The SEBI Act, 1992 punishes securities-market wrongdoing on two parallel tracks. One track is civil and administrative — the monetary penalties of Chapter VI-A imposed by an adjudicating officer. The other track is criminal: prosecution before a court, ending in imprisonment and fine. Sections 24 to 26 are the heart of that second track. Section 24 creates the offence and fixes the punishment; Section 24A allows certain offences to be compounded; Section 24B lets the Central Government grant immunity to a whistle-blowing wrongdoer; Section 25 is an unrelated tax-exemption clause carried in the same neighbourhood; and Section 26 is the gatekeeper — it bars any court from taking cognizance of a SEBI offence except on a complaint made by the Board. Together with the civil penalty regime and the investigation machinery, these provisions complete the enforcement pyramid of the statute. This chapter walks through each section as it stands after the major surgery of 1995, 2002 and 2014, and grounds every proposition in decided cases.
Two Tracks: Civil Penalty Versus Criminal Offence
To understand Section 24 you must first see what it is not. The SEBI Act runs two distinct liability regimes. Chapter VI-A (Sections 15A to 15HB) imposes civil monetary penalties adjudicated by an officer of the Board, with appeals to the Securities Appellate Tribunal. Chapter VII (Sections 24 to 27) creates criminal offences tried by a court, carrying imprisonment. The two run in parallel and are not mutually exclusive: Section 24(1) itself opens with the words “Without prejudice to any award of penalty by the adjudicating officer under this Act”, so a person may face both a civil penalty and a criminal prosecution for the same conduct.
The Supreme Court drew the conceptual line sharply in SEBI v. Shriram Mutual Fund (2006) 5 SCC 361. There the question was whether mens rea — a guilty mind — must be proved before a civil penalty is levied. The Court held it need not: “once the contravention is established, the penalty is to follow,” and the breach of a civil obligation attracts penalty as a matter of strict liability, the only discretion being as to quantum. That reasoning rests precisely on the civil/criminal divide — the strict-liability logic applies to penalties, not to the criminal offences of Section 24, where ordinary criminal-law principles, including proof beyond reasonable doubt, govern. The classic statement of the penalty principle, on which Shriram built, is Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627 : AIR 1970 SC 253, which described penalty for breach of a statutory obligation as the outcome of a “quasi-criminal” proceeding. Keeping this dividing line in view prevents the most common student error — importing penalty case law into the offence provisions and vice versa.
Section 24(1): The General Offence and Its Punishment
Section 24(1) is the engine of the criminal track. It provides that, without prejudice to any penalty by the adjudicating officer, “if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made thereunder, 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.” Three features deserve emphasis. First, the offence is cast widely: it covers not only a completed contravention but also an attempt and abetment, so a person who aids or instigates a violation is independently liable. Second, the punishment is severe and was made so only recently — the original 1992 text capped imprisonment at one year with an unspecified fine. Third, the offence is referential: it does not itself spell out conduct but punishes the breach of any provision of the Act, rules or regulations — from the obstruction of an investigation to a fraudulent trading scheme under the PFUTP Regulations.
This referential structure was central to SEBI v. Gaurav Varshney (2016) 10 SCC 641. SEBI had launched complaints under Sections 24(1) and 27 alleging that the accused ran a collective investment scheme through Gaurav Agrigenetics Ltd. without the registration mandated by Section 12(1B). The Supreme Court accepted SEBI’s substantive reading of Section 12(1B) — the bar on unregistered CIS activity operated from 25 January 1995, not merely from the 1999 CIS Regulations — yet upheld the quashing of the complaints because SEBI had mis-categorised the violation and prosecuted persons who could not, on the facts pleaded, be fastened with the offence. The lesson for Section 24 is that the prosecution must precisely identify the underlying provision contravened; a vague or mis-pleaded foundation is fatal even where the broader legal position favours the regulator.
Section 24(2): Punishment for Defying an Adjudicating Officer
Section 24(2) addresses a narrower wrong: defiance of the civil-penalty machinery itself. It provides that “if any person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders, 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.” Unlike sub-section (1), this clause carries a mandatory minimum of one month’s imprisonment, marking Parliament’s intent to give real teeth to adjudication orders. The provision converts a defaulter’s contumacy into a free-standing offence: the original contravention may be punished under sub-section (1), while the subsequent refusal to pay or comply is punished under sub-section (2).
The current quantum — ten years and twenty-five crore rupees in both sub-sections — dates from the SEBI (Amendment) Act, 2002 (effective 29 October 2002). Before that, sub-section (2) prescribed up to three years and a fine of two thousand to ten thousand rupees. Because punishment for a criminal offence cannot operate retrospectively, the date of the offending conduct decides which scale applies — a point of real importance in long-running prosecutions arising from pre-2002 conduct, where the milder original sentence governs even if the trial concludes today.
The Three Amendments That Reshaped Chapter VII
Section 24 is best read as a layered text. As originally enacted in 1992 it was titled simply “Penalty” and prescribed up to one year’s imprisonment or fine or both. The Securities Laws (Amendment) Act, 1995 (w.e.f. 25 January 1995) substituted the entire section, renaming it “Offences”, splitting it into sub-sections (1) and (2), and — crucially — simultaneously creating Chapter VI-A with the civil penalty scheme, so that the criminal and civil tracks were born together. The SEBI (Amendment) Act, 2002 (w.e.f. 29 October 2002) escalated the punishment to the present ten-year imprisonment and twenty-five-crore fine, and inserted Sections 24A (composition) and 24B (immunity). Finally, the Securities Laws (Amendment) Act, 2014 rewrote the cognizance and forum provisions, omitting old Section 26(2) and inserting the Special Courts regime in Sections 26A to 26E with retrospective effect from 18 July 2013.
Knowing this chronology is not antiquarianism. As the discussion of the parallel penalty provisions in Adjudicating Officer, SEBI v. Bhavesh Pabari (2019) 5 SCC 90 shows, the Supreme Court repeatedly fixes liability and quantum by reference to the text “as it stood” on the date of the conduct. The same temporal discipline governs Section 24: a contravention committed in 1998 is judged by the 1995 text and its one-year ceiling, while conduct in 2015 attracts the full ten-year exposure. You can trace the institutional backstory of these reforms in the introduction to the Act’s object and scheme.
Section 24A: Composition of Certain Offences
Section 24A, inserted in 2002, opens a settlement door. “Notwithstanding anything contained in the Code of Criminal Procedure, 1973, any offence punishable under this Act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may either before or after the institution of any proceeding, be compounded by a Securities Appellate Tribunal or a court before which such proceedings are pending.” Composition is, in effect, a court- or Tribunal-supervised compromise that brings the prosecution to an end. The carve-out matters: offences punishable with imprisonment only, or with imprisonment and also fine, cannot be compounded. Because Section 24(1) and 24(2) are framed in the alternative — imprisonment or fine or both — they fall within the compoundable class, distinguishing SEBI composition from the separate settlement of civil penalties.
The leading authority is Prakash Gupta v. SEBI (2021) 6 SCC 800. The Supreme Court held that while SEBI’s consent to a composition is not a mandatory pre-condition — the power vests in the SAT or the court, not the regulator — the court must give the “highest deference” to SEBI’s considered view before allowing composition, given SEBI’s expertise and its statutory role in protecting investors. The Court read Section 24A harmoniously with the broader scheme and rejected the argument that the regulator could veto any settlement, while equally rejecting the idea that its objections could be brushed aside. The practical upshot: a securities accused may seek composition, but the court will scrutinise the gravity of the violation and SEBI’s stance, refusing composition where the offence strikes at market integrity.
Section 24B: Power of the Central Government to Grant Immunity
Section 24B, also inserted in 2002, is a leniency tool aimed at unravelling complex frauds. Under sub-section (1) the Central Government — not SEBI — may, on the Board’s recommendation, grant a person immunity from prosecution and from penalty if satisfied that the person has made “a full and true disclosure” of the alleged violation. Two provisos bite: immunity cannot be granted once prosecution has already been instituted before the application is received, and the Board’s recommendation is not binding on the Central Government. Sub-section (2) allows withdrawal of immunity if the person fails to comply with its conditions, gives false evidence, or did not make a true disclosure — whereupon the person may be tried afresh and exposed to penalty.
Section 24B should not be confused with the consent and settlement mechanism that SEBI operates administratively, nor with composition under Section 24A. The architecture is deliberate: composition is judicially supervised and ends a pending case; immunity is an executive grant by the Central Government that pre-empts prosecution in exchange for cooperation; and settlement orders under Section 15JB resolve civil proceedings. Each has a different decision-maker and a different trigger. The split of power — SEBI recommends, the Central Government decides — mirrors the supervisory relationship explored in the establishment of the Board, where the Government retains residual policy control over an otherwise autonomous regulator.
Section 25: The Out-of-Place Tax Exemption
Section 25 has nothing to do with offences and sits in Chapter VII almost by accident of numbering. It provides that, notwithstanding the Wealth-tax Act, 1957, the Income-tax Act, 1961 or any other tax enactment, neither the Board nor the erstwhile existing Securities and Exchange Board (from its constitution until the Board’s establishment) shall be liable to pay wealth-tax, income-tax or any other tax on their wealth, income, profits or gains. In substance it is a fiscal-immunity clause for the regulator itself, reflecting SEBI’s character as a statutory body discharging public regulatory functions rather than a commercial entity.
For an exam answer on “Sections 24 to 26”, Section 25 is the easy mark: identify it, note that it is a tax-exemption provision unconnected to the offence-and-cognizance theme, and move on. Its only conceptual link to the rest of the chapter is institutional — it underscores that the body whose composition and members are governed by Chapter II is treated as an arm of the State for fiscal purposes, just as it wields State-like enforcement power in the surrounding sections.
Section 26: Cognizance Only on a Complaint by the Board
Section 26 is the procedural keystone of the criminal track. Sub-section (1) now reads: “No court shall take cognizance of any offence punishable under this Act or any rules or regulations made thereunder, save on a complaint made by the Board.” This is a jurisdictional bar. A court cannot set the criminal law in motion on a private complaint, a police report, or a general member of the public; the gateway to prosecution is a complaint by SEBI. The provision channels all securities-offence prosecution through the expert regulator, preventing harassment of market participants by vexatious private litigants and ensuring that criminal prosecution is reserved for cases SEBI itself considers worth pursuing.
The text we read today is the product of pruning. As originally enacted, Section 26(1) required “the previous sanction of the Central Government” in addition to a Board complaint; those words were omitted by the 1995 Amendment, freeing SEBI to prosecute without prior governmental clearance and reinforcing its autonomy. The complaint requirement is mandatory and goes to the root of the court’s competence — a prosecution founded on anything other than a Board complaint is liable to be quashed. In SEBI v. Gaurav Varshney, the complaints were indeed instituted by SEBI under Section 200 CrPC as Board complaints, which is why the contest there turned on the substantive offence and not on the cognizance gateway; the case nonetheless illustrates that the Board-complaint route is the only door to a SEBI prosecution.
The Vanished Section 26(2) and the Question of Forum
Before 2014, Section 26(2) fixed the trial forum: “No court inferior to that of a Court of Session shall try any offence punishable under this Act.” This ensured that SEBI offences — carrying heavy sentences — were tried by a Sessions Court rather than a magistrate. The Securities Laws (Amendment) Act, 2014 omitted sub-section (2) with retrospective effect from 18 July 2013, because the forum question had been re-engineered through a dedicated Special Courts regime in the new Sections 26A to 26E. Students must therefore be careful: a bare act printed before 2014 will still show Section 26(2), but it no longer exists in the live statute.
The removal was not a dilution of the forum standard but an upgrade. Rather than merely barring courts below the Sessions level, Parliament created purpose-built Special Courts staffed by Sessions-rank judges to deliver “speedy trial” of securities offences. The shift reflects the same enforcement-strengthening philosophy that drove the parallel expansion of SEBI’s powers and functions in the 2014 reforms — tougher punishment under Section 24, exclusive prosecutorial control under Section 26(1), and a faster, specialised trial forum under Section 26A onwards.
Sections 26A to 26E: The Special Courts Regime
The 2014 Amendment inserted a complete trial framework, again with retrospective effect from 18 July 2013. Section 26A empowers the Central Government to establish or designate Special Courts for speedy trial; each consists of a single judge appointed with the concurrence of the Chief Justice of the relevant High Court, and the judge must be a sitting Sessions or Additional Sessions Judge. Section 26B provides that all offences under the Act — whether committed before or after the 2014 commencement — shall be taken cognizance of and tried by the Special Court for the relevant area, notwithstanding the CrPC. Section 26C confers appeal and revision powers on the High Court as if the Special Court were a Court of Session. Section 26D applies the CrPC to Special Court proceedings, deems the Special Court a Court of Session, and prescribes qualifications for the prosecutor. Section 26E is transitional — until a Special Court is established, a Court of Session exercises the jurisdiction.
The retrospective sweep of Section 26B — reaching back to offences committed before the regime existed — is constitutionally tolerable because it changes only the forum and procedure, not the punishment. Article 20(1) of the Constitution forbids retrospective enhancement of penal consequences, but a change of trial court is procedural and may operate retrospectively. This distinction — substantive sentence cannot be increased retrospectively (so the 2002 escalation in Section 24 applies prospectively) while the forum can be re-routed retrospectively (so Section 26B captures old offences) — is a favourite examiner’s trap and should be stated explicitly in any answer on Sections 24 to 26.
Section 27: How the Offence Reaches Directors and the Company
Although Section 27 sits just outside the “24 to 26” band, no discussion of SEBI offences is complete without it, and it was expressly invoked alongside Section 24 in Gaurav Varshney. Section 27(1) provides that where an offence under the Act is 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 the business of the company, as well as the company,” is deemed guilty — subject to a proviso protecting a person who proves the offence was committed without his knowledge or that he exercised due diligence. Sub-section (2) extends liability to any director, manager, secretary or other officer with whose consent or connivance, or due to whose neglect, the offence was committed.
The vicarious-liability principle was elaborated for the securities context in N. Narayanan v. Adjudicating Officer, SEBI (2013) 12 SCC 152, where a whole-time director of Pyramid Saimira Theatre Ltd. who pleaded that his role was confined to human resources was nonetheless held accountable for fraudulent financial misstatements; the Supreme Court upheld a two-year market debarment and a fifty-lakh penalty under Section 15-HA, stressing that directors carry a non-delegable duty to ensure corporate compliance. While Narayanan arose on the penalty side, its reasoning on directorial responsibility maps directly onto Section 27’s “in charge of and responsible to” test, and explains why Gaurav Varshney required SEBI to plead with precision the role of each director before the Section 24 read with Section 27 offence could stick.
Why the Offence Provisions Matter: The Enforcement Context
The criminal track does not operate in a vacuum; it backstops SEBI’s vast civil and remedial powers. Sahara India Real Estate Corporation Ltd. v. SEBI (2012) 10 SCC 603 is the paradigm. Two Sahara companies raised over twenty-four thousand crore rupees from roughly three crore investors through Optionally Fully Convertible Debentures, claiming the issue was a private placement beyond SEBI’s reach. The Supreme Court rejected that gambit, held the issue to be a public offer within SEBI’s jurisdiction, and directed refund with interest — a landmark assertion of regulatory reach over disguised public fundraising. Persistent defiance of such orders is exactly the conduct that converts a civil dispute into a Section 24(2) offence, where failure to comply with SEBI’s directions becomes independently punishable.
The same logic animates the penalty-discretion debate. In SEBI v. Roofit Industries Ltd. (2015) 16 SCC 471 the Court read the post-2002 Section 15A as leaving the adjudicating officer no discretion in fixing the minimum penalty — a stance later overruled in Bhavesh Pabari, which restored “controlled discretion” under Section 15J. These cases concern the civil tier, but they frame why Parliament armed SEBI with a parallel criminal track: when civil penalties and refunds are flouted, Sections 24 to 26 ensure the wrongdoing can be escalated to imprisonment. For the wider machinery that feeds these prosecutions, see the investigation powers under Section 11C and the regulator’s general mandate in the SEBI Act hub.
Exam Synthesis: Pinning Down Sections 24 to 26
A high-scoring answer organises the band around four moves. First, state the offence: Section 24(1) punishes contravention, attempt or abetment of any provision with up to ten years and/or twenty-five crore rupees; Section 24(2) separately punishes non-payment of penalty or defiance of an adjudicating officer’s order, with a one-month minimum. Second, flag the settlement valves: Section 24A composition (by SAT or court, with deference to SEBI per Prakash Gupta) and Section 24B immunity (by the Central Government on SEBI’s non-binding recommendation). Third, deal with Section 25 in one line — a tax-exemption clause for the Board, unrelated to offences. Fourth, master Section 26: cognizance only on a Board complaint (the Central-Government sanction requirement was dropped in 1995), the old Section 26(2) Sessions-Court bar omitted in 2014, and the Special Courts regime of Sections 26A to 26E now governing the forum.
Weave in the cases as authority rather than decoration: Shriram Mutual Fund and Hindustan Steel for the civil/criminal divide and the irrelevance of mens rea to penalties; Gaurav Varshney for precise pleading of the underlying contravention under Sections 24 and 27; N. Narayanan for directorial liability; Sahara for the enforcement stakes; and Prakash Gupta for composition. Close by noting the constitutional nuance — the 2002 sentence escalation is prospective under Article 20(1), but the 2014 change of forum operates retrospectively because it is procedural. That single sentence signals command of the whole chapter.
Frequently asked questions
What is the maximum punishment under Section 24 of the SEBI Act?
Since the SEBI (Amendment) Act, 2002, Section 24(1) and 24(2) both prescribe imprisonment up to ten years, or fine up to twenty-five crore rupees, or both. Section 24(2), which punishes failure to pay a penalty or comply with an adjudicating officer's order, additionally carries a mandatory minimum of one month's imprisonment. The original 1992 text capped imprisonment at only one year.
Can a private person prosecute someone for a SEBI offence?
No. Section 26(1) bars any court from taking cognizance of an offence under the Act “save on a complaint made by the Board”. This is a jurisdictional bar — only SEBI can set the criminal law in motion, and a prosecution founded on a private complaint or police report is liable to be quashed. The earlier requirement of prior Central Government sanction was omitted by the 1995 Amendment.
Is mens rea required for a Section 24 offence?
Section 24 creates a criminal offence, so ordinary criminal-law standards including proof of the requisite mental element and proof beyond reasonable doubt apply. This is distinct from civil penalties under Chapter VI-A, where SEBI v. Shriram Mutual Fund (2006) held that mens rea need not be proved — strict liability follows once the contravention is established. Do not import the penalty rule into the offence provisions.
Which court tries a SEBI offence today?
Special Courts under Sections 26A to 26E, inserted by the 2014 Amendment with retrospective effect from 18 July 2013. A Special Court is a single judge of Sessions or Additional Sessions rank, appointed with the concurrence of the High Court Chief Justice. The old Section 26(2), which simply barred any court below a Court of Session, was omitted in 2014. Until a Special Court is set up, a Court of Session exercises the jurisdiction under Section 26E.
Can a SEBI offence be compounded or settled?
Yes, under Section 24A, by the Securities Appellate Tribunal or the court before which proceedings are pending, except for offences punishable with imprisonment only or with imprisonment and also fine. In Prakash Gupta v. SEBI (2021) the Supreme Court held SEBI's consent is not mandatory, but the court must give the highest deference to SEBI's view before allowing composition. This is separate from Section 24B immunity granted by the Central Government and from civil settlement orders.
Are directors personally liable for a company's SEBI offence?
Yes. Section 27 deems every person in charge of and responsible to the company for its business, as well as the company, guilty, subject to a due-diligence defence, and extends liability to officers by whose consent, connivance or neglect the offence occurred. N. Narayanan v. SEBI (2013) confirmed that a director cannot escape by claiming a limited functional role, as directors bear a non-delegable duty to ensure compliance; SEBI v. Gaurav Varshney (2016) shows the complaint must still plead each director's role precisely.