DR.DHANANJAYA Y.CHANDRACHUD, J. - (1.) This judgment has been divided into sections to facilitate analysis. They are: A. The Appeal B. The IPO, SEBI's Investigation and the criminal complaint C. Application for Compounding D. Counsel's submissions E. Analysis E.1 Structure of the SEBI Act E.2 SEBI Circulars in relation to Section 24A E.3 Jurisprudential basis for 'Compounding' E.4 Compounding outside of CrPC E.5 Regulatory role of SEBI F. Guidelines for Compounding under Section 24A G. Analysis on facts and conclusion A. The Appeal 1. The appellant is being prosecuted for an offence under Section 24(1) of the Securities and Exchange Board of India Act, 1992 ("SEBI Act"). The appellant sought the compounding of the offence under Section 24A. By an order dated 15 November 2018, the Additional Sessions Judge - 02 Central District at Tis Hazari Courts, Delhi ("Trial Judge"), rejected the application, upholding the objection of the Securities and Exchange Board of India that the offence could not be compounded without its consent. By a judgment of a Single Judge of the High Court of Delhi dated 1 April 2019 the order of the Trial Judge has been affirmed in revision. The High Court has held that the trial has reached the stage of final arguments and the application for compounding cannot be allowed without Securities and Exchange Board of India's ("SEBI") consent. The reasons of the High Court are extracted below: "6. Compounding at the initial stage has to be encouraged, but not at the final stage. The object of the SEBI Act has to be kept in mind. A stable and orderly functioning of the securities market has to be ensured. It will not be in the interest of justice to discharge the accused at the final stage of the proceedings by allowing the application for compounding without the consent of SEBI Act as it will defeat the objective of the SEBI Act. Though the Adjudicating Officer has found that the alleged violation committed by petitioner has not resulted in any loss to the investors, but this by itself would not justify discharge of accused at the fag end of trial. After considering the Supreme Court's decision in Meters and Instruments Private. Limited (Supra), and the view expressed by High Court of Bombay in N.H. Securities Ltd. (Supra) as well as the facts and circumstances of this case, I find no justification to allow petitioner's application under Section 24A of the SEBI Act, 1992." This view of the High Court has been called into question in these proceedings. B. The IPO, SEBI's Investigation and the criminal complaint
(2.) The appellant is the director and promoter of a company by the name of Ideal Hotels and Industries Limited ("the Company"), which owns a 3-star hotel in Varanasi. While it was incorporated initially as a private limited company under the Companies Act, 1956 on 17 December 1985, the status of the company was changed to that of a public limited company with the approval of the Department of Company Affairs on 4 May 1994.
(3.) In 1995, the Company made an Initial Public Offer ("IPO") inviting a subscription to 38 lac equity shares at a par value of Rs 10 per share, aggregating to Rs 380 lacs. This offer was pursuant to a prospectus dated 6 October 1995. The IPO opened on 15 November 1995 and closed on 24 November 1995. The prospectus specified that the holding of the promoters of the Company after the IPO was 22 lac shares representing 32.83 per cent of the paid-up capital of 67 lac shares, with the shareholding of the appellant being 1,400 shares representing 0.02 per cent of the paid-up capital. The Company got listed in the stock exchanges at Delhi, Mumbai, Ahmedabad and Chennai, with the UP stock exchange being the parent exchange.;