Penalties under the PFRDA Act (Section 28)

Directions and cease and desist orders stop wrongdoing; monetary penalties deter it. Section 28 of the PFRDA Act lists the defaults that attract a civil penalty and fixes the amounts, many of them linked to the profits made or losses avoided by the defaulter. The penalties are imposed through an adjudication process under Section 30, and all sums realised go to the Subscriber Education and Protection Fund under Section 29.

1. Defaults under Section 28(1)

Section 28(1) applies to any person required by the Act, rules or regulations to do any of the following, who fails to do so:

• (a) Registration: to obtain a certificate of registration before carrying on an activity under the Act, but carries it on without one: one lakh rupees for each day of default or one crore rupees, whichever is less.
• (b) Conditions of registration: to comply with the terms and conditions of the certificate: one lakh rupees for each day or one crore rupees, whichever is less.
• (c) Information: to furnish information, documents, books, returns or reports to the Authority within the time specified: a penalty which may extend to one crore rupees or five times the profits made or losses avoided, whichever is higher.
• (d) Books and records: to maintain books of account or records: one lakh rupees for each day of default or five times the profits made or losses avoided, whichever is higher.

2. Specific Defaults under Section 28(2) to (4)

• (2) Client agreement: a person required to enter into an agreement with his client who fails to do so: one lakh rupees for each day or five times the profits made or losses avoided, whichever is higher.
• (3) Grievances: a registered intermediary that, after being called upon in writing by the Authority to redress subscriber grievances, fails to do so within the time stipulated: not more than one crore rupees or five times the profits made or losses avoided, whichever is higher.
• (4) Client money: a registered intermediary that fails to segregate clients' money or uses a client's money for itself or another client: not exceeding one crore rupees or five times the profits made or losses avoided, whichever is higher.

Sub-section (4) targets the most serious form of misconduct in a pension system: mixing or misusing subscribers' money. Sub-section (3) requires a written call from the Authority before the penalty applies, so it targets intermediaries that ignore the regulator, not every delayed grievance.

3. The Residuary Penalty (Section 28(5))

The residuary clause ensures that every breach of the Act, rules, regulations or directions carries a penalty, even if not listed elsewhere. It is the provision most often used for breaches of investment guidelines, fee caps and directions issued under Section 15.

4. Nature of the Penalty

• Civil, not criminal: a Section 28 penalty is a civil monetary sanction imposed by the regulator, distinct from punishment for an offence under Section 32, which only a court can impose.
• Mens rea: under the parallel provisions of the SEBI Act, the Supreme Court held in SEBI v. Shriram Mutual Fund (2006) that a civil penalty for breach of a regulatory obligation does not require proof of guilty intention; the breach itself attracts liability. The same approach is likely to be applied under the PFRDA Act.
• Discretion in amount: within the statutory limits, the amount is fixed having regard to the factors in Section 30(3): the gain or unfair advantage made, the loss caused to subscribers, and the repetitive nature of the default.
• Destination: all penalties go to the Subscriber Education and Protection Fund (Section 29).

5. Penalty Compared with Other Measures

• Directions (Section 15) and cease and desist orders (Section 18) stop or correct conduct; they do not punish.
• Penalties (Section 28) deter and punish past defaults through a monetary sanction.
• Suspension or cancellation of registration (Section 27(4)) removes the defaulter from the system.
• Prosecution (Section 32) leads to imprisonment or fine by a court.

The same conduct may attract more than one of these, because each serves a different purpose. The Authority must, however, act proportionately and give a hearing before each measure that requires one.

6. Non-payment

A person who fails to pay a penalty imposed under the Act commits an offence under Section 32(2), punishable with imprisonment of one month to ten years, or fine up to twenty-five crore rupees, or both. Prosecution requires a complaint by the Authority under Section 35.

7. Related Topics and Provisions

• Adjudication of penalties (Section 30)
• Offences, cognizance and offences by companies (Sections 32, 35 and 50)
• Subscriber Education and Protection Fund (Sections 29 and 41)
• Eligibility and registration of intermediaries (Sections 26 and 27)
• Power to issue directions (Section 15)