Substantive interest liability and disgorgement orders: retrospective interest barred, but future interest cannot be implied beyond the order's text

Interest liability is substantive and cannot be imposed retrospectively without a clear statutory basis; under Section 28A read with Section 220(2) of the Income-tax Act, interest on penalties was therefore recoverable only prospectively, and the Revenue succeeded on that point. A disgorgement order cannot be enlarged by implication to create future interest where it expressly quantified interest only up to the order date and prescribed a different default consequence; no further interest was payable beyond the amount already stated, and the appellants succeeded on that issue.

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Issues: (i) Whether interest on penalties recoverable under Section 28A of the Securities and Exchange Board of India Act, 1992 could be charged only prospectively and whether the recovery machinery could support interest for the pre-enactment period; (ii) Whether the disgorgement order dated 21.7.2009, which directed payment of the quantified unlawful gain and stipulated a further restraint in default, also carried an implied liability to pay future interest till actual payment.

Issue (i): Whether interest on penalties recoverable under Section 28A of the Securities and Exchange Board of India Act, 1992 could be charged only prospectively and whether the recovery machinery could support interest for the pre-enactment period.

Analysis: Section 28A was introduced with effect from 18.7.2013 and, as finally enacted, the recovery mechanism read with Section 220 of the Income-tax Act, 1961 could be invoked for recovery of amounts due. However, the power to levy interest is substantive in character, not merely procedural. The Court also held that the Interest Act, 1978 preserves the power to award interest on equitable considerations where money due is withheld, and that amounts recovered by SEBI are public monies credited to the Consolidated Fund of India. The recovery machinery therefore could not be used to impose interest retrospectively for a period anterior to the statutory basis, though equitable interest was not excluded as a general principle.

Conclusion: Interest under Section 28A read with Section 220(2) of the Income-tax Act, 1961 was chargeable only prospectively, and the Tribunal was wrong in denying interest from the date the penalty became due. The penalty appeals were allowed in part in favour of Revenue.

Issue (ii): Whether the disgorgement order dated 21.7.2009, which directed payment of the quantified unlawful gain and stipulated a further restraint in default, also carried an implied liability to pay future interest till actual payment.

Analysis: The disgorgement order expressly quantified interest only up to the date of the order and imposed a specific consequence for default, namely a further seven-year market debarment. The Court compared this order with other orders of the same whole-time member where future interest was expressly directed and noted that such language was absent here. On the facts, the order could not be expanded by implication to add future interest, and the later recovery demand was therefore unsupported to that extent.

Conclusion: No future interest was payable on the disgorgement amount beyond the interest already quantified in the order dated 21.7.2009, and the disgorgement appeal was allowed in favour of the appellants.

Final Conclusion: The common judgment upheld prospective statutory recovery of interest in the penalty matters, but set aside the demand for further interest in the disgorgement matter because the original order did not impose such liability.

Ratio Decidendi: Interest is a substantive liability and cannot be retrospectively imposed in the absence of a clear statutory basis, while an order of disgorgement cannot be enlarged by implication to create a further obligation to pay future interest when the order itself confines the relief and prescribes a different consequence for default.

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