The Supreme Court's recent decision in the case of SEBI v. Roofit Industries is likely to have far reaching implications for participants in the securities market in India. The facts are that an Adjudicating Officer of SEBI (“AO”) passed an order against Roofit Industries (“Roofit”) imposing a penalty of Rs. 1 crore under Section 15A(a) of the SEBI Act, 1992 for not furnishing necessary information in compliance with a summons issued in connection with an investigation for market manipulation by Roofit. Roofit appealed against the AO's order before the Securities Appellate Tribunal (“SAT”), contending that it had suffered several financial hardships and that it had no resources to pay the penalty. SAT analyzed Section 15J of the SEBI Act, 1992 which lays down certain factors to be considered by the AO before imposing a penalty. Although SAT did concede that impecuniosity was not one of the factors listed under Section 15J, it observed that the ability of the party to pay a penalty in monetary terms would also be a valid factor to be considered while passing an order imposing a penalty and reduced the penalty to Rs. 75,000. SEBI went in appeal to the Supreme Court against this decision of SAT. The Supreme Court held that the factors under Section 15J were exhaustive and not inclusive, and that SAT erred in holding impecuniosity as one of the factors.
Further, it also held that Section 15A(a), as it stood after its amendment in 2002 and before it was subsequently amended in 2014, did not confer any discretion on the AO to impose penalties. While it appears that SEBI itself was under the impression that the AO had discretion in deciding the quantum of penalty, the Supreme Court held that the language of Section 15A (a) did not permit any discretion to the AO in deciding the quantum of penalty. The Supreme Court also held that Section 15J would be inapplicable where the language of the provision laying down the penalty did not confer any discretion on the AO. The ratio of this judgment can be applied for proceedings under other provisions of the SEBI Act, 1992 that are similarly worded as Section 15A (a). If SEBI were to apply the ratio of this judgment to other provisions as well, there is a real possibility that securities laws violators will find themselves having to pay egregious penalties for relatively minor offenses. It still remains to be seen whether SEBI would apply the ratio of this judgment to offences other than failures to comply with disclosure obligations.