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 JUDGMENT Dr Dhananjaya Y Chandrachud, J 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





                                                                                     PART A

A     The Appeal


1     The appellant is being prosecuted for an offence under Section 24(1) of the

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.

8 Prior to the decision of the AO, SEBI filed a criminal complaint 1 on 29 March 2000 before the Additional Chief Metropolitan Magistrate, Tis Hazari Court, Delhi alleging violations of Regulations 4(a) and 4(e) of the 1995 PFUTP Regulations,  PART B read with Regulations 6(1), 6(3), 8(1), 10(1) and 10(2) of the 1994 Takeover Regulations, which are punishable under Sections 24 and 27 of the SEBI Act. 9 While the proceedings were pending before the AO, on 22 September 2000, SEBI’s Chairperson passed an order under Section 11B read with Section 4(iii) of the SEBI Act accepting the proposal of the appellant and others to make an offer to purchase the shares owned by the shareholders of the Company who are not its promoters. The order directed that the offer presented would be at Rs 12 per share, which was higher than Rs 10 per share at which the shares of the Company were listed during the IPO. The appellant has stated that in compliance of the order, the promoters/directors of the Company acquired equity shares which raised their holding to the extent of about 95 per cent of the Company (post IPO). Thereafter, the Company also got its shares delisted from various stock exchanges. 10 On 19 June 2001, the AO passed an order in which it noted that the six entities were managed by the appellant, which can be determined from the fact that:

b. Manipulation of the price of the scrip in which the IPO took place;

 PART D c. The artificial increase in the price of the shares of the Company to Rs.

23.5 per share, which was subsequently brought down;

d. The IPO was over-subscribed by four times, which implies that 75 per cent of the applicants were unable to obtain the shares of the Company;