SC upholds powers of SEBI to impose penalty on mutual fund

New Delhi, May 23 (UNI) The Supreme Court today upheld the powers of the Securities and Exchange Board of India (SEBI) to impose penalty on a mutual fund if it has violated the terms of the Certificate of Registration and the Statutory Regulations i.e.

SEBI (Mutual Funds) Regulations 1996.

While setting aside the order of the Securities Appellate Tribunal, Mumbai, the apex court observed,"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 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 violations becomes immaterial." The respondent Shriram Mutual Fund registered in 1994 had floated five schemes which conducted business through brokers in excess of permissible limits prescribed under Regulation 25 (7)(a) of the Regulations 1966 on 12 occasions.The adjudicating officer imposed a penalty of Rs. 5 lakhs under section 15E on respondent no. 2 while a fine of Rs. 2 lakhs was imposed on respondent no. 1 for failure to comply with the terms of the Certificate of Registration.

A bench comprising Mr. Justice A.R. Lakshmanan and Mr. Justice Lokeshwar Singh Panta noted,"The impugned order sets stage for various market players to violate statutory regulations with impunity and subsequently plead ignorance of law or lack of mens rea to escape the imposition of penalty. The imputing mens rea into the provisions of chapter VI A is against the plain language of the statute and frustrates entire purpose and object of introducing chapter VI A to give teeth to the SEBI to secure strict compliance of the Act and the regulations." UNI AKS/SC RP RS1737