CHAIRMAN S.E.B.I. versus SHRIRAM MUTUAL FUND AND ANR.

Citation: [2006] SUPP. 2 S.C.R. 833 · Decided: 23-05-2006 · Supreme Court of India · Bench: AR. LAKSHMANAN · Disposal: Appeal(s) allowed

Judgment (excerpt)

CHAIRMAN S.E.B.I. 
v. 
SHRJRAM MUTUAL FUND AND ANR. 
MAY 23, 2006 
[DR. AR. LAKSHMANAN AND LOKESHWAR SINGH PANTA, JJ.] 
SEBI (Mutual Funds) Regulations, 1996-Regulation 25(7)(9)-
Securities and Exchange Board of India Act, 1992~ection 15(D)(b)-
Violation of terms of Certificate of Registration and Statutory Regulations 
A 
B 
by Mutual Fund-Imposition of penalty for the violations-Whether sine 
C 
qua non or mens rea required-Held: Mens rea is not an essential 
ingredient for contravention of the provisions of a civil act-The penalty 
is attracted as soon as contravention of the statutory obligations as 
contemplated by the Act is established-Unless the language of the statute 
indicates the need to establish the element of mens rea, it is sufficient to 
D 
prove that a default in complying with the statute has occurred. 
Respondent conducted business through brokers in excess of the 
permissible limits prescribed under Regulation 25(7)(a) of SEBI (Mutual 
Funds) Regulations, 1996 on 12 occasions covering 6 quarters and also 
failed to comply with the terms and conditions attached to the Certificate 
E 
of Registration which are statutory in nature, as prescribed by Regulation 
15(D)(b) of the Securities and Exchange Board of India Act, 1992. SEBI 
appointed an Adjudicating Officer to enquire into the violations. It 
imposed penalty of 5 lacks under Section 15 E on respondent No. 2 for 
failure to comply with Regulations 25(7)(a) with regard to routing of 
F 
transactions through associate brokers. It imposed penalty of 2 lacs 
under Section lS(D)(b) on respondent No. 1 for its failure to comply 
with the terms and conditions of Certificate of Registration granted to 
it. In. appeal, Securities Appellate Tribunal set aside the order of 
Adjudicating Officer on the ground that the penalty to be imposed for 
G 
failure to perform a statutory obligation is a matter of discretion; that 
there was no malajide intention to act in violation of Regulation 25 (7) 
(a) and Section 15(D)(b ); and that the penalty is warranted by the 
quantum which has to be decided by ·taking into consideration the 
factors stated in Section 15 J. Hence the present appeals. 
833 
H 
A 
B 
c 
D 
834 
SUPREME COURT REPORTS [2006] SUPP. 2 S.C.R. 
The questions for determination before this Court were whether 
once it is conclusively established that the Mutual Fund has violated 
the terms of the Certificate of Registration and the Statutory Regulations, 
the imposition of penalty becomes sine qua non of the violation; and 
whether mens rea is an essential element for imposing penalty for 
breach of civil obligations. 
Allowing the appeals, the Court 
HELD: 1. Penalty is attracted as soon as the contravention of the 
statutory obligation as contemplated by the Act and the Regulation is 
established and hence the intention of the parties committing such 
violation becomes wholly irrelevant. A breach of civil obligation which 
attracts penalty in the nature of fine under the provisions of the Act and 
the Regulations would immediately attract the levy of penalty irrespective 
of the fac~ whether contravention was made by the defaulter with guilty 
intention or not. Unless the language of the statute indicates the need 
to establish the preser.ce of mens rea, it is wholly unnecessary to 
ascertain whether such a violation was intentional or not. On a careful 
perusal of Section 15(D)(b) and Section 15-E of the Act, there is nothing 
which requires that mens rea must be proved before penalty can be 
imposed under these provisions. Hence once the contravention is 
E 
established then the penalty is to follow. (851-F-H) 
Director of Enforcement v. MCTM Corporation Pvt. Ltd. and Ors. 
(1996) 2 SCC 471; JK. Industries Ltd and Ors. v. Chief Inspector of 
Factories and Boilers and Ors., (19961 6 SCC 665; R.S. Joshi Sales Tax 
F 
Officer. Gujarat and Ors. v. Ajit Mills Ltd and Anr. Etc., [1977) 4 SCC 
98; Mis Gujarat Travancore Agency, Cochin v. C.J. T., (1989) 3 SCC 52 
and Swedish Match AB and Anr. v. SEBI and Anr. , (2004) 11 SCC 641, 
relied on. 
Hindustan Steel Ltd v. State of Orissa, AIR 1970 SC 253, 
G distinguished. 
SEBI v. Cabot International Capital Corporation, (2005) 123 Comp. 
Cases 841 (Born), referred to. 
H 
2. Imputing mens rea into the provisions of Chapter VI A is 
CHAIRMAN S.E.B.I. v. SHRIRAM MUTUAL FUND 
835 
against the plain language of the statute and frustrates entire purpose 
A 
and object of introducing Chapter VIA to give teeth to

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