THE CHAIRMAN, SEBI V. SHRIRAM MUTUAL FUND & ANR (2006) 5 SCC 361.
FACTS:
SEBI is respondent 1 appointed the Adjudicating officer (respondent 2) to inquire into and adjudge contravention of section 15D(b) and section 15E of the exchange Board of India act, 1992 by Shriram Mutual fund and Shriram Asset management Co. Ltd.
The charge is that they(appellants) conducted business through brokers, in excess of the limits prescribed in regulation 25(7)(a) of the SEBI regulations act, 1996
As per SEBI Act, no person is entitled to carry on the business of mutual fund without obtaining a certificate of registration from SEBI, which is issued subject to certain conditions, One of such is comply with the provisions of the Regulations.
The number of times this default has occurred which is 12 times between 1998 to 1999.
ISSUE:
- Whether once it is conclusively established that Mutual fund has violated the terms of the SEBI Regulations the imposition of penalty becomes a sine qua non?
- Whether the respondent violated regulation 25(7)(a) of the SEBI (Mutual funds) Regulations?
- Whether Mens rea plays an important role in civil wrong?
- Whether the penalty imposed by an adjudicating officer is justified?
- Whether the order passed tribunal of setting aside the order of adjudicating officer was correct?
REFERRED CASE LAWS:
- Director of Enforcement v. MCTM Corporation pvt. Ltd:
The breach of a “civil obligation” would immediately attract the levy of penalty, irrespective of the fact whether the contravention was made by the defaulter with any “guilty intention” or not.
- K Industries Ltd. v. Chief inspector of factories and boilers:
The offence under the Act are not a part of general penal law but arise from the breach of duty provided in a special beneficial social defence legislation, which creates absolute or strict liability without proof of any mens rea.
OBSERVATION:
- In the provisions and scheme of penalty under chapter VI A of the SEBI Act, there is no element of any criminal offence or punishment as contemplated under appellants and it is not essential element for imposing penalty under SEBI Act and Regulations.
- The omission or commission of the statutory breach is itself the offence.
- The creation of an offence by statute proceeds on the assumption that society suffers injury by the act or omission of the defaulter and a deterrent must be imposed to discourage the repetition of the offence.
DECISION:
- The respondents on their own admission have violated the statutory Regulations during 6 quarters. Hence the violation is ex facie wilful and the penalty imposed by Adjudicating officer ought not to be se aside by the single member Tribunal. Hence, it was Contended that once the contravention is established, the penalty has to follow.
- It has been established by the Adjudicating officer as well as admitted by the respondents that there has been a conscious disregard of the obligation as the respondents were aware that they were acting in violation of the provisions of Regulations 25(7)(a).
- The SEBI Act and Regulations are intended to regulate the Security Market and related aspects, the imposition of penalty, in the given facts and circumstances of the case, cannot be tested on the ground of “no mens rea no penalty”. For breaches of provisions of SEBI Act and Regulations, which are civil in nature, mens rea is not essential. Hence the intention of the parties committing such violation becomes wholly irrelevant.
- The Adjudicating officer had, after taking into account all the facts and circumstances of the case, imposed only a token of Rs.5 lakhs against the respondents for its failure on 12 occasions though the charging section permits imposition of maximum penalty of Rs.5 lakhs for each such violation.Thus, the penalty is justified.
- The Tribunal has miserably failed to appreciate that by setting aside the order of the Adjudicating officer the tribunal was setting a serious wrong precedent whereby every offender would take shelter of alleged hardships to violate the provisions of the Act.