Capital Market - Whether failure in furnishing documents, returns or reports to SEBI is a 'continuing default' under Pre-amended Sec 15A of the SEBI Act - NO: SC
BY TIOL News Service
NEW DELHI, DEC 01, 2015: THE issue is: Whether failure in furnishing documents, returns or reports to SEBI is a "continuing default" under the Pre-amended Section 15A of the SEBI Act - NO is the answer.
Facts of the case
The SEBI noticed allegations of share-price rigging by Roofit Industries Ltd, (the Respondent), initiated an investigation into the shareholder pattern of the Respondent and price manipulation. The SEBI issues summons and sought documents from the Respondent who did not produce it evenafter availing extra time. Since the Summons were not complied with, an Adjudicating Officer was appointed to conduct an enquiry. By Show-Cause Notice, the Adjudicating Officer granted the Respondent two opportunities of personal hearing but the Respondent did not appear. The Adjudicating Officer therefore held, that there was no material to suggest that the Respondent had complied with the Summons or had given the information sought for by SEBI despite extensions of time. In terms of Section 15A(a) of the SEBI Act, a penalty of Rs. 1 crore was imposed on the Respondent. In the connected appeals, a penalty of Rs. 75 lakhs was imposed on each of the various Respondent companies. Aggrieved, the Respondent moved an Appeal before the SAT and submitted that it could not give information because it had suffered deep financial setbacks and was on the verge of bankruptcy, and therefore most of its staff had left its service.The SAT, noted that the penalty u/s 15A had been enhanced in 2002 to Rs. 1 lakh for each day of failure to furnish the required document, return or report, or Rs. 1 crore, whichever was less. The SAT held that given that the business of the Respondent had come to a dormancy, there would be no point in imposing high penalties which would remain paper orders, and never be implemented. The penalty was reduced to Rs. 60,000. The quantum of penalty in the connected appeals was also reduced. Aggrieved SEBI filed review application, which was dismissed.
Decision
Failure to provide data, documents etc to SEBI for investigation by 16.9.2002, would attract penalty as per the pre-amended Section 15A of the SEBI Act i.e. Rs 1.5 lakhs.
Reasoning
1. The clear intention of the amendment in the Act, which took place in year 2002 w.e.f 29.10.2002 was to impose harsher penalties for certain offences. The wording of the statute clarifies that the penalty to be imposed in case the offence continued for over one hundred days is restricted to Rs. 1 crore. No scope has been given for discretion.
2. Securities Laws (Amendment) Act, 2014, again changed Section 15A(a), with effect from 8.9.2014. The purpose of amendment was clearly to re-introduce the discretion of the Adjudicating Officer which was taken away by the SEBI (Amendment) Act, 2002. Had the failure of the Respondent taken place between 29.10.2002 and 8.9.2014, the penalty ought to have been Rs. 1 crore, without the possibility of any discretion for reduction.
3. It was very important to find out, the date when the failure or default took place. Initial Summons to the Respondent was dated 23.7.2002. From this date onwards, there was an obligation on the Respondent to produce the documents and information sought by the Appellant, but it failed to do so, even until the imposition of a penalty by the Adjudicating Officer on 29.3.2004. Instead, the Respondent sought extensions of time vide three letters. After the third letter, the Appellant sent a reminder letter to Respondent on 5.9.2002. It was thus abundantly clear from a perusal of the letter that the Appellant had declined the request for a further extension of time beyond 16.9.2002. The Respondent had failed to furnish the information by that date, resulting in the penalty under Section 15A becoming applicable. It would thus be palpable that the penalty prior to the amendment to Section 15A would be applicable, i.e. Rs. 1.5 lakhs.
4. The default was complete on the failure to submit the requisite information by the date set by the Appellant, i.e. 16.9.2002. Had the Respondent furnished the information sought by the Appellant by that date, undoubtedly there would have been no culpability against it. Thus the penalty first became applicable under the pre-amendment Section, which imposed "a penalty not exceeding one lakh fifty thousand rupees for each such failure". The intention of the Section as it then stood was clearly not to consider it a continuing default.
(See 2015-TIOL-287-SC-SEBI)
