Supreme Court rules SEBI can charge interest from date of penalty order, even if not written in it. Court says interest is meant to compensate for delayed payment to government.
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NEW DELHI: The Supreme Court of India gave an important ruling in favour of the Securities and Exchange Board of India (SEBI).
The Court said that SEBI has the full legal power to recover interest on penalties right from the date the penalty is decided, even if the penalty order doesn’t specifically mention interest.
The Bench of Justice JB Pardiwala and Justice R Mahadevan said clearly-
“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.”
This case started when SEBI had imposed financial penalties of Rs 11 lakh, Rs 5 lakh, and Rs 7 lakh respectively on Jaykishor Chaturvedi, Siddharth Chaturvedi, and Ankur Chaturvedi on August 28, 2014. These penalties were for breaking the rules under the SEBI (Prohibition of Insider Trading) Regulations, 1992.
The penalty orders were upheld by the Securities Appellate Tribunal (SAT) in 2015, and later confirmed by the Supreme Court in 2019.
In May 2022, SEBI sent notices asking the individuals to pay not just the penalty, but also 12% annual interest starting from the 2014 penalty date. The Chaturvedis argued that since interest wasn’t mentioned in the 2014 orders, it should only apply from 2022 when the new notice was issued.
However, both SAT and then the Supreme Court rejected this argument.
The Court explained that SEBI’s penalty orders are already enforceable, and SEBI doesn’t need to send a new notice under Section 156 of the Income Tax Act for recovery.
The Court explained-
“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 Supreme Court also said that Section 28A of the SEBI Act follows the recovery process under the Income Tax Act, and that Section 220(2) (which charges 1% interest per month) applies automatically if payment isn’t made within 45 days of the order.
The Chaturvedis said that Explanation 4 to Section 28A, which was added in 2019 and says interest should run from the day the amount becomes due, could not be used for old cases.
The Court disagreed and said-
“The Explanation introduced in 2019… did not bring about any substantive change but merely clarified the existing legal position.”
The Bench also made it clear that charging interest is not to punish but to compensate for the delay in payment.
“The delay deprives the Revenue of the timely use of funds that rightfully belong to the public exchequer.”
This means the interest is to make up for the loss faced by the government due to late payment.
- Petitioners (Jaykishor and others) were represented by Senior Advocates Purvish Jitendra Malkan and Benni Chatterji, along with Advocates Dharita Malkan and Khushboo Aakash Sheth.
- SEBI was represented by Senior Advocate Pratap Venugopal, assisted by Advocates Amarjit Singh Bedi, Surekha Raman, Shreyash Kumar, and Imlikaba Jamit from the law firm KJ John & Co.
CASE TITLE:
Jaykishor Chaturvedi & Ors v. SEBI
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