SEBI
Topic18 SEBI Act Penalties 15A to 15HB
Penalties under SEBI Act — Sections 15A to 15HB
Topic 18 — Complete Penalty Schedule: All Violations, Amounts & Adjudication Framework | SEBI Law Officer
Sections 15A to 15HB of the SEBI Act constitute the civil penalty schedule — arguably the most MCQ-tested section in the entire SEBI Law Officer examination. Each provision targets a specific category of violation and prescribes a maximum civil penalty. These are adjudicated by SEBI's Adjudicating Officer (Section 15I) and are independent of criminal prosecution under Section 24. Knowing the exact provision number, the type of violation, and the penalty quantum for each section is essential for scoring well in the objective portion of the SEBI exam.
1. Complete Penalty Schedule — Sections 15A to 15HB
Section | Nature of Violation | Maximum Penalty |
|---|---|---|
15A(a) | Failure to furnish information, documents, returns, or reports to SEBI or the stock exchange within the time specified | ₹1 lakh per day of default + ₹1 crore ceiling |
15A(b) | Failure to file any return or furnish information, documents, etc. within the time specified by SEBI regulation | ₹1 lakh per day of default + ₹1 crore ceiling |
15A(c) | Failure to maintain books of account or records as required by SEBI regulations | ₹1 lakh per day of default + ₹1 crore ceiling |
15B | Failure to enter into an agreement with clients — not entering into client-level agreements required by regulation (applicable to stock brokers, portfolio managers, investment advisers) | ₹1 lakh per day of default + ₹1 crore ceiling |
15C | Failure by any registered intermediary to redress investor grievances within the time prescribed | ₹1 lakh per day of default + ₹1 crore ceiling |
15D | Failure by any asset management company to comply with provisions of Mutual Fund Regulations relating to investment management | ₹1 lakh per day of default + ₹1 crore ceiling |
15E | Failure by any asset management company to observe prudential norms and investment restrictions specified by SEBI | ₹1 lakh per day of default + ₹1 crore ceiling |
15F(a) | Failure by a stock broker to issue contract notes in the form and manner specified by SEBI | ₹1 lakh per day + ₹1 crore ceiling, OR the contract note amount — whichever is higher |
15F(b) | Failure by a stock broker to deliver securities or make payment to investor within the time specified | ₹1 lakh per day + ₹1 crore ceiling |
15F(c) | Failure by a stock broker to segregate client securities from own securities | ₹1 lakh per day + ₹1 crore ceiling |
15G | INSIDER TRADING — dealing in securities in contravention of prohibition on insider trading [Section 12A(d) or (e)] | ₹25 crore OR 3 times the profit made — whichever is HIGHER |
15H | SUBSTANTIAL ACQUISITION — failure to make disclosure or acquire securities in contravention of SAST provisions | ₹25 crore OR 3 times the profit made — whichever is HIGHER |
15HA | FRAUDULENT & UNFAIR TRADE PRACTICES — engaging in fraudulent or unfair trade practices relating to securities | ₹25 crore OR 3 times the profit made — whichever is HIGHER |
15HB | Contravention of SEBI Act, Rules, or Regulations for which no specific penalty is provided elsewhere | ₹1 crore (catch-all provision) |
2. The 'Big Three' — Highest Penalties (Sections 15G, 15H, 15HA)
Sections 15G, 15H & 15HA: Penalty = ₹25 Crore OR 3× Profit — Whichever is HIGHER |
Sections 15G, 15H, and 15HA carry the highest civil penalties in the SEBI Act. Their distinctive feature is the DUAL FORMULA — the penalty is the HIGHER of ₹25 crore OR three times the profit made from the violation. This ensures that profitable violations are not treated as a cost of doing business.
Section | Violation | Why Dual Formula? |
|---|---|---|
15G | Insider Trading [Section 12A(d)/(e)] | Insider trading profits can vastly exceed ₹25 crore — dual formula ensures penalty always exceeds gain. |
15H | Substantial Acquisition/Takeover Violations [SAST] | Takeover violations can involve large undisclosed acquisitions — penalty must reflect the scale of gain. |
15HA | Fraudulent & Unfair Trade Practices [PFUTP] | Market manipulation profits can be enormous — ₹25 crore cap would be inadequate for large-scale manipulation. |
3. Section 15HB — The Catch-All Provision
Section 15HB: Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by SEBI thereunder for which no penalty has been specified, shall be liable to a penalty which may extend to one crore rupees. |
Section 15HB is the residuary penalty provision — it covers any SEBI Act/regulation violation for which no specific section (15A through 15HA) has prescribed a penalty. Key features:
- Maximum penalty: ₹1 crore — lower than the specific sections' penalties.
- Used for: violation of SEBI circulars, failure to comply with SEBI directions (not covered by specific sections), violation of specific LODR requirements not covered elsewhere.
- Section 15J factors apply — AO must still consider gain, loss, and repetitiveness.
4. Civil Penalties vs Criminal Penalties — Comparison
Feature | Civil Penalty (Sections 15A-15HB) | Criminal Penalty (Section 24) |
|---|---|---|
Nature | Monetary — paid to SEBI | Imprisonment + fine |
Adjudicated by | SEBI Adjudicating Officer | Special Court / Magistrate's Court |
Standard of proof | Preponderance of probability | Beyond reasonable doubt |
Prosecution initiated by | SEBI (adjudication order) | SEBI-authorised person (Section 26A) |
Quantum | ₹1 lakh/day to ₹25 crore or 3× profit | Up to 10 years + ₹25 crore fine |
Can both apply? | Yes — civil and criminal are concurrent | Yes — both can proceed for same act |
Appeal | SAT (within 45 days) | High Court / Supreme Court |
5. Disgorgement — Section 11B(2) read with Penalty Sections
In addition to civil penalties under Sections 15A-15HB, SEBI can also order DISGORGEMENT of profits under Section 11B. Important to distinguish:
- Penalty (Sections 15A-15HB): A punishment — deterrence-based. Paid to SEBI's Investor Protection and Education Fund (IPEF).
- Disgorgement (Section 11B): Restoration of status quo — removal of ill-gotten gains. Can be distributed to aggrieved investors.
- Both can be imposed simultaneously: The Supreme Court in SEBI v. Rakhi Trading (2018) confirmed that disgorgement does not preclude imposition of civil/criminal penalty — they serve different purposes.
6. Compounding of Offences — Section 15JB
Section 15JB: Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence punishable under this Act, not being an offence punishable with imprisonment only or with imprisonment and also with fine, may be compounded by a Securities Appellate Tribunal or a court before which proceedings for such offence are pending, on application of the accused, on payment of such sum to SEBI as may be specified by the Tribunal or court. |
Compounding allows the accused to settle SEBI proceedings by paying a specified sum — avoiding criminal conviction. Key rules:
- Compounding is discretionary — SAT/court may refuse if the offence is serious.
- Cannot compound if the same offence has been compounded in the preceding three years.
- Only offences not punishable solely with imprisonment (i.e., fine-eligible offences) can be compounded.
- Sum paid on compounding is credited to the Investor Protection and Education Fund (IPEF).
7. Investor Protection and Education Fund (IPEF) — Section 11C(5B)
Penalties imposed under Sections 15A-15HB and compounding amounts are credited to SEBI's Investor Protection and Education Fund (IPEF). IPEF is used for:
- Investor education programmes and awareness campaigns.
- Funding research on investor protection and market development.
- Compensating investors in certain eligible cases (discretionary).
- Supporting SEBI's SCORES (SEBI Complaints Redress System) portal.
8. Landmark Cases
📖 SEBI v. Cabot International Capital Corp. (2004) 1 COMP LJ 10 (SAT) Facts: Challenge to penalty imposed under Section 15A for failure to comply with minimum public shareholding requirements and disclosure norms. Held: SAT upheld the penalty but directed SEBI to consider the Section 15J factors including: whether the company had any actual gain from the default; the extent of investor loss; and the repetitive nature. The AO's order was modified to reflect proper Section 15J analysis. Ratio: Section 15J requires demonstrable consideration of all three factors. SAT will modify or set aside AO orders that do not reflect genuine engagement with Section 15J — even if the violation is established. |
📖 SEBI v. Karan Thapar SAT Order, 2016 Facts: SEBI imposed maximum penalty of ₹25 crore under Section 15G for insider trading without quantifying the actual profit made — relying solely on the gravity of the violation. Held: SAT held that while insider trading is serious, the AO must still attempt to quantify the profit under Section 15J(a). Where profit cannot be precisely quantified, the AO must record reasons for approximation and explain how the penalty quantum relates to the Section 15J factors. Ratio: Even for serious violations like insider trading, Section 15J must be genuinely engaged. Maximum penalty without attempting to quantify gain or investor loss — even approximately — is insufficient. |
9. Model Examination Questions
Q1. Prepare a comparative table of civil penalties under the SEBI Act. What is the significance of the dual-formula penalty in Sections 15G, 15H, and 15HA?
Civil Penalties under SEBI Act — Schedule & Dual Formula Model Answer — The SEBI Act (Sections 15A-15HB) prescribes civil penalties adjudicated by SEBI's Adjudicating Officer. Procedural defaults (Sections 15A-15F, 15C, 15D, 15E): ₹1 lakh per day of default with a ceiling of ₹1 crore. The most serious violations carry a dual formula — penalty = the HIGHER of ₹25 crore or 3× profit: Section 15G (insider trading), Section 15H (takeover violations), Section 15HA (fraudulent/unfair trade practices). The dual formula significance: a flat cap (e.g., ₹25 crore) would be inadequate for large-scale violations where profits vastly exceed the cap. By making the penalty the HIGHER of ₹25 crore or 3× profit, SEBI ensures that violations are never economically rational — the penalty always exceeds the gain. Section 15HB is the catch-all — ₹1 crore for any violation without a specific section. Civil and criminal penalties are concurrent (Section 24: up to 10 years + ₹25 crore fine). The AO must consider Section 15J factors (gain, investor loss, repetitiveness) before imposing any penalty — Bhavesh Pabari (2019 SC). Standard of proof: preponderance of probability — SEBI v. Kishore Ajmera (2016 SC). |
🎯 EXAM POINTERS — Topic 18: Penalties under SEBI Act [Sections 15A-15HB]
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