SC Dismisses Appeal Challenging Imposition Of ₹1 Crore Penalty On Entities Who Failed To Comply With Summons Issued By SEBI

The Supreme Court has dismissed the appeals preferred by entities- DKG Buildcon Private Ltd and R.C. Gupta & Co. Pvt. Ltd. who had approached the Apex Court challenging the imposition of Rs. 1 Crore penalty on them for failing to comply with the summons issued to them in connection with their alleged involvement in aiding and abetting one Ketan Parekh and his companies in manipulating the securities market.

"Taking into consideration the severity of offences found to have been committed by the appellants and other entities, and the non-cooperative attitude of the appellants during the course of the investigation in attempting to obstruct the same, the quantum of penalty imposed under Section 15A(a) of the 1992 Act is justified and with effective consideration of the factors listed in Section 15J of the 1992 Act.", the Bench of Justice Ajay Rastogi and Justice BV Nagarathna held.

In this case, the Securities and Exchange Board of India (SEBI) had held that the appellants and other entities had facilitated Ketan Parekh and his companies in manipulating the securities market.

The investigation by SEBI had found that the appellants were involved in certain unauthorized transfer of shares starting from the allotment of shares of STIL to various people including Ketan Parekh's entities through a web of transfers that virtually wrecked the integrity of the securities market with a view to make unfair gains.

SEBI restrained them from accessing the securities market for a period of five years and also prohibited them from buying, selling or dealing in securities either directly or indirectly for the same period.

During the investigation, the Investigating Authority of SEBI had called upon the appellants to furnish such information and produce such documents and records as were considered necessary for the purposes of the investigation.

The appellants failed to respond to any of the summons issued, and failed to appear before the Investigating Authority with the required documents and information sought from it.

Owing to the said non-compliance, SEBI initiated separate adjudication proceedings against the appellants.

The Adjudicating Officer (AO) passed Orders with the finding that the appellants had intentionally failed to respond to the summons, and thus imposed a penalty of rupees one crore on each appellant under Section 15A(a) of the SEBI 1992 Act.

Their appeals before the Securities Appellate Tribunal came to be dismissed.

Aggrieved, Appellants approached Supreme Court.

Advocate Deeksha Mishra appeared for the Appellants and Senior Advocate C.U. Singh, appeared for the Respondents

The primary contention of the appellants was that the non-compliance of summons is not a continuing wrong and that the summons dated April, 01 2003 and summons dated April, 09, 2003 respectively were issued in continuation of the earlier summons, and cannot be treated in a separate and disjunctive manner.

Further, the Appellants contended that the penalty of rupees one crore levied by the AO for non-compliance of summons was excessive, unsustainable and untenable.

The Court noted that the non-compliance of the fresh summons of the aforesaid dates, constituted a fresh offence committed by the appellants. Therefore, the Court held that the amended provisions of Section 15A(a) of the 1992 Act as amended would apply when levying the penalty on the appellants in respect of the summons issued subsequent to the aforesaid amendment.

"…the penalty of rupees one crore as levied by the AO and upheld by the SAT is justified and within the precincts of the relevant provision. Applying the said provision to the facts for the present cases, it is clear that the appellants had failed to comply with the summons dated 01.04.2003 and 09.04.2003 respectively. Thereafter, the AO had passed its order levying penalty on the appellants on 28.11.2003 and on 31.12.2003 respectively. Since, the duration of the default of non-compliance committed by both the appellants was over a period of 100 days from the date of issue of the summons in each case, the AO had rightly applied Section 15A(a) of the 1992 Act, more specifically in regard to the maximum limit of penalty that could be imposed under the provision, i.e. rupees one crore.", the Court held.

The Court further observed that "By not responding to the said fresh summons and by not appearing before the Investigating Authority when directed to appear, the appellants' statements could not be recorded and this has hampered with the investigation. The appellants had failed to produce the documents and information as required vide summons dated 01.04.2003 and 09.04.2003 respectively and had, thus, affected the conduct of the investigation."

The Court held that the quantum of penalty imposed by the AO was proportionate and required no interference by the Court.

Cause Title- DKG Buildcon Private Ltd. v. The Adjudicating & Enquiry Officer, S.E.B.I. with Anr.

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