The Finance Bill, 2017 which has been passed by both the houses of Parliament and which was assented to by the President of India on April 3, 2017, has amended certain provisions of the SEBI Act and the Securities Contracts (Regulation) Act, 1956 (SCRA). One of the most important among them are the amendments carried out to Section 15J and Section 23J of the SEBI Act and the SCRA, respectively.

The Supreme Court in SEBI v. Roofit Industries, had held that, as the law stood between 2002 and 2014, an Adjudicating Officer of SEBI (AO) had no discretion and could not consider the factors laid down in Section 15J while deciding the quantum of penalty to be levied against an offender under Section 15A. As a result, AOs were forced to pass orders imposing penalties of Rs. 10 million even for minor violations, committed during the said period, of disclosure requirements under the Insider Trading Regulations and the Takeover Regulations, where disclosures were made with delays of greater than 100 days. The ruling had also created chaos in the Securities Appellate Tribunal as several appellants were forced to withdraw their appeals due to the unfavourable order and as several cases were referred back to SEBI to re-consider the penalty imposed.

Section 15J of the SEBI Act has now been amended by inserting an explanation, which states that the power of an adjudicating officer to adjudicate the quantum of penalty under relevant sections “shall be and shall always be deemed to have been exercised under the provisions of this section”. This explanation makes it clear that the AO must consider the factors laid down under Section 15J for determining the quantum of penalty even for violations which were committed between 2002 and 2014. A similar amendment was also carried out to Section 23J of the SCRA.

The amendment was a much needed measure and will ensure that AOs are not forced to impose penalties which are not commensurate with the violations detected. Further, the Roofit ruling was already under re-consideration by a larger bench of the Supreme Court and the amendment presumably renders the matter infructuous and pre-empts similar questions of law arising in the future.