Supreme Court says SEBI can recover interest on penalties from date of order

The Supreme Court on Tuesday upheld the power of the Securities and Exchange Board of India (SEBI) to recover interest on unpaid penalties from the date of adjudication, even if the original order does not expressly provide for interest. [Jaykishor Chaturvedi & Ors v. SEBI]

A Bench of Justices JB Pardiwala and R Mahadevan held,

“Statutory dues not paid within the prescribed time attract statutory interest, irrespective of whether such interest was specifically mentioned in the original order or not."

SEBI’s adjudicating officer had imposed penalties of ₹11 lakh, ₹5 lakh and ₹7 lakh on Jaykishor Chaturvedi, Siddharth Chaturvedi and Ankur Chaturvedi respectively on August 28, 2014 for violation of the SEBI (Prohibition of Insider Trading) Regulations, 1992. These orders were upheld by the Securities Appellate Tribunal (SAT) in 2015 and affirmed by the Supreme Court in 2019.

In May 2022, SEBI issued demand notices seeking recovery of the penalty amounts along with 12% per annum interest calculated from the date of the original adjudication orders. The appellants argued that no such interest was levied in the 2014 orders, and that interest could only run from the 2022 demand notices. Their challenge was rejected by SAT, and subsequently by the Supreme Court.

The Court held that the adjudication orders themselves constituted enforceable demands and that SEBI was not required to issue a separate notice under Section 156 of the Income Tax Act.

“One of the purposes of specifying such a period in the adjudication order is to determine the period from which payment of interest is to be calculated, if the assessee commits a default,” the Court said.

Since Section 28A of the SEBI Act incorporates the recovery framework under the Income Tax Act “with necessary modifications,” interest under Section 220(2) - at 1% per month - became automatically payable after the expiry of the 45-day period set out in the adjudication orders.

The Court rejected the appellants’ argument that Explanation 4 to Section 28A - clarifying that interest shall run from the date the amount becomes payable - could not apply retrospectively.

“The Explanation introduced in 2019… did not bring about any substantive change but merely clarified the existing legal position,” the Court held.

It also emphasised that interest was “compensatory in nature, not penal,” and intended to account for the loss to the public exchequer from delayed payment.

“The delay deprives the Revenue of the timely use of funds that rightfully belong to the public exchequer."

The petitioner was represented by Senior Advocates Purvish Jitendra Malkan and Benni Chatterji with Advocates Dharita Malkan and Khushboo Aakash Sheth.

SEBI was represented by Senior Advocate Pratap Venugopal with Advocates Amarjit Singh Bedi, Surekha Raman, Shreyash Kumar and Imlikaba Jamit from KJ John & Co.

[Read Judgment]