How to Respond to a SEBI Show Cause Notice
A guide for market participants, intermediaries, and their advocates on responding to SEBI adjudication proceedings. Covers the reply process, settlement mechanism, and key defense strategies.
Common SEBI Violations
Insider Trading (S.12A/15G)
Trading on unpublished price sensitive information. Penalty: Rs.25 Cr or 3x profit, whichever is higher.
Fraudulent/Manipulative (S.12A/15HA)
Market manipulation, pump-and-dump, circular trading. Penalty: Rs.25 Cr or 3x profit.
Non-Disclosure (S.15A)
Failure to file returns, disclose shareholding, or report material events. Penalty: Rs.1 Cr per day of default.
Intermediary Non-Compliance (S.15HB)
Brokers, merchant bankers, RTAs failing to comply with regulations. Penalty: Rs.1 Cr or Rs.1L/day.
How to Respond
1. Engage a securities lawyer immediately — SEBI proceedings are specialized. Engage counsel experienced in securities law before filing any reply.
2. File reply within 21 days — Request extension if needed (typically granted for 7-14 days). The reply is filed before the Adjudicating Officer (AO).
3. Consider settlement — File a settlement application under SEBI Settlement Regulations 2018 within 60 days of the SCN. Settlement avoids admission of guilt and caps liability.
4. Address each charge — Provide a detailed point-by-point reply with documentary evidence. SEBI matters are quasi-judicial — the standard of proof is preponderance of probability.
5. Request personal hearing — You have the right to be heard before the AO passes any order. Request multiple hearing dates if the matter is complex.
6. Mitigating factors — Highlight cooperation with SEBI, voluntary disclosure, rectification of the violation, clean past record, and the proportionality principle (S.15J factors).
Section 15J Factors (Penalty Determination)
When determining the quantum of penalty, SEBI's Adjudicating Officer must consider:
Defense Tip
If no disproportionate gain was made and no loss was caused to investors, argue for minimum penalty or no penalty. The Supreme Court in Adjudicating Officer v. Bhavesh Pabari (2019) held that penalty need not be imposed if there is no loss or gain.
Appeal Process
| Stage | Forum | Time Limit |
|---|---|---|
| First Appeal | Securities Appellate Tribunal (SAT) | 45 days |
| Second Appeal | Supreme Court of India | 60 days |
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