2017 (10) TMI 149 - SC - Companies Law

Supreme Court ruling on SEBI Act interest; equitable grounds apply for Interest Act; appeals favor SEBI and appellants

Dushyant N. Dalal And Another Versus Securities And Exchange Board of India

Dushyant N. Dalal And Another Versus Securities And Exchange Board of India - 2018 AIR 447, 2017 (11) SCR 448, 2017 (9) SCC 660, 2017 (12) SCALE 203 Issues Involved:1. Whether interest can be recovered on orders of penalty and disgorgement of unlawful gains under Section 28A of the SEBI Act.2. The applicability of interest on penalty orders prior to the introduction of Section 28A.3. The interpretation and application of the Interest Act, 1978 in awarding interest on equitable grounds.Detailed Analysis:1. Interest on Orders of Penalty and Disgorgement:The core issue in the appeals was whether SEBI could recover interest on unpaid penalty orders and disgorgement of unlawful gains under Section 28A of the SEBI Act. In the disgorgement case (C.A. 5677 of 2017), the noticees were found guilty of manipulating share demands in IPOs, resulting in unlawful gains of Rs. 4.05 crores. SEBI's order included the disgorgement of these gains along with simple interest of Rs. 1.95 crores for the period from 2005 to 2009. The noticees were directed to pay the total amount of Rs. 6 crores within 45 days, failing which they would face a seven-year market ban. SEBI later demanded additional interest from 2009 to 2013, which the noticees contested.2. Applicability of Interest on Penalty Orders Prior to Section 28A:In penalty cases such as SEBI v. Ashok Panchariya (C.A. 10410 of 2017), SEBI imposed penalties for unfair trade practices and demanded interest on unpaid penalties under Section 28A. The SAT held that interest could only be charged from the date of the introduction of Section 28A (18.7.2013) and not retrospectively. SEBI appealed, arguing that interest should be payable from the date the penalty became due.3. Interpretation and Application of the Interest Act, 1978:The Court examined whether interest could be awarded on equitable grounds under the Interest Act, 1978. The Act allows courts and tribunals to award interest from the date the cause of action arose until the commencement of proceedings. The Court held that the Interest Act enables the award of interest in equity, especially in cases where public monies are involved, such as penalties collected by SEBI, which are credited to the Consolidated Fund of India.Judgment Analysis:Disgorgement Case (C.A. 5677 of 2017):The Court found that the SEBI order dated 21.7.2009 did not explicitly provide for future interest beyond the initial period specified. The severe penalty of a seven-year market ban was imposed for non-payment within 45 days, indicating that further interest was not intended. The SAT's interpretation that future interest was implied was incorrect. The Court allowed the appeal, setting aside the SAT's judgment and ruling that no future interest was payable beyond the specified period.Penalty Cases (C.A. 10410-10412 of 2017):The Court held that Section 28A, being procedural, could not retrospectively impose interest for periods before its introduction. However, the Interest Act, 1978 allows for the award of interest on equitable grounds from the date the cause of action arose. The Court set aside the SAT's finding that no interest could be charged from the date the penalty became due, allowing SEBI to charge interest from the date of the cause of action.Conclusion:The Supreme Court clarified that while Section 28A of the SEBI Act could not retrospectively impose interest, interest could be awarded on equitable grounds under the Interest Act, 1978. In the disgorgement case, no future interest was payable beyond the specified period due to the severe penalty imposed for non-payment. In penalty cases, SEBI could charge interest from the date the cause of action arose. The appeals were allowed in favor of SEBI in penalty cases and in favor of the appellants in the disgorgement case.