2006 Supreme(SC) 528

2006(5) Supreme 1
Supreme Court of India
(From Securities Appellate Tribunal, Mumbai)
Dr. AR. Lakshmanan and Lokeshwar Singh Panta, JJ.
Chairman, S.E.B.I. — Appellant
versus
Shriram Mutual Fund & Anr. — Respondents
Civil Appeal Nos. 9523-9524 of 2003
Decided on 23-5-2006
Counsel for the Parties :
For the Appellant : L.N. Rao, Sr. Advocate, Ms. Indu Malhotra, Ms. Liz Mathew, Arjun Suresh, Advocates.

Important Point
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 a sine qua non of the violation and mens rea is not an essential element for imposing penalty for breach of civil obligations.

Headnote:Securities and Exchange Board of India Act, 1992 — Section 15-Z, Chapter VI-A — SEBI (Mutual Funds) Regulations, 1996 — Violation by Mutual Fund of terms of Certificate of Registration and statutory Regulations — Imposition of penalty becomes a sine qua non of the violation — Respondent Mutual Fund registered in year 1994 had floated 5 schemes — It conducted business through brokers associated with its sponsor in excess of the permissible limits on 12 occasions — Adjudicating Officer, after hearing the parties, imposed penalty of Rs. 5 lacs for failure to comply with Regulations — Tribunal set aside order of the Adjudicating Officer on ground that penalty to be imposed for failure to perform a statutory obligation is a matter of discretion — Whether Tribunal was justified in allowing appeals of respondent — (No) — Whether once it is conclusively established that the Mutual Fund has violated terms of Certificate of Registration and statutory Regulations, imposition of penalty becomes a sine qua non of the violation — (Yes) — Only the quantum of penalty is discretionary — Respondents had wilfully violated statutory provisions with impunity — Imposition of penalty was fully justified — Mens rea is not an essential ingredient for contravention of the provisions of a civil act.

       Held : In our opinion, 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. In our opinion, mens rea is not an essential ingredient for contravention of the provisions of a civil act. In our view, the penalty is attracted as soon as contravention of the statutory obligations as contemplated by the Act is established and, therefore, the intention of the parties committing such violation becomes immaterial. In other words, the breach of a civil obligation which attracts penalty under the provisions of an Act 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. This apart that unless the language of the statute indicates the need to establish the element of mens rea, it is generally sufficient to prove that a default in complying with the statute has occurred. Under a close scrutiny of Section 15D(b) and 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, we are of the view that once the contravention is established, then the penalty has to follow and only the quantum of penalty is discretionary. Discretion has been exercised by the Adjudicating Officer as is evident from imposition of lesser penalty than what could have been imposed under the provisions. The intention of the parties is wholly irrelevant since there has been a clear violation of the statutory Regulations and provisions repetitively, covering a period of 6 quarters. Hence we hold that the respondents have wilfully violated statutory provisions with impunity and hence the imposition of penalty was fully justified. The Tribunal, in this context, failed to appreciate that every Mutual Fund has to redeem the units as per terms and conditions of the scheme on the request of the unit holders and this cannot, in any manner, be considered as an extraordinary circumstance or something which was not known to the respondents. The facts and circumstances of the present case in no way indicate the existence of special circumstances so as to waive the penalty imposed by the Adjudicating Officer. (Para 29)

       It is settled law that when a penalty is imposed by an Adjudicating Officer, it is done so in adjudicatory proceedings and not by way of fine as a result of prosecution of an accused for commission of an offence in a criminal proceeding. In the instant case, the Tribunal has failed to appreciate that the respondents had given undue and unfair advantage to the associated brokers, which is detrimental to the interest of the unit holders. In the present case, 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 inasmuch as the respondents were aware that they were acting in violation of the provisions of Regulations. The Adjudicating Officer had, after taking into account all the facts and circumstances of the case, imposed only a token of Rs. 5 lacs against the respondents for its failure on 12 occasions though the charging section permits imposition of a maximum penalty of Rs. 5 lacs for each such violation. (Paras 30 & 31)

       In our considered opinion, 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 fact whether contravention must made by the defaulter with guilty intention or not. We also further held that unless the language of the statute indicates the need to establish the presence 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 established then the penalty is to follow. (Para 35)