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REPORTABLE

 IN THE SUPREME COURT OF INDIA CIVIL  APPELLATE JURISDICTION

  CIVIL APPEAL NO.14730 OF 2015

SIDDHARTH CHATURVEDI Appellant(s)

       Versus

SECURITIES AND EXCHANGE BOARD OF INDIA Respondent(s)

W I T H CIVIL APPEAL NO. 14728 OF 2015

ANKUR CHATURVEDI   Appellant(s)

  Versus

SECURITIES AND EXCHANGE BOARD OF INDIA   Respondent(s)

CIVIL APPEAL NO. 14729 OF 2015

JAY KISHORE CHATURVEDI   Appellant(s)

  Versus

SECURITIES AND EXCHANGE BOARD OF INDIA   Respondent(s)

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O R D E R

   1. These appeals raise an interesting question of  the interplay between section 15A, as amended in the  year  2002,  and  Section  15J  of  the  Securities  and  Exchange Board of India Act, 1992 (in short 'the SEBI  Act') .

2. The  brief  facts  necessary  to  understand  the  present controversy are that the appellants before us  made  certain  purchases  of  shares  of  the  Brijlaxmi  Leasing  and  Finance  Company  between  October  and  December, 2012.  On 16th June, 2014, in Civil Appeal  No.14730  of  2015,  a  show  cause  notice  came  to  be  issued by the respondent SEBI to the appellant under  Rule 4(1) of the  Securities and Exchange Board of  India  (Procedure  for  holding  inquiry  and  imposing  penalty by adjudicating officer) Rules, 1995 for the  alleged  violation  of  the  provisions  of  Regulations  13(4),  13(4A)  and  13(5)  of  the  Securities  and  Exchange  Board  of  India  (Prohibition  of  Insider  Trading) Regulations, 1992.

3. A detailed reply was filed by the appellant to  the  show  cause  notice,  on  13th August,  2014,  submitting that there was no intention to violate any

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rule or regulation.  The entire transaction value of  purchases  and  sale  of  the  shares  did  not  exceed  Rs.55,000/-.   It  was  further  submitted  that  the  transaction was neither made with a view to make any  disproportionate gain or unfair advantage nor was it  for  the  purpose  of  causing  any  loss  to  investors.  The default, if any, was a technical default that did  not call for any  penal action.

4. The  Adjudicating  Officer,  by  various  orders  imposed a penalty of Rs.5 lacs, 7 lacs and 11 lacs  respectively, in the three civil appeals, before us.  An appeal made to the Securities Appellate Tribunal  suffered  the  same  fate,  and  was  dismissed  by  the  Tribunal stating that there is no dispute that there  was violation of mandatory regulations, and that in  any case, a penalty of Rs.one crore could have been  imposed on facts, whereas, in fact, the Adjudicating  Officer penalised the appellants with a penalty of  Rs.5  lacs,  7  lacs  and  11  lacs  respectively,  which  cannot  be  said  to  be  excessively  harsh  or  unreasonable.

5. It is these judgments of the Securities Appellate  Tribunal, Mumbai that have come up before us in these  appeals.

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6. Learned  counsel  appearing  on  behalf  of  the  appellants  has  argued  that  Section  15A,  after  its  amendment  in  2002,  which  was  the  law  until  the  section was further amended in the year 2014, would  undoubtedly apply to the present facts of the case.  However, learned counsel submitted that Section 15A  would, at all times, have to be read with Section 15J  of the SEBI Act and that, this being so, it is clear  that  the  violation  of  the  regulations  being  only  technical,  and  not  involving  any  disproportionate  gain to the appellant, or unfair advantage or loss to  any investor, SEBI was not, in the first instance,  correct in imposing any penalty at all.  According to  the learned counsel for the appellants, the defaults  that were made were technical, and were made on three  days only, and there was no repetitive nature of any  default as well.

7. Mr. C.U. Singh, learned senior counsel appearing  on behalf of the respondent SEBI has placed before us  a judgment of a Division Bench of this Court titled  as SEBI Through its Chairman versus Roofit Industries  Limited, reported in 2015 (12) SCALE 642.  Mr. Singh  has  pointed  out,  one  may  say  fairly,  to  us  that  observations  made  in  paragraph  5  of  the  said  judgment  would  completely  foreclose  the  arguments  made by the learned counsel for the appellants in the

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present cases, but that these observations may not  constitute the ratio of the judgment for the reason  that  the  judgment  ultimately  construed  Section  15A  prior to its amendment in the year 2002.

8. It  is  necessary  at  this  juncture  to  set  out  paragraphs 4 and 5 of the aforesaid judgment in order  to  first  ascertain  as  to  what  this  Court  has  stated :-

“4. We  find  merit  in  the  contentions  of  learned  senior  counsel  for  the  appellant  that the penalty imposed by the Adjudicating  Officer  should  not  have  been  reduced  on  wholly extraneous grounds not mentioned in  Section 15J of the SEBI Act.  Section 15J  reads thus : 15J. While adjudging the quantum of penalty  under Section 15-I, the adjudicating officer  shall  have  due  regard  to  the  following  facts, namely :-

a. the  amount  of  disproportionate  gain  or  unfair  advantage,  wherever  quantifiable,  made  as  a  result  of  the  default.

b. the  amount  of  loss  caused  to  an  investor or group of investors as a result  of the default;

c. the  repetitive  nature  of  the  default. The use of the word “namely' indicates that  these factors alone are to be considered by  the  Adjudicating  Officer.   Black's  Law  Dictionary defines “namely” as “by name or  particular mention. The term indicates what  is to be included by name.  By contrast,  including  implies  a  partial  list  and  indicates something that is not listed.”  In  this  context,  we  find  no  reason  to  read  “namely” as “including”, as learned senior

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counsel for the respondent would have us do.

5. It would be apposite for us to begin  our analysis of the penalty to be imposed by  laying  out  Section  15A(a)  as  it  stood  subsequent  to  the  2002  amendment,  for  the  facility of reference: 15A. If  any  person,  who  is  required  under  this Act or any rules or regulations made  thereunder,- a. to  furnish  any  document,  return  or  report to the Board, fails to furnish the  same, he shall be liable to a penalty of one  lakh rupees for each day during which such  failure  continues  or  one  crore  rupees,  whichever is less; …...... In  the  connected  appeals  before  us,  the  appellant  has  imposed  a  penalty  of  Rs.75  lakhs despite the failure having continued  for  substantially  more  than  75  days.  Learned senior counsel for the appellant has  contended that the appellant has discretion  to impose a penalty below the number of days  of  default  regardless  of  the  words  “whichever  is  less”.   He  has  argued  that  there would be no purpose to Section 15J if  the Adjudicating Officer's discretion to fix  the quantum of penalty did not exist, and  that  such  an  interpretation  would  render  certain  Sections  of  the  SEBI  Act  as  expropriatory  legislation  due  to  the  crippling penalties they would impose.  We  do not agree with these submissions.  The  clear  intention  of  the  amendment  is  to  impose  harsher  penalties  for  certain  offences,  and  we  find  no  reason  to  water  them  down.   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.  Prior to the amendment, the section provided  for a penalty “not exceeding one lakh fifty  thousand rupees for each such failure”, thus  giving  the  appellant  the  discretion  to  decide  the  appropriate  amount  of  penalty.  In  this  context,  the  change  to  language  which does not repose any discretion is even

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more  significant,  as  it  indicates  a  legislative intent to recall and remove the  previously  provided  discretion.  Additionally  Section  15J  existed  prior  to  the amendment and was relevant at that time  for adjudging quantum of penalty.  Once this  discretionary  power  of  the  adjudicating  officer was withdrawn, the scope of Section  15J was drastically reduced, and it became  relevant  only  to  the  Sections  where  the  Adjudicating  Officer  retained  his  prior  discretion,  such  as  in  Section  15F(a)  AND  Section  15HB.   This  ought  to  have  been  reflected in the language of Section 15-I,  but was clearly overlooked.  Section 15J has  become  relevant  once  again,  subsequent  to  the Securities Laws (Amendment) Act, 2014,  which  changed  Section  15A(a),  with  effect  from 8.9.2014, to read as follows :- 15A. Penalty  for  failure  to  furnish  information, return, etc. - If any person,  who is required under this Act or any rules  or regulations made thereunder :- a. to  furnish  any  document,  return  or  report to the Board, fails to furnish the  same, he shall be liable to a penalty which  shall not be less than one lakh rupees but  which may extend to one lakh rupees for each  day  during  which  such  failure  continues  subject to a maximum of one crore rupees;

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.”

9. Two things have been clearly stated by this Court  in  so  far  as  the  amended  Section  15A  read  with  Section  15J  is  concerned.   First,  this  Court  has  indicated that by the use of the expression “namely”

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in  Section  15J,  SEBI  in  adjudging  the  quantum  of  penalty under Section 15A can have due regard only to  the three factors set out therein and not to other  relevant factors as the expression “namely” cannot be  equated  with  the  expression  “including”,  being  an  exhaustive provision on the subject matter covered by  the provision.  This Court has also clearly held that  Section 15J would suffer an eclipse for the period  2002  to  2014  inasmuch  as  the  intention  of  the  Legislature,  by  amending  Section  15A,  seems  to  be  that no scope for any discretion for this period is  to be exercised, if in fact, there is any infraction  of  Rules  or  Regulations.   This  Court  clearly  held  that  the  discretionary  power  of  the  Adjudicating  Officer having been withdrawn, the scope of Section  15J would correspondingly stand drastically reduced.

10. Prima facie, we find it a little difficult to  subscribe to both the views contained in paragraph 4  as well as in paragraph 5 of the said judgment.  The  expression “shall have due regard to” is a very known  legislative  device used  from the  time of  Julius v  Bishop  of  Oxford (1880)  LR  5  AC  214  (HL),   and  followed in many judgments both English as well as of  our  Courts  as  words  vesting  a  discretion  in  an  Adjudicating Officer.  The question which arises in  the  present  appeals  is  whether  the  expression

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“namely” fixes the discretion which can be  exercised  only  in  the  circumstances  mentioned  in  the  three  clauses set out in Section 15J, or whether it would  also take into account other relevant circumstances,  having particular regard to the fact that it is a  penalty provision that the Court is construing.  As  this  needs  to  be  authoritatively  decided  for  the  future, it would be better if we refer it to a larger  Bench for such authoritative pronouncement.

11. We also find it a little difficult to accept what  is stated in paragraph 5 of the judgment.  It is very  difficult,  keeping  in  view,  particularly,  two  important  legal  facets  –  one  the  doctrine  of  harmonious construction of a statute; and two, the  fact that we are construing a penalty provision of a  statute which is to be strictly construed, Section  15A,  post  amendment  in  2002,  is  suddenly  given  a  pride  of  place,  and  Section  15J  is  made  to  yield  entirely  to  it.  The  familiar  expression  “notwithstanding anything contained” does not appear  in the amended Section 15A.  This being the case, it  is a little difficult to appreciate as to how one can  construe  Section  15A,  as  amended,  in  isolation,  without regard to Section 15J.  In fact, the facts of  the present case would go to show that where there is  allegedly  only  a  technical  default,  and  the  three

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parameters  of  Section  15J  would  allegedly  be  satisfied  by  the  appellants,  namely,  that  no  disproportionate or unfair advantage has been made as  a result of the default; no loss has been caused to  an investor or group of investors as a result of the  default; and there is in fact, no repetitive nature  of default,  no penalty at all ought to be imposed.  What has been done by the appellants here is to fail  to adhere to Regulation 13, as alleged in the show  cause  notice,  which  failure  has  occurred  on  three  days  and  consequently,  has  allegedly  not  been  repeated by the appellants anytime thereafter.   If  we were to read Section 15A, as amended in 2002, in  the manner suggested by the Division Bench of this  Court, it may lead to anomalous results in that the  effect of continuing failure to adhere to statutory  regulations  alleged  to  have  been  continued  well  beyond the period of three days, and which continues  till this day, has Rs.1 lakh per day as the minimum  mandatory penalty under the provisions, which would  culminate in the appellants herein having to pay Rs.1  crore in each of the three appeals.  We do not think  that  this  could  have  been  the  intention  of  the  Parliament  in  enacting  Section  15A,  as  amended  in  2002.   We  also  feel  that  on  the  assumption  that  paragraph 5 of the judgment is correct, it would be  very difficult for Section 15A to be construed as a

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reasonable  provision,  as  it  would  then  arbitrarily  and  disproportionately  invade  the  appellants'  fundamental rights.  This being the case, on both the  conclusions reached by this Court in paragraphs 4 and  5, as stated by us hereinabove, these matters deserve  consideration at the hands of a larger Bench.  The  Registry  is,  accordingly,  directed  to  place  the  papers  of  these  appeals  before  Hon'ble  the  Chief  Justice of India for placing these matters before a  larger Bench.

12. Interim  orders  passed  by  this  Court  shall  continue to operate.

            ........................J.                       (KURIAN JOSEPH)

                 ........................J.                     (ROHINTON FALI NARIMAN)

New Delhi, March 14, 2016