On 26.11.2015 while deciding Civil Appeal No. 1364 -1365 of 2005 (SEBI vs Roofit Industries Limited) along with other appeals, Hon'ble Supreme Court of India opined that during the period of 29.10.2002 to 08.09.2014, SEBI had no discretion under section 15J of the SEBI Act, 1992 ("Act") to reduce the penalty leviable under the provisions of the Act, except sections 15F(a) and 15HB. Said opinion of court curtailing the discretion of the securities market regulator is based upon the interpretation of the language used in section 15A(a) of the Act in view of the objective of Act and Securities laws (Amendment) Act, 2002 and 2014.

1. SECURITIES MARKET
FACING HEAT AS SEBI
LEVYING HEFTY PENALTIES
FOLLOWING SUPREME
COURT RULING
On 26.11.2015 while deciding Civil Appeal No. 1364 -1365 of 2005 (SEBI vs Roofit Industries Limited) along
with other appeals, Hon’ble Supreme Court of India opined that during the period of 29.10.2002 to
08.09.2014, SEBI had no discretion under section 15J of the SEBI Act, 1992 (“Act”) to reduce the penalty
leviable under the provisions of the Act, except sections 15F(a) and 15HB.
Said opinion of court curtailing the discretion of the securities market regulator is based upon the
interpretation of the language used in section 15A(a) of the Act in view of the objective of Act and
Securities laws (Amendment) Act, 2002 and 2014.
This document endeavor to throw light upon the effect of the Supreme Court’s judgment on the Indian
securities market. Let’s take a quick tour of the subject.
1. BRIEF BACKGROUND:
1.1. During year 2002 SEBI decided to investigate into the scrip of Roofit Industries Limited (“Roofit”) for
possible price manipulation for period October 1999 to December 1999. In said context SEBI issued
summons seeking information from Roofit for carrying out the investigation. However, Roofit failed to
furnish the required information to SEBI and the latter issued Show Cause Notice (“SCN”) and passed an
order against Roofit for noncompliance with SEBI summon levying a penalty of Rs. 1 Crore under section
15A(a) of the SEBI Act, 1992.
1.2. Roofit appealed SEBI’s order before Securities Appellate Tribunal. SAT observed that Roofit was
obligated to answer SEBI’s summon though further noted that Roofit has suffered deep financial
setbacks and was on verge of bankruptcy and held that imposing high penalties would remain paper
orders. Thus, on said grounds i.e. Roofit’s financial distress and impecuniosity and chances of order

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remaining on papers only (not the factors under 15J), reduced the penalty imposed by Adjudicating
Officer from Rs. 1 Crore to Rs. 60,000.
1.3.As against this order of SAT, SEBI appealed before Hon’ble Supreme Court.
2. VIEW OF APEX COURT:
The Apex court after hearing the matter made following observations:
2.1.Against the submissions of SEBI’s counsel that SEBI has discretion under section 15J of the Act to reduce
penalties, court observed that Securities Laws (Amendment) Act, 2002 (“Amendment Act, 2002”) raised
the quantum of penalty, reflecting clear intention of amendment to impose harsher penalty for certain
offences and the language used under section 15A(a) (post 2002 amendment) withdraws the earlier
vested discretion. Therefore, the penalty to be imposed under section 15A(a) in case the offence
continued for over one hundred days is restricted to Rs. 1 crore.
2.2.The Apex Court compared the position stood prior and post to the Amendment Act 2002 and held that
the language of amendment did not repose any discretion (unlike previous provisions), except in case
of section 15F(a) and 15HB of the Act. The Apex court further observed that the language of section 15-I
i.e. Power to adjudicate(which contained language vesting discretionary powers with SEBI even post
2002 amendment)ought to have been changed in tandem with the amendment but was clearly
overlooked.
2.3.It was also observed that with the Securities Laws (Amendment) Act, 2014 (“Amendment Act, 2014”)
w.e.f. 08.09.2014 section 15A was again modified and the change into language again vested the
discretion with SEBI. Therefore, the court declared that for the defaults/failure taken place between
29.10.2002 (effective date of Amendment Act 2002) to 08.09.2014 (Date of Amendment Act, 2014) no
discretion was vested with SEBI to reduce penalties, except in case of section 15F(a) and 15HB of the Act.
2.4.One another important element which was settled by the court was the issue of Continuing Default. The
question of law under consideration before the court was whether the offence (non-submission of
information against SEBI’s summon) was continuing offence or was an offence once for all and the
penalty as on which date shall become applicable. The Court carefully observed that the date of
violation occurred prior to Amendment Act, 2002 and pointed out that the penalty then applicable
under section 15A(a) provided for “penalty not exceeding….” and thus did not cover continuing

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defaults. Therefore, the default was not continuing one and the penalty prior to Amendment Act, 2002
i.e. Penalty not exceeding Rupees One Lakh Fifty Thousand will apply.
3. OUR ANALYSIS:
Going through the whole development we discern these significant elements which are worth noting:
3.1 Penalty of Rs. 1 crore under section 15A(a) of the Act was levied upon Roofit for the default occurred on
16.09.2002 (before Amendment Act, 2002); SEBI levied penalty of Rs. 1 Crore on 29.03.2004 (after
Amendment Act, 2002) under amended section 15A(a) of the Act, which was not applicable for default
pertaining to prior period. It is also important to note that section 15A(a) (as stood on 16.09.2002 or
date of default) provided for a maximum penalty of Rs. One lakh fifty thousand only. Further, at that
time SEBI had discretion of reducing penalties under section 15J.
3.2 The Amendment Act, 2002 became effective on 29.10.2002 which modified the language of certain
penal provisions of the Act. An illustration is provided hereunder for ease of understanding:
Reiteration:
Prior to Amendment Act, 2002 section 15A(a) read as following-
“15A. If any person, who is required under this Act or any rules or regulations made thereunder, —
(a) to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable
to a penalty not exceeding one lakh and fifty thousand rupees for each such failure …”
However, the Amendment Act substituted only the underlined part of the above quoted provision. The
relevant amendment read as:
in clause (a), for the words "a penalty not exceeding one lakh and fifty thousand rupees for each
such failure", the words "a penalty of one lakh rupees for each day during which such failure
continues or one crore rupees, whichever is less" shall be substituted;”
From the above said we discern that amendment was only made by inserting the words (underlined in
above citation) having effect of increasing the quantum of penalty and the remaining language of section
was not touched upon. Therefore, the word ‘shall’ which was featured in section 15A(a) since beginning

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and was even not affected through this amendment changed the color of this provision and gave rise to
the interpretation arrived by Hon’ble Apex Court in Roofit’s case.
3.3 The provisions of Section 15I and 15J when read in light with Roofit’s verdict becomes dormant for
period 29.10.2002 to 08.09.2014. Though, section 15I and 15J if considered carefully, the present
situation is contrary to the rules of interpretation of statutes which does not permit an interpretation
which have effect of rendering provisions of a statute non-functioning or paralyzed. It is also observed
that Hon’ble Supreme Court have many times observed this that the word ‘shall’ may be read as ‘may’
and vice versa. However, strangely in the Roofit’s case this view of court did not find a place. Had it been
taken current position would have been different.
3.4 Though the Act (by virtue of Amendment Act, 2014) now provides for higher penalties along with a
minimum penalty fixed under several provisions, the mandate for imposition of maximum permissible
penalties without application of discretion was never fashioned under the Act.
3.5 Though Court’s opinion of turning down SEBI’s discretion is based upon the interpretation of the
language of section 15A(a), the provisions of Section 15I and 15J ought to have considered
appropriately. Further, the judgment is based upon the interpretation of language used under
Section15A(a), the same also get applicable on other provisions of the Act having same language.
3.6 Pursuant to the opinion of the Hon’ble Court the SEBI is entitled and bound to levy penalties of highest
cap for the defaults having occurred between 29.10.2002 to 08.09.2014, without applying its discretion.
Further, owing to the interpretation of Court even SAT cannot decide otherwise. Therefore, the Apex
Court Roofit’s judgment is critical even for those who have done petty defaults or defaults merely
technical in nature viz. disclosure violations, late submissions of returns, and documents with SEBI.
3.7 Apex Court at various instances has established and upheld the principles of proportionality and rule of
reasonableness. These rules of administrative law secure the rights of person dealing with administrative
authorities and weaves framework within which the administrative authorities have to act. However,
contrary to principles of administrative law the standing situation is that for all matters (between
29.10.2002 to 09.09.2014) falling under (series 15) chapter VIA of the Act except section 15F(a) and
15HB the penalty would be of the highest cap as provided under relevant section, and SEBI cannot
reduce it under section 15J of the Act using its discretionary powers.

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3.8 On account of phenomenal fear of the Highest Court’s Judgment, SAT is evidencing continuous
withdrawal of appeals previously filed before Tribunal for reduction of penalties levied by SEBI for
defaults pertaining to period on which the Roofit is applicable.
3.9 Considering the critical situation, a review is preferred by SEBI before the Apex Court. Till the pendency
of the same, the fate of cases, wherein matter under consideration pertains for the period 29.10.2002 to
08.09.2014, remains uncertain. For such matter(s), we are of opinion that such matters, for the time
being may be preferred to be settled under the SEBI (Settlement of Administrative and Civil Proceedings)
Regulations, 2014 to avoid mental agony and burden of hefty penalties.
Deepika Vijay Sawhney
Partner (Securities Laws &
Transaction Advisory)
Mobile : + 919818316936
Tel : +91.11.40622229
E-mail : deepika@indiacp.com
Ravi Prakash
Associate (Securities Laws &
Transaction Advisory)
Mobile : + 919818598604
Tel : +91.11.40622232
E-mail : ravi@indiacp.com
DISCLAIMER This Document is based upon the analysis of the said Supreme Court Judgment in light of the provisions of the
SEBI Act, 1992 and our understanding/interpretation of the same and should not be constituted as an advice. Also this is only
an abridged document, and cannot be deemed to have detailed coverage. For any further query, reference should be drawn
to the said judgment and provisions of the SEBI Act, 1992 or a detailed opinion may also be sought from us. We expressly
disclaim any financial or other responsibility arising due to any action taken by any person on the basis of this opinion.
Authored by : -
Corporate Professionals Advisors & Advocates