Summary: Section 15-I (3) of the SEBI Act, 1992, empowers SEBI to revisit and enhance penalties imposed by the adjudicating officer, including orders where no penalty is imposed, within a period of three months from the date of passing of the order. However, this power can be exercised only if the order passed by the adjudicating officer is erroneous and not in the interests of the securities market. This revisionary power represents a critical component of SEBI’s regulatory framework — it allows the market regulator to modify orders passed by the adjudicating officer.
SEBI has the power to adjudicate under Section 15-I of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”), for which it may appoint an adjudicating officer to conduct inquiry and impose penalties, which may then be challenged in an appeal before the Securities Appellate Tribunal (SAT) under Section 15T of the SEBI Act. However, even an order of exoneration by the adjudicating officer does not necessarily mean end of litigation.
The quasi-judicial framework under SEBI comprises inter alia of adjudicating officers who are appointed by “SEBI” or the “Board” to adjudicate under Section 15-I of the SEBI Act.
Section 15T of the SEBI Act allows “any person aggrieved” by an order, to appeal before the SAT, technically allowing even SEBI to approach SAT against an order of the adjudicating officer. However, even if there is an order of the adjudicating officer that the SEBI does not agree with, as a matter of practice, it would not prefer such an appeal.
Accordingly, the power under Section 15-I (3) of the SEBI Act was introduced by way of Securities Laws (Amendment) Act, 2014, in terms of which the Board can call for and examine the record of any proceedings before the adjudicating officer and enhance the quantum of penalty imposed by the adjudicating officer if it considers the order passed to be “erroneous” and “not in the interests of the securities market”. SAT in Samco Securities Limited [[1]] held that the word ‘enhance’ is wide enough to enhance the penalty from zero to something. Thus, even an exoneration by the adjudicating officer is subject to proceedings under Section 15-I (3) of the SEBI Act.
The language/ wording in Section 15-I (3) of the SEBI Act is similar to that of Section 263 of the Income Tax Act, which empowers the Commissioner to revise an erroneous order passed by the assessing officer if it is prejudicial to the interests of revenue. Dealing with a case under Section 263, the Supreme Court in Commissioner of Income Tax v/s Max India Limited [(2007) 213 CTR (SC) 266], referring to Malabar Industrial Co. Ltd. v. CIT (2000) 243 ITR 83, held that the phrase “prejudicial to the interests of the revenue” under Section 263 has to be read in conjunction with the expression “erroneous”. Every loss of revenue cannot be treated as prejudicial to the interests of the revenue.” Further, the Supreme Court held that in cases where two views are possible and the income tax officer has taken a view that the Commissioner does not agree with, the same cannot be treated as an erroneous order prejudicial to the interest of revenue. The income tax officer’s view should be unsustainable in law.
Thus, applying the said judgment, the power under Section 15-I (3) of the SEBI Act cannot be exercised for a simpliciter error (a simple or mere error) in the order of the adjudicating officer.
An argument that Section 263 of the Income Tax Act, 1961, is pari materia to Section 15-I (3) of the SEBI Act was taken before SEBI in Section 15-I (3) proceedings in CARE Rating Limited [[2]], which the SEBI rejected. The order dated September 22, 2020, is challenged in appeal and is pending before SAT.
Would exercise of powers under Section 15-I (3) of the SEBI Act necessarily lead to enhancement of penalty by the Board?
SEBI, through a fresh show cause notice, reply, and hearing, and after applying its mind to the matter, may pass an order enhancing the quantum of penalty under Section 15-I (3) if it finds the adjudicating officer’s order erroneous and not in the interest of the securities market.
SEBI, in exercise of powers under Section 15-I (3) of the SEBI Act, has, in many cases, enhanced the penalty imposed by the adjudicating officer, including in cases where no penalty was imposed. But the orders of adjudicating officer are not necessarily modified under Section 15-I (3) of the SEBI Act. Reference in this regard, is drawn to recent SEBI Orders:
- Piramal Pharma Limited [[3]] – In this case, adjudication proceedings were initiated against Piramal Pharma Limited for failing to disclose an NGT and Telangana Pollution Control Board orders. The adjudicating officer, however, did not penalise Piramal Pharma Limited, stating that since the orders were issued before the demerger, disclosure obligations could not be assigned to the successor entity. In exercise of powers under Section 15-I (3), the Board reversed this finding, but upheld the Nil penalty on a different ground. It held that the orders were not material and, therefore, did not require any disclosure under the SEBI (LODR) Regulations, 2015.
- Seema Securities Limited [[4]] – In this case, the adjudicating officer dismissed the proceedings against Seema Securities Limited (broker), relying upon the whole – time member’s proceedings involving Ramkripa Securities Private Limited (client). The Board, in exercise of powers under Section 15-I (3) of the SEBI Act, found this reliance erroneous, but it disposed of the matter without imposing a penalty, noting that the dispute was essentially between a broker and a client for which an elaborate framework for alternate dispute resolution is available at the stock exchange level. Therefore, it could not be adjudicated by SEBI.
Conclusion:
Thus, Section 15-I (3) of the SEBI Act makes it clear that an order of Nil penalty by the adjudicating officer does not necessarily mark the end of litigation [[5]]. SEBI retains the power to revisit such orders within three months, provided it considers them erroneous and not in the interest of the securities market. This revisionary power represents a critical component of the SEBI’s regulatory framework.
For further information, please contact:
Vasudha Goenka, Partner, Cyril Amarchand Mangaldas
vasudha.goenka@cyrilshroff.com
[[1]] SAT Order dated March 30, 2022, in Appeal No. 493 of 2021
[[2]] SEBI Order [WTM/GM/MIRSD/31 /2020-21] dated September 22, 2020
[[3]] SEBI Order [WTM/AS/CFD/CFD-SEC-4/30959/2024-25] dated November 8, 2024
[[4]] SEBI Order [WTM/AB/IVD/ID10/10028/2020-21] dated December 29, 2020
[[5]] Similar SEBI Orders upholding Nil penalty decisions –
- Bharatiya Global Infomedia Limited – July 24, 2019
- Oxyzo Financial Services Private Limited – November 20, 2020
- Kotak Mahindra Mutual Fund – May 31, 2019
- Goenka Diamond and Jewels Limited – April 23, 2019
