Section 23-I of the Securities Contracts (Regulation) Act, 1956 is the engine room of the Act's civil-penalty machinery. The penalty provisions in Sections 23A to 23H tell us what defaults attract a money penalty and how much; Section 23-I tells us who imposes that penalty and by what procedure. The answer, after the Securities Laws (Amendment) Act, 2004, is the Securities and Exchange Board of India acting through an adjudicating officer who holds a quasi-judicial inquiry, hears the noticee, and passes a reasoned, appealable order. For judiciary and CLAT-PG aspirants this is fertile ground: it sits at the meeting point of securities regulation, administrative law, and the great debate over whether a regulatory penalty is a civil sanction that follows automatically on proof of default or a quasi-criminal punishment that demands proof of guilty intent. This article dissects Section 23-I clause by clause, situates it within the 23A-23M penalty code, and grounds every proposition in independently verified authority.
The statutory text and where it sits in the scheme
Section 23-I is headed “Power to adjudicate.” Sub-section (1) provides that “for the purpose of adjudging under sections 23A, 23B, 23C, 23D, 23E, 23F, 23G and 23H, the Securities and Exchange Board of India shall appoint any officer not below the rank of a Division Chief of the Securities and Exchange Board of India to be an adjudicating officer for holding an inquiry in the prescribed manner after giving any person concerned a reasonable opportunity of being heard for the purpose of imposing any penalty.” Sub-section (2) arms that officer with the power “to summon and enforce the attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document” relevant to the inquiry, and provides that if, on inquiry, he is satisfied that the person has failed to comply with any of the specified sections, “he may impose such penalty as he thinks fit in accordance with the provisions of any of those sections.” Sub-section (3), inserted by the Securities Laws (Amendment) Act, 2014, gives the Board a power to call for and examine the record and, in the interests of the securities market, to enhance the penalty within a three-month window.
The provision is the procedural keystone of the penalty chapter. Sections 23A to 23H create the substantive defaults — failure to furnish information, failure to enter into client agreements, failure to redress grievances, failure to segregate client securities, breach of listing or delisting conditions, excess dematerialisation, failure to furnish periodical returns, and the residuary default where no separate penalty is provided. Section 23-I is the mechanism that converts those abstract liabilities into concrete, enforceable orders. For the foundational architecture of the Act, see our introduction to the object and scheme and the wider SCRA notes hub.
The 2004 shift: adjudication moves to SEBI
A point examiners love and candidates often miss is who adjudicates. The entire 23A–23M penalty code, including Section 23-I, was inserted into the SCRA by the Securities Laws (Amendment) Act, 2004 (with retrospective effect from 12 October 2004). Before 2004 the Act knew only criminal penalties under Section 23 — prosecution before a court. The 2004 reforms grafted onto the SCRA a parallel civil-penalty regime that mirrors Chapter VI-A of the Securities and Exchange Board of India Act, 1992. Crucially, the adjudicating authority is SEBI, not the Central Government: the long-standing administrative powers over stock exchanges have progressively migrated from the Central Government to SEBI, and adjudication of these market defaults is squarely a SEBI function.
The 2014 amendment sharpened the position further by changing the opening words of sub-section (1) from SEBI “may appoint” to SEBI “shall appoint” an adjudicating officer — making the appointment of a quasi-judicial adjudicator a statutory imperative rather than a discretion once a contravention falling within Sections 23A-23H is to be adjudged. The same 2014 amendment inserted sub-section (3), the Board's enhancement power. Understanding that Section 23-I belongs to the post-2004 civil-penalty architecture — and runs in parallel with the more frequently litigated Sections 15-I and 15J of the SEBI Act — is the key to reasoning about it, because almost all the leading case law arises under the SEBI Act and applies to the SCRA by analogy.
Who is the adjudicating officer and how is one appointed
Section 23-I(1) is precise about rank and process. The adjudicating officer must be “an officer not below the rank of a Division Chief” of SEBI; the officer is appointed by SEBI specifically for the purpose of adjudging defaults under the enumerated sections; and the officer must hold an inquiry “in the prescribed manner” — that is, in accordance with the rules made under the Act — after giving the person concerned “a reasonable opportunity of being heard.” The phrase “in the prescribed manner” is load-bearing: it ties the inquiry to the procedural rules, and a material departure from the prescribed procedure can vitiate the order.
The rank requirement is not a mere formality. By insisting on a senior officer, Parliament sought to invest the adjudication with a measure of independence and seniority commensurate with the quasi-judicial nature of the function and the magnitude of the penalties — several of which run to twenty-five crore rupees. The officer functions not as an investigator pressing SEBI's case but as a quasi-judicial decision-maker who must weigh the material, hear the noticee, and record reasons. This separation of the adjudicatory role from the investigative role is the conceptual heart of the section, and it is what makes the adjudicating officer's order amenable to appeal and judicial review rather than mere administrative correction.
The inquiry: procedure and natural justice
Section 23-I builds natural justice into its text. The officer must give the person “a reasonable opportunity of being heard” before imposing penalty — the statutory codification of audi alteram partem. The classic authorities on the flexible but essential content of that maxim apply with full force. In A.K. Kraipak v. Union of India, AIR 1970 SC 150 : (1969) 2 SCC 262, the Supreme Court held that the line between administrative and quasi-judicial functions has been progressively obliterated and that natural justice attaches to administrative action carrying civil consequences. Maneka Gandhi v. Union of India, AIR 1978 SC 597 : (1978) 1 SCC 248, cemented the proposition that audi alteram partem is an essential, if flexible, ingredient of fair procedure even where the statute is silent. Here Parliament has not left it to implication — the hearing is written into Section 23-I(1).
Sub-section (2) supplies the procedural muscle. The adjudicating officer may “summon and enforce the attendance” of persons acquainted with the facts and compel the production of documents relevant to the inquiry — powers that resemble those of a civil court and that mark the proceeding as quasi-judicial. The officer must be “satisfied” on inquiry that a contravention has occurred before imposing penalty; that satisfaction must rest on material on record and must be reflected in reasons. An order that fails to disclose the reasons for the finding of default or for the quantum of penalty is vulnerable on appeal, and the principle in Mohinder Singh Gill v. Chief Election Commissioner, AIR 1978 SC 851 : (1978) 1 SCC 405 — that a statutory order must stand or fall by the reasons it discloses and cannot be supplemented by later affidavits — disciplines the adjudicating officer to record contemporaneous, self-sufficient reasons.
A civil penalty: is mens rea required?
The single most heavily examined question about Section 23-I is whether the adjudicating officer must find guilty intent before imposing penalty. The settled answer is no — these are penalties for breach of a civil obligation, and proof of mens rea is not a precondition. The locus classicus is Chairman, SEBI v. Shriram Mutual Fund, (2006) 5 SCC 361, where the Supreme Court held that penalty under Chapter VI-A of the SEBI Act is attracted as soon as the contravention of the statutory obligation is established, and that intention to commit the breach is wholly irrelevant. The Court reasoned that such defaults are breaches of civil obligations, distinct from the criminal offences punishable elsewhere in the legislation, so the adjudication is civil and remedial rather than penal in the criminal sense. Because Section 23-I of the SCRA is the mirror of the SEBI Act provisions, Shriram Mutual Fund governs SCRA adjudications equally.
The proposition had been anticipated at the High Court level in SEBI v. Cabot International Capital Corporation, (2004) 51 SCL 307 (Bom), where the Bombay High Court held that for breaches of the civil-natured provisions of the SEBI Act and regulations, mens rea is not an essential ingredient for the imposition of penalty. For the adjudicating officer this means the inquiry under Section 23-I is focused on the objective fact of default — did the noticee fail to furnish the return, segregate the securities, or comply with the listing condition? — rather than on the state of mind with which the default was committed. The contrast with the criminal route under Section 23M of the Act, where prosecution and proof of culpability are involved, is the examiner's favourite compare-and-contrast.
Section 23J: factors in fixing the quantum
Once default is established, how much penalty should the adjudicating officer impose? Section 23-I(2) lets the officer impose “such penalty as he thinks fit in accordance with the provisions of” the relevant section, but that discretion is structured by Section 23J. While adjudging the quantum of penalty under Section 23-I, the officer “shall have due regard to” three factors: (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; and (c) the repetitive nature of the default. Section 23J of the SCRA is word-for-word identical to Section 15J of the SEBI Act, so the rich body of case law on Section 15J transplants directly.
The decisive authority is Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90, in which a three-judge bench of the Supreme Court held that the factors enumerated in Section 15J are illustrative and not exhaustive — the word “namely” notwithstanding — and that the adjudicating officer enjoys a “controlled discretion” to consider factors beyond those three in fixing quantum. The Court read the penalty-creating provisions harmoniously with Section 15J so as to avoid any inconsistency, restoring genuine sentencing discretion to the adjudicating officer. Applied to the SCRA, Bhavesh Pabari means that an adjudicating officer fixing penalty under Section 23-I must weigh the Section 23J factors but may also have regard to other relevant circumstances, such as the bona fides of the noticee or the technical or venial character of the breach.
The discretion saga: Roofit to Siddharth Chaturvedi to Pabari
The road to Bhavesh Pabari is itself a worked example of how the Supreme Court corrects itself, and it rewards careful study. In SEBI v. Roofit Industries Ltd., (2015) 12 SCC 754, a two-judge bench held that, as the penalty provisions stood between the 2002 and 2014 amendments, the adjudicating officer had no discretion to mitigate quantum by reference to Section 15J; the prescribed penalty had to be imposed mechanically. This produced harsh, disproportionate outcomes — a minor or technical default could attract the maximum penalty regardless of gain, loss, or repetition.
That reasoning was promptly doubted. In Siddharth Chaturvedi v. SEBI, (2016) 12 SCC 119, a Division Bench expressly declined to subscribe to Roofit, observing that it was difficult to appreciate how penalty under the substantive section could be fixed in isolation from the mitigating factors in Section 15J, and referred the conflict to a larger bench. The larger bench resolved it in Bhavesh Pabari by overruling Roofit: it held that Roofit had erroneously confined the adjudicating officer, that Section 15J factors are illustrative, and that controlled discretion exists throughout. For SCRA purposes the lesson is that Section 23-I, read with Section 23J, confers a genuine but reasoned discretion on quantum — the adjudicating officer is neither a rubber stamp imposing the maximum nor a free agent ignoring the statutory factors.
Penalty as a civil sanction: the Hindustan Steel thread
The civil character of the penalty does not strip the adjudicating officer of all room for leniency in genuinely innocent cases. The foundational principle comes from Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627, where the Supreme Court held that an order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding, and that penalty “will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest.” Even where a minimum penalty is prescribed, the Court said, the authority may justifiably decline to impose it where there is a technical or venial breach, or where the breach flows from a bona fide belief that the offender was not liable to act as prescribed.
There is an apparent tension between Hindustan Steel and Shriram Mutual Fund, and the adjudicating officer must hold the two in balance. Shriram Mutual Fund establishes that mens rea is not a precondition to liability — default plus contravention equals penalty. Hindustan Steel and, after it, Bhavesh Pabari establish that bona fides and the technical nature of a breach remain relevant to the quantum and, in a truly venial case, to whether penalty should be imposed at all. The reconciliation, then, is that the absence of guilty intent does not defeat liability under Section 23-I but feeds into the discretion structured by Section 23J. An adjudicating officer who ignores a genuine bona fide explanation altogether risks reversal on appeal.
Section 23-I(3): the Board's power to enhance
Sub-section (3), inserted in 2014, introduces a revisional check. The Board “may call for and examine the record of any proceedings under this section” and, if it considers that the order passed by the adjudicating officer is “erroneous to the extent it is not in the interests of the securities market,” may — after such inquiry as it deems necessary — “pass an order enhancing the quantum of penalty, if the circumstances of the case so justify.” Two safeguards hedge this power. First, no enhancement order may be passed unless the person concerned has been given an opportunity of being heard — natural justice again. Second, the power is time-bound: nothing in the sub-section applies after the expiry of three months from the date of the adjudicating officer's order, or after disposal of an appeal under Section 23L, whichever is earlier.
This is a one-way revision — it permits the Board to enhance, not to reduce, the penalty, and only on the touchstone of the “interests of the securities market.” It exists because the adjudicating officer, exercising controlled discretion, might pitch a penalty too low to deter market misconduct; sub-section (3) lets the regulator correct an under-penalisation that harms market integrity, while the appeal under Section 23L protects the noticee against over-penalisation. The strict three-month outer limit and the hearing requirement keep the enhancement power from becoming an open-ended threat, and they reflect the broader principle that even where no period is fixed, regulatory powers must be exercised within a reasonable time.
Settlement: Section 23-JA and the consent route
Adjudication under Section 23-I is not the only path. Section 23-JA, inserted by the 2014 amendment, allows any person against whom proceedings “have been initiated or may be initiated” under Section 12A or Section 23-I to apply in writing to the Board proposing settlement of the proceedings for the alleged defaults. The Board, “after taking into consideration the nature, gravity and impact of defaults,” may agree to the settlement “on payment of such sum by the defaulter or on such other terms” as it may determine under the SEBI (Settlement Proceedings) regime. The settlement is reached “without admission or denial of guilt,” which is the hallmark of the consent mechanism.
An important corollary for litigation strategy: Section 23-JA(4) provides that no appeal shall lie under Section 23L against a settlement order passed by the Board or the adjudicating officer. The settlement, in other words, is final — a noticee who consents trades the right of appeal for closure and certainty. This consent route, modelled on the SEBI Act's settlement framework, has become the dominant means of disposing of run-of-the-mill defaults; it spares both the regulator and the noticee a protracted adjudication and an appeal, while the disgorgement of any wrongful gain protects the market. Aspirants should be able to map the three exits from a SCRA default — adjudication under Section 23-I, settlement under Section 23-JA, and criminal prosecution under Section 23M — and explain why a regulator would choose one over another.
Enforcing the order: recovery and the Consolidated Fund
A penalty order is only as good as its enforcement. Section 23-JB, inserted in 2014, equips SEBI's Recovery Officer to recover an unpaid penalty by drawing up a certificate and proceeding through modes that read like the recovery code of a tax authority: attachment and sale of movable and immovable property, attachment of bank accounts, arrest and detention in prison, and appointment of a receiver. The provision expressly borrows Sections 220 to 227, 228A, 229 and 232 and the Second and Third Schedules of the Income-tax Act, 1961, together with the Income-tax (Certificate Proceedings) Rules, 1962, applying them with necessary modifications. An Explanation extends recovery to property transferred to a spouse, minor child or other relatives without adequate consideration after the amount fell due — a clawback against asset-shielding.
Where the penalty is paid or recovered, Section 23K directs that “all sums realised by way of penalties under this Act shall be credited to the Consolidated Fund of India.” This destination matters conceptually: the penalty is not compensation paid to the wronged investor (that is the office of disgorgement and the investor-protection mechanisms), nor a fee retained by the regulator, but a civil sanction whose proceeds flow to the public exchequer — reinforcing that the adjudication under Section 23-I serves a public, regulatory purpose rather than a private remedial one.
Appeal: Section 23L and the route to the Tribunal
An adjudicating officer's order is not the last word. Section 23L provides that any person aggrieved by “the order or decision of the recognised stock exchange or the adjudicating officer” or by an order of the Board (including an enhancement order under Section 23-I(3)) may appeal to the Securities Appellate Tribunal. The appeal must be filed within forty-five days of receipt of the order, though SAT may condone delay on sufficient cause. On hearing the parties, SAT “may pass such orders thereon as it thinks fit, confirming, modifying or setting aside the order appealed against,” and is enjoined to dispose of the appeal expeditiously, endeavouring to do so within six months. The provisions of Sections 22B to 22E of the Act apply to such appeals.
From SAT, the statutory ladder runs to the Supreme Court on a question of law under Section 22F. This appellate architecture is why so much of the case law shaping Section 23-I — Shriram Mutual Fund, Roofit, Bhavesh Pabari — reaches the Supreme Court: an aggrieved noticee or SEBI carries the quantum-of-penalty question up through SAT to the apex court. The contrast with the institution-level remedies elsewhere in the Act is instructive: a stock exchange aggrieved by withdrawal of recognition under Section 5 or by the power to suspend business under Section 12 challenges government action through writ jurisdiction, whereas a noticee penalised under Section 23-I has a dedicated statutory appeal to a specialist tribunal.
Civil adjudication and criminal prosecution side by side
Section 23-I must be read against the criminal-penalty backdrop of Sections 23 and 23M. Several penalty sections, and Section 23M itself, open with the words “without prejudice to any award of penalty by the adjudicating officer under this Act,” signalling that the civil-adjudication route and the criminal-prosecution route run in parallel and are not mutually exclusive. A single course of conduct can, in principle, attract both a civil penalty under Section 23-I and criminal prosecution under Section 23M, because the two address different facets — the civil sanction is concerned with regulatory deterrence and market integrity, the criminal sanction with punishment of culpable wrongdoing.
The doctrinal anchor for keeping the two apart is again Shriram Mutual Fund: because the adjudicatory penalty is for breach of a civil obligation, it does not require the safeguards — proof beyond reasonable doubt, proof of mens rea — that attend the criminal route. This is also why the standard of proof before the adjudicating officer is the civil standard of preponderance of probabilities, not the criminal standard. The composition power under Section 23N and the immunity power under Section 23-O complete the picture, allowing certain offences to be compounded and immunity to be granted in deserving cases — levers that, alongside settlement under Section 23-JA, give the regulator a graduated toolkit ranging from negotiated closure to full-blooded prosecution.
Exam pointers and common traps
First, get the adjudicator right: under Section 23-I it is SEBI, acting through an adjudicating officer not below the rank of Division Chief — not the Central Government and not a court. After the 2014 amendment SEBI “shall” (not “may”) appoint the officer. Second, on mens rea, cite Chairman, SEBI v. Shriram Mutual Fund, (2006) 5 SCC 361 — penalty for breach of a civil obligation follows on proof of default; intent is irrelevant to liability. Third, on quantum, cite Section 23J's three factors (disproportionate gain, investor loss, repetitive nature) and Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90, for the rule that those factors are illustrative and the officer has controlled discretion — and remember it overruled SEBI v. Roofit Industries, (2015) 12 SCC 754.
Fourth, reconcile Shriram Mutual Fund (no mens rea for liability) with Hindustan Steel Ltd. v. State of Orissa, (1969) 2 SCC 627 (bona fides and venial breach relevant to quantum and to whether to impose penalty at all) — the tension is a classic essay question. Fifth, know the three exits from a default: adjudication (Section 23-I), settlement without admission (Section 23-JA, against which no appeal lies under Section 23L), and criminal prosecution (Section 23M). Sixth, the appeal from an adjudicating officer lies to SAT under Section 23L within forty-five days, then to the Supreme Court on a question of law. Seventh, note Section 23-I(3): the Board may only enhance a penalty, in the interests of the securities market, after a hearing, and only within three months or before disposal of the appeal, whichever is earlier. Anchor every proposition in the bare text, which you can cross-check at the official source, and pair it with the correct citation — examiners notice precision.
Frequently asked questions
Who is the adjudicating officer under Section 23-I and who appoints them?
The adjudicating officer is an officer of SEBI not below the rank of a Division Chief. After the Securities Laws (Amendment) Act, 2014, SEBI “shall” (earlier “may”) appoint such an officer to hold an inquiry in the prescribed manner, after giving the person concerned a reasonable opportunity of being heard, for the purpose of adjudging defaults under Sections 23A to 23H. The adjudicator is SEBI, not the Central Government and not a court.
Is mens rea required before the adjudicating officer can impose a penalty?
No. In Chairman, SEBI v. Shriram Mutual Fund, (2006) 5 SCC 361, the Supreme Court held that penalties for breach of a civil obligation under the securities laws are attracted once the contravention is established, and that intention or mens rea is irrelevant to liability. The same was held at the High Court level in SEBI v. Cabot International Capital Corporation, (2004) 51 SCL 307 (Bom). Because Section 23-I mirrors the SEBI Act, these decisions govern SCRA adjudications.
What factors govern the quantum of penalty under Section 23-I?
Section 23J directs the adjudicating officer to have due regard to (a) the disproportionate gain or unfair advantage made from the default, (b) the loss caused to investors, and (c) the repetitive nature of the default. In Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90, the Supreme Court held that these factors (identical to Section 15J of the SEBI Act) are illustrative, not exhaustive, and that the officer has a controlled discretion to consider other relevant factors as well.
Did Bhavesh Pabari overrule any earlier decision?
Yes. Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90, overruled SEBI v. Roofit Industries Ltd., (2015) 12 SCC 754, which had wrongly held that the adjudicating officer had no discretion to mitigate quantum by reference to the Section 15J factors between the 2002 and 2014 amendments. Roofit had already been doubted in Siddharth Chaturvedi v. SEBI, (2016) 12 SCC 119, which referred the conflict to a larger bench that decided Bhavesh Pabari.
Can a noticee settle adjudication proceedings instead of contesting them?
Yes. Section 23-JA allows a person against whom proceedings have been or may be initiated under Section 12A or Section 23-I to apply to the Board for settlement, on payment of such sum or terms as the Board determines, without admission or denial of guilt. Importantly, Section 23-JA(4) bars any appeal under Section 23L against a settlement order — the settlement is final, trading the right of appeal for certainty and closure.
What is the appeal route against an adjudicating officer's order?
Under Section 23L, any person aggrieved by the order of the adjudicating officer (or by an enhancement order of the Board under Section 23-I(3)) may appeal to the Securities Appellate Tribunal within forty-five days, with power in SAT to condone delay. SAT may confirm, modify or set aside the order and should dispose of the appeal within about six months. A further appeal lies to the Supreme Court on a question of law under Section 22F.