1. Factual Background and Procedural History
The case of Jaykishor Chaturvedi v. Securities and Exchange Board of India arose from proceedings initiated by SEBI against the appellant, a former compliance officer of a listed company, for alleged violations of the Prohibition of Insider Trading Regulations, 2015 (PIT Regulations) and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations).
Origin of the Dispute
The appellant, during his tenure as compliance officer, allegedly failed to ensure timely disclosure of price-sensitive information (PSI) concerning a major acquisition undertaken by the company. SEBI, following investigation, issued a show-cause notice alleging:
- Delay in disclosure of material information under Regulation 30 of LODR;
- Violation of the Code of Conduct under Regulation 9 of PIT Regulations; and
- Failure to maintain compliance controls expected of a designated officer.
After a detailed inquiry, the Adjudicating Officer (AO) imposed a monetary penalty of ₹10 lakh under Section 15HB of the SEBI Act, 1992, holding that the omission constituted a breach of statutory duty, irrespective of intent.
Procedural History
- Securities Appellate Tribunal (SAT):
The appellant challenged the order before the SAT, arguing that the delay was unintentional, caused by internal miscommunication, and that no investor loss had occurred.
The SAT, however, affirmed the penalty, observing that “technical violations” still attract liability under SEBI’s strict compliance regime. - Supreme Court:
The appellant approached the Supreme Court under Section 15Z of the SEBI Act, arguing that the penalty lacked proportionality and failed to consider the absence of mens rea or market impact.
2. Identification of Legal Issues
The Supreme Court addressed three core questions:
- Whether intent (mens rea) is a relevant factor in determining liability under SEBI’s civil penalty framework.
- Whether penalties under Section 15HB must be proportionate to the nature and gravity of the breach.
- Whether SEBI and SAT erred by treating all procedural lapses as strict liability offences.
3. Arguments of the Parties
Appellant (Jaykishor Chaturvedi)
- Argued that SEBI’s penalty was disproportionate and mechanical, imposed without establishing intent to conceal or gain unfair advantage.
- Emphasized that the company had voluntarily disclosed the information within a reasonable time frame.
- Contended that the principle of proportionality, as recognized in Hindustan Steel Ltd. v. State of Orissa (1969) 2 SCC 627, applies equally to regulatory penalties.
- Relied on SEBI v. Shriram Mutual Fund (2006) 5 SCC 361 but distinguished it by noting that Shriram does not exclude proportionality review in the absence of deliberate misconduct.
Respondent (SEBI)
- Asserted that SEBI operates a “zero tolerance” compliance regime, where duty is absolute, particularly for compliance officers entrusted with ensuring market transparency.
- Argued that Regulations 30 and 33 of LODR and Regulation 9 of PIT Regulations create statutory obligations independent of intent.
- Cited SEBI v. Shriram Mutual Fund to argue that mens rea is not required to impose civil penalties under Chapter VIA of the SEBI Act.
- Defended the penalty as modest and deterrent, consistent with the object of maintaining market integrity.
4. Court’s Analysis and Reasoning
The Bench of Justice Abhay S. Oka and Justice Pankaj Mithal delivered a detailed judgment harmonizing the principles of regulatory deterrence and proportional fairness.
(a) Distinction Between Criminal and Regulatory Sanctions
The Court clarified that while mens rea is not indispensable for civil penalties, proportionality remains integral to the exercise of discretion under Section 15HB.
“The absence of mens rea does not empower SEBI to impose penalties oblivious to context or consequences. Discretion must align with the gravity and market impact of the violation.”
The Court observed that SEBI’s authority under Section 15HB is discretionary, not mandatory, requiring contextual evaluation of culpability.
(b) Interpretation of Section 15HB
Section 15HB, which prescribes penalties for violations “for which no separate penalty is provided,” is a residual clause, and must therefore be applied with restraint.
The Court held that:
- Penalties under Section 15HB should not be automatic;
- SEBI must record reasons demonstrating why the penalty quantum serves deterrence; and
- Minor or technical infractions, absent investor prejudice, may justify admonition instead of penalty.
(c) Reaffirmation of Proportionality Doctrine
Citing Hindustan Steel Ltd. and Gorkha Security Services v. Govt. of NCT Delhi (2014) 9 SCC 105, the Court reiterated that “penalty is not to be imposed merely because it is lawful to do so.”
The Bench further distinguished Shriram Mutual Fund by clarifying that it addressed statutory liability for contraventions, not quantum or proportionality. Thus, the obligation to impose penalties does not absolve SEBI from applying rational discretion.
(d) Application to the Present Case
The Court found that:
- The appellant’s omission was inadvertent, not willful;
- The disclosure delay was minimal and caused no demonstrable investor harm; and
- SEBI’s order lacked reasoned justification for the quantum imposed.
Accordingly, the Court held that the penalty was excessive and disproportionate, violating the principle of fairness enshrined in Article 14.
5. Final Conclusion and Holding
The Supreme Court partly allowed the appeal, setting aside the ₹10 lakh penalty imposed by SEBI and substituting it with a formal warning to the appellant.
The Court clarified the following key principles:
- Mens rea is not essential for SEBI’s civil penalties, but proportionality and fairness must guide their imposition.
- Section 15HB is discretionary, and SEBI must exercise such discretion judiciously, not mechanically.
- Compliance officers are liable for lapses, but enforcement must distinguish between deliberate concealment and technical non-compliance.
Key Principle:
“Regulatory deterrence must coexist with proportional fairness. SEBI’s enforcement power is not punitive but corrective, aimed at ensuring compliance without sacrificing equity.”
FAQs:
1. Can SEBI impose penalties without proving intent (mens rea)?
Yes, SEBI can impose civil penalties without proving intent, but penalties must still be proportionate to the gravity and consequences of the violation.
2. What is Section 15HB of the SEBI Act?
Section 15HB is a residual penalty provision empowering SEBI to penalize contraventions not covered under specific sections, with discretion up to ₹1 crore.
3. What did the Supreme Court decide in Jaykishor Chaturvedi v. SEBI (2025)?
The Court held that SEBI’s penalty must reflect proportionality and fairness. It replaced the ₹10 lakh penalty with a formal warning.
4.Does SEBI follow a strict liability regime?
Yes, SEBI enforces strict compliance for market integrity, but even in strict liability cases, penalties must consider context, intent, and impact.
5. How does the principle of proportionality apply in SEBI enforcement?
Proportionality ensures that penalties are not excessive and are justified by the nature and effect of the violation, maintaining fairness in regulatory action.
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