Supreme Court, in Securities and Exchange Board of India vs. Kishore R. Ajmera, has observed that the provisions in Securities and Exchange Board of India Act governing power of imposition of penalty lacks clarity. The Court also opined that a comprehensive legislation in this regard can bring more clarity and certainty.
The Apex Court Bench comprising of Justices Ranjan Gogoi and Prafulla C. Pant observed “We would like to record our views on a somewhat unclear if not a confused picture that emanates from parallel provisions contained in the Act and the Regulations framed thereunder, as referred to above. This is particularly in the context of the power of imposition of penalty on determination of liability either for manipulative or fraudulent practices or for violation of the Code of Conduct Regulation, 1992. The different Regulations including the Regulations that prescribe the procedural course, namely, SEBI (Procedure for Holding Enquiry by Enquiry Officer and imposing Penalty) Regulations 2002 and the successor Regulation i.e. SEBI (Intermediaries) Regulations 2008 contain identical and parallel provisions with regard to imposition of penalty resulting in myriad provisions dealing with the same situation”
The Court also opined that a comprehensive legislation can bring about more clarity and certainty on the norms governing the security/capital market and, therefore, would best serve the interest of strengthening and securing the capital market.
The Bench made these observation while hearing a batch of appeals wherein the main issue was with regard to degree of proof required to hold brokers/sub-brokers liable for fraudulent/ manipulative practices under the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations and/or liable for violating the Code of Conduct specified in Schedule II read with Regulation 9 of the Securities and Exchange Board of India (Stock-Brokers and Sub-Brokers) Regulations, 1992?
On degree of proof, the Bench observed “It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion.”
Read the Judgment here.