In the case of Prakash Gupta v. Securities Exchange Board of India (Criminal Appeal No. 569 of 2021, decided on July 23, 2021), the Supreme Court of India (SC) held that the approval of the Securities and Exchange Board of India (SEBI) is necessary for the accused to have their offences under Section 24A of the Securities and Exchange Board of India Act, 1992 ("SEBI Act") compounded.
However, the court stressed that the regulators' judgement must be given the appropriate amount of respect. The SC further stated that the Securities Appellate Tribunal ("SAT") or the court must offer convincing justifications for deviating from SEBI's opinion and should only do so if it is determined that SEBI's judgement is malicious or clearly arbitrary. In accordance with Section 24A of the SEBI Act, the SC also provided instructions for the compounding of offences by the SAT or court.
In the instant case titled Prakash Gupta vs. Securities and Exchange Board of India, the issue raised for clarification before the Supreme Court was:
Whether the SEBI's permission is required for the court or SAT to compound offences under Section 24A of the SEBI Act?
With regard to this issue, the SC then examined the clause, concluding that Section 24A permits the SAT in the former situation, or a court in the latter, to exercise the power to combine any proceedings before or after their initiation.
The SC considered it instructive to additionally review the circulars published by SEBI while studying the pertinent problems in order to better comprehend the real-world applications of Section 24A. The SC made reference to the SEBI circular from April 20, 2007, the FAQs that were issued by SEBI in conjunction with that circular, as well as the SEBI circular from May 25, 2012 that amended the circular from April 20, 2007. Consequently, the court determined that a thorough reading of the two circulars and the FAQs released by SEBI.
The SC also explained that while the HPAC's decision on a party's application for compounding under Section 24A must be brought before the relevant court, the court's decision in this matter will ultimately be final. The SC then addressed the jurisprudential backdrop of compounding of offences in order to assess the validity of SEBI's position that its approval must be regarded as obligatory for compounding.
The Court categorically stated that,
"Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may either before or after the institution of any proceeding, be compounded by a Securities Appellate Tribunal or a court before which such proceedings are pending”.