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Dhruv Kohli and Kartikey Kaushik are 5th year law students at Gujarat National Law University
In December of 2023, the Securities Appellate Tribunal (hereinafter referred to as “SAT”) passed its judgment in the case of Bakil Singh v. SEBI whereby SAT overturned a decision passed by the Adjudicating Officer (hereinafter referred to as “AO”) of the Securities and Exchange Board of India (hereinafter referred to as “SEBI”). In its decision, SAT has held that non-compliance of an order passed under section 11B of the SEBI Act cannot be penalised under section 15HB of the Act. The author(s) in the present article seek to analyse the ratio as given by SAT in its judgment arguing that not only is the decision as arrived at by SAT incorrect, but that it also goes against some of the previous decisions of SAT and that the decision as arrived herein creates an artificial exclusion within the text of the SEBI Act.
The Decision in Bakil Singh
In this case; originally an order was passed under section 11B of the SEBI Act by the whole time member for issuance of debentures which were non-compliant with the provisions of the Companies Act. By way of the said order, the whole time member had ordered the appellants to refund the money. Seeing non-compliance of the section 11B order, the AO issued a show cause notice to the appellant asking why a penalty for non-compliance should not be imposed. Upon consideration of the evidence, the AO passed an order under section 15HB for non-compliance with the section 11B order that was passed.
In appeal, SAT overturned the order on merits. It was opined that the term “direction” as appearing under section 11B is different than the one appearing under section 15HB and hence SEBI cannot impose a penalty under section 15HB for failure to comply with a section 11B order.
The Fallacy in the Decision
The present section of the paper seeks to analyse the ratio as given by SAT in the above judgment and by way of the same, the authors argue that the judgment as rendered by SAT suffers from several anomalies. The decision as rendered above is incorrect in the authors’ opinion due to the following reasons:
- It goes against the basic principles of statutory interpretation
A standard principle of statutory interpretation is to give effect to the terms of the statute if they are plain, simple and are susceptible to only one meaning. In the case of State of UP v. Vijay Anand Maharaja, the SC reiterated the said rule by holding that, “When a language is plain and unambiguous and admits of only one meaning no question of construction of a statute arises, for the Act speaks for itself”. Further, once the language of the statute is plain and unambiguous, the result of the construction is not open to judicial review, even if the result is unjust, oppressive or strange.
In the present case, the SAT came to its conclusion by distinguishing the term “direction” as appearing under section 11B vis-à-vis the same term appearing under section 15HB of the Act. In its ratio, while the bench states that the term “direction” as appearing in both the provisions is different, it does not provide for any cogent reasoning to justify the same. In effect, by way of the present judgment, the SAT has created an artificial classification under section 15HB of the Act whereby it has very conveniently excluded a particular set of directions (being those issued under section 11B) from the ambit of the residuary clause. The entire purpose of section 15HB is to provide for penalties for those actions for which no separate penalty is provided for under the SEBI Act. By creating an artificial class within a residuary clause for no cogent reasoning, the SAT in effect has re-written the text of section 15HB which results in the narrowing of the scope of the provision.
Another very important rule of interpretation is that of literal construction whereby the words are given their natural or ordinary meaning. The word “direction” as mentioned under both the provisions is naturally susceptible to only one meaning and thus, in the authors’ opinion, the SAT committed a grave error by failing to apply the literal rule of construction.
- Goes against established precedent
Another ground basis on which the author argues that the judgment of the SAT in question sets a bad precedent is that it fails to take into account several previous precedent(s) which have decided the question in consideration in a different manner. For instance, the SAT itself in Dhawal Mehta v. SEBI, has upheld a section 15HB order that was passed for non-compliance of a section 11B order. Surprisingly, in Rajesh Ranka v. SEBI, a bench of Justice Tarun Aggarwal itself (who authored the judgment in question) had upheld a section 15HB order that was passed for non-compliance. A similar position is also found in the SAT’s decision in Zafar Sareshwala v. SEBI. In SEBI v. Shri Ram Mutual Funds, the apex court had an opportunity to delve upon the provisions of the SEBI Act and in this regard, it had observed that “penalty under Chapter VI-A is attracted as soon as the contravention of the Act or the Regulation is established”.
The effect of the decision of the SAT in the present case is that not only does it create a legal uncertainty by not taking into account the previous precedents, but it also goes against the decision of the apex court and thereby establishes an unwanted exception to the statutory scheme of the Act; something which was never contemplated by the legislature.
- That the judgment in consideration is without any reasons
Lord Denning in Breen v. Amalgamated Engineering Union had observed that “the giving of reasons is one of the fundamentals of good administration”. Several decisions have highlighted that failure to give reasons is tantamount to denial of justice[1]. State of Orissa v. Dhani Ram Luhar reiterated the position with respect to a well-reasoned judicial order and that the hallmark of judicial administration and the notion of natural justice is that the judicial pronouncement has to be a well-reasoned one. A judgment which is merely a “copy-paste” of a previous decision defeats the principle of natural justice. In the author(s) opinion, another ground that the present judgment is incorrect is that it is merely a copy-paste of previous SAT decision(s). For instance, the substantive part of the present judgment resonates with the SAT’s order in Annaswamy v. SEBI wherein the SAT holds that non-compliance of a section 11B order cannot be penalised under section 15HB. Again, in G.R.K. Reddy v. SEBI, theSAT again reiterates the same position with precisely the same text, showcasing the tendency to “copy-paste” texts and does not provide for any independent reasoning. In the authors’ opinion, the tendency to copy-paste the entire substantive portion not only defeats the principle of natural justice but also showcases non-application of mind.
Conclusion
In SEBI v. Sunil Krishna Khaitan, the apex court has categorically held that while the powers of the SAT are wide enough, they should not be used in a manner which is incoherent with the provisions of the SEBI Act. The power under section 11B being wide enough, the adoption of a narrow meaning of the term “direction” and exclusion of an entire provision from application is not only an incoherent exercise of power on behalf of the SAT but also amounts to re-writing of the provision; something which is within the exclusive domain of legislature. The interpretation as adopted by the SAT in the present case results in the statute becoming futile, whereas courts as a general rule ought to adopt an interpretation that allows the statute to be workable.
[1] Alexander Machinery (Dudley) Ltd. v. Crabtree, 1974 LCR 120.
