SEBI
Topic8 SCRA Penalties Offences Sec23 24
Penalties & Offences under SCRA 1956
Topic 8 — Sections 23 to 27: Civil Penalties, Criminal Offences & Prosecution | SEBI Law Officer Notes
The SCRA's penalty provisions — Sections 23 to 27 — create a layered enforcement framework combining civil penalties (adjudication), criminal prosecution, and corporate liability. Section 23(1) prescribes the highest criminal penalty; Sections 23A-23E create a schedule of civil penalties for procedural defaults; Section 26 restricts prosecution to SEBI-authorised complaints; and Section 27 extends corporate liability to responsible officers. This architecture is directly tested in SEBI Law Officer MCQs and descriptive questions.
1. Section 23(1) — Main Criminal Offence & Penalty
Section 23(1): Any person who contravenes the provisions of this Act or any rules made thereunder shall, on conviction, be punishable with imprisonment for a term which may extend to ten years, or with fine, which may extend to twenty-five crore rupees, or with both. |
Maximum Criminal Penalty under SCRA: 10 Years Imprisonment + ₹25 Crore Fine (or both) |
Section 23(1) is the omnibus criminal provision — it covers any contravention of the SCRA or its Rules. Key features:
- The offence is punishable on conviction — requires a criminal trial and proof beyond reasonable doubt.
- Imprisonment, fine, or both — the court has discretion to impose either or both.
- The ₹25 crore fine is significantly higher than IPC offences for cheating/fraud — reflecting the gravity of securities market crimes.
- Cognizance only by SEBI-authorised complaint — see Section 26.
⚠️ Section 23(1) vs SEBI Act Section 24 Section 23(1) SCRA: criminal penalty for contravention of SCRA/Rules — up to 10 years + ₹25 crore. Section 24 SEBI Act: criminal penalty for contravention of SEBI Act/Regulations — up to 10 years (with fine up to ₹25 crore). Both can apply simultaneously where a single act violates both statutes. This is a high-frequency MCQ distinction. |
2. Sections 23A to 23E — Civil Penalty Schedule
Sections 23A to 23E create a schedule of civil penalties adjudicated by SEBI's Adjudicating Officer (under the SEBI Act framework). These are separate from criminal prosecution — civil and criminal proceedings can run concurrently.
Section | Nature of Default | Penalty |
|---|---|---|
23A | Failure to furnish information, books, documents, returns or reports to SEBI or the stock exchange | ₹1 lakh per day of default continuing + ceiling of ₹1 crore |
23B | Failure to maintain books of accounts or records as required under Section 12 | ₹1 lakh per day of default continuing + ceiling of ₹1 crore |
23C | Failure to enter into an agreement with the clients as required under any rules or regulations | ₹1 lakh per day of default continuing + ceiling of ₹1 crore |
23D | Failure to redress investor grievances within the time prescribed or as directed by SEBI/stock exchange | ₹1 lakh per day of default continuing + ceiling of ₹1 crore |
23E | Failure to comply with listing conditions or conditions of recognition or continued recognition | Up to ₹25 crore (most serious civil penalty) |
⚠️ Section 23E — Maximum Civil Penalty Section 23E carries the highest civil penalty under the SCRA — up to ₹25 CRORE for failure to comply with listing conditions or conditions of recognition. This mirrors the criminal fine maximum under Section 23(1). For exam: Section 23E is for listing/recognition non-compliance; Sections 23A-23D are for procedural defaults (information, records, agreements, grievances). |
3. Section 23A-23E — Nature of Civil Penalties
Civil penalties under Sections 23A-23E are adjudicated by SEBI's Adjudicating Officer (AO) appointed under Section 15I of the SEBI Act. Key procedural points:
- AO proceedings are quasi-judicial — governed by principles of natural justice.
- SEBI issues a show-cause notice; the defaulter has the right to be heard.
- AO's order is appealable to the Securities Appellate Tribunal (SAT).
- SAT's order is appealable to the High Court on questions of law.
- Civil penalties run independently of criminal prosecution — both can be pursued for the same act.
4. Section 24 — Offences by Companies — Not to Confuse with SEBI Act S.24
Note: Section 24 of the SCRA covers miscellaneous provisions. The provision on offences by companies and their officers is primarily in Section 27. However, the SEBI Act's Section 24 (criminal prosecution for SEBI Act violations) is frequently confused with SCRA's Section 23(1). Distinction:
Feature | SCRA Section 23(1) | SEBI Act Section 24 |
|---|---|---|
Statute | Securities Contracts (Regulation) Act, 1956 | Securities and Exchange Board of India Act, 1992 |
Triggers | Contravention of SCRA or SCRA Rules | Contravention of SEBI Act, Regulations, or directions |
Imprisonment | Up to 10 years | Up to 10 years |
Fine | Up to ₹25 crore | Up to ₹25 crore |
Prosecution by | SEBI-authorised person (Section 26 SCRA) | SEBI-authorised person (Section 26A SEBI Act) |
5. Section 25 — Power to Grant Immunity from Prosecution
Section 25: The Central Government [SEBI] may, on the recommendation of the Securities Appellate Tribunal or otherwise, grant immunity from prosecution and penalty to any person who has made full and true disclosure of the facts relating to any contravention of any provisions of this Act. |
Section 25 creates a whistle-blower / cooperation incentive mechanism. Key requirements for immunity:
- Full and true disclosure — partial or misleading disclosure does not qualify.
- The grant of immunity is discretionary — SEBI/CG are not bound to grant it.
- SAT's recommendation may be sought before immunity is granted.
- Immunity covers both prosecution AND penalty — comprehensive protection for genuine cooperators.
- Post-grant: if the person later conceals information or gives false evidence, the immunity can be withdrawn.
6. Section 26 — Cognizance of Offences
Section 26: No court shall take cognizance of any offence punishable under this Act or the rules made thereunder except upon a complaint in writing made by a person authorised by the Central Government [SEBI] in this behalf. |
Section 26 is a jurisdictional gate-keeper for criminal prosecution. Its effect:
- No private person can file a criminal complaint for SCRA offences in a Magistrate's Court.
- Only SEBI-authorised officers can initiate criminal prosecution.
- This prevents multiplicity of litigation and false complaints against market participants.
- SEBI's authorised person typically files a complaint before a Special Court (under SEBI Act) or a Magistrate.
- Compare: SEBI Act Section 26A similarly restricts cognizance for SEBI Act offences.
✅ Why Section 26 Matters In practice, SEBI first exhausts adjudication proceedings (civil penalties). Criminal prosecution is reserved for serious violations — market manipulation, large-scale fraud, systemic defaults. Section 26 ensures that criminal process is used judiciously by the regulator and not abused by private parties with commercial grievances. |
7. Section 27 — Offences by Companies
Section 27: Where an offence under this Act has been committed by a company, every person who, at the time the offence was committed, was in charge of and was responsible to the company for the conduct of its business, as well as the company, shall be deemed to be guilty of the offence and shall be liable to be proceeded against and punished accordingly. |
Section 27 creates the principle of dual corporate-individual liability:
- Company: Liable as a juridical person — can be fined but not imprisoned.
- Officers in default: Managing director, directors, company secretary, CFO — all persons 'in charge of and responsible for' the company's business.
- Deemed guilty: Both the company AND the responsible officers are deemed guilty — no need to separately prove individual officer's specific act.
- Defence available: An officer can escape liability by proving: (i) the offence was committed without their knowledge; OR (ii) they exercised all due diligence to prevent the commission of the offence.
8. Compounding of Offences
Section 23AA (inserted by Securities Laws Amendment Act, 2014) provides for compounding of SCRA offences — allowing the accused to pay a sum to SEBI in lieu of prosecution. Key points:
- Compounding is not a right — it is discretionary and may be refused.
- Cannot be compounded if the same offence has been compounded previously within 3 years.
- Compounding application can be made before or after institution of proceedings.
- SEBI forwards compounding applications to a Designated Court if the offence has already been referred to the court.
- Compounding is an important settlement tool — reduces burden on courts and gives closure to market participants.
9. Landmark Cases
📖 SEBI v. Kishore R. Ajmera (2016) 6 SCC 368 Facts: Question of whether circumstantial evidence alone is sufficient to establish violation of SEBI Act/SCRA provisions in the absence of direct proof of market manipulation. Held: The Supreme Court held that in securities law enforcement, preponderance of probability is the standard in civil/adjudication proceedings. Circumstantial evidence — trading pattern analysis, timing, price impact — can establish manipulation. Beyond reasonable doubt applies only to criminal prosecution under Section 23(1)/Section 24. Ratio: Civil enforcement (adjudication under SEBI Act/penalty under SCRA) uses PREPONDERANCE OF PROBABILITY. Criminal prosecution uses BEYOND REASONABLE DOUBT. This distinction is critical for exam answers on enforcement standards. |
📖 Adjudicating Officer SEBI v. Bhavesh Pabari (2019) 5 SCC 90 Facts: Challenge to the penalty imposed by SEBI's Adjudicating Officer for failure to make disclosures as required — whether the AO must mandatorily consider each factor listed in Section 15J of SEBI Act before imposing penalty. Held: The Supreme Court held that the AO need not mechanically address each factor in Section 15J but must demonstrably consider the relevant factors. Penalty orders must be reasoned. An order imposing the maximum penalty without considering mitigating factors is vulnerable to challenge. Ratio: Penalty orders by SEBI's AO must be reasoned — they must reflect consideration of relevant factors under Section 15J. This applies to civil penalties including those related to SCRA violations adjudicated under the SEBI Act framework. |
10. Model Examination Questions
Q1. Describe the penalty framework under the SCRA. Distinguish civil penalties from criminal penalties.
Penalty Framework under SCRA Model Answer — The SCRA has a two-tier penalty framework. Criminal penalties under Section 23(1): any contravention of the Act or Rules attracts imprisonment up to 10 years and/or fine up to ₹25 crore. Prosecution requires a complaint by a SEBI-authorised person (Section 26) — no private complaints. Civil penalties under Sections 23A-23E: adjudicated by SEBI's Adjudicating Officer. They cover: failure to furnish information (23A), failure to maintain records (23B), failure to enter client agreements (23C), failure to redress grievances (23D) — each attracting ₹1 lakh/day + ₹1 crore ceiling; and failure to comply with listing/recognition conditions (23E) — up to ₹25 crore. Civil and criminal proceedings are not mutually exclusive — both can run simultaneously. Standard of proof: preponderance of probability for civil proceedings (SEBI v. Kishore Ajmera, 2016 SC); beyond reasonable doubt for criminal prosecution. Corporate liability extends to responsible officers under Section 27; defences: absence of knowledge or exercise of due diligence. |
🎯 EXAM POINTERS — Topic 8: Penalties & Offences under SCRA
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