Interest On SEBI Penalty Applies From Adjudication, Even Retrospectively: Supreme Court SC

In a landmark ruling, the Supreme Court of India revisited the legal position on interest liability for the unpaid penalty imposed by SEBI. Interpreting the Court, the interest liability has been held to accrue with effect from the date the compliance period lapses, i.e., from the date when the person is liable to pay a penalty after the passing of an adjudication order. The Court has also held that the interest on penalty is usually applicable retrospectively, even after the issuance of the formal demand notice.

This decision marks a big boon for defaulters who delay compliance with SEBI's orders, affirming SEBI's enforcement powers and fortifying the regulatory framework.

Background of the Case

• The appellants in the matter were penalized by SEBI in 2014 for violations under Regulation Nos. 13(4), 13(4A) read with 13(5) of SEBI (Prohibition of Insider Trading) Regulations. The adjudication orders were upheld by the Supreme Court yet the appellants failed to pay penalties.
• Demand notices were sent out by SEBI in 2022, requesting that fines and interest be paid at a rate of 12% annually for the years 2014-2022. SEBI proceeded with attachment proceedings against the bank accounts of the appellants when they remained still non-compliant. The Securities Appellate Tribunal (SAT) dismissed their appeals, prompting them to approach the Supreme Court.

Key Legal Issues

The Supreme Court was asked to decide:

• Whether appellants were liable to pay interest on unpaid penalties.
• If yes, from when would it accrue: from the expiry of the compliance period mentioned in the said adjudication order or from the date of issue of demand notices by SEBI. 

Court’s Observations and Findings

1. No Separate Demand Notice Required

It was decided that once an adjudication order is passed, no separate demand notice is necessary from SEBI as the adjudication order crystallizes the liability and lays down terms for compliance within a specified period.

"The adjudication order operates as a notice of demand. A separate notice is not a legal prerequisite," said the Court.

2. Interest Accrues from Adjudication Order

The Court, under Section 220(1) read with Section 28A of the SEBI Act, held that should a defaulter not pay the demand within a prescribed period, interest becomes payable by the defaulter. The appellants, having failed to comply with the adjudication order within 45 days of it being served upon them, stood defaulting under Section 220(4) of the Income Tax Act.

“The Court explained that interest liability starts when the adjudication order's compliance term ends, not when the demand letter was sent.

3. Timeline for Payment Fixation by Adjudicating Officer

The Court has held that an adjudication is a final determination of liability. To that end, the adjudicating officer may fix a timeline for payment in the order itself. 

" Thus, the adjudicating authority has the authority to set a deadline for payment.  The bench stressed that interest responsibility inevitably arises once default occurs.

4. Explanation 4 to Section 28A is Retrospective

The Court relied on Explanation 4 to Section 28A of the SEBI Act, 2019, which records that interest under Section 220 of the Income Tax Act is payable from the date on which the amount becomes due. 

Sincere Section 156 of the Income Tax Act (which requires a demand notice to be issued) is not made part of the SEBI Act, the Court decided that the adjudication order itself would be the legal trigger for interest calculation.  

Compensatory Nature of Interest

• The Court observed that interest on delayed payment of penalties is compensatory and not punitive in nature. The interest is supposed to compensate for the losses suffered by the Revenue on account of late payment, rather than being a punishment for the defaulting party.
• Provided in the judgment was that “A delay deprives the Revenue from monies it is entitled to. Interest is a means of compensation for this, not punishment.”

Rejection of Appellants’ Arguments

• The appellants gave the argument that until a formal demand notice was issued in 2022, the liability to pay interest could not even arise. The Court very sternly rejected that view, cautioning that acceptance of it would encourage defaulters to delay payment forever. 
• “The acceptance of this position would defeat enforcement and is also against public revenue,” the Court warned. 

Final Decision

The Supreme Court held that interest is payable as per 12% per annum from 2014 onward, as imposed by SEBI, and the Court held that from the date when a period of 45 days was allowed for compliance after the adjudication orders were passed in 2014, the liability for payment of interest arose.

Accordingly, the appeals were dismissed.

This decision in Jaykishor Chaturvedi & Others v. SEBI is a landmark ruling regarding the enforcement of securities law. It confirms that from the date fixed in the adjudication order itself, the payment is due, and consequently, the interest accrues as well. The delinquent persons can no longer seek refuge in technical delays in payments or absence of separation in adjournments from procedural grounds or absence of separate notices to evade or postpone payment.

By upholding SEBI’s position, the Court has reinforced the importance of regulatory compliance, prompt penalty payment, and the legitimacy of retrospective interest to safeguard public funds.

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