Penalties & Procedures
Section 23. Penalties.
23(1).
Even after a penalty is imposed by the Adjudicating Officer or the Securities and Exchange Board of India (SEBI), the matter does not end there.
If the person is prosecuted and found guilty, the court can step in and impose criminal punishment.
The consequences can be serious:
Imprisonment up to 10 years, or
Fine up to ₹25 crore, or
Both imprisonment and fine together.
The above punishment will be applicable to the following persons:
(a).
A person who is expected to comply with a requisition made under Section 6(4).
If he fails to comply, he can be held liable.
He can avoid liability only if there is a reasonable excuse.
The responsibility to prove this excuse lies on him (burden of proof).
So, unless he can show a valid reason for non-compliance, failure to comply will lead to consequences.
(b).
A person who enters into a contract in securities which is in violation of section 13 or section 16.
Since it is in contravention of the law, the act becomes illegal/non-compliant.
Such conduct can attract legal consequences and penalties.
So, contracts made against sections 13 or 16 are not permitted and can lead to action.
(c).
A person who violates the provisions of section 17 or section 17A, or section 19.
Such non-compliance itself amounts to a contravention under the Act.
(d).
A person who enters into a derivative contract which is made in violation of section 18A or the rules framed under section 30.
Since derivatives are strictly regulated, any such contract made outside the permitted framework becomes unlawful.
So, both breach of sections 17/17A/19, and illegal derivative contracts can lead to penal consequences under the Act.
(e).
A person who owns or controls a place that is not a recognised stock exchange.
That place is used for entering into or performing contracts in securities.
Those contracts are made in violation of the provisions of the Act.
The person is aware (knowingly permits) that such illegal activities are happening there.
By allowing this, the person becomes liable for contravention.
So, running or allowing an unofficial place for illegal securities trading leads to legal consequences.
(f).
A person who manages, controls, or helps run a place that is not a recognised stock exchange.
These contracts entered into are in violation of the Act.
The place may also be used to:
Record contracts,
Adjust transactions, or
Settle rights and liabilities arising from contracts.
Any form of handling, regulating, or enforcing such contracts at that place is covered.
By being involved in running such a place, the person becomes liable for contravention.
So, even indirect involvement in an unofficial setup for illegal securities dealings leads to legal consequences.
(g).
A person who is not a member of a recognised stock exchange, and
He is also not an authorised agent of such a member under the exchange rules/bye-laws, and
He is not a licensed dealer in securities under section 17.
Despite this, he knowingly represents or induces others to believe that:
Contracts in securities can be entered into or performed through him.
By doing so, he is misleading others about his authority.
Such conduct amounts to a contravention under the Act and attracts legal consequences.
(h).
A person is not a member of a recognised stock exchange.
He is not an authorised agent under the rules or bye-laws of such exchange, and
He is also not a licensed dealer in securities under section 17.
Despite this, he promotes or solicits business connected with securities contracts.
This may be done by:
Canvassing,
Advertising, or
Touting in any manner.
He may do this for himself or on behalf of others.
The business being promoted involves contracts that are in contravention of the Act.
By engaging in such promotion, he becomes liable for violation of the law.
(i).
A person who joins or gathers people, or helps in gathering them, at a place.
That place is not the authorised place of business specified in the bye-laws of a recognised stock exchange.
The gathering is for activities like:
Making bids or offers.
Entering into or performing contracts in securities.
These activities are carried out in violation of the provisions of the Act.
By participating in or facilitating such gatherings, the person becomes liable for contravention.
So, even informal or off-exchange gatherings for illegal securities dealings can attract legal consequences.
23(2).
If a person:
Enters into a contract in violation of section 15, or
Fails to comply with section 21 or section 21A, or
Does not comply with orders issued under section 22, or
Fails to comply with orders of the Securities Appellate Tribunal (SAT) then:
Even if a penalty has already been imposed by the Adjudicating Officer, the matter can still go further.
Upon conviction, the person can face criminal punishment:
Imprisonment up to 10 years, or
Fine up to ₹25 crore,
Both imprisonment and fine.
So, violation of these provisions or non-compliance with orders can lead to serious consequences.
Section 23 A. Penalty for failure to furnish information, return, etc.
A person is required under the Act or rules to comply with certain obligations.
(a).
A person is required to furnish information, documents, books, returns or reports.
These must be submitted to:
A recognised stock exchange, or
The Securities and Exchange Board of India (SEBI).
The submission must be made within the prescribed time:
As per listing agreement,
Conditions or bye-laws of the stock exchange, or
The Act or rules.
If the person:
Fails to submit within time, or
Furnishes false information, or
Furnishes incorrect information, or
Furnishes incomplete information/documents,
then he becomes liable to a penalty.
Penalty amount:
Minimum - ₹1 lakh,
May extend to ₹1 lakh per day for continuing failure,
The penalty is subject to a maximum of ₹1 crore for each such failure.
So, both delay and wrong disclosure attract daily penalties up to a capped limit.
Section 23 B. Penalty for failure by any person to enter into an agreement with clients.
A person is required to maintain books of account or records.
These requirements arise from:
The listing agreement,
Conditions, or
Bye-laws of a recognised stock exchange.
If the person fails to maintain such books or records, he becomes liable to a penalty.
Penalty amount:
Minimum - ₹1 lakh,
May extend to ₹1 lakh per day for continuing failure,
The penalty is subject to a maximum of ₹1 crore for each such failure.
So, continuous failure to maintain records leads to a daily accumulating penalty with a capped limit.
Section 23 C. Penalty for failure to redress investors’ grievances.
A person is required under the Act or the bye-laws of a recognised stock exchange to enter into an agreement with his client.
If he fails to enter into such an agreement, then he becomes liable to a penalty for each such failure.
Penalty amount:
Minimum - ₹1 lakh,
May extend to ₹1 lakh per day for continuing failure,
The penalty is subject to a maximum of ₹1 crore for each such failure.
So, not formalising the client relationship through a required agreement leads to a continuing daily penalty with a capped limit.
Section 23 D. Penalty for failure to segregate securities or moneys of client or clients.
A stock broker, sub-broker, or a listed (or proposed-to-be-listed) company is expected to address investor issues.
The Securities and Exchange Board of India (SEBI) or a recognised stock exchange may call upon them in writing to redress investor grievances.
Once such a direction is given, they must resolve the grievances within the specified time.
If they fail to redress the grievances within that time, they become liable to a penalty.
Penalty amount:
Minimum - ₹1 lakh,
May extend to ₹1 lakh per day for continuing failure,
The penalty is subject to a maximum of ₹1 crore for each such failure.
So, ignoring or delaying investor grievance redressal leads to a continuing daily penalty with a cap.
Section 23 E. Penalty for failure to comply with provision of listing conditions or delisting conditions or grounds.
A person is registered as a stock broker or sub-broker under section 12 of the SEBI Act, 1992.
He is expected to keep client assets separate.
This means:
Client securities and money must be segregated, and
not mixed with his own or other clients’ assets.
If he:
Fails to segregate client securities or money, or
Uses a client’s securities or money for himself, or
Uses one client’s assets for another client,
then he becomes liable to a penalty.
Penalty amount:
Minimum - ₹1 lakh.
The penalty may extend up to ₹1 crore.
So, misuse or mixing of client funds/securities leads to strict monetary consequences.
Section 23 F. Penalty for excess dematerialisation or delivery of unlisted securities
A company or any person managing:
A collective investment scheme,
A mutual fund,
A real estate investment trust (REIT),
An infrastructure investment trust (InvIT), or
An alternative investment fund (AIF),
is required to comply with listing and delisting conditions.
If such person or entity: fails to comply with these conditions, or commits a breach of them, then liability arises.
Penalty amount:
Minimum - ₹5 lakh,
The penalty may extend up to ₹25 crore.
So, non-compliance with listing/delisting requirements leads to very high monetary penalties.
Section 23 G. Penalty for failure to furnish periodical returns, etc
A recognised stock exchange is required to regularly submit periodical returns to the Securities and Exchange Board of India (SEBI).
If it:
Fails or neglects to furnish such returns, or
Furnishes false, incorrect, or incomplete returns,
it becomes liable.
It is also required to make or amend its rules or bye-laws when directed by SEBI.
If it fails or neglects to do so, liability arises.
Further, if it fails to comply with directions issued by SEBI it again becomes liable.
Penalty amount:
Minimum - ₹5 lakh,
This penalty may extend up to ₹25 crore.
So, non-compliance by a stock exchange with reporting duties or SEBI directions leads to heavy penalties.
Section 23 GA. Penalty for failure to conduct business in accordance with rules, etc
A stock exchange or a clearing corporation is expected to conduct its business properly.
It must deal with:
Its members,
Issuers,
Their agents, and
Any person connected with the securities market,
in accordance with rules and regulations made by the Securities and Exchange Board of India (SEBI) and directions issued under the Act.
If it fails to follow these rules, regulations, or directions, then it becomes liable to a penalty.
Penalty amount:
Minimum ₹5 crore,
The penalty may extend to ₹25 crore, or
Three times the amount of gains made from such failure,
whichever is higher.
So, non-compliance by stock exchanges or clearing corporations can lead to very heavy penalties, especially if profits are involved.
Section 23 H. Penalty for contravention where no separate penalty has been provided.
A person is expected to follow all provisions of the Act, as well as:
Rules, Articles,
Bye-laws of a recognised stock exchange, and
Directions issued by the Securities and Exchange Board of India (SEBI).
If he fails to comply with any of these, and no specific penalty is provided elsewhere for that particular violation, then:
This provision steps in as a general penalty clause.
Penalty amount:
Minimum - ₹1 lakh,
The penalty may extend up to ₹1 crore.
So, even if a violation is not specifically covered, it still attracts penalty under this residual provision.
Section 23I. Power to adjudicate.
23I(1).
For deciding penalties under sections 23A to 23H, action is taken by the Securities and Exchange Board of India (SEBI).
SEBI may appoint an Adjudicating Officer for this purpose.
The officer must be of not below the rank of a Division Chief.
The Adjudicating Officer conducts an inquiry in the prescribed manner.
Before imposing any penalty, the person concerned must be given a reasonable opportunity of being heard.
After the inquiry and hearing, the officer can decide and impose the appropriate penalty.
So, penalties are imposed through a formal adjudication process ensuring fair hearing.
23I(2).
While conducting the inquiry, the Adjudicating Officer has powers similar to a court for gathering evidence.
He can:
Summon any person who is acquainted with the facts.
Enforce their attendance.
Require them to give evidence.
Produce documents.
These powers are used if the officer considers such evidence or documents useful or relevant to the inquiry.
After conducting the inquiry, the officer evaluates the facts.
If he is satisfied that:
The person has failed to comply with the relevant provisions of the specified sections, then he can impose a penalty.
The penalty must be imposed in accordance with the provisions of those sections.
23I(3).
While conducting the inquiry, the Adjudicating Officer has powers similar to a court for gathering evidence.
He can:
Summon any person who is acquainted with the facts.
Enforce their attendance.
Require them to give evidence.
Produce documents.
These powers are used if the officer considers such evidence or documents useful or relevant to the inquiry.
After conducting the inquiry, the officer evaluates the facts.
If he is satisfied that:
The person has failed to comply with the relevant provisions of the specified sections, then he can impose a penalty.
The penalty must be imposed in accordance with the provisions of those sections.
Before any penalty or order is passed, the person concerned must be heard.
The Adjudicating Officer must give a reasonable opportunity to present the case.
This includes the right to:
Explain facts,
Submit evidence, and
Defend against allegations.
No order can be passed without giving this opportunity.
So, the process ensures fair hearing and principles of natural justice before any decision is made.
There is a time limit on the applicability of the proviso (hearing/relief stage).
The benefit or action under this sub-section is not available indefinitely.
It ceases to apply after 3 months.
The 3-month period is counted from the earlier of the following two events:
The date of the order passed by the Adjudicating Officer, or
The date of disposal of appeal under section 23L.
So, once either of these happens, the clock runs for 3 months, after which this sub-section no longer applies.
Section 23 J. Factors to be taken into account while adjudging quantum of penalty
While deciding the amount of penalty:
The Securities and Exchange Board of India (SEBI) or the Adjudicating Officer must take into account certain factors.
The penalty is not fixed arbitrarily.
It must be determined after considering relevant circumstances of the case.
These factors help ensure that the penalty is fair, proportionate, and justified.
(a).
SEBI looks at whether the person made any extra or unfair gain because of the default.
It focuses on the benefit obtained due to wrongdoing.
This Applies only where such gain can be measured (quantified).
The higher the gain, the higher the penalty is likely to be.
(b).
SEBI also looks at the loss suffered by investors because of the default.
Investors covers both individual investors and groups of investors.
Focuses on the actual harm caused due to the violation.
The greater the loss, the more serious the default is considered.
So, the penalty reflects the impact of the wrongdoing on investors.
(c).
The repetitive nature of the default.
Explanation:
This clause clarifies and removes any doubt about the source of power.
The Adjudicating Officer’s power to decide the amount of penalty under sections 23A to 23C is confirmed.
It states that such power is deemed to have always been exercised under this section.
So, even for past cases, the authority is treated as validly derived from this provision.
Section 23 JA. Settlement of administrative and civil proceedings.
23JA(1).
Even if other laws say otherwise, this provision overrides them.
A person against whom proceedings:
have already been started, or
may be started,
under section 12A or 23-I, gets an option.
Such a person can apply in writing to the Securities and Exchange Board of India (SEBI).
The application is for settlement of the proceedings.
This applies to alleged defaults under those sections.
So, instead of going through full adjudication, the person can seek settlement with SEBI.
23JA(2).
After receiving a settlement application, the Securities and Exchange Board of India (SEBI) evaluates the case.
It considers:
The nature of the default,
The gravity (seriousness) of the default, and
The impact of the default.
Based on this, SEBI may accept the settlement proposal.
Settlement can be allowed:
On payment of a specified amount, or
On other terms decided by SEBI.
These terms must be in accordance with regulations under the SEBI Act, 1992.
So, settlement depends on severity + impact + compliance with SEBI regulations.
23JA(3).
When a person opts for settlement, the process is not informal or arbitrary.
The settlement must follow a specific procedure.
This procedure is prescribed by the Securities and Exchange Board of India (SEBI).
The procedure is framed under the SEBI Act, 1992.
So, every settlement is carried out strictly as per SEBI’s laid-down rules and process.
23JA(4).
Once the Securities and Exchange Board of India (SEBI) or the Adjudicating Officer passes an order under this settlement provision then:
The matter is treated as final.
No appeal can be filed under section 23L against such an order.
So, the usual route of appeal to the Securities Appellate Tribunal (SAT) is not available in these cases.
23JA(5).
When settlement amounts are collected under this Act, they are not kept by SEBI separately.
The amount is first adjusted for disgorgement (if any) and legal costs.
The remaining settlement amount is then credited to the Consolidated Fund of India.
So, settlement money (except disgorgement and costs) ultimately goes to the government fund.
Section 23 JB. Recovery of amounts.
23JB(1).
A person may:
Fail to pay a penalty imposed under the Act, or
Fail to comply with a disgorgement order under section 12A, or
Fail to pay fees due to the Securities and Exchange Board of India (SEBI).
In such cases, action moves to the Recovery Officer.
The Recovery Officer prepares a formal statement (called a certificate).
This certificate is signed by the Recovery Officer.
The certificate specifies the exact amount due from the person.
After issuing the certificate, the Recovery Officer proceeds to recover the amount.
Recovery can be done through one or more prescribed modes under the Act.
So, once payment is not made, the process shifts to formal recovery proceedings through a certificate mechanism.
Methods of Recovery
Once a recovery certificate is issued, the Recovery Officer can use different methods to recover the dues.
(a). Attach and sell movable property - Such as cash, vehicles, shares, or other movable assets.
(b). Attach bank accounts - Freeze and use the funds lying in the person’s bank accounts.
(c). Attach and sell immovable property - such as land, buildings, or other fixed assets.
(d). Arrest and detention - The person can be arrested and kept in prison for non-payment.
(e). Appoint a receiver - A receiver may be appointed to manage the person’s movable and immovable properties.
So, recovery can involve asset seizure, bank attachment, imprisonment, or management takeover.
Recovery of Dues
For recovery of dues, the law does not create a completely new procedure.
Instead, it borrows the recovery mechanism from the Income-tax Act, 1961.
Specific provisions like:
Sections 220 to 227, 228A, 229, 232.
The Second and Third Schedules, and
The Income-tax (Certificate Proceedings) Rules, 1962.
are made applicable.
These provisions apply “as far as possible” with necessary modifications.
This means they are adapted to fit this Act, not copied exactly.
Wherever those provisions refer to income-tax dues, they are read as referring to amounts due under this Act.
So, recovery under this Act follows the same structured and established process used for tax recovery, with suitable adjustments.
Explanation I.
When a person owes money under the law, and the amount becomes officially due.
After this point, the person tries to avoid payment by transferring property or money
The transfer may be done directly or indirectly
The person shifts assets to close family members:
Spouse
Minor child
Son’s wife
Son’s minor child
These transfers are not genuine (i.e., no proper payment or adequate consideration is given).
Even though the property or money is now in the relative’s name, the law ignores this change.
The assets are still treated as if they belong to the original person.
If the property is transferred to a minor child or son’s minor child:
The law continues to treat it as the person’s property even after the minor becomes an adult
So , the authorities can recover the due amount from these assets as if no transfer had ever happened.
Explanation II.
The law refers to procedures under:
The Income-tax Act, 1961 (Second and Third Schedules).
The Income-tax (Certificate Proceedings) Rules, 1962.
In those provisions, the term used is “assessee”:
However, for this context, you should not read “assessee” in the usual way.
Instead, wherever “assessee” appears, it means the person named in the certificate.
So, all powers, procedures, and actions that apply to an “assessee” will apply to that person.
Explanation III.
The law refers to appeal provisions under:
Chapter XVII-D of the Income-tax Act, 1961
Second Schedule of the same Act
Normally, these provisions talk about “appeals” under the Income-tax framework.
But in this context, you should not read “appeal” in the usual income-tax sense.
Instead, every reference to “appeal” will mean an appeal before the Securities Appellate Tribunal
This appeal is specifically under section 23L of the Act
So, wherever the Income-tax provisions mention “appeal,” replace it with appeal to the Securities Appellate Tribunal
23JB(2).
While carrying out recovery actions, the Recovery Officer is not acting alone.
He can seek assistance from the local district administration.
This support can be used while exercising recovery powers (like attachment, arrest, etc.).
So, recovery proceedings can be backed by local authorities to ensure effective enforcement.
23JB(3).
Even if other laws say something different, this rule overrides them.
When a person fails to comply with a direction under section 12A, recovery action can be taken.
The Recovery Officer then proceeds to recover the amount.
Such recovery is given priority over all other claims against that person.
So , SEBI’s dues are recovered first, before any other creditors.
So, amounts recoverable under directions of the Securities and Exchange Board of India (SEBI) get top priority in recovery.
23JB(4).
The term “Recovery Officer” is specifically defined for this section.
It refers to any officer of the Securities and Exchange Board of India (SEBI).
Such officer must be authorised in writing by SEBI.
The authorisation can be general, or special.
Only after such authorisation, the officer can exercise powers of a Recovery Officer.
So, recovery powers are exercised only by designated SEBI officials with written authority.
Section 23 JC. Continuance of proceedings.
23JC(1).
When a person dies, his liability does not automatically end.
The responsibility shifts to his legal representative.
The legal representative must pay the amount that the deceased was liable to pay.
This liability is in the same manner.
The liability will apply to the same extent as it would have applied to the deceased.
So, death does not wipe out liability; it continues through the legal representative.
Liability of the legal representative is restricted in case of penalties.
The legal representative is liable only if the penalty was already imposed before the person’s death.
If the penalty was not imposed before death, the legal representative cannot be made liable for it.
So, penalty liability does not arise after death unless it already existed.
23JC(2).
For the purposes of Section 23JC(1):
(a).
If proceedings were already started against a person before his death, they do not stop.
This applies to proceedings for:
Disgorgement.
Refund.
Recovery before the Recovery Officer.
It does not apply to proceedings for levy of penalty.
Such proceedings are treated as if they were initiated against the legal representative.
They continue from the same stage where they were at the time of death.
All provisions of the Act will apply in the same way to the legal representative.
So, existing recovery/disgorgement/refund actions carry forward even after death.
(b).
Even if proceedings were not started before death, they can still be initiated.
This applies to proceedings for:
Disgorgement.
Refund.
Recovery before the Recovery Officer.
It covers cases where such proceedings could have been initiated against the person if he were alive.
In such cases, proceedings may be initiated directly against the legal representative.
This does not apply to proceedings for levy of penalty.
Once initiated, all provisions of the Act will apply in the same manner to the legal representative.
So, even after death, eligible proceedings can start against the legal representative as if the person were alive.
23JC(3).
A legal representative is responsible for paying amounts due from the deceased’s estate.
While this liability is still unpaid, he must not deal improperly with the estate assets.
If he:
Creates a charge on the assets, or
Sells/disposes of the assets, or
Parts with the assets in any way,
while the liability is still pending, then he becomes personally liable.
However, this personal liability is not unlimited.
It is restricted to the value of the assets that were charged, disposed of, or parted with.
So, misuse or transfer of estate assets before clearing dues makes the legal representative personally answerable to that extent.
23JC(4).
A legal representative is not liable beyond the deceased’s estate.
His liability is limited to the extent the estate can cover the dues.
If the estate has insufficient assets, he is not personally required to pay the balance.
So, liability is restricted to the value of the deceased’s estate only.
Explanation:
The term “legal representative” refers to a person who legally represents the estate of a deceased person.
It includes a person who handles or deals with the estate (even if not formally appointed).
It also covers situations where:
A person was suing or being sued in a representative capacity, and
After his death, the estate passes on to another person,
then that person becomes the legal representative.
So, the term is broad and includes:
Formally appointed representatives, and
Anyone who takes control or deals with the estate of the deceased.
23K. Crediting sums realised by way of penalties to Consolidated Fund of India.
Any money collected as penalty under this Act is not retained by the authority.
All such amounts are credited to the Consolidated Fund of India.
So, penalty amounts ultimately go to the government treasury.
Section 23 L. Appeal to Securities Appellate Tribunal.
23L.(1).
A person who is aggrieved by a decision or order gets a right to appeal.
This applies to orders passed by:
A recognised stock exchange,
An Adjudicating Officer, or
The Securities and Exchange Board of India (SEBI) (including orders under section 23-I(3)).
Such a person can file an appeal before the Securities Appellate Tribunal (SAT).
While dealing with such appeals, provisions of sections 22B, 22C, 22D and 22E will apply.
These provisions apply “as far as may be”, meaning with necessary adjustments.
So, decisions of stock exchanges, adjudicating officers, or SEBI can be challenged before SAT under a structured appellate framework.
23L.(2).
An appeal must be filed within 45 days.
The 45-day period is counted from the date the appellant receives a copy of the order or decision.
The appeal must be filed before the Securities Appellate Tribunal (SAT).
It must be filed in the prescribed form.
It must also be accompanied by the prescribed fee.
So, filing an appeal requires:
Timely filing (within 45 days),
Proper format, and
Payment of required fee.
Even though the normal time limit is 45 days, delay is not always fatal.
The Securities Appellate Tribunal (SAT) has discretion to accept a delayed appeal.
This is allowed only if the appellant shows sufficient cause for the delay.
If SAT is satisfied with the reason, it can condone the delay and hear the appeal.
So, delay is allowed only when justified with valid reasons.
23L.(3).
Once an appeal is received, the Securities Appellate Tribunal (SAT) takes it up for consideration.
Before deciding, SAT must give both parties an opportunity of being heard.
After hearing, SAT can pass appropriate orders.
It may:
Confirm the order (uphold it), or
Modify the order (change it partly), or
Set aside the order (cancel it completely).
So, SAT has full power to review and decide the appeal after hearing both sides.
23L.(4).
After passing an order, the Securities Appellate Tribunal (SAT) must send a copy of the order.
Copies are sent to:
The parties to the appeal, and
The concerned Adjudicating Officer.
So, both the parties and the authority involved are officially informed of the decision.
23L.(5).
Appeals filed before the Securities Appellate Tribunal (SAT) are to be handled as quickly as possible.
SAT should make efforts to dispose of the appeal finally.
The target is to complete the process within 6 months.
This period is counted from the date of receipt of the appeal.
So, the law emphasizes speedy resolution of appeals.
Section 23 M. Offences.
23M. (1).
Even if a penalty has already been imposed by the Adjudicating Officer or the SEBI , the matter can still proceed further.
A person may:
Contravene,
Attempt to contravene, or
Abet the contravention
of the Act, rules, regulations, or bye-laws.
This applies where no specific punishment is provided elsewhere in the Act.
In such cases, the person can face criminal punishment:
Imprisonment up to 10 years, or
Fine up to ₹25 crore, or
Both imprisonment and fine.
So, even if a violation is not specifically covered, it can still lead to serious criminal consequences.
23M(2).
A person may:
Fail to pay a penalty imposed by the Adjudicating Officer or the Securities and Exchange Board of India (SEBI), or
Fail to comply with a direction or order.
In such cases, the consequences become criminal in nature.
The person can be punished with:
Imprisonment (minimum 1 month, up to 10 years), or
Fine up to ₹25 crore, or
Both imprisonment and fine.
So, non-payment or non-compliance can lead to strict punishment, including mandatory minimum imprisonment.
Section 23 N. Composition of certain offences.
Even if the Code of Criminal Procedure, 1973 says otherwise, this rule overrides it.
Certain offences under the Act can be compounded (settled).
This applies only to offences that are not punishable with imprisonment only or imprisonment plus fine.
Compounding can happen before starting proceedings, or after proceedings have begun.
The compounding can be done by:
The Securities Appellate Tribunal (SAT), or
The court where the case is pending.
So, certain offences can be settled legally instead of continuing prosecution, depending on their nature.
Section 23 O. Power to grant immunity.
23O(1).
When a person is accused of violating provisions of the law, rules, or regulations then:
That person decides to come forward and make a full and true disclosure of the violation
The Securities and Exchange Board of India reviews the case and gives its recommendation
Based on this recommendation, the Central Government of India examines whether:
The disclosure is complete and honest.
If satisfied, the Central Government can grant immunity to that person.
This immunity may cover:
Prosecution for offences under the Act, rules, or regulations.
Penalties under the Act.
The Central Government can impose conditions while granting immunity.
If conditions are met, the person may avoid prosecution and/or penalties for the violation
When can a person apply for Immunity
A person applies for immunity after making full disclosure.
But before this application is received, prosecution may already have started.
If prosecution proceedings were already initiated before the application date then:
The Central Government of India cannot grant immunity.
So, timing is crucial:
If you apply before prosecution begins then immunity is possible.
If you apply after prosecution has started then immunity is not allowed.
Once prosecution has begun, the option of immunity is closed.
The Immunity Recommendation is not binding on the Central Government
A person seeks immunity and makes full disclosure.
The Securities and Exchange Board of India gives its recommendation to grant or reject immunity.
However, this recommendation is not binding on the Central Government of India.
The Central Government can accept the recommendation, or reject it, or take a different view.
So , the final decision lies with the Central Government, not SEBI.
23O(2).
A person is granted immunity by the Central Government of India.
This immunity is given subject to certain conditions.
During the proceedings, the person must:
Follow all conditions, and provide truthful information
If the Central Government later finds that:
The person did not comply with the conditions, or
The person gave false evidence
Then the Central Government can withdraw the immunity at any time.
Once immunity is withdrawn:
The person can be tried for the original offence.
The person can also be tried for any related offence connected to the violation.
Additionally the person becomes liable for penalties under the Act.
Section 24. Contravention by companies
24(1).
When a company commits a violation under the law.
The law can be under the Act, rules, regulations, directions, or orders,
At the time of the violation, certain individuals are managing the company’s business
These include persons who were in charge of the company, and were responsible for conducting its business
In such a case:
The company itself is treated as guilty, and
These responsible persons are also treated as guilty
Both the company and such individuals can be proceeded against, an be punished under the law.
So , the liability is not only on the company, but also on the people running it at the time of the violation.
The Defence for Company Personnel
A company commits a violation, and persons in charge are normally held liable.
But such a person gets a defence (protection).
The person will not be punished if he proves either of the following:
The violation happened without his knowledge, or
He had taken all due diligence (i.e., proper care and precautions) to prevent the violation
So, liability is not automatic and there is a chance to not get punishment.
So , if the person was unaware or genuinely careful, he will not be held liable.
24(2).
A company commits a violation under the law.
Even beyond the general rule of liability, specific officers can be held liable.
If it is proved that the violation happened due to:
Consent (they agreed to it), or
Connivance (they knowingly allowed it), or
Gross negligence (serious carelessness)
Then the following persons can be held liable:
Director
Manager
Secretary
Any other officer of the company
Such persons are treated as personally guilty of the violation.
They can be proceeded against, and be punished under the law.
So , if involvement or serious negligence is proved, officers cannot escape liability even behind the company.
Explanation:
“Company” is given a wide meaning:
Includes any body corporate.
Also includes a firm.
Also includes any association of individuals.
“Director” is interpreted differently based on the entity:
In case of a firm , a partner is treated as a director.
in case of an association of persons or body of individuals , any person controlling its affairs is treated as a director.
So, liability is extended even beyond traditional companies
Sub-section (3) adds an important point:
these provisions are additional to section 22A
they do not override or replace section 22A
Section 25. Certain offences to be cognizable
Even if the Code of Criminal Procedure, 1898 provides otherwise, this rule overrides it.
Any offence punishable under section 23 is treated as a cognizable offence.
This means:
Authorities can take action without prior court approval, and
The offence is considered serious in nature.
So, offences under section 23 are given higher enforcement priority and immediate action can be taken.
Section 26. Cognizance of offences by courts
26(1).
A court cannot take cognizance (start a case) on its own.
It can act only when a proper complaint is filed.
The complaint can be made by:
The Central Government,
The State Government,
The Securities and Exchange Board of India (SEBI),
A recognised stock exchange, or
Any person.
So, prosecution begins only through a formal complaint by an authorised or concerned party, not automatically by the court.
Section 26 A. Establishment of Special Courts
26A(1).
The Central Government has the power to ensure faster trials under this Act.
For this purpose, it can establish or designate Special Courts.
This is done through a notification.
It can set up as many Special Courts as needed.
So, the aim is to provide speedy disposal of offences through dedicated courts.
26A(2).
A Special Court under this Act is composed of a single judge.
The judge is appointed by the Central Government.
This appointment is made only with the concurrence of the Chief Justice of the concerned High Court.
The High Court referred to is the one within whose jurisdiction the judge is working.
So, appointment requires both Central Government approval and judicial concurrence.
26A(3).
Not everyone can be appointed as a judge of a Special Court.
The person must be holding the office of a Sessions Judge or an Additional Sessions Judge.
This qualification must exist immediately before the appointment.
So, only experienced judicial officers at the Sessions level can be appointed as Special Court judges.
Section 26 B. Offences triable by Special Courts
Only a qualified judicial officer can be appointed as a judge of a Special Court.
The person must be currently holding the position of a Sessions Judge or an Additional Sessions Judge.
This condition must be satisfied at the time immediately before appointment.
So, appointment is restricted to experienced judges at the Sessions level.
Section 26 C. Appeal and Revision
The High Court is given powers over Special Courts similar to its powers over Sessions Courts.
It can exercise powers under:
Chapters XXIX and XXX of the Code of Criminal Procedure, 1973 (relating to appeals and revisions).
These powers apply as far as possible, with necessary adjustments.
A Special Court is treated as if it were a Court of Session for this purpose.
This applies within the local jurisdiction of the High Court.
So, the High Court can hear appeals and exercise supervisory powers over Special Court decisions just like it does for Sessions Courts.
Section 26 D. Application of Code to proceedings before Special Court.
26D(1).
Unless the Act provides otherwise:
The Code of Criminal Procedure, 1973 (CrPC) applies to proceedings before a Special Court.
For applying CrPC: The Special Court is treated as a Court of Session.
The person conducting prosecution before the Special Court is treated as a Public Prosecutor (as per section 2(u) of CrPC).
So, proceedings before a Special Court follow the general criminal procedure framework.
The Special Court functions like a Sessions Court and the prosecutor treated as a Public Prosecutor.
26D(2).
The person conducting prosecution before the Special Court must meet certain qualifications.
He should either:
Have been in practice as an Advocate for at least 7 years, or
Have held a government position (under Union or State) for at least 7 years that required special knowledge of law.
So, only persons with significant legal experience or expertise can conduct prosecution before the Special Court.
Section 26 E. Transitional provisions.
If a Special Court has not yet been established, trials do not stop.
Any offence under this Act (which is otherwise triable by a Special Court) will be taken up by a Court of Session.
The Court of Session must have jurisdiction over the relevant area.
This rule applies notwithstanding the Code of Criminal Procedure, 1973 (i.e., it overrides it).
So, until Special Courts are set up, Sessions Courts step in to ensure offences are tried without delay.
Even though Sessions Courts can try such cases in the absence of Special Courts, the High Court’s powers remain intact.
The High Court can still transfer cases under section 407 of the Code of Criminal Procedure.
This includes individual cases, or a class of cases.
The transfer can be from a Court of Session handling such matters.
So, the High Court retains its supervisory power to shift cases for proper administration of justice.
