Chapter VI-A of the SEBI Act, 1992 created an entire architecture of monetary penalties — Sections 15A to 15HB — but a catalogue of penalties is useless without an officer empowered to impose them and a process that makes that imposition lawful. Section 15-I supplies both. It authorises the Board to appoint an adjudicating officer, prescribes an inquiry with a reasonable opportunity of hearing, and — after the 2014 amendment — arms SEBI with a power to review and enhance that officer's order. For judiciary and CLAT-PG aspirants, Section 15-I is the procedural spine of SEBI's penal jurisdiction, and its interpretation by the Supreme Court in Bhavesh Pabari is among the most heavily examined points in securities law. This chapter unpacks the provision clause by clause, situates it within the wider SEBI Act scheme, and traces the case law that gives the adjudicating officer both his power and his limits.
Where Section 15-I sits in the SEBI Act
The SEBI Act enforces market discipline through three distinct routes. The first is the directions and orders route under Section 11 and Section 11B — remedial, preventive directions issued by the Board itself. The second is the criminal prosecution route under Section 24, which carries imprisonment and is tried by a court. The third, and the one Section 15-I governs, is the civil penalty route under Chapter VI-A, where defaults attract monetary penalties adjudicated administratively. Chapter VI-A was inserted by the Securities Laws (Amendment) Act, 1995 and substantially recast by the amendments of 2002 and 2014.
Sections 15A to 15HB list the specific defaults and their penalties — failure to furnish information (15A), failure of intermediaries (15B and 15C), insider trading (15G), non-disclosure of acquisition (15H), fraudulent and unfair trade practices (15HA), and the residuary penalty (15HB). But these sections only describe what is penalised and how much. Section 15-I is the engine that converts those provisions into operative orders: it names the officer, mandates the procedure, and channels appeals. Understanding it requires reading it alongside the Board's broader powers and functions, because adjudication is one species of the quasi-judicial authority SEBI exercises.
Section 15-I(1): appointment of the adjudicating officer
Section 15-I(1) provides that for the purpose of adjudging under Sections 15A, 15B, 15C, 15D, 15E, 15F, 15G, 15H, 15HA and 15HB, the Board shall appoint any officer not below the rank of a Division Chief 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.
Three features of the sub-section deserve emphasis. First, the adjudicating officer is an internal functionary of SEBI, not an independent tribunal — he is an officer of the Board itself, of at least Division Chief rank, designated for the task. Second, the inquiry must be held "in the prescribed manner," which imports the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. Third, the words "reasonable opportunity of being heard" statutorily entrench the audi alteram partem limb of natural justice into every adjudication. The officer cannot impose a penalty on the basis of investigation material gathered under SEBI's investigation powers without putting that material to the noticee and hearing his answer.
The rank requirement is not a mere formality. Because the adjudicating officer exercises a quasi-judicial function with serious financial consequences, the statute insists on seniority and the procedure rules insist on a written show-cause notice, inspection of documents, and an oral hearing where requested.
The inquiry: show-cause, hearing and the 1995 Rules
The inquiry begins with a notice under Rule 4 of the 1995 Rules. The adjudicating officer issues a written notice to the person alleged to have committed the default, specifying the nature of the default and the provisions said to be contravened, and requires the noticee to show cause why an inquiry should not be held. The notice must afford a reasonable period — not less than the period prescribed — to reply.
If, after the reply (or absence of one), the officer is of the opinion that an inquiry is warranted, he proceeds to hold it. The noticee may appear in person or through an authorised representative, may inspect documents relied upon, and may lead evidence. Section 15-I read with the rules also confers on the adjudicating officer the power to summon and enforce the attendance of any person acquainted with the facts and to require the discovery and production of documents — powers analogous to those of a civil court under the Code of Civil Procedure, 1908. The Supreme Court in Adjudicating Officer, SEBI v. Bhavesh Pabari (2019) 5 SCC 90 stressed that although Chapter VI-A prescribes no outer limit for initiating adjudication, the inquiry must be commenced within a reasonable time, since the absence of a limitation period does not licence indefinite delay; what is reasonable depends on the facts of each case.
The procedural rigour matters because an order passed in breach of the rules — for instance, without supplying the documents relied upon, or without a meaningful hearing — is liable to be set aside on appeal as a violation of natural justice.
Section 15-I(2): imposition of penalty
Section 15-I(2) provides that the adjudicating officer may, after holding the inquiry and on being satisfied that the person has failed to comply with the provisions of any of the sections specified in sub-section (1), impose such penalty as he thinks fit in accordance with the provisions of the relevant section. The phrase "as he thinks fit" is the source of the officer's discretion as to quantum, but that discretion is hemmed in by two things: the ceiling and floor stated in the charging section itself (for example, Section 15HA fixing fraudulent-trade penalties up to twenty-five crore rupees or three times the profit, whichever is higher), and the guiding factors in Section 15-J.
The order must be a reasoned order in writing. A penalty order that records no reasons, or that mechanically imposes the maximum without engaging with the Section 15-J factors, is vulnerable. The discretion is to be exercised judicially, not arbitrarily — a theme the courts have returned to repeatedly when reviewing the interplay between the charging sections and Section 15-J.
Section 15-J: factors in adjudging quantum
Section 15-J is read into every Section 15-I adjudication. It directs that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following 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.
For years the critical question was whether these three clauses are an exhaustive list that confines the officer, or merely illustrative guideposts. The answer determines whether an adjudicating officer may consider mitigating circumstances — the trivial or technical nature of a breach, the absence of investor harm, the bona fides of the defaulter — that fall outside clauses (a) to (c). The Securities Laws (Amendment) Act, 2014 later added an Explanation to Section 15-J clarifying that the power of the adjudicating officer to adjudge the quantum of penalty under Sections 15A to 15HA shall be and shall always be deemed to have been exercised under the provisions of Section 15-J — a legislative move directed precisely at the controversy the courts had thrown up.
The Roofit Industries problem
The controversy crystallised in SEBI v. Roofit Industries Ltd (2016) 12 SCC 125. A two-judge Bench, dealing with Section 15A as it then stood (which used minimum-penalty language), held that where the charging provision prescribed a fixed or minimum penalty, the adjudicating officer had no discretion to go below it, and that the factors in Section 15-J were the only grounds that could be taken into account — in other words, Section 15-J was treated as exhaustive. On that reading, an officer confronted with a technical default and a statutorily fixed penalty was bound to impose it regardless of the equities.
This produced harsh, mechanical outcomes: large penalties for minor or non-prejudicial breaches, with no room to weigh the absence of gain or loss. Practitioners and later Benches found the position difficult to reconcile with the discretionary language "as he thinks fit" in Section 15-I(2) and with the word "namely" preceding the Section 15-J factors, which they read as illustrative rather than restrictive.
Siddharth Chaturvedi: the doubt and the reference
In Siddharth Chaturvedi v. SEBI, a Division Bench of the Supreme Court, hearing penalties imposed for insider-trading-related defaults, expressly doubted the correctness of Roofit. The Bench was uncomfortable with reading the word "namely" in Section 15-J as making clauses (a) to (c) exhaustive, observing that such a reading could produce anomalous results by barring the adjudicating officer from considering plainly relevant mitigating factors. Because Roofit was itself a decision of co-ordinate strength and the point was of recurring importance, the Bench referred the question of the interplay between Section 15A and Section 15-J to a larger Bench for an authoritative resolution. The reference set the stage for the three-judge decision in Bhavesh Pabari.
Bhavesh Pabari: controlled discretion settled
The reference was answered in Adjudicating Officer, Securities and Exchange Board of India v. Bhavesh Pabari (2019) 5 SCC 90, decided on 28 February 2019 by a three-judge Bench. The Court overruled Roofit Industries on the exhaustiveness point and held that the three factors enumerated in Section 15-J are not exhaustive; they are illustrative, and the adjudicating officer may consider other relevant factors in determining the quantum of penalty. The Court reasoned that reading Section 15-J as a closed list would render the discretion conferred by Section 15-I(2) ("such penalty as he thinks fit") nugatory and would compel disproportionate penalties for trivial defaults, an outcome the legislature could not have intended.
The Court was careful, however, to describe the discretion as controlled, not unbridled. The adjudicating officer must still operate within the ceiling fixed by the charging section, must give due regard to the Section 15-J factors as a matter of obligation, and must record reasons. The 2014 Explanation to Section 15-J was read as confirming, rather than displacing, this discretion. Bhavesh Pabari also addressed the limitation question, holding that even where no period is prescribed, adjudication must be initiated within a reasonable time. The decision is now the governing authority on the relationship between Section 15-I, the charging sections, and Section 15-J.
Civil character of the penalty: mens rea is irrelevant
A foundational principle of Section 15-I adjudication is that the penalty is civil, not criminal, in character, and therefore proof of mens rea — a guilty mind or deliberate intent — is not a precondition to its imposition. The principle was laid down by a Division Bench of the Bombay High Court in SEBI v. Cabot International Capital Corporation (2004) 51 SCL 307 (Bom), which held that breaches of the SEBI Act and Regulations are civil obligations and that intention is not an essential ingredient for penalty under Chapter VI-A.
The Supreme Court endorsed and elevated this approach in Chairman, SEBI v. Shriram Mutual Fund (2006) 5 SCC 361. There, SEBI had penalised a mutual fund for transacting through associate brokers beyond the permissible limit on twelve occasions; the Securities Appellate Tribunal had set the penalty aside on the ground that there was no deliberate violation. The Supreme Court reversed, holding that once a contravention of a statutory civil obligation is established, penalty must follow, and the intention of the defaulter is immaterial. The Court drew the line clearly: Chapter VI-A deals with defaults of civil obligations, while Section 24 deals with criminal offences; proceedings under Chapter VI-A being neither criminal nor quasi-criminal, there is no question of proving mens rea. For an adjudicating officer this means liability and quantum are distinct inquiries — intent is irrelevant to whether the penalty is attracted, though factors going to culpability and harm remain relevant to how much is imposed under Section 15-J.
Section 15-I(3): SEBI's power to review and enhance
The Securities Laws (Amendment) Act, 2014 inserted Section 15-I(3), a significant addition that gives the Board a supervisory check over its own adjudicating officers. Under sub-section (3), the Board may call for and examine the record of any proceeding under Section 15-I 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 making or causing to be made such inquiry as it deems necessary, enhance the quantum of penalty. This power must be exercised after giving the person an opportunity of being heard, and within a defined window — no order enhancing the penalty may be passed after the expiry of a period of three months from the date of the order, or after the disposal of an appeal under Section 15-T, whichever is earlier.
Two features are crucial for an exam answer. First, the power is one-directional — it permits enhancement only; SEBI cannot use Section 15-I(3) to reduce a penalty or otherwise modify the order in the noticee's favour. Second, the trigger is narrow: the order must be erroneous in a way that prejudices the interests of the securities market, not merely an order SEBI would have passed differently. Commentators and SEBI's own practice have treated even a nil-penalty order as reviewable under sub-section (3), since a wrongly lenient order can equally injure market interests. The three-month outer limit makes the power a swift corrective rather than an open-ended re-opening.
Adjudication, settlement and overlap with Section 11B
Section 15-I adjudication does not occupy the field exclusively. The same default may also expose a person to directions under Section 11 and 11B (disgorgement, restraint from the market, refund to investors) and, in serious cases, to prosecution under Section 24. The Supreme Court has accepted that civil penalty and these other consequences are distinct and may co-exist, because they serve different purposes — penalty is punitive-cum-deterrent, disgorgement is restitutionary, and prosecution is criminal.
Section 15-I proceedings can also be terminated by settlement under Section 15JB read with the SEBI (Settlement Proceedings) Regulations, 2018, under which a noticee may settle the proceedings on payment of a settlement amount without admission or denial of guilt. A settlement order forecloses the adjudication. Aspirants should note that the adjudicating officer's order, the Section 15-I(3) enhancement, and any settlement all feed into the same appellate channel, which makes the next provision — Section 15-T — the natural sequel to Section 15-I.
Appeal to the Securities Appellate Tribunal
An order of the adjudicating officer under Section 15-I is appealable to the Securities Appellate Tribunal under Section 15-T, and from the Tribunal a further appeal lies to the Supreme Court on a question of law under Section 15-Z. This two-tier appellate structure is what gives the adjudicating officer's quasi-judicial order its legitimacy: errors of procedure (denial of hearing, non-supply of documents), errors of law (misreading of the charging section), and errors as to quantum (failure to apply Section 15-J) can all be corrected on appeal.
The decisions discussed in this chapter reach the Supreme Court precisely through this route — Shriram Mutual Fund arrived from a SAT order setting aside a penalty, and Bhavesh Pabari from SAT orders reducing penalties imposed under Section 15-I. The SAT's role as the first appellate forum, applying the principles in Cabot on civil liability and Bhavesh Pabari on controlled discretion, makes it the practical guardian of how Section 15-I is administered day to day.
Exam takeaways and common traps
For the examination, fix five points. One: Section 15-I(1) requires an adjudicating officer of at least Division Chief rank, an inquiry in the prescribed manner, and a reasonable opportunity of hearing — the natural-justice content is statutory, not merely judge-made. Two: Section 15-I(2) gives discretion as to quantum ("as he thinks fit"), but that discretion is controlled by the charging section's ceiling and by Section 15-J. Three: after Bhavesh Pabari (2019) 5 SCC 90, the Section 15-J factors are illustrative, not exhaustive, and Roofit Industries (2016) 12 SCC 125 stands overruled on that point. Four: mens rea is irrelevant to liability — Shriram Mutual Fund (2006) 5 SCC 361 and Cabot International Capital are the authorities. Five: Section 15-I(3), inserted in 2014, allows SEBI to enhance (never reduce) a penalty within three months where the order is erroneous and against market interests.
The commonest trap is to state that Roofit remains good law on Section 15-J — it does not. A second trap is to confuse the Board's Section 15-I(3) review power (enhancement only, internal) with the SAT appeal under Section 15-T (full appellate review, external). Keep these strands distinct, and cross-read the chapter with the SEBI Act's overall scheme and the Board's powers and functions to see how adjudication fits within SEBI's larger enforcement toolkit.
Frequently asked questions
Who can be appointed an adjudicating officer under Section 15-I?
Under Section 15-I(1), the Board may appoint any officer of SEBI not below the rank of a Division Chief to act as an adjudicating officer for adjudging defaults under Sections 15A to 15HB. The officer holds an inquiry in the manner prescribed by the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995, after giving the person concerned a reasonable opportunity of being heard.
Are the factors in Section 15-J exhaustive when fixing penalty?
No. In Adjudicating Officer, SEBI v. Bhavesh Pabari (2019) 5 SCC 90, a three-judge Bench held that the three factors in Section 15-J — disproportionate gain, loss to investors, and repetitive nature of the default — are illustrative, not exhaustive. The officer may consider other relevant mitigating or aggravating factors. This overruled the contrary view in SEBI v. Roofit Industries Ltd (2016) 12 SCC 125.
Is mens rea required to impose a penalty under Section 15-I?
No. Penalties under Chapter VI-A are civil in character, so intent is irrelevant to liability. SEBI v. Cabot International Capital Corporation (2004) 51 SCL 307 (Bom) and Chairman, SEBI v. Shriram Mutual Fund (2006) 5 SCC 361 hold that once a contravention of a statutory civil obligation is established, penalty follows regardless of the defaulter's intention. Mens rea matters only to criminal prosecution under Section 24.
What is SEBI's power under Section 15-I(3)?
Section 15-I(3), inserted by the Securities Laws (Amendment) Act, 2014, lets the Board examine the record of an adjudication and enhance the penalty if the adjudicating officer's order is erroneous to the extent it is not in the interests of the securities market. The power is enhancement-only — it cannot reduce a penalty — and must be exercised after a hearing and within three months of the order (or before disposal of a Section 15-T appeal, whichever is earlier).
What was the issue in Siddharth Chaturvedi v. SEBI?
In Siddharth Chaturvedi v. SEBI, a Division Bench of the Supreme Court doubted the correctness of Roofit Industries on whether Section 15-J's factors are exhaustive and whether the adjudicating officer has discretion as to quantum. Because the point clashed with a co-ordinate Bench decision, the question of the interplay between Section 15A and Section 15-J was referred to a larger Bench, which decided it in Bhavesh Pabari.
Where can an order under Section 15-I be challenged?
An order of the adjudicating officer is appealable to the Securities Appellate Tribunal under Section 15-T, and a further appeal on a question of law lies to the Supreme Court under Section 15-Z. The SAT is the first appellate forum and reviews procedure, law, and quantum. Both Shriram Mutual Fund and Bhavesh Pabari reached the Supreme Court through SAT orders modifying or setting aside Section 15-I penalties.