Case: Sebi Through its Chairman Vs. Roofit Industries Ltd

1. These Appeals lay siege to the decision of the Securities Appellate Tribunal (SAT) which modified the order of the Adjudicating Officer under SEBI, reducing the penalty payable by the Respondent, Roofit Industries Ltd., under Section 15A of the Securities And Exchange Board of India Act, 1992 (SEBI Act) from Rs. 1 crore to Rs. 60,000. In the connected matters, the penalty imposed by the Appellant SEBI was reduced from Rs. 75,00,000 to Rs. 15,000 in five cases and Rs. 60,000 in one case. What formulae, if any, has been followed in these reductions is not forthcoming, making the exercise pregnant to the possibility of arbitrariness if not inconsistency or caprice.2. The Appellant, having noticed allegations of share-price rigging by the Respondent, initiated an investigation into the shareholder pattern of the Respondent and price manipulation thereof. During the investigation, the Appellant issued Summons on 23.7.2002 to the Respondent requiring it to procure and produce certain documents and also for submitting additional information. The Respondent sought time till 20.8.2002 to provide the documents and information sought by the Appellant, and thereafter sought further time till 31.8.2002 and then 30.9.2002. After a reminder dated 5.9.2002, since the Summons were still not complied with and the information required was not provided by the Respondent, an Adjudicating Officer was appointed on 23.6.2003 under Section 15I of the SEBI Act to conduct an enquiry. By Show-Cause Notice dated 1.9.2003 for non-compliance of Summons dated 23.7.2002, the Adjudicating Officer granted the Respondent two opportunities of personal hearing on 25.2.2004 and 8.3.2004. The Respondent did not appear before the Adjudicating Officer despite these opportunities. The Adjudicating Officer therefore held, on 29.3.2004, 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.3. The SAT, on 9.8.2004, came to the conclusion that there was no dispute that the Respondent was liable to answer the summons and produce whatever information was available with it. It noted that the penalty under Section 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 is less. It noted the submission of the Respondent that it had suffered deep financial setbacks and was on the verge of bankruptcy, and therefore most of its staff had left the service of the Company. 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. It considered impecuniosity an additional factor to those listed under Section 15J in adjudicating the quantum of penalty, and found it fit to reduce the penalty to Rs. 60,000. The quantum of penalty in the connected appeals was also reduced for the same reasons, from Rs. 75 lakh to Rs. 15,000 in five cases and Rs. 60,000 in one case. Theapplication for review was dismissed on 8.11.2004. The Appellant has now filed the present Appeal, contending that the SAT erred in reducing the penalty imposed by the Adjudicating Officer on wholly extraneous grounds including the inability of the Respondent to pay the penalty, a contingency which is not mentioned or featured in Section 15J of the SEBI Act.

Reasoning: 6. However, before imposing such a penalty, we must consider the date on which the amendment came into effect, i.e. 29.10.2002. Since theSummons to furnish the required documents was prior to this date and the Respondent failed to do so till well after it, the question before us is when the failure or default took place. While this question does not appear to have been raised before the SAT, it is a question of law and can therefore be raised at any point. As was held by this Court in Chitturi Subbanna vs Kudapa Subbanna (1965) 2 SCR 661 , a pure question of law, which is not dependent on the determination of any question of fact, may be raised for the first time at the appellate or even the final stage, even though no reference to it had been made in the Courts below.On the facts at hand, as in Deokaran Nenshi, the default was clearly 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 imposedpenalty not exceeding one lakh fifty thousand rupees for each suchThe intention of the Section as it then stood was clearly not to consider it a continuing default. Such an intention can be read into the provision as it currently stands, as it imposes a penalty for each day for which the breach continues, but this was not the case prior to 29.10.2002. Facially, this was the reason and necessity for the