Case: Ritesh Agarwal  Vs. Securities &amp; Exchange Board Of India&amp;Ors

that the Act provides for remedial measures and, thus, it was entitled to issue any direction. It was, however, held: "106. It has to be noted that Section 11B does not even remotely empower the respondent to impose penalties." It was furthermore held : "108. The legislature has clearly spelt out the penal provisions in the Act at 3 places – Section 12(3) provides for suspension or cancellation of the certificate of registration granted to the market intermediaries in the event of their proven misconduct, provision under Chapter VIA, provides for imposition of monetary penalty for certain offences specified therein;Section 24 empowers Courts to award punishment for violation of offences under the Act etc. Since legislature has deliberately chosen to create specific offences and penalties thereto, it is not possible to view that under Section 11B the respondent is competent to issue a direction which tantamounts to imposition of penalties, While widening the scope of such measures used in Section 11, to include penalties, and thereby stretching the scope of issuing directions under Section 11B to cover imposition of penalties, the limitation stated above need be kept in mind. However, it is understood that the respondent has also been taking the view that Section 11B is not a penal provision, but preventive and remedial in its application. If that is so, it has to be seen whether the impugned direction prohibiting the appellant from accessing the capital market for a period of 2 years from the date of the order is preventive or remedial. In the absence of any explanation from the respondent as to what exactly is meant by accessing the capital market, it has to be understood as is understood in the common parlance - i.e., entry to the capital market for issuing/offering securities. In this context, it is to be noted that the charge against the Appellant is of market manipulation. The shares of the appellant are listed/traded in the stock exchanges even today. That being the case preventing the appellant raising further capital/offering shares to the public in the next two years cannot serve as a preventive measure to debilitate the appellant indulging in market manipulation. Similarly, by no stretch of imagination the said direction can be considered even remedial as prospective barring of a public issue cannot remedy an act of market manipulation allegedly indulged for a specific purpose, 3 years ago. A remedial action is normally seen as one intended to correct, remove or lessen a wrong, fault or defect. Purport of preventive or remedial directions which can be issued in a proven case of fraudulent and unfair trade practice is discernible from the provisions of regulation 12 of the Regulations, already cited in this order. In my view the impugned order is neither remedial nor preventive but punitive in effect as it takes away the appellants right to mobilize funds from the public to carry on its business. According to Websters Encyclopaedic Unabridged Dictionary penalty means a punishment imposed or incurred for a violation of law or rule. In the instant case it is seen that the order is made in the light of the finding – by the authority, that the appellant has violated the regulations. This nexus also strengthens the view that the order debarring the appellant from accessing the capital market is a penalty. In this view of the matter the order has no legal backing and therefore cannot sustain." [Emphasis supplied] Similar observations were made in BPL Limited v. Securities & Exchange Board of India, SEBI [2002] 38 SCL 310 (SAT) and Videocon International Ltd. v. Securities & Exchange Board of India, Shri D.R. Mehta, Chairman, SEBI and Dr. R.K. Kakkar, Division Chief, SEBI [2002] 38 SCL 422. 19. Ritesh Agarwal and Deepak Agarwal are said to be minors. As they were minors having regard to the provisions of the Indian Contract Act, they could not have been proceeded against strictly in terms of the provisions of the said Act. Apart from the actions taken by the Board, the persons who undertook those fraudulent actions may also be held to be guilty of making a mis-representation and commission of fraud not only before the prospective purchasers of the shares but also before the statutory authority. The same, however, would itself not mean that a minor would not be penalized for entering into a contract which per se was not enforceable. A contract must be entered into by a person who can make a promise or make an offer. If he cannot make an offer or in his favour an offer cannot be made, the contract would be void as an agreement which is not enforceable in law would be void. Section 11 of the Indian Contract Act provides that the person who is competent to contract must be of the age of majority. If Ritesh Agarwal and Deepak Agarwal were minors, as would appear from their birth certificates, they could not have entered into the contract.20. We, therefore, are of the opinion that subject to any other or further order which the Board may pass as against Shri Surender Kumar Agarwal and Smt. Rooprekha Agarwal, the impugned directions would not be binding on Ritesh Agarwal and Deepak Agarwal.21. We do not accept the contention of Ms. Aggarwal that the offence is a continuing one.22. We do not also accept the contention that Rooprekha Agarwal was not a promoter and only promoters were Ritesh Polyesters Limited and Surender Kumar Agarwal. We, however, accept the contention of Mr. Sundaram that Ritesh Agarwal and Deepak Agarwal could not have proceeded against for violation of the FUTP Regulations.23. We, however, uphold other directions issued by the Board including the action taken in respect of the offences purported to have been committed. We also grant liberty to the authorities to proceed against the offenders not only for other or further charges to which they made themselves liable under the SEBI Act but also under the Companies Act, 1956 and other penal statutes, if attracted.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]19. Ritesh Agarwal and Deepak Agarwal are said to be minors. As they were minors having regard to the provisions of the Indian Contract Act, they could not have been proceeded against strictly in terms of the provisions of the said Act. Apart from the actions taken by the Board, the persons who undertook those fraudulent actions may also be held to be guilty of making a mis-representation and commission of fraud not only before the prospective purchasers of the shares but also before the statutory authority. The same, however, would itself not mean that a minor would not be penalized for entering into a contract which per se was not enforceable. A contract must be entered into by a person who can make a promise or make an offer. If he cannot make an offer or in his favour an offer cannot be made, the contract would be void as an agreement which is not enforceable in law would be void. Section 11 of the Indian Contract Act provides that the person who is competent to contract must be of the age of majority. If Ritesh Agarwal and Deepak Agarwal were minors, as would appear from their birth certificates, they could not have entered into the contract.20. We, therefore, are of the opinion that subject to any other or further order which the Board may pass as against Shri Surender Kumar Agarwal and Smt. Rooprekha Agarwal, the impugned directions would not be binding on Ritesh Agarwal and Deepak Agarwal.21. We do not accept the contention of Ms. Aggarwal that the offence is a continuing one.22. We do not also accept the contention that Rooprekha Agarwal was not a promoter and only promoters were Ritesh Polyesters Limited and Surender Kumar Agarwal. We, however, accept the contention of Mr. Sundaram that Ritesh Agarwal and Deepak Agarwal could not have proceeded against for violation of the FUTP Regulations.23. We, however, uphold other directions issued by the Board including the action taken in respect of the offences purported to have been committed. We also grant liberty to the authorities to proceed against the offenders not only for other or further charges to which they made themselves liable under the SEBI Act but also under the Companies Act, 1956 and other penal statutes, if attracted.