Sukhraj Kaur Rajbans v. SEBI: can a penalty fall below the statutory minimum?

The facts in brief

SEBI's adjudicating officers had imposed penalties on a large number of entities for executing non-genuine, reversal trades in illiquid stock options (ISOs) on the BSE, designed to create artificial trading volumes — part of a long-running enforcement programme covering thousands of participants. The connected appellants challenged both the merits of the findings under the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 and the quantum of penalty.

On quantum, the appellants argued that the minimum penalty was grossly disproportionate to their negligible or nil gains; that many of them were small, financially unsophisticated investors lured into the trades by intermediaries; and — in two of the three connected appeals — that the show cause notices had never been properly served, vitiating the proceedings for breach of natural justice. The central legal question the Tribunal framed was a narrow but consequential one: whether section 15J of the SEBI Act permits a penalty below the prescribed statutory minimum.

The matter came before a Full Bench of three: the Presiding Officer, Justice P.S. Dinesh Kumar, and two Technical Members, Ms. Meera Swarup and Dr. Dheeraj Bhatnagar. The Bench divided 2:1.

The statutory question

The architecture of Chapter VIA of the SEBI Act sets up the tension at the heart of the case. Specific penalty provisions — here, section 15HA, which deals with the penalty for fraudulent and unfair trade practices — prescribe penalties with a statutory floor (a minimum of ₹5 lakh for the relevant period, subject to the upper limits the section sets). Cutting across those specific provisions is section 15J, the general mitigation provision, which directs the adjudicating authority, while determining quantum, to have "due regard" to enumerated factors: the amount of disproportionate gain or unfair advantage made as a result of the default; the amount of loss caused to an investor or group of investors as a result of the default; and the repetitive nature of the default.

The interpretive question is whether section 15J's mitigation mandate operates only within the band between the statutory minimum and maximum — calibrating quantum downward only as far as the floor — or whether, in a fit case, it can drive the penalty below the floor altogether. That question had long been resisted by SEBI, which has consistently treated the statutory minimum as sacrosanct.

What the majority held

The majority — Ms. Meera Swarup and Dr. Dheeraj Bhatnagar — answered that section 15J can, in appropriate cases, reduce a penalty below the statutory minimum.

The majority undertook a harmonious reading of Chapter VIA. Section 15J's command to give "due regard" to the disproportionate gain made, the loss caused to investors, and the repetitive nature of the default is not, on this reading, confined to calibrating quantum above the floor. It can justify going below the floor where mechanical imposition of the minimum would be disproportionate to the gravity and circumstances of the default. The specific penalty floor in section 15HA yields, in fit cases, to the general mitigation mandate of section 15J.

The majority stressed the peculiar character of the illiquid stock options matters. The BSE ISO enforcement wave swept in large numbers of small, financially unsophisticated investors who had been drawn into orchestrated reversal trades by intermediaries. Imposing the uniform minimum penalty on such unwitting participants — many of whom made negligible gains — would cause disproportionate hardship and offend the proportionality principle. Section 15J, read as a proportionality valve within Chapter VIA, supplies the mechanism to avoid that result.

On the facts, the three connected appeals diverged. Appeals 63 and 89 of 2025 were allowed and the penalty orders set aside on independent grounds — improper or defective service of the show cause notices and the consequent breach of natural justice. Appeal 99 of 2025 was dismissed on the merits, the appellant's reversal trades having been found to be non-genuine and manipulative.

The dissent

Justice P.S. Dinesh Kumar, the Presiding Officer, dissented. He adhered to the view that the statutory minimum is a legislative floor that the Tribunal cannot dip beneath. On this view, section 15J's mitigation factors operate within the statutory band — they can pull the penalty down to the minimum, but no further. To read section 15J as authorising a sub-minimum penalty is, on the dissent's logic, to rewrite the specific penalty provisions that the legislature deliberately equipped with floors to deter market abuse.

The dissent preserves the competing "statutory minimum is sacrosanct" position and, because it comes from the Presiding Officer, gives the question a structural significance it would not have had in a unanimous order.

The doctrinal architecture

The ruling is doctrinally pivotal because it formalises, at the level of a SAT majority, a below-minimum mitigation power that SEBI has long resisted. It sits alongside SAT's broader proportionality jurisprudence — the line of decisions in which the Tribunal has remanded or reduced penalties that bore no rational relationship to the gain made or the harm caused. But it goes a step further than those decisions, which operated within the statutory band: here the majority crosses the floor itself.

Three features of the reasoning deserve emphasis. First, the harmonious-construction method: the majority did not read section 15HA and section 15J as in conflict but as parts of a single sentencing scheme, with section 15J supplying the proportionality correction to a floor that would otherwise operate mechanically. Second, the natural-justice discipline: two of the three appeals succeeded not on the below-minimum point at all, but on defective service of the show cause notices — a reminder that procedural failure independently voids a penalty order regardless of the quantum debate. Third, the structural tension the ruling exposes: rigid statutory minima are introduced to deter market abuse, but the constitutional demand for proportionate, individuated punishment resists their uniform application to retail participants who made no real gain.

Proportionality and the retail participant

The majority's reasoning is anchored not in abstract leniency but in the particular factual texture of the illiquid stock options enforcement wave. The BSE ISO programme swept up thousands of participants, and among them were large numbers of small, financially unsophisticated investors who had been steered into reversal trades by intermediaries. For such a participant, the gain from the impugned trade was frequently negligible or nil; the trade was a counter in someone else's manipulation scheme rather than a profit-seeking venture of his own. To impose on that participant the same statutory minimum penalty as on the architect of the scheme is to treat unequals equally — the classic complaint that proportionality doctrine exists to answer.

The majority located the answer within the statute itself. Section 15J directs the adjudicator to have "due regard" to the disproportionate gain made, the loss caused to investors, and the repetitive nature of the default. Where the gain is negligible, the investor loss attributable to the particular participant is minimal, and the default is a one-off rather than a pattern, those factors all point in the direction of a lighter penalty. The majority's contribution is to hold that, in a fit case, they can point below the floor — that the proportionality inquiry is not artificially truncated at the statutory minimum.

This is a significant doctrinal move because the alternative — a rigid floor applied uniformly regardless of culpability — sits uneasily with the constitutional expectation that punishment be individuated and proportionate. The dissent's answer is that the legislature, in fixing a floor, has made a deliberate choice that the Tribunal must respect; the proportionality concern, on that view, is for Parliament to address, not for the adjudicator to cure by reading the floor away. The two positions reflect a genuine and unresolved tension between deterrence-by-minimum and proportionality-by-circumstance.

Why the split matters

Because the decision is a 2:1 split with the Presiding Officer dissenting, its authority is contestable. SEBI has long resisted the below-minimum proposition, and the divided bench gives the regulator both the incentive and the doctrinal opening to carry the question to the Supreme Court under section 15Z of the SEBI Act. Until that happens, the majority's view offers ISO appellants and other small-penalty challengers a powerful quantum argument — one anchored not in the discretion of the adjudicator but in the structure of Chapter VIA itself.

The decision should be read together with the established line holding that delay and disproportion are mitigating factors under section 15J. Where those decisions reduced penalties within the band, this one supplies the further proposition that, in a fit case, the band itself does not constrain the proportionality inquiry. For an enforcement programme built on uniform minimum penalties applied at scale, that is a consequential — and contested — recalibration.

Related on Valkya

• SEBI v. Rashmi Saluja: Religare insider trading and disgorgement
• Pace Stock Broking v. SEBI: a show cause notice is not appealable
• Securities and corporate governance: May–June 2026 roundup

Sources

1. Law Notify — "SAT (Majority) Holds Penalty Under SEBI Act Can Fall Below Statutory Minimum in Appropriate Cases": https://lawnotify.in/sat-majority-holds-penalty-under-sebi-act-can-fall-below-statutory-minimum-in-appropriate-cases/
2. TaxGuru — "SEBI imposes penalty for non-genuine trades to create artificial volumes in illiquid stock options" (background on the ISO enforcement programme): https://taxguru.in/sebi/sebi-imposes-penalty-non-genuine-trades-create-artificial-volumes-illiquid-stock-options.html
3. Moneylife — coverage of SAT proportionality and section 15J penalty reductions: https://moneylife.in/article/after-sat-remand-sebi-slashes-penalty-to-20-lakh-from-67-crore-on-arun-panchariya-in-winsome-textiles-gdr-case/79596.html
4. Securities Appellate Tribunal — orders and judgments portal (Appeal Nos. 63, 89 and 99 of 2025, order dated 16 January 2026): https://sat.gov.in/