Minimum Penalty Provisions under Statute and Discretionary Powers – A Head-on

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The Hon’ble Supreme Court of India, with its ex-parte order dated February 13th, 2023, in the matter of SEBI v. Sandip Ray[1] modified the order dated July 29th, 2022 of the Securities Appellate Tribunal passed in Appeal No. 750 of 2021[2]?by clarifying that the effect and mandate of Section 15HB[3]?of the SEBI Act, 1992 have to be strictly adhered to by the Tribunal while modifying a penalty imposed by SEBI, and such amount shall not be less than the minimum penalty prescribed in the statute book. It is thus implied that all the provisions of the Act about the imposition of Penalty: from Section 15A till 15HB, must also come under the ambit of the SC order, as all these provisions prescribe a minimum penalty.

The said order sparked a debate among the corporates and practitioners questioning the threshold to the applicability of Section 15I[4]?and 15J[5]?of the Act that vests a discretionary power with SEBI to decide and abate the quantum of penalty on reasonable grounds. Section 15J, due to its broad-based language, had once gained limelight - the said provision was made coherent by the Supreme Court in 2019 in Bhavesh Pabari’s case[6].?

Even though Bhavesh Pabari’s case provided a much clear view of Section 15J and the “deemed implicit” nature of its application in every order of the SEBI[7], the quandary on the imposition of a lesser penalty than the prescribed minimum amount remained a debatable issue under securities law framework up until SC order of February 13th, 2023.?

Another noteworthy order on the issue of going below the minimum statutory fine comes from National Company Law Appellate Tribunal, when it set aside the order passed by the National Company Law Tribunal, Kolkata and re-quantified the amount of the fine to bring it on par with the minimum amount prescribed under Section 165(6) of the Companies Act, 2013 by stating that “if the legislature has prescribed a minimum fine, the Tribunal has no jurisdiction to reduce the fine less than the minimum fine prescribed for the offence”[8].?

With these precedents, one can safely settle on the legal principle that an authority cannot impose a penalty lesser than the minimum amount prescribed under the statute book. That said, the imposition of a lesser penalty by the SAT in Sandip Ray’s case point towards a prevailing vagueness of the discretionary provisions, which though amended earlier, but merely an addition of “Subject to the minimum prescribed penalty under this Act…” at the beginning of Section 15I or 15J could have made it more explicit.

Ravi Prakash Nikita Vijay

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