Chapter VIA of the SEBI Act, 1992 is the regulator's civil arsenal. Sections 15A to 15HB lay down a graded ladder of monetary penalties — from a lakh-a-day for a missing return to twenty-five crore rupees or three times the illicit profit for insider trading and market fraud. What makes the chapter a perennial favourite in judiciary and CLAT-PG papers is not the rupee figures but the jurisprudence woven around them: penalties here are civil, not criminal; mens rea is irrelevant; the word “shall be liable” was read as mandatory in Shriram Mutual Fund, then softened by the discretion debate that ran from Roofit Industries to Bhavesh Pabari. This chapter unpacks every section, the adjudication machinery in Section 15-I, the guiding factors in Section 15J, and the leading authorities you must be able to cite cold.
The Scheme: Civil Penalties, Not Criminal Punishment
Chapter VIA, headed “Penalties and Adjudication”, was inserted into the SEBI Act by the Securities Laws (Amendment) Act, 1995 with effect from 25 January 1995, and substantially recast by the SEBI (Amendment) Act, 2002 and the Securities Laws (Amendment) Act, 2014. Its defining feature is that the liabilities it creates are civil in character. Each operative section uses the formula “he shall be liable to a penalty”, and the sums realised are credited to the Consolidated Fund of India under Section 15JA. These are not fines following conviction; they are summary monetary consequences for breach of regulatory obligations, adjudged by an officer of the Board, distinct from the criminal offences punishable under Section 24 with imprisonment.
The leading exposition of this civil character is the Bombay High Court's Division Bench ruling in Securities and Exchange Board of India v. Cabot International Capital Corporation (decided 3 March 2004). The Court held that the scheme of the SEBI Act in imposing monetary penalty is “very clear”: Chapter VIA “nowhere deals with criminal offence”, and the defaults are “nothing but failure or default of summary civil obligations”. Because the liability is civil and not penal in the criminal sense, the Court concluded that mens rea is not an essential ingredient for a contravention. This holding, that the adjudicating officer performs a quasi-judicial function to determine liability for breach of civil obligations, became the doctrinal foundation later affirmed by the Supreme Court. To see where this fits within SEBI's enforcement design, read alongside our note on the regulator's powers and functions and its investigation powers.
Section 15A: Failure to Furnish Information, Returns and Records
Section 15A is the workhorse of the chapter and the most frequently invoked penalty provision. It penalises a person who, being required under the Act or rules or regulations, fails to (a) furnish any document, return or report to the Board; (b) file any return or furnish information, books or other documents within the specified time; or (c) maintain books of account or records. For each limb the penalty “shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees”.
The present quantum reflects the 2002 substitution. Before 29 October 2002, clause (a) attracted only “a penalty not exceeding one lakh and fifty thousand rupees for each such failure”, while clauses (b) and (c) carried daily penalties of five thousand and ten thousand rupees respectively. The 2002 recast introduced the now-familiar “minimum one lakh / one lakh per day / maximum one crore” architecture that runs through Sections 15A to 15E. It was precisely a Section 15A penalty that the Supreme Court restored in SEBI v. Roofit Industries Ltd., where the Securities Appellate Tribunal had cut the adjudicating officer's penalty from one crore rupees to sixty thousand — an episode examined in the discretion debate below.
Sections 15B and 15C: Client Agreements and Investor Grievances
Section 15B targets a registered intermediary who is required to enter into an agreement with a client but fails to do so. Section 15C penalises a listed company or registered intermediary that, after being called upon in writing by the Board to redress investor grievances, fails to redress them within the specified time. Both sections carry the standard slab: not less than one lakh rupees, extending to one lakh rupees for each day the failure continues, subject to a maximum of one crore rupees.
Section 15C deserves special attention because its earlier form — before the 2014 amendment — read “one lakh rupees for each day during which such failure continues or one crore rupees, whichever is less”. The 2014 substitution aligned it with the floor-and-ceiling model, introducing a one-lakh minimum. The shift is a small but examinable illustration of Parliament's steady move from purely discretionary or capped penalties toward mandatory minimum floors, the legislative choice that drives the mandatory-penalty reasoning in Shriram Mutual Fund. The obligation to enter into client agreements under Section 15B ties directly to the registration architecture explained in our note on powers and functions.
Section 15D: Defaults in Collective Investment Schemes and Mutual Funds
Section 15D is a five-clause provision penalising defaults by sponsors and operators of collective investment schemes, including mutual funds. It bites where a person (a) sponsors or carries on a scheme without obtaining a certificate of registration; (b) fails to comply with the terms and conditions of registration; (c) fails to comply with the regulations governing listing; (d) fails to despatch unit certificates within the prescribed time; or (e) fails to refund application monies. Each clause attracts the standard one lakh minimum, one lakh per day, one crore maximum slab introduced in 2002.
Section 15D(b) is one of the most heavily cited provisions in the entire Act because of The Chairman, SEBI v. Shriram Mutual Fund & Anr., (2006) 5 SCC 361 (Supreme Court, decided 23 May 2006). Shriram Mutual Fund had, on twelve occasions over roughly two years, transacted business through associated brokers in excess of the limits permitted by the mutual fund regulations — a breach of the terms and conditions of its registration. The adjudicating officer imposed a penalty of two lakh rupees under Section 15D(b). The Securities Appellate Tribunal set the penalty aside on the ground that there was no mala fide intention and no loss to investors. The Supreme Court reversed the Tribunal, holding that breach of a civil obligation under the securities law attracts penalty the moment the contravention is established, irrespective of intent. This case is treated at length in the dedicated section below.
Sections 15E, 15EA and 15EB: AMCs, Pooled Vehicles and Advisers
Section 15E penalises an asset management company of a mutual fund that fails to comply with the regulations restricting its activities; the penalty is the familiar one lakh to one crore slab. Two further provisions extend the net to newer market participants. Section 15EA, inserted by the Finance Act, 2018, penalises defaults by alternative investment funds (AIFs), infrastructure investment trusts (InvITs) and real estate investment trusts (REITs) that fail to comply with the regulations or directions of the Board; the penalty “shall not be less than one lakh rupees but which may extend to one lakh rupees for each day” of failure, “subject to a maximum of one crore rupees or three times the amount of gains made out of such failure, whichever is higher”.
Section 15EB, also inserted by the Finance Act, 2018, penalises an investment adviser or research analyst who fails to comply with the regulations or directions of the Board, attracting a penalty extending up to one lakh rupees per day subject to a maximum of one crore rupees. These two sections plug a gap left by the 1995 and 2002 frameworks, which predated the AIF, REIT, InvIT and research-analyst regulatory regimes. Because they were grafted on by a Finance Act rather than a dedicated securities-laws amendment, candidates should be precise about the inserting statute. The broader registration scheme for these intermediaries flows from the establishment of SEBI and its statutory mandate.
Section 15F: Defaults by Stock Brokers
Section 15F addresses three broker-specific defaults. Clause (a) penalises failure to issue contract notes in the form and manner specified by the relevant stock exchange. Clause (b) penalises failure to deliver any security or to make payment of the amount due to the investor within the specified time. Clause (c) penalises a broker who charges brokerage in excess of that specified in the regulations; here the penalty extends to “five times the amount of brokerage” charged in excess, whichever is higher.
The brokerage-overcharge limb is a good illustration of how the chapter calibrates penalties to the gain made rather than to a flat sum — a calibration that became central to the discretion debate. The 2014 amendment recast clause (c)'s earlier ceiling of “one lakh rupees or five times the amount of brokerage” into the present formulation pegged to multiples of the excess brokerage, reinforcing the disgorgement logic that the Board pursues in tandem with its investigation powers.
Section 15G: Insider Trading
Section 15G is among the most severe civil penalties in the Act. It penalises an “insider” who (i) deals in securities of a listed body corporate, on his own behalf or on behalf of another, on the basis of unpublished price-sensitive information; (ii) communicates such information except in the ordinary course of business or under any law; or (iii) counsels or procures any other person to deal on the basis of such information. The penalty “shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher”.
The twenty-five crore ceiling and the three-times-profits alternative were introduced by the Securities Laws (Amendment) Act, 2014; before that the cap stood at twenty-five crore rupees but the provision had earlier (post-2002) read “not exceeding twenty-five crore rupees or three times the profits” and, prior to 2002, merely “not exceeding five lakh rupees”. The dramatic escalation tracks the seriousness with which Parliament came to view information asymmetry in the securities market. Section 15G's civil penalty operates alongside, and independently of, the prohibition machinery and the criminal route under Section 24, so the same conduct can attract both an adjudication penalty and prosecution.
Section 15H: Non-Disclosure of Acquisition and Takeover Defaults
Section 15H penalises a person required under the Act, rules or regulations who fails to (i) disclose the aggregate of his shareholding before acquiring shares; (ii) make a public announcement to acquire shares at a minimum price; (iii) make a public offer by sending a letter of offer to shareholders; or (iv) make payment of consideration to shareholders who tendered their shares pursuant to the letter of offer. Clauses (iii) and (iv) were inserted by the 2002 amendment, expanding the section to capture the full takeover-code sequence.
The penalty mirrors Section 15G: not less than ten lakh rupees, extending to twenty-five crore rupees or three times the amount of profits made out of such failure, whichever is higher — again the product of the 2014 amendment. The pairing of Sections 15G and 15H at the apex of the penalty ladder signals that insider trading and takeover-disclosure defaults are treated as the gravest civil contraventions, second only to outright fraud under Section 15HA.
Section 15HA: Fraudulent and Unfair Trade Practices
Section 15HA, inserted by the SEBI (Amendment) Act, 2002, penalises any person who indulges in fraudulent and unfair trade practices relating to securities. The penalty “shall not be less than five lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of such practices, whichever is higher”, the upper figures again being the 2014 substitution. The substance of what constitutes a fraudulent or unfair practice is supplied by the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003.
The leading authority on the reach of Section 15HA is Securities and Exchange Board of India v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1 (Supreme Court, decided 20 September 2017). The case concerned “front-running” — placing personal orders ahead of a large client order using advance knowledge of that order. The Supreme Court held that, under the 2003 Regulations, any act, expression, omission or concealment committed while dealing in securities that has the effect of inducing another person to deal in securities amounts to a fraudulent act; the emphasis is on the inducing effect rather than on dishonest intent in the criminal sense. The Court reaffirmed that the standard of proof is the “preponderance of probabilities”, not proof beyond reasonable doubt, consolidating the civil-penalty philosophy of the whole chapter.
Sections 15HAA and 15HB: Records Tampering and the Residuary Penalty
Section 15HAA was inserted by the Finance (No. 2) Act, 2019. It penalises the alteration, destruction, mutilation, concealment or falsification of records and the failure to protect the electronic database of the Board, addressing the integrity of the evidentiary trail on which adjudication depends. Its insertion reflects the digitisation of market surveillance and the recognition that tampering with records is itself a discrete contravention deserving a heavy penalty.
Section 15HB is the residuary, catch-all provision: “Whoever fails to comply with any provision of this Act, the rules or the regulations made or directions issued by the Board thereunder for which no separate penalty has been provided, shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one crore rupees.” The minimum floor of one lakh rupees was inserted by the 2014 amendment; before that the section merely read “a penalty which may extend to one crore rupees”. Section 15HB ensures that no breach of a SEBI direction or regulation escapes the penalty net merely because the legislature did not draft a bespoke provision for it, and it is the section most often invoked for breaches of circulars and directions.
Section 15-I: The Power to Adjudicate
Section 15-I supplies the procedural engine. For adjudging penalties under Sections 15A to 15HB, the Board must appoint an officer not below the rank of a Division Chief as the adjudicating officer to hold an inquiry in the prescribed manner, after giving the person concerned a reasonable opportunity of being heard. The officer may summon and enforce attendance, take evidence and require production of documents; if satisfied that the person has failed to comply, he may impose “such penalty as he thinks fit in accordance with the provisions” of the relevant section.
Sub-section (3), inserted by the Securities Laws (Amendment) Act, 2014 with retrospective effect from 28 March 2014, empowers the Board to call for and examine the record of any adjudication and, if it finds the order erroneous and against the interests of the securities market, to enhance the penalty after a hearing — subject to a three-month outer limit from the adjudication order or disposal of an appeal under Section 15T, whichever is earlier. This revisionary power is a recurring examiner's hook: it allows the Board, not merely the appellate tribunal, to correct under-penalisation. The adjudication structure should be read with the wider design of the regulator detailed in our hub on the SEBI Act.
Section 15J: Factors and the Discretion Debate
Section 15J directs the adjudicating officer, while adjudging the quantum of penalty, to 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; and (c) the repetitive nature of the default. Whether these three factors give the officer genuine discretion to go below the statutory minimum became one of the most contested questions in securities-penalty jurisprudence.
In SEBI v. Roofit Industries Ltd. (Supreme Court, decided 26 November 2015), the Court held that, as the law stood between 2002 and 2014, the adjudicating officer had no discretion: where a section prescribed a minimum, the officer could not consider the Section 15J factors to reduce the penalty below that floor, and the Tribunal had erred in cutting a Section 15A penalty from one crore to sixty thousand rupees. That rigid reading was overruled in Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90 (Supreme Court, decided 28 February 2019). A three-judge Bench held that the factors in clauses (a) to (c) of Section 15J are merely illustrative and not exhaustive; the officer may consider other relevant circumstances and retains a controlled discretion in fixing quantum. Bhavesh Pabari thus restored a measure of proportionality to the adjudication process while leaving the mandatory-liability principle of Shriram intact — liability is automatic, but quantum is calibrated.
The Shriram Principle: Mens Rea, 'Shall Be Liable' and Hindustan Steel
The Chairman, SEBI v. Shriram Mutual Fund, (2006) 5 SCC 361, is the single most important authority on Chapter VIA and almost certain to appear in any examination on this topic. The Supreme Court laid down three propositions. First, mens rea is not an essential ingredient for contravention of a civil obligation under the SEBI Act; the breach is complete once the regulatory norm is violated. Second, the words “shall be liable” in Sections 15A to 15H (and 15HA) are mandatory, so once a contravention is established the imposition of penalty is the natural consequence and cannot be waived merely because the default was technical or unintentional. Third, the absence of intent, the absence of loss to investors, and the absence of unjust enrichment are not defences to liability, though they may bear on quantum.
Crucially, the Court distinguished its own earlier decision in Hindustan Steel Ltd. v. State of Orissa, AIR 1970 SC 253, where it had held that penalty should not ordinarily be imposed for a merely technical or venial breach or where the breach flowed from a bona fide belief. The Shriram Bench held that the Hindustan Steel principle does not apply to the SEBI scheme, because the legislature deliberately omitted intent from the statutory matrix and the penalty is for breach of a civil obligation, not a quasi-criminal default. This express distinguishing of Hindustan Steel is the analytical heart of the judgment and the point most often tested. Together with Cabot International, Shriram settles that the SEBI penalty regime is strict-liability in nature, qualified only by the calibrated discretion in quantum that Bhavesh Pabari later recognised.
Sections 15JA and 15JB: Where the Money Goes and Settlement
Two concluding provisions complete the chapter. Section 15JA, inserted by the 2002 amendment, directs that all sums realised by way of penalties under the Act be credited to the Consolidated Fund of India — underscoring that penalties are a public-law levy, not compensation payable to the Board or to investors. Section 15JB, inserted by the Securities Laws (Amendment) Act, 2014 with retrospective effect from 20 April 2007, permits the settlement of administrative and civil proceedings: a person against whom proceedings under Sections 11, 11B, 11D, 12(3) or 15-I have been or may be initiated may apply to the Board to settle, on payment of such sum or on such terms as the Board determines under its settlement regulations.
Section 15JB carries a notable procedural consequence: sub-section (4) bars any appeal under Section 15T against a settlement order, reflecting the consensual nature of the resolution. The settlement route has become a major feature of contemporary SEBI enforcement, allowing market participants to resolve matters without admission or denial of guilt. For the institutional context of how the Board exercises these powers, see our notes on the establishment of SEBI and its powers and functions.
Frequently asked questions
Is mens rea required to impose a penalty under Sections 15A to 15HB?
No. In The Chairman, SEBI v. Shriram Mutual Fund, (2006) 5 SCC 361, the Supreme Court held that mens rea is not an essential ingredient for breach of a civil obligation under the SEBI Act. The Bombay High Court had earlier reached the same conclusion in SEBI v. Cabot International Capital Corporation (2004), holding that the penalty is civil and not penal in character.
Does the word 'shall be liable' make penalty mandatory?
Yes, as to liability. Shriram Mutual Fund held that the words “shall be liable” in Sections 15A to 15H are mandatory, so once a contravention is established the imposition of penalty follows automatically. However, the quantum is calibrated: Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90, held that the Section 15J factors are illustrative and leave the adjudicating officer a controlled discretion on amount.
What is the difference between Section 15G and Section 15HA?
Section 15G penalises insider trading — dealing in or communicating unpublished price-sensitive information — with a penalty of not less than ten lakh and up to twenty-five crore rupees or three times the profits. Section 15HA penalises fraudulent and unfair trade practices generally, with a minimum of five lakh and the same upper ceiling. Front-running, addressed in SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1, falls under Section 15HA.
How did Roofit Industries and Bhavesh Pabari differ on Section 15J?
In SEBI v. Roofit Industries Ltd. (2015) the Supreme Court held that, for the 2002–2014 period, the adjudicating officer had no discretion and could not use the Section 15J factors to go below a prescribed minimum penalty. Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90, overruled that view, holding the Section 15J factors to be merely illustrative and restoring a measure of discretion in fixing quantum.
What does the residuary Section 15HB cover?
Section 15HB is the catch-all provision. It penalises failure to comply with any provision of the Act, rules, regulations or directions of the Board for which no separate penalty has been provided, with a penalty of not less than one lakh rupees extending up to one crore rupees. The one-lakh minimum floor was inserted by the Securities Laws (Amendment) Act, 2014.
Which sections were added after the original 1995 framework?
Sections 15HA, 15JA and clauses of 15H were added or recast by the SEBI (Amendment) Act, 2002. Sections 15EA (AIFs, InvITs, REITs) and 15EB (investment advisers and research analysts) were inserted by the Finance Act, 2018, and Section 15HAA (alteration or destruction of records and failure to protect the Board's electronic database) by the Finance (No. 2) Act, 2019. The penalty ceilings in Sections 15G, 15H and 15HA were raised by the Securities Laws (Amendment) Act, 2014.