A special court for SEBI cases in Mumbai has rejected Nirmal Kumar Kotecha's plea to settle a market-manipulation prosecution by paying a compounding fee, holding that the alleged offences were serious and affected investors at large. According to reports from Moneycontrol, Special Judge R M Jadhav rejected Kotecha's application, with the case being filed in 2017 and still pending before the special court. The court cited the Prakash Gupta Vs SEBI case in which the Supreme Court observed that if the offence is of public character, non-prosecution will affect others at large, making it unfit for compounding even if restitution has taken place. The court noted that Kotecha's application was filed after the Supreme Court's decision in Prakash Gupta, and rejected his argument that the ruling did not apply to his case.
SEBI had consented to compounding the case against Kotecha on payment of around ₹1.52 crore, including legal costs, as reported by Moneycontrol. The minutes of SEBI's High-Powered Advisory Committee were also placed before the court. Kotecha argued that the case involved only violations of the SEBI Act and that no IPC charge was pending against him. He also submitted that an attempt to prosecute him under the IPC had failed after investigation and re-investigation by the police.
One of the co-accused opposed the plea, arguing that Kotecha was the main accused and that regulatory penalties were separate from criminal liability arising from the alleged forgery and cheating. According to Moneycontrol, the co-accused, who is still facing trial on IPC charges, also argued that allowing Kotecha to compound the SEBI case separately could prejudice his right to a fair trial. The court noted that Kotecha had not been named as an accused in the charge-sheet filed before the IPC court, despite being instrumental in forging the SEBI letter for price manipulation. The court observed that "although the applicant/accused is instrumental in forgery of the SEBI letter for manipulation of the price, he is not being arrayed as an accused in the charge-sheet filed in the matter before the IPC Court."
SEBI's complaint accuses Kotecha and others of allegedly manipulating and rigging the price of Pyramid Saimira Theatre Limited (PSTL) shares to make unlawful gains, as reported by Moneycontrol. It also alleges that a forged SEBI letter was used to influence the stock price. The court concluded that Kotecha was the major beneficiary of the price manipulation and forgery, making gains at the cost of investors at large. The special court noted that the present case involved not only allegations of price manipulation but also the alleged forgery of a SEBI letter. The court observed that "the applicant/accused at the cost of repetition is the major beneficiary of the price manipulation and the forgery made. He has made the gain at the cost of the investors at large."
SEBI can initiate criminal prosecution for offences under the SEBI Act, with Section 24 providing punishment for contraventions of the Act, rules or regulations, while Section 27 deals with liability of companies and persons responsible for their conduct. According to Moneycontrol, in this case, SEBI's prosecution relates to alleged violations of the SEBI Act and PFUTP Regulations, while separate IPC proceedings relate to allegations such as forgery and cheating. The judge noted that while SEBI's views carry significant weight as the regulator and prosecuting agency, the regulator does not have a veto over compounding, with the final decision resting with the court. The court observed that considering the typical factual position distinguishing the present matter, it did not find "it is expedient to compound the offence" and rejected the compounding application.
