The provisions for penalties and adjudication are provided in Chapter VIA of the SEBI Act, 1992. These provisions were inserted by virtue of the Securities Law (Amendment) Act in 1995.
Before the introduction of this amendment, the only method for dealing with the parties at fault was to suspend and cancel their registration under sec 12(3) only if these entities were registered with SEBI. the Amendment was brought so that the Board can work in a more efficient manner. It inter alia provided the Board with the power to impose the monetary penalties as well along with the suspension or cancellation of the registration, which alone might not be the appropriate remedy for the aggrieved party.
The amendment that was brought in 1995 was not retrospective in nature. SAT made an observation in SRG Infotech Limited v. SEBI that the penalties specified under sec 15B of the SEBI Act are not in the capacity to be imposed for all the violations that have been committed before 25.01.1995. The amount that could be slammed on account of monetary penalties prescribed by the above-mentioned amendment was found not in line with that of the amount of mischief committed by them.
The Dhanuka Committee Report of 1998 has noted in relation to the penalties that are imposed under Chapter VIA that the number of monetary penalties are of highly inadequate nature pursuant to which it was recommended by the Committee to raise the amount of the penalties substantially in order to have its deterrence value for all economic offences of this nature.
PENALTY FOR FAILURE TO FURNISH INFORMATION, RETURN ETC.
The penalty against any person is provided by sec 15 of SEBI Act, 1992. The grounds for imposing penalty are as following:
- If he/ she refuses to furnish any return, document or report to SEBI;
- If he/ she delayed in furnishing any return, document or report or filing any return to SEBI; and
- If he/ she failed to maintain any record or books of account.
The nature of the provision is very general and gets attracted whenever any person, who is required to furnish information, return, books of accounts, fails to do so. Further, it cannot be contended that under sec 15F, the stockbrokers are amenable.
Before the amendment of 2002 came into existence, many attempts were done with a view to differentiate between subsections (a) and (b) of section 15. This is so because of the penalty imposed for failure to fulfil the mandate under clause (b) in on the day- to- day basis without any cap of upper limit while there is a cap of Rs 1,50,000 if there is any failure to comply with the mandates under subsection (a). There were certain distinctions that were created by SAT while doing a hyper- strict construction of these provisions.
However, the Bombay High Court finally succeeded in creating the distinction between these two provisions. It was observed in SEBI v. Sangeeta Jayesh Valia that there are certain mandatory provisions such as sec 15A(a), 15A(b) as well as 15A(c). Further, the penalties imposed for not complying the provisions is done with the objective of having deterrence in an effective manner so that the provisions of these laws can comply in a better way. This is so because of it in the interests of the investors, the public at large and it is necessary to control and regulate such markets.
PENALTY FOR FAILURE TO REDRESS INVESTOR’S GRIEVANCES
The grievances of investors typically relate to non- payment of dividend, receipt of share certificates, non-transfer of shares, non-payment of interests on debentures and redemption amount and many more. This provision to entertain the applications of investors with respect to their grievances is very wide in nature. There is no bar restraining the authorities to deal with a particular type of grievances.
Further, it was held by the Adjudicating Officers that when the company fails to redress the said grievances, this results into loss and undue hardships to the investors, which ultimately emerges as a serious issue to be looked into. However, the companies are pardoned if they make sincere efforts at their end to make good to the wrong done by them if the Board calls them.
It was observed by the Adjudicating Officer that when the company has taken steps to get 91 complaints out of total 107 complaints resolved and other steps were also taken in furtherance of resolving the problems of the complainants after the show cause notice for not redressing the grievances was issued, the penalty imposed upon it was waived off.
PENALTY FOR INSIDER TRADING
Sec 15G provides for the quantum of penalty to be imposed in the matters of insider trading. SAT has observed that while the provision of sec 15 is reproduced in the adjudication order in the absence of adequate penalties, it can serve the purpose of deterring the wrongdoers but it is not desirable. In addition to this, SAT has also shown its displeasure on the imposition of the paltry sum of penalty on the appellants and a copy of the order of the tribunal is forwarded to the Chairman of SEBI for information.
Further, as per the observations of SAT in Rakesh Agarwal v. SEBI, SEBI is not authorized by any other provision of the Act for the imposition of the pecuniary burden in the form of monetary penalties in the matters relating to insider trading except sec 15G. Another contention that raised was that SEBI is empowered to pass an order of compensation other than the penalties provided in sec 15G or under any other provision of the Act. But such contention was put down by SAT in very explicit terms. The Supreme Court had also reiterated the observations of the SAT in this regard.
PENALTY FOR CONTRAVENTION WHERE NO SEPARATE PENALTY HAS BEEN PROVIDED
Sec 15HA is the residuary provision that provides a quantum of penalty to be levied on those offences that are not specifically covered. There are many instances which attracted the penalties under this provision. Some of the instances are as follows:
- When there is a violation of code of conduct and other provisions of the SEBI (Stock Brokers and Sub- Brokers) Regulations, 1992;
- When there is a violation of the circulars pertaining to the method of payment and delivery;
- When there is a violation of code of conduct as per the guidelines under SEBI (Registrars to an Issue and Share Transfer Agents) Regulations, 1993;
- When there is a violation of code of conduct as per the guidelines under SEBI (Prohibition of Insider Trading) Regulations, 1992;
- When there is a violation of Regulation 22 od SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 1997;
- When there is a violation of the provisions under SEBI (Depositories and Participants) Regulations, 1996;
- When there is a violation of section 11C(3), 11C(5) to be read with sec 11(3) and 11(2)(i) (typically sec 15A is applied in such situations specifically with regards to non-submission of the information);
- When there is a violation of SEBI (Debenture Trustee) Regulations, 1993, SEBI (Disclosure and Investor Protection) Guidelines, 2000 as well as SEBI (Issue and Listing of Debt Securities) Regulations, 2008;
- When there is a violation of SEBI (Foreign Institutional Investors) Regulation, 1993;
- When there is a violation of SEBI (Merchant Bankers) Regulations, 1992;
- When there is a violation of the circulars that are issued by SEBI in relation to Anti- Money Laundering Standards/ Combating the Finance of Terrorism (CFT); and
- When there is a violation of the mandates as per the orders of SEBI.
POWER TO ADJUDICATE
For the imposition of penalty under the sections 15A to 15HB, it is required for an officer or authority to be set up and such an officer or authority shall be vested with the powers of adjudication. This appointment is done by virtue of sub-section (1) of sec 15I.
In the matter of India National Congress (I) v. Institute of Social Welfare, the Supreme Court has laid down its observation as the act conferred with the authority of a statute will also be quasi-judicial in nature in the cases where first, a statute empowers an authority set up by any statute to do any act. Second, it will affect the subjects prejudicially. Third, there is the absence of lis or there are only two contending parties and the contest is between the subject and authority. Lastly, the statutory authority is under the obligation to act in a judicial manner under the statute.
In addition to it, the mechanism of adjudication has also been characterized as quasi-judicial nature. The actions taken by virtue of the authority given by sec 11, sec 11B, sec 12(3) and sec 11D are quasi-judicial in nature as well.
 Statements of Objects and Reasons, Securities Laws (Amendment) Act, 1995.
 Appeal NO 02/ 1999, SAT Order dated 05.11.1999
 Report of Justice Dhanuka
 Chandrakant Gandhi Stock Brokers Pvt Ltd v SEBI, Appeal No. 01/ 2000, SAT Order dated 27.03.2000
 Housing Development Finance Coor. Ltd. v SEBI, Appeal No. 21/ 2000, SAT Order dated 10.11.2000; See also, Sundaram Finance and Ors. v SEBI, Appeal No. 37/ 2001, SAT Order dated 29.01.2003.
  50 SCL 641 (Bom)
 AO Order No. BS/ AO- 3/2008, Against Southern Herbals Limited, dated 30.01.2008. See also, AO Order No. PAPL/ AO/ SKS/ SG/ DCR/ 03/ 2010, In respect of Pankaj Agro Protinex Ltd, dated 26.03.2011
 AO Order, Against Sardar Sarovar Narmada Nigam Ltd., dated 31.01.2005
 Ranjana P Kothari v SEBI, Appeal No 125/ 2011, SAT Order dated 26.08.2011
  49 SCL 351 (SAT). The appeal was also forwarded before the Hon’ble Supreme Court (SEBI v Rakesh Agarwal, Civil Appeal No. 02 of 2004 Supreme Court Order dated 23.01.2998) but it was disposed of due to the settlement between the parties.
 Supreme Court in SEBI v Shriram Mutual Fund, AIR 2006 SC 2287. It has overruled the judgment in an implied manner but to the extent that there is no requirement of motive or intention to sustain the charges of insider trading.
 Bubna Stock Broking Ltd v SEBI, Appeal No. 41/ 2009, SAT Order dated 04.11.2009. See also, Messers Mani and Co. v SEBI, Appeal No. 31/ 2005, SAT Order dated 26.04.2005
 AO Order No. AJS/ AO/ 04/ 2010, In respect of M/S R M Thanvi Share and Stock Brokers, dated 28.12.2010. See also, AO Order No. SP/ AO- 3/ 2010, In respect of Galaxy Broking Ltd., dated 25.03.2010.
 Cameo Corporate Services Ltd v SEBI, Appeal No. 140/ 2004, SAT Order dated 03.12.2004
 Manmohan Shetty v SEBI, Appeal No 132/ 2010, SAT Order dated 27.05.2011. See also, AO Order No. PB/ AO- 56/ 2011, In respect of Action Financial Services (India) Ltd, dated 31.05.2011
 Punrasar Holding Private Ltd. v SEBI, Appeal No. 205/ 2009, SAT Order dated 06.05.2010. See also, AO Order No. DCR/ SEIL/ SO/ DRK/EAD- 3/ 28/ 2009, Against O C Oerlikon Corp AG, Pfaffikon, dated 23.06.2009
 Jog Engineering Ltd v Adjudicating Officer, SEBI, Appeal No. 16/ 2007, SAT Order dated 09.02.2007; See also, Horizon Battery Technologies Ltd v SEBI, Appeal No. 111/ 2005, SAT Order sated 29.11.2005
 SPS Share Brokers Pvt Ltd v SEBI, Appeal No. 20/ 2006, SAT Order dated 13.02.2006
 Milan Mahendra Securities Pvt Ltd v SEBI, Appeal No 405- 406/ 2004, SAT Order dated 15.04.2005
 AO Order No. PKK/ AO/ 61/ 2011, In respect of M/S Axis Bank Ltd., dated 10.p03.2011; See also, AO Order No. PKB- AO/ 14/ 2011, Against Central Bank of India, dated 25.02.2011
 AO Order No. AP/ AO- 12/ 2006-07, In respect of Citigroup Global Markets (Mauritius) Ltd., dated 11.08.2006. See also, AO Order No. PKB/ AO- 19/ 2009, In respect of TCW Galileo Funds Inc. dated 31.03.2009
 AO Order dated No ESPL/ AO/ DRK/ AS/ EAD- 3/ 231/ 09- 134/ 2010, Against Enam Securities Pvt. Ltd., dated 31.12.2010
 AO Order No. PB/ AO- 17/ 2011, In respect of M/s Marwadi Shares and Finances Ltd., dated 28.02.2011
 Rietdeal Trading Co. (P) Ltd v SEBI,  82 SCL 268 (SAT). See also, AO Order No. SRP/ JP/ AO: 175/ 2011, In respect of Chandrakant Amratlal Parekh, dated 25.02.2011.
 (2002) 5 SCC 685
 V M C Software Ltd. v SEBI,  42 SCL 473 (SAT). See also, Zee Telefilms Ltd. v The Adjudicating and Enquiry Officer, SEBI, Appeal No. 84/ 2002, SAT Order dated 29.01.2003