The penalty architecture of the Securities Contracts (Regulation) Act, 1956 is a tale of two enforcement worlds. Section 23 carries the old criminal sanction for the gravest defaults; Sections 23A to 23H create a graded ladder of civil money penalties for regulatory failures; and Sections 23I to 23M supply the machinery — adjudication, settlement, recovery, appeal and a residuary offence. For the judiciary and CLAT-PG aspirant, this cluster is examinable precisely because it sits at the intersection of strict-liability civil enforcement and the discretion debate settled by the Supreme Court in Roofit Industries and Bhavesh Pabari. This note maps every provision from Section 23 to Section 23M, fixes the exact monetary ceilings, and ties each to the controlling authority.
The scheme of Sections 23 to 23M
Before 2004 the SCRA punished contraventions almost exclusively through criminal prosecution under Section 23. The Securities Laws (Amendment) Act, 2004 transplanted into the SCRA the SEBI Act model of civil money penalties adjudicated by a departmental officer, inserting Sections 23A to 23M. The result is a three-tier design. First, Section 23 retains imprisonment and fine for serious substantive contraventions. Second, Sections 23A to 23H impose graded pecuniary penalties for specified regulatory failures, recoverable without proof of criminal intent. Third, Sections 23I to 23M provide the procedural spine: who adjudicates, on what factors, how proceedings may be settled, how money is recovered, where appeals lie, and the residuary offence for everything left over.
The animating idea is that securities-market discipline is largely about deterrence of regulatory breach rather than moral blameworthiness. That premise — that these are civil obligations enforced by penalty — is the doctrinal key to the entire cluster, and it was authoritatively stated by the Supreme Court in Chairman, SEBI v. Shriram Mutual Fund, discussed below. Understanding the cluster also requires familiarity with the upstream substantive duties: the duty to be a recognised exchange under the rules on recognition of stock exchanges, and the listing obligations under listing of securities, breaches of which are exactly what these penalties target.
Section 23 — the surviving criminal sanction
Section 23, as it now stands after the 2004 amendment, is the criminal-offence provision for enumerated substantive contraventions. It catches a person who, without reasonable excuse, fails to comply with a requisition under Section 6(4); enters into a contract in contravention of Section 13 or Section 16; contravenes the provisions of Sections 17, 17A, 18A, 19 or 20; manages, controls or assists in carrying on the business of an unrecognised stock exchange in contravention of Section 19; or holds out, canvasses or advertises in contravention of the Act. For these offences the maximum punishment is imprisonment for a term which may extend to ten years, or a fine which may extend to twenty-five crore rupees, or both.
The dramatic uplift in the ceiling — from the original one year and a one-thousand-rupee fine to ten years and twenty-five crore — mirrors the parallel hardening of Section 24 of the SEBI Act and signals Parliament's intent to treat running an unauthorised market or trading in prohibited contracts as serious economic crime. Because Section 23 requires the absence of "reasonable excuse" for the requisition limb, and because it is criminal in character, mens rea considerations remain relevant here in a way they do not for the civil penalties that follow.
Section 23A — failure to furnish information, returns and documents
Section 23A is the workhorse disclosure-default penalty. It bites where any person who is required under the Act, rules, regulations or byelaws to furnish any information, document, books, returns or report to a recognised stock exchange fails to do so within the time specified, or furnishes information that is false, incorrect or incomplete. The penalty is a sum of one lakh rupees for each day during which the failure continues, subject to a maximum of one crore rupees.
The per-day-but-capped formula is exactly the construct that generated the great penalty-discretion litigation. In the SEBI Act its twin is Section 15A(a), and the Supreme Court's reading of that formula in SEBI v. Roofit Industries Ltd. and its later qualification in Adjudicating Officer, SEBI v. Bhavesh Pabari apply with equal force to Section 23A of the SCRA. For aspirants, Section 23A is the canonical example to deploy when asked how the quantum of a securities penalty is computed.
Sections 23B and 23C — client agreements and investor grievances
Section 23B targets intermediaries who are required to enter into an agreement with their clients but fail to do so. The agreement requirement is a basic investor-protection device — it fixes the terms on which a broker deals for a client, the brokerage payable, and the allocation of risk. A person who defaults attracts a penalty of one lakh rupees for each day of continuing failure, subject to a maximum of one crore rupees. The structure is identical to Section 23A, again importing the capped per-diem model and therefore the same adjudication jurisprudence on quantum settled in Roofit Industries and Bhavesh Pabari.
Section 23C penalises a stock broker or sub-broker (or a company whose securities are listed or proposed to be listed) who, after being called upon by a recognised stock exchange or SEBI in writing, fails to redress the grievances of investors within the stipulated time. The penalty is again one lakh rupees for each day the failure continues, up to a maximum of one crore rupees. The provision operationalises the grievance-redress promise that underpins investor confidence; crucially the penalty runs only from the point the regulator or exchange has made a written demand, which is the trigger an examiner will expect you to identify. Both provisions illustrate how the SCRA penalty ladder ascends in seriousness — routine documentation and grievance failures sit at the one-crore tier, while listing and market-infrastructure defaults climb to twenty-five crore.
Section 23D — failure to segregate client securities or money
Section 23D addresses one of the most serious intermediary defaults: failure by a stock broker or sub-broker to segregate the securities or moneys of a client (or clients), or the use of those securities or moneys for his own purposes. Commingling and misappropriation of client assets is the classic broker risk, and the penalty reflects that gravity within the civil band — not less than one lakh rupees but extending to one crore rupees. Unlike the per-day provisions, Section 23D fixes a floor and a ceiling for the act of default itself rather than a continuing daily computation. The segregation duty is the statutory backbone of the modern client-asset-protection regime, and its breach is treated as gravely as it is precisely because the broker holds client property in a position of trust; misuse converts a regulatory lapse into something close to misappropriation, which is why Parliament set a one-lakh floor rather than leaving the penalty to start at a nominal sum.
Section 23E — failure to comply with listing or delisting conditions
Section 23E is the heavy-end listing-compliance penalty. A company or any person managing a collective investment scheme or a mutual fund that fails to comply with the listing conditions or delisting conditions or grounds, or commits a breach thereof, is liable to a penalty not exceeding twenty-five crore rupees. (The figure was raised over successive amendments; the present ceiling is twenty-five crore.) The provision dovetails with the substantive listing regime explained in listing of securities — Section 23E supplies the monetary teeth for the duties created there. Listing defaults are commercially significant and the high ceiling marks them out from the routine reporting failures penalised under Sections 23A to 23C.
Sections 23F and 23G — excess dematerialisation and exchange-level returns
Section 23F penalises any person who dematerialises securities more than the issued securities of a company, or delivers in the stock exchanges the securities which are not listed in recognised stock exchanges, or delivers securities where no trading permission has been given by the recognised stock exchange. The penalty extends to twenty-five crore rupees, reflecting the systemic danger of phantom or unlisted paper entering the settlement system.
Section 23G turns the lens on the recognised stock exchange itself. Where a recognised stock exchange fails or neglects to furnish periodical returns, or to make or amend its rules or byelaws as directed by SEBI, or to comply with directions issued by SEBI, it is liable to a penalty extending to twenty-five crore rupees. Section 23G is therefore the enforcement counterpart to SEBI's supervisory powers over exchanges, including the powers discussed in power to suspend business and the rules on withdrawal of recognition.
Section 23GA — defaults by exchanges and clearing corporations
Section 23GA, a later insertion, penalises a recognised stock exchange or clearing corporation (or any person managing one) that fails to conduct its business in the manner specified by SEBI under the regulations, or in contravention of such regulations or directions. The penalty here is the steepest in the civil band: not less than five crore rupees but which may extend to twenty-five crore rupees, or three times the amount of gains made out of such failure, whichever is higher. The disgorgement-flavoured upper measure — three times the wrongful gain — marks Section 23GA out as a market-infrastructure-integrity provision, recognising that exchanges and clearing corporations sit at the heart of systemic risk.
Section 23H — residuary civil penalty
Section 23H is the civil catch-all. Where a person fails to comply with any provision of the Act, the rules or regulations or byelaws, or directions issued by SEBI, for which no separate penalty has been provided, he is liable to a penalty not exceeding one crore rupees. Section 23H ensures that the civil-penalty net has no gaps: any regulatory default not specifically tariffed by Sections 23A to 23GA still attracts a money penalty. It is the natural companion, on the civil side, to the residuary criminal offence in Section 23M, discussed below. The drafting technique — a specific tariff for named defaults followed by a residuary clause — is deliberate: it allows SEBI to penalise novel or unforeseen contraventions of evolving regulations without waiting for Parliament to add a bespoke provision, while keeping the ceiling proportionate at one crore. In practice, breaches of newer SEBI regulations and circulars that the older Sections 23A to 23GA do not specifically name are routinely brought home under Section 23H.
Section 23I — power to adjudicate and the Shriram principle
Section 23I is the engine room. It empowers SEBI to appoint an officer not below the rank of a Division Chief as an adjudicating officer to hold an inquiry and impose the penalties under Sections 23A to 23H, after giving the person a reasonable opportunity of being heard. The adjudicating officer's order is appealable to the Securities Appellate Tribunal under Section 23L.
The defining doctrinal point is that adjudication under Section 23I determines breach of a civil obligation, for which mens rea is not an essential ingredient. In Chairman, SEBI v. Shriram Mutual Fund, (2006) 5 SCC 361, the Supreme Court held that where, from the scheme, object and words of the statute, the proceedings are adjudicatory in nature — as distinct from criminal or quasi-criminal — the question is only whether the civil obligation has been breached; intention, deliberateness or guilty mind need not be proved, and penalty follows once the contravention is established. On the facts, Shriram Mutual Fund had transacted through associate brokers beyond permissible limits on twelve occasions, and the Court restored the penalty SAT had set aside. Shriram Mutual Fund remains the leading authority that securities penalties operate on a strict-liability basis.
Section 23J — factors for quantum, and the Roofit–Pabari debate
Section 23J directs that, while adjudging the quantum of penalty under Section 23I, the adjudicating officer shall have due regard to: (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 is the SCRA twin of Section 15J of the SEBI Act, and the two have shared a single, contested judicial history.
In SEBI v. Roofit Industries Ltd., (2016) 12 SCC 498 (also reported as AIR 2015 SCW 6504), a two-judge Bench, construing the "one lakh per day or one crore, whichever is less" formula of Section 15A as it stood between 2002 and 2014, held that the adjudicating officer had no discretion to go below the prescribed sum and that the mitigating factors in Section 15J could not be invoked to reduce it. The decision triggered a wave of maximal penalties.
The position was corrected in Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90, where a three-judge Bench held that the factors in Section 15J (and by parity Section 23J of the SCRA) are not exhaustive and continue to inform the quantum, conferring a controlled discretion on the adjudicating officer. The Court read the penalty provisions and Section 15J/23J harmoniously, so that in appropriate cases the officer may impose less than the stated figure. Bhavesh Pabari, being a larger Bench, effectively displaced the rigid reading in Roofit. Parliament had in the meantime added a clarificatory Explanation after Section 23J via the Finance Act, confirming that the power to adjudicate quantum is and shall always be deemed to be exercised under this section.
Section 23JA — settlement of administrative and civil proceedings
Section 23JA introduces the consent / settlement mechanism into the SCRA. Any person against whom proceedings have been initiated, or may be initiated, under Section 12A (delisting/penal powers) or Section 23I may file an application to SEBI proposing for settlement of the proceedings. SEBI may, after taking into consideration the nature, gravity and impact of the default, agree to the settlement on payment of such sum by the defaulter or on such other terms as may be determined in accordance with the regulations. Importantly, the settlement provision expressly excludes the operation of any limitation otherwise applicable, and an order of settlement is non-appealable. Section 23JA mirrors Section 15JB of the SEBI Act and gives statutory footing to SEBI's settlement regulations — a major route by which the bulk of securities matters are now disposed of without contested adjudication.
Sections 23JB and 23K — recovery and destination of penalties
Section 23JB equips SEBI with tax-recovery-style powers to enforce its monetary orders. If a person fails to pay the penalty imposed by the adjudicating officer, or fails to comply with any direction of SEBI for refund of money, or fails to comply with a disgorgement direction or settlement amount, the Recovery Officer may recover the amount as if it were arrears of land revenue. The modes of recovery include attachment and sale of the defaulter's movable and immovable property, arrest and detention, and appointment of a receiver. By aligning the SCRA with Section 28A of the SEBI Act, Section 23JB closes the historic gap between imposing a penalty and actually collecting it — a frequent theme in commentary on whether securities penalties were "provisions for namesake only."
Section 23K then settles where the money goes: all sums realised by way of penalties under the Act shall be credited to the Consolidated Fund of India. The provision is short but conceptually important — it confirms that civil penalties are a public, deterrent sanction accruing to the State, not compensation paid to SEBI or to an affected investor. This reinforces the Shriram Mutual Fund characterisation of the penalty as the enforcement of a civil obligation owed to the regulatory order, distinct from any private remedy the investor may separately pursue through civil suit or other forum.
Section 23L — appeal to the Securities Appellate Tribunal
Section 23L is the appellate gateway. Any person aggrieved by an order or decision of a recognised stock exchange, or by an order of the adjudicating officer, or by an order made by SEBI, may prefer an appeal to the Securities Appellate Tribunal. The appeal must be filed within forty-five days from the date the copy of the order or decision is received, though the Tribunal may condone delay on sufficient cause. The Tribunal must give the parties an opportunity of being heard and is to dispose of the appeal as expeditiously as possible, endeavouring to do so within six months. The reach of Section 23L is broad: SAT has confirmed, for instance, that even orders in delisting matters and penalties imposed by an exchange on member-brokers for SCRA violations are appealable under this section. From SAT, a further appeal lies to the Supreme Court on a question of law.
Section 23M — the residuary criminal offence
Section 23M is the criminal long-stop. Sub-section (1) provides that if any person contravenes, or attempts to contravene, or abets the contravention of, the provisions of the Act, or any rules, regulations or byelaws made thereunder, for which no punishment is provided elsewhere in the Act, he shall 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. Sub-section (2) deals with non-payment: if any person fails to pay the penalty imposed by the adjudicating officer, or fails to comply with any direction or order, he shall be punishable with imprisonment for a term which shall not be less than one month but which may extend to ten years, or with fine which may extend to twenty-five crore rupees, or with both.
Section 23M thus completes the symmetry: Section 23H is the civil residuary penalty, Section 23M the criminal residuary offence, and together they ensure no contravention escapes sanction. The deterrent philosophy behind these provisions was articulated by the Supreme Court in N. Narayanan v. Adjudicating Officer, SEBI, (2013) 12 SCC 152, where the Court — upholding a penalty on a promoter-director of Pyramid Saimira for falsified financials — emphasised that disclosure and transparency are the twin pillars of market integrity and that securities penalties exist to protect investors and deter market abuse. Although N. Narayanan arose under the SEBI Act, its statement of the protective and deterrent rationale governs the SCRA penalty cluster equally.
Frequently asked questions
Is mens rea required to impose a penalty under Sections 23A to 23H of the SCRA?
No. In Chairman, SEBI v. Shriram Mutual Fund, (2006) 5 SCC 361, the Supreme Court held that these are adjudicatory proceedings for breach of a civil obligation, and mens rea is not an essential ingredient; once the contravention is established, penalty follows. Intent or a guilty mind is relevant only to the criminal offences in Sections 23 and 23M.
Does the adjudicating officer have discretion to reduce a penalty below the prescribed amount?
Yes, within limits. SEBI v. Roofit Industries Ltd., (2016) 12 SCC 498, had held there was no discretion, but the three-judge Bench in Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90, held that the Section 23J factors are not exhaustive and confer a controlled discretion, allowing a lower penalty in appropriate cases.
What is the maximum penalty under Section 23A for failing to furnish information?
One lakh rupees for each day during which the failure continues, subject to a maximum of one crore rupees. The same capped per-diem formula appears in Sections 23B and 23C.
What factors must the adjudicating officer weigh under Section 23J?
Three: (a) the disproportionate gain or unfair advantage, wherever quantifiable, made from the default; (b) the loss caused to an investor or group of investors; and (c) the repetitive nature of the default. Per Bhavesh Pabari, this list is illustrative, not exhaustive.
Within what time must an appeal be filed before the Securities Appellate Tribunal under Section 23L?
Within forty-five days from the date on which a copy of the order or decision is received by the appellant. SAT may condone delay if satisfied there was sufficient cause for not filing within that period.
What is the punishment under Section 23M for failing to pay a penalty imposed by the adjudicating officer?
Imprisonment for a term not less than one month but extending to ten years, or a fine up to twenty-five crore rupees, or both. For ordinary residuary contraventions under Section 23M(1), there is no minimum imprisonment but the same ten-year and twenty-five-crore ceilings apply.