried, and otherwise dealt with according to the
same provisions, but subject to any enactment for the time
being in force regulating the manner or place of investigating,
inquiring into, trying or otherwise dealing with such offences.”

In conclusion, the Court held:

“82. A perusal of Section 320 makes it clear that the

provisions contained in Section 320 and the various sub-
sections is a code by itself relating to compounding of
offence. It provides for the various parameters and
procedures and guidelines in the matter of compounding. If
this Court upholds the contention of the appellant that as a
result of incorporation of Section 147 in the NI Act, the entire
gamut of procedure of Section 320 of the Code are made
inapplicable to compounding of an offence under the NI Act,
in that case the compounding of offence under the NI Act will
be left totally unguided or uncontrolled. Such an interpretation
apart from being an absurd or unreasonable one will also be
contrary to the provisions of Section 4(2) of the Code, which
has been discussed above. There is no other statutory
procedure for compounding of offence under the NI Act.

46
 PART E

Therefore, Section 147 of the NI Act must be reasonably

construed to mean that as a result of the said section the
offences under the NI Act are made compoundable, but the
main principle of such compounding, namely, the consent of
the person aggrieved or the person injured or the complainant
cannot be wished away nor can the same be substituted by
virtue of Section 147 of the NI Act.”

71 However, before we can apply the decision in JIK Industries (supra), it is

important to acknowledge that there is a clear distinction between the provisions of

Section 147 of the NI Act and Section 24A of the SEBI Act. A comparison of the

provisions of Section 147 of the NI Act with Section 24A of the SEBI Act would

indicate that both sets of statutory provisions begin with a non-obstante provision

overriding the provisions of the CrPC, insofar as the compounding of offence is

concerned. Having stipulated a non-obstante clause in Section 147 of the NI Act,

Parliament has provided that “every offence punishable under this Act shall be

compoundable”. Section 147 of the NI Act does not expressly incorporate the

permission of the Court for compounding, conceivably because the impact of the

crime is against an individual. Section 24A of the SEBI Act, while containing a

similar non-obstante clause, excludes certain categories of offences, namely

offences punishable with imprisonment only or with imprisonment and also with fine.

Section 24A stipulates that an offence punishable under the Act may be

compounded by SAT or a Court before which such proceedings are pending. The

power to compound is recognized either before or after the institution of any

proceeding.

47
 PART E

72 Hence, it is evident that Section 24A specifies the authorities vested with the

powers to compound offences under the SEBI Act, while Section 147 of the NI Act

merely states that the offence under the Act shall be compoundable. In a complaint

filed under the NI Act, the complainant is an aggrieved party, invariably being the

payee in a dishonored instrument. The consideration which weighed with the two

judge Bench while interpreting the provisions of Section 147 of the NI Act in JIK

Industries (supra) will therefore not be ipso facto attracted while construing the

provisions of Section 24A of the SEBI Act. Further, since the two statutory provisions

are not in pari materia, it is not necessary for this Court to express any opinion on

the issue as to whether the judgment in JIK Industries (supra), which is of a two

judge Bench, is contrary to the earlier three judge Bench decision in Damodar S

Prabhu (supra). We are concerned in the present case with interpreting the

provisions of Section 24A of the SEBI Act, and hence it is not necessary for this

Court to construe Section 147 of the NI Act.

73 Subsequent to the decision in JIK Industries (supra), there is a decision of

another two-judge Bench of this Court in VLS Finance (supra). The Company Judge

of the Delhi High Court had dismissed an appeal assailing an order of the Company

Law Board allowing an offence under Section 211(7) of Companies Act, 1956 to be

compounded. A complaint was filed by the Registrar of Companies in the Court of

the CMM, alleging that though the company had obtained certain land from the

municipal corporation on a yearly license fee, the land had been shown in the

schedule of fixed assets, which was not a fair view and was hence punishable under

48
 PART E

Section 211(7) of the Companies Act, 1956. Before the Court in seisin of the case

could proceed with the complaint, an application was filed before the CLB for

compounding. Through the CLB’s order, the offence was compounded against the

payment of a fine.

74 For the purposes of the present discussion, it is material to note that the

provision for compounding of offences was contained in Section 621-A of the

Companies Act, 1956, in the following terms:

“621-A. Composition of certain offences —(1)

Notwithstanding anything contained in the Code of Criminal
Procedure, 1973 (2 of 1974), any offence punishable under
this Act (whether committed by a company or any officer
thereof), not being an offence punishable with imprisonment
only, or with imprisonment and also with fine, may, either
before or after the institution of any prosecution, be
compounded by—

(a) the Company Law Board; or

(b) where the maximum amount of fine which may be

imposed for such offence does not exceed five thousand
rupees, by the Regional Director, on payment or credit, by the
company or the officer, as the case may be, to the Central
Government of such sum as that Board or the Regional
Director, as the case may be, may specify:

Provided that the sum so specified shall not, in any case,

exceed the maximum amount of the fine which may be
imposed for the offence so compounded:

Provided further that in specifying the sum required to be paid

or credited for the compounding of an offence under this sub-
section, the sum, if any, paid by way of additional fee under
sub-section (2) of Section 611 shall be taken into account.”

49
 PART E

Sub-Section (7) of Section 621-A provided as follows:

“(7) Notwithstanding anything contained in the Code of

Criminal Procedure, 1973 (2 of 1974)—
(a) any offence which is punishable under this Act with
imprisonment or with fine, or with both, shall be
compoundable with the permission of the court, in
accordance with the procedure laid down in that Act for
compounding of offences;
(b) any offence which is punishable under this Act with
imprisonment only or with imprisonment and also with fine
shall not be compoundable.”

75 It was argued before this Court that when the Court was in seisin in the

matter, it was only the Magistrate who could compound the offence. Further, in any

event, the CLB had to seek the permission of the Court before it could compound.

Dealing with the argument, Justice C K Prasad, speaking for the Bench, held:

“17. Ordinarily, the offence is compounded under the

provisions of the Code of Criminal Procedure and the power
to accord permission is conferred on the court excepting
those offences for which the permission is not required.
However, in view of the non obstante clause, the power of
composition can be exercised by the court or the Company
Law Board. The legislature has conferred the same power on
the Company Law Board which can exercise its power either
before or after the institution of any prosecution whereas the
criminal court has no power to accord permission for
composition of an offence before the institution of the
proceeding. The legislature in its wisdom has not put the rider
of prior permission of the court before compounding the
offence by the Company Law Board and in case the
contention of the appellant is accepted, same would amount
to addition of the words “with the prior permission of the court”
in the Act, which is not permissible.”

50
 PART E

76 The Court held that while interpreting the provisions of the statute, the words

must be construed in their ordinary sense without any addition; and in that context it

observed:

“18. As is well settled, while interpreting the provisions of a

statute, the court avoids rejection or addition of words and
resorts to that only in exceptional circumstances to achieve
the purpose of the Act or give purposeful meaning. It is also a
cardinal rule of interpretation that words, phrases and
sentences are to be given their natural, plain and clear
meaning. When the language is clear and unambiguous, it
must be interpreted in an ordinary sense and no addition or
alteration of the words or expressions used is permissible. As
observed earlier, the aforesaid enactment was brought in
view of the need of leniency in the administration of the Act
because a large number of defaults are of technical nature
and many defaults occurred because of the complex nature of
the provision.”

Hence, the powers under sub-Sections (1) and (7) of Section 621-A were held to be

parallel powers to be exercised by the CLB or the authorities mentioned, and the

prior permission of the Court was not necessary for compounding an offence when

the power was exercised by the CLB.

77 Mr. Shyam Divan, learned senior Counsel, appearing on behalf of the

appellant, has adverted, during the course of his submissions, to the judgment of a

two Judge Bench of this Court in Meters and Instruments Pvt. Ltd. vs Kanchan

Mehta 20 (“Meters and Instruments”) where this Court observed that an offence

under Section 138 of the NI Act “is primarily a civil wrong”. It was held that the object

of the NI Act being primarily compensatory, compounding at the initial stage has to

20
(2018) 1 SCC 560

51
 PART E

be encouraged but is not debarred at a later stage subject to appropriate

compensation as may be acceptable to the parties and the Court. Moreover, Justice

A K Goel, speaking for the Bench, held that:

“18.3. 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.”

78 Our attention has been drawn to the judgment of the Constitution Bench in

Re: Expeditious Trial of cases under Section 136 of Negotiable Instruments

Act 1881 in Suo Motu Writ Petition (Crl) No. 2 of 2020. The Constitution Bench

considered the decision in Meters and Instruments (supra), where the two Judge

Bench of the Court took the view that Section 143 of the NI Act confers an implied

power on the Magistrate to discharge the accused if the complainant is

compensated to the satisfaction of the Court. On that analogy, it was held that apart

from compounding by consent of the parties, the Trial Court has jurisdiction to pass

the jurisdictional order under Section 143 in exercise of its inherent power. The

Constitution Bench, while disagreeing with the view in Meters and Instruments

(supra) observed:

“20. Section 143 of the Act mandates that the provisions of

summary trial of the Code shall apply “as far as may be” to
trials of complaints under Section 138. Section 258 of the
Code empowers the Magistrate to stop the proceedings at any
stage for reasons to be recorded in writing and pronounce a
judgment of acquittal in any summons case instituted
otherwise than upon complaint. Section 258 of the Code is not
applicable to a summons case instituted on a complaint.
Therefore, Section 258 cannot come into play in respect of the

52
 PART E

complaints fled under Section 138 of the Act. The judgment

of this Court in Meters and Instruments (supra) in so far
as it conferred power on the Trial Court to discharge an
accused is not good law. Support taken from the words
“as far as may be” in Section 143 of the Act is
inappropriate. The words “as far as may be” in Section
143 are used only in respect of applicability of Sections
262 to 265 of the Code and the summary procedure to be
followed for trials under Chapter XVII. Conferring power
on the court by reading certain words into provisions is
impermissible. A judge must not rewrite a statute, neither
to enlarge nor to contract it. Whatever temptations the
statesmanship of policy-making might wisely suggest,
construction must eschew interpolation and evisceration.
He must not read in by way of creation [J. Frankfurter, “Of Law
and Men: Papers and Addresses of Felix Frankfurter”]. The
Judge’s duty is to interpret and apply the law, not to change it
to meet the Judge’s idea of what justice requires [Dupont
Steels Ltd. v. Sirs (1980) 1 All ER 529 (HL)]. The court cannot
add words to a statute or read words into it which are not
there [Union of India v. Deoki Nandan Aggarwal 1992 Supp
(1) SCC 323].”
Emphasis supplied

79 Before parting with the discussion on this aspect, it is necessary for us to refer

to the judgment of the Bombay High Court in N H Securities Limited vs Securities

and Exchange Board of India 21, where it was held that the consent of SEBI was

necessary before an application of compounding could be allowed under Section

24A. A special leave petition challenging this judgment was filed before this Court22.

This was disposed of by a two Judge Bench this Court through an order dated 17

September 2019, wherein SEBI agreed to “compounding of the offence subject to

any penalty which may be imposed under Section 24(2)” of the SEBI Act. This was

also allowed by this Court, keeping in mind the age of the directors of the appellant.

21
2018 SCC OnLine Bom 4040
22
Criminal Appeal No.1407 of 2019 (Arising out of S.L.P. (Criminal) No.1132 of 2019)

53
 PART E

Pertinently, however, this Court noted that they “have not commented one way or

the other on the larger questions sought to be raised by the appellants”, i.e., on

whether the consent of SEBI was necessary for compounding an offence under

Section 24A. As such, the judgment and this Court’s order have not adjudicated on

the issue involved in the present case.

80 Section 24A of the SEBI Act commences with a non-obstante provision which

operates notwithstanding anything contained in the CrPC. Sub-Sections (1) and (2)

of Section 320 of the CrPC dealt with the compounding of offences under the IPC,

while sub-Section (9) stipulates that no offence shall be compounded except as

provided in the Section. However, the stipulation contained in sub-Section (9) of

Section 320 ceases to have effect in relation to the compounding of offences under

the SEBI Act by virtue of a specific non-obstante provision contained in Section 24A

providing for the compounding by offences punishable under that legislation. Section

24A, by incorporating a non-obstante provision indicates a legislative intent to the

effect that the power to compound offences punishable under the SEBI Act is not

trammeled by the provisions of Section 320 of the CrPC.

81 At this stage, the ingredients of Section 24A of the SEBI Act must be

delineated. Section 24 A contains five ingredients when it specifies:

(i) The offences which can be compounded (“any offence punishable in this

Act”);

54
 PART E

(ii) The exceptions which the statutory provision carves out (“not being an

offence punishable with imprisonment only or with imprisonment and also with

fine”);

(iii) The stage at which compounding may take place (“either before or after the

institution of any proceedings”);

(iv) The forum before which the compounding act takes place (“a Securities

Appellate Tribunal or the Court before which such proceedings are pending”);

and

(v) The entrustment of the power to compound to the SAT or the Court.

82 The entrustment of the exclusive power to compound offences under Section

24A of the SEBI Act to the SAT or the Court before which such a proceeding is

pending is evinced by the expression “be compounded by a Securities Appellate

Tribunal or a court before which such proceedings are pending”. Section 24A thus

contains a departure from the modalities which are prescribed in sub-Sections (1)

and (2) of Section 320 of the CrPC. Section 320 of the CrPC, as we have noticed

earlier, permits the compounding only of certain specified offences under the IPC.

Section 320 contains a two-fold distinction between offences punishable under the

IPC which can be compounded: (i) without the leave of the Court; and (ii) with the

leave of the Court. In contrast, the power to compound under Section 24A is

confined to offences punishable under the SEBI Act. The power is entrusted solely

to the SAT or to the Court, before which the proceedings are pending. Hence, the

55
 PART E

non-obstante provision contained in Section 24A must be given its natural meaning

and effect.

83 The plain language of Section 24A does not provide for the consent of SEBI.

The issue is whether this Court should read the requirement of the consent of SEBI

into the provision, on the ground that this is a casus omissus. This would, however,

amount to re-writing the statutory provision by introducing language which has not

been employed by the legislature. In a two Judge Bench judgment of this Court in

Union of India vs Rajiv Kumar 23, Justice Arijit Payasat speaking for the Court held:

“22. While interpreting a provision, the court only interprets

the law and cannot legislate it. If a provision of law is misused
and subjected to the abuse of process of law, it is for the
legislature to amend, modify or repeal it, if deemed
necessary. (See CST v. Popular Trading Co. [(2000) 5 SCC
511]) The legislative casus omissus cannot be supplied
by judicial interpretative process.

23. Two principles of construction — one relating to casus

omissus and the other in regard to reading the
statute/statutory provision as a whole — appear to be well
settled. Under the first principle a casus omissus cannot
be supplied by the court except in the case of clear
necessity and when reason for it is found in the four
corners of the statute itself. But, at the same time a casus
omissus should not be readily inferred and for that
purpose all the parts of a statute or section must be
construed together and every clause of a section should
be construed with reference to the context and other
clauses thereof so that the construction to be put on a
particular provision makes a consistent enactment of the
whole statute. This would be more so if literal
construction of a particular clause leads to manifestly
absurd or anomalous results which could not have been
intended by the legislature…”

Emphasis supplied

23
(2003) 6 SCC 516

56
 PART E

84 In the present case, it is evident that Section 24A does not stipulate that the

consent of SEBI is necessary for the 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 24B provides a useful contrast. Section 24B(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 24B has provided for the exercise of

powers by the Central Government to grant immunity from prosecution on the

recommendation of SEBI. In contrast, Section 24A is conspicuously silent in regard

to the consent of SEBI before the 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 24A.

85 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

57
 PART E

authority in the nature of a veto under the provisions of Section 24A, it is equally

necessary to understand the importance of its role and position.

E.5 Regulatory role of SEBI

86 The provisions of the SEBI Act, as analyzed earlier in this judgment, would

indicate the importance of the role which has been ascribed to it as a regulatory,

adjudicatory and prosecuting agency. SEBI has vital functions to discharge in the

context of maintaining an orderly and stable securities’ market so as to protect the

interests of investors. SEBI was established in 1988 by a government resolution, to

urgently respond to the rapid growth of capital markets. In Sahara India Real Estate

Corporation Ltd. vs SEBI 24 a two judge bench of this Court, considered this history

in order to guide its interpretative exercise over the statutory provisions. Justice J S

Khehar (as the learned Chief justice then was) noted in his concurring opinion that:

“298. The Securities and Exchange Board of India (SEBI) was

established in 1988 by way of a government resolution to
promote orderly and healthy growth of the securities market
and for investors' protection. On account of tremendous
growth of the capital market characterized particularly by
increasing participation of the public, to sustain confidence in
the capital market it was considered essential to ensure
investors' protection. Accordingly, it was decided to vest SEBI
with statutory powers, so as to enable it to deal effectively
with all matters relating to the capital market.”

Justice Khehar also reproduced the rationale for the Amending Act of 2002, which

would have a bearing on our present determination to the extent that it increased the

24
(2013) 1 SCC 1

58
 PART E

quantum of imprisonment and monetary penalty that can be imposed under Section

24. The Court held:

“300. The SEBI Act was again amended in 1999, but insofar
as the present controversy is concerned, the amendment of
the SEBI Act in 2002 is of utmost relevance. The relevant part
of the Statement of Objects and Reasons of the amendment
of the SEBI Act in 2002 is being reproduced below:
“2. Recently many shortcomings in the legal provisions of
the Securities and Exchange Board of India Act, 1992 have
been noticed, particularly with respect to inspection,
investigation and enforcement. Currently, the SEBI can call
for information, undertake inspections, conduct enquiries
and audits of stock exchanges, mutual funds, intermediaries,
issue directions, initiate prosecution, order suspension or
cancellation of registration. Penalties can also be imposed in
case of violation of the provisions of the Act or the Rules or
the Regulations. However, the SEBI has no jurisdiction to
prohibit issue of securities or preventing siphoning of funds
or assets stripping by any company. While the SEBI can call
for information from intermediaries, it cannot call for
information from any bank and other authority or board or
corporation established or constituted by or under any
Central, State or Provincial Act. The SEBI cannot retain
books of account, documents, etc., in its custody. Under the
existing provisions contained in the Securities and Exchange
Board of India Act, 1992, the SEBI cannot issue
commissions for the examination of witnesses or
documents. Further, the SEBI has pointed out that
existing penalties are too low and do not serve as
effective deterrents. At present, under Section 209-A of the
Companies Act, 1956, the SEBI can conduct inspection of
listed companies only for violations of the provisions
contained in sections referred to in Section 55-A of that Act
but it cannot conduct inspection of any listed public company

59
 PART E

for violation of the SEBI Act or Rules or Regulations made

thereunder.

3. In addition, growing importance of the securities markets

in the economy has placed new demands upon the SEBI in
terms of organizational structure and institutional capacity. A
need was, therefore, felt to remove these shortcomings
by strengthening the mechanisms available to the SEBI
for investigation and enforcement so that it is better
equipped to investigate and enforce against market
malpractices.

4. In view of the above, the Securities and Exchange Board

of India (Amendment) Ordinance, 2002 (6 of 2002) was
promulgated on 29-10-2002 to amend the Securities and
Exchange Board of India Act, 1992.

5. It is now proposed to replace the Ordinance by a Bill, with,

inter alia, the following features—
(a) increasing the number of members of the SEBI from six
(including Chairman) to nine (including Chairman);
(b) conferring power upon the Board for—
(i) calling for information and record from any bank or
other authority or Board or corporation established or
constituted by or under any Central, State or Provincial
Act in respect of any transaction in securities which are
under investigation or inquiry by the Board;
(ii) passing an order for reasons to be recorded in writing,
in the interest of investors or securities market, either
pending investigation or enquiry or on completion of such
investigation or inquiry for taking any of the following
measures, namely, to—
(A) suspend the trading of any security in a
recognised stock exchange;

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 PART E

(B) restrain persons from accessing the securities

market and prohibit any person associated with
securities market to buy, sell or deal in securities;
(C) suspend any office-bearer of any stock exchange
or self-regulatory organisation from holding such
position;
(D) impound and retain the proceeds or securities in
respect of any transaction which is under
investigation;
(E) attach, after passing of an order on an application
made for approval by the Judicial Magistrate of the
First Class having jurisdiction, for a period not
exceeding one month, one or more bank account or
accounts of any intermediary or any person
associated with the securities market in any manner
involved in violation of any of the provisions of this
Act, or the Rules or the Regulations made thereunder;
(F) direct any intermediary or any person associated
with the securities market in any manner not to
dispose of or alienate an asset forming part of any
transaction which is under investigation;
(iii) regulating or prohibiting for the protection of
investors, issue of prospectus, offer document or
advertisement soliciting money for issue of securities;
(iv) directing any person to investigate the affairs of
intermediary or person associated with the securities
market and to search and seize books, registers, other
documents and records considered necessary for the
purposes of the investigation, with the prior approval of a
Magistrate of the First Class;
(v) passing an order requiring any person who has
violated or is likely to violate, any provision of the SEBI
Act or any Rules or Regulations made thereunder to
cease and desist for committing any (sic act) causing
such violation;

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 PART E

(c) prohibiting manipulative and deceptive devices, insider

trading, fraudulent and manipulative trade practices, market
manipulation and substantial acquisition of securities and
control;
(d) crediting sums realised by way of penalties to the
Consolidated Fund of India;
(e) amending the composition of the Securities Appellate
Tribunal from one person to three persons;
(f) changing the qualifications for appointment as Presiding
Officer and members of the Securities Appellate Tribunal;
(g) composition of certain offences by the Securities
Appellate Tribunal;
(h) conferring power upon the Central Government to grant
immunity;
(i) appeal to the Supreme Court from the orders of the
Securities Appellate Tribunal;
(j) enhancing the penalties specified in the SEBI Act.”

(emphasis supplied)

87 Therefore, the SEBI Act and the rules, regulations and circulars made or

issued under the legislation, are constantly evolving with a concerted aim to enforce

order in the securities market and promote its healthy growth while protecting

investor wealth. A three judge bench of this Court, in B S E Brokers’ Forum vs

Securities and Exchange Board of India25, appreciated the extent of the powers

and functions that had been entrusted with the SEBI and held:

“17…. The Act in question is an Act to provide for the

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. The Board is established

25
(2001) 3 SCC 482

62
 PART E

under Section 3 of the Act. Section 11 of the Act defines the

powers and functions of the Board which mandates that it
shall be the duty of the Board to protect the interests of
investors in securities and to promote the development of,
and to regulate the securities market by such measures as it
thinks fit. Sub-section (2) of the said section enumerates the
various areas in which the Board is mandated to take
measures to fulfil the objects of the Act. They include such
measures as (i) regulating the business in stock exchanges
and any other securities markets; (ii) registering and
regulating the working of stockbrokers and other
intermediaries; (iii) registering and regulating the working of
the depositories etc.; (iv) registering and regulating the
working of venture capital funds and collective investment
schemes, including mutual funds; (v) promoting and
regulating self-regulatory organizations; (vi) prohibiting
fraudulent and unfair trade practices relating to securities
markets; (vii) promoting investors' education and training of
intermediaries; (viii) prohibiting insider trading in securities;
(ix) regulating substantial acquisition of shares and takeover
of companies; (x) collection of information, inspection,
conducting inquiries and audits of the stock exchanges,
mutual funds, other persons associated with the securities
market and other intermediaries and self-regulatory
organizations in the securities market; (xi) performing such
other functions as are delegated to it by the Central
Government; (xii) conducting research for the above
purposes; (xiii) providing necessary information for the
efficient discharge of the functions of the organizations with
securities markets etc. The said Board is also vested with
certain powers of the civil courts under the Code of Civil
Procedure, 1908 in regard to discovery, production,
summoning and enforcing the attendance of persons and
inspection of books, registers etc. Section 11(2)(k) of the Act
empowers the Board to levy fees or other charges for carrying
out the purposes enumerated in Section 11 of the Act.
Section 12 requires the stockbrokers, sub-brokers, share-
transfer agents, bankers to an issue, trustees of trust deeds,
registrars to an issue, merchant bankers, underwriters,
portfolio managers, investment advisors and such other
intermediaries who may be associated with the securities
market to get themselves registered and obtain a certificate of
registration from the Board in accordance with the
Regulations made under this Act. Section 12(2) empowers
the Board to collect such fees as may be determined by the
Regulations from the applicants who seek registration.”

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 PART E

88 In a consistent line of precedent, this Court has been mindful of the public

interest that guides the functioning of SEBI and has refrained from substituting its

own wisdom over the actions of SEBI 26. Its wide regulatory and adjudicatory powers,

coupled with its expertise and information gathering mechanisms, imprints its

decisions with a degree of credibility. The powers of the SAT and the Court would

necessarily have to align with SEBI’s larger existential purpose. A two judge bench

of this Court, in SEBI vs Kishore R Ajmera 27, had echoed this understanding when

speaking through Justice Kurian Joseph, it held:

“25. The SEBI Act and the Regulations framed thereunder are
intended to protect the interests of investors in the Securities
Market which has seen substantial growth in tune with the
parallel developments in the economy. Investors' confidence
in the capital/securities market is a reflection of the
effectiveness of the regulatory mechanism in force. All such
measures are intended to pre-empt manipulative trading and
check all kinds of impermissible conduct in order to boost the
investors' confidence in the capital market. The primary
purpose of the statutory enactments is to provide an
environment conducive to increased participation and
investment in the securities market which is vital to the growth
and development of the economy. The provisions of the SEBI
Act and the Regulations will, therefore, have to be understood
and interpreted in the above light.”

Similarly, a two judge bench of this Court, in Securities and Exchange Board of

India vs Ajay Agarwal 28, while determining the scope of the regulatory body’s

powers under Section 11(B) to restrain persons from accessing the securities

market, had elaborated on the special nature of the legislation and implored the
26
G L Sultania vs Securities & Exchange Board of India, (2007) 5 SCC 133, para 84; PGF Ltd vs
Union of India, (2015) 13 SCC 50, paras 46-58; SEBI vs Akshya Infrastructure (P) Ltd., (2014) 11
SCC 112; SEBI vs Saikala Associates Ltd., (2009) 7 SCC 432, para 16
27
(2016) 6 SCC 368
28
(2010) 3 SCC 765

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 PART E

Courts to exercise their interpretative role in a manner that furthers SEBI’s statutory

objectives. The Court, speaking through Justice A K Ganguly, held:

“33. If we look at the legislative intent for enacting the said

Act, it transpires that the same was enacted to achieve the
twin purposes of promoting orderly and healthy growth of
securities market and for protecting the interest of the
investors. The requirement of such an enactment was felt in
view of substantial growth in the capital market by increasing
the participation of the investors. In fact such enactment was
necessary in order to ensure the confidence of the investors
in the capital market by giving them some protection.

34. The said Act is pre-eminently a social welfare legislation

seeking to protect the interests of common men who are
small investors. It is a well-known canon of construction that
when the court is called upon to interpret provisions of a
social welfare legislation the paramount duty of the court is to
adopt such an interpretation as to further the purposes of law
and if possible eschew the one which frustrates it….”

Therefore, in line with the object of the SEBI Act and the precedents of this Court, it

would be our task to interpret Section 24A in a manner that furthers the statutory

role of SEBI, rather than one which thwarts its considered course of action.

89 Section 24(1) is an omnibus provision for all offences punishable for

contravention (or attempts or abetments) of the provisions of the Act or of any rule or

regulation made under it. As we have seen earlier, prior to Amending Act 59 of 2002

which came into effect from 29 October 2002, the punishment for offences extended

to a period of one year of imprisonment, or with fine, or with both under Section

24(1). The term of imprisonment has been extended to up to ten years and a fine of

Rs twenty-five crores by the amending legislation of 2002. The rationale for this

amendment, as evinced from its Statement of objects and reasons, was to provide

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 PART E

an effective deterrent for potential wrongdoers. Offences punishable under sub-

Section (1) of Section 24 would cover a range of violations from the venial to the

serious. The entrustment of the power to compound offences either before or after

the institution of any proceeding is to SAT or a Court before which such proceedings

are pending. The provisions of Section 24A must be read in a manner consistent

with the object and purpose underlying the position of SEBI as an expert regulator.

SEBI, as the regulator, is entrusted with diverse roles and functions including the

power to regulate the securities’ market, make regulations and to enforce the

provisions of the Act. Its functions have been recognized in a panoply of statutory

provisions. Independent of initiating a prosecution, SEBI has been entrusted with

wide ranging powers and functions including the power to investigate, to issue

directions and levy penalties and make cease and desist orders.

90 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 the 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 24A, its views must be

elicited. The view of SEBI, an envisaged in the FAQs accompanying SEBI’s circular

dated 20 April 2007, must undoubtedly be sought by the 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

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 PART E

which SEBI may place before the 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), the 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 the SEBI.

91 It is also important to note that the legislative scheme of the SEBI Act

delineates several actions that are liable for penalty under Section 15, but includes a

common sentencing provision under Section 24. Therefore, Section 24 would be the

sentencing provision for the most banal of offences, to the most egregious of market

disruptions and frauds. The maximum punishment prescribed under Section 24 has

also seen an amendment and increase by the Amending Act 59 of 2002, in order to

ensure effective deterrence. In exercising the power of compounding under Section

24A, the SAT or the Court must be conscious of the gravity of the offences that the

accused are being prosecuted for, considering that the legislative scheme does not

individually prescribe separate sentencing provisions which would otherwise have

provided an insight into the gravity and gradation of the offences. Hence, SEBI's

view on the compounding would become all the more important, in this light.

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 PART F

F Guidelines for Compounding under Section 24A

92 Section 24A only provides the 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 24A:

(i) They should consider the factors enumerated in SEBI’s circular dated 20

April 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.
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 minimize future violations/lapses.
9. Compliance schedule proposed by the party.
10. Economic benefits accruing to a party from delayed or
avoided compliance.

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 PART F

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.”

(ii) According to the circular dated 20 April 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 the HPAC. The recommendation of

the HPAC is then filed before the SAT or the Court, as the case may be. As

such, the 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,

the 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;

(iii) The SAT or Court should ensure that the proceedings under Section 24A do

not mirror a proceeding for quashing the criminal complaint under Section

482 of the CrPC, 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 the SAT or

the Court and most of the offences are of a public character, it should be

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 PART G

circumspect in its role. In the generality of instances, it should rely on the

SEBI’s opinion as to whether such restitution has taken place; and

(iv) Finally, the SAT or the Court should consider whether the offence committed

by the party submitting the application under Section 24A 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.

G Analysis on facts and conclusion

93 In the present case, we are clearly of the view that the nature of the

allegations against the appellant are such so as to preclude a decision to compound

the offences. We have adverted, in a considerable amount of detail, to the

circumstances which have been narrated in the counter affidavit filed by SEBI. We

find merit in the submissions which has been urged before the Court by learned

Senior Counsel who appeared on behalf of SEBI that the allegations in the present

case involved serious acts which impinged upon the protection of investors and the

stability of the securities’ market. The observation in the order of adjudication of the

Chairperson of the SEBI dated 22 September 2000, that no loss has been caused to

the investors as a result of the proposal which was submitted by the promoters to

purchase the shares at the rate of Rs 12 per share, would not efface the element of

alleged wrong doing. Such alleged acts of price rigging and manipulation of the

prices of the shares have a vital bearing on investors’ wealth and the orderly

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 PART G

functioning of the securities market. SEBI was, therefore, justified in opposing the

request for the compounding of the offences. The matter was referred to the HPAC

constituted by SEBI and presided over by a former judge of the Bombay High Court,

which denied the request for compounding. This decision which has been taken by

SEBI is not mala fide nor does it suffer from manifest arbitrariness. On the contrary,

having due regard to the nature of the allegations, we are of the view that an order

for compounding was not warranted.

94 For the above reasons, we affirm the judgment of the High Court of Delhi,

however, for the reasons which have been indicated in this judgment.

95 The appeal shall stand disposed of in the above terms.

96 Impleadment and interventions allowed. Pending application(s), if any, stand

disposed of.

……….….....................................................J.
[Dr Dhananjaya Y Chandrachud]

……...….….....................................................J.
[M R Shah]
New Delhi;
July 23, 2021

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