SEBI Tribunal: Interest Liability on Delayed Payments & Unlawful Gains Upheld

The Tribunal held that Section 28A of the SEBI Act imposes automatic interest liability on delayed payments by incorporating provisions from the Income Tax Act. Interest under Section 28A applies from 18.07.2013 onwards for orders passed before that date. In Appeal No. 41 of 2014, interest on unlawful gains was upheld from 21.07.2009 till payment. Other appeals required fresh computation of interest from 18.07.2013. The Tribunal granted a six-week stay on the decision at the request of the parties.

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Issues Involved:
1. Whether Section 28A of the SEBI Act imposes interest liability on delayed payments.
2. Whether Section 28A can be invoked for demanding interest on amounts due to SEBI from orders passed prior to 18.07.2013.

Issue-wise Detailed Analysis:

1. Whether Section 28A of the SEBI Act imposes interest liability on delayed payments:

The Tribunal addressed the appellants' contention that Section 28A does not contain a substantive provision for levying interest on delayed payments. The Tribunal rejected this argument, stating that the object of inserting Section 28A was to provide a mechanism for the recovery of amounts due to SEBI by incorporating the provisions of the Income Tax Act related to 'collection and recovery.' Specifically, Section 220 of the Income Tax Act, which mandates interest at 12% per annum for delayed payments, was incorporated into Section 28A. The Tribunal emphasized that the incorporation of Section 220 into Section 28A means that the interest liability on delayed payments is automatic and arises by operation of law. Thus, the absence of a specific mention of interest in Section 28A does not negate the statutory imposition of interest liability through the incorporated provisions of the Income Tax Act.

2. Whether Section 28A can be invoked for demanding interest on amounts due to SEBI from orders passed prior to 18.07.2013:

The Tribunal considered whether interest could be demanded on amounts due to SEBI from orders passed before 18.07.2013. It concluded that Section 28A, which was introduced with retrospective effect from 18.07.2013, imposes interest liability from that date onwards. The Tribunal held that the interest obligation under Section 28A would commence from 18.07.2013 and not for the period prior to that date. The Tribunal noted that any substantive provision imposing a burden or liability is generally prospective unless otherwise provided. Since Section 28A was inserted with effect from 18.07.2013, the interest liability would apply from that date. The Tribunal clarified that for orders passed prior to 18.07.2013, the Recovery Officer (RO) could demand interest on unpaid amounts only if the amounts were not paid within 30 days from 18.07.2013.

Findings Specific to Appeal No. 41 of 2014:

In Appeal No. 41 of 2014, the Tribunal found that the order dated 21.07.2009 by the Whole Time Member (WTM) of SEBI explicitly required the appellants to pay the unlawful gain of Rs. 4.05 crore with interest amounting to Rs. 1.95 crore within 45 days. The order also stated that failure to pay within 45 days would result in additional debarment for seven years without prejudice to SEBI's right to enforce the disgorgement order. The Tribunal held that this order inherently included the obligation to pay continuing interest on the unlawful gain from 21.07.2009 till payment. Therefore, the RO was justified in demanding interest on the unlawful gain from 21.07.2009 till payment, and the appeal was dismissed.

Conclusion:

a) In all appeals except Appeal No. 41 of 2014, the penalty orders passed prior to 18.07.2013 did not contemplate interest liability for delayed payments. Therefore, the RO could not demand interest for the period prior to 18.07.2013. The matters were remanded to the RO for fresh computation of interest from 18.07.2013.

b) In Appeal No. 41 of 2014, the WTM's order dated 21.07.2009 included an obligation to pay interest on the unlawful gain till payment. Thus, the RO's demand for interest from 21.07.2009 till payment was upheld, and the appeal was dismissed.

The Tribunal stayed the decision for six weeks upon request from the counsel for the appellants in Appeal No. 41 of 2014 and the respondents in the remaining appeals.

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