2019 (4) TMI 2173 - AT - SEBI

SEBI penalty orders serve as deemed notice of demand under Section 28A, no separate notice required before recovery certificate issuance.

PVP Global Ventures Private Limited, PVP Ventures Limited, Prasad V. Potluri Versus Securities and Exchange Board of India

The Securities Appellate Tribunal at Mumbai held that no separate notice of demand is required under Section 28A of the SEBI Act read with Section 220 of ... Issuance of Recovery Certificate without Notice of Demand -petitioner urged that before issuing a certificate the Recovery Officer was required to issue a notice of demand u/s 220(1) of the Income tax Act - HELD THAT:- Legislature by inserting Section 28A to SEBI Act has provided that if a person fails to pay the amounts referred in Section 28A, then the Recovery Officer shall draw up a statement/certificate and proceed to recover the amounts specified in the certificate by any one or more of the five modes specified therein and for that purpose the provisions of Section 220 to 227, 228A, 229, 232, the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962 as in force from time to time, in so far as may be, would apply with necessary modifications as if the said provisions and the rules made thereunder were the provisions of SEBI Act and referred to the amount due to SEBI under the SEBI Act. The order of the Tribunal holding that no separate notice is required to be issued under Section 28A read with 220 of Income Tax Act was affirmed by the Supreme Court in the appeal filed by Dushyant N. Dalal [2017 (4) TMI 1196 - SECURITIES APPELLATE TRIBUNAL MUMBAI] Penalty imposed - Adjudicating Officer in its order while imposing penalty had also directed the appellant to pay the penalty amount within 45 days. In our view this order of penalty would also be deemed to include a notice of demand and thus a formal requirement for issuance of a separate notice of demand pursuant to the order of penalty is no longer required. Thus, the contention raised by the appellant is not sustainable and is rejected. Calculation of interest on the penalty amount - The contention that interest was impliedly waived when the penalty was reduced by the Tribunal or that interest cannot be imposed with retrospective effect is patently misconceived. Interest was not only chargeable u/s 28A read with Section 220(2) of the Income Tax Act but the provisions of Interest Act, 1978 could also be taken into consideration and interest could be charged from the date on which the penalty became due. Thus, Recovery Officer was justified in charging interest from the date of the order passed by the Adjudicating Officer. 1. ISSUES PRESENTED and CONSIDEREDThe primary issues considered in this judgment are: Whether a recovery certificate under Section 28A of the SEBI Act can be issued without a prior notice of demand under Section 220(1) of the Income Tax Act. Whether the calculation of interest on the penalty amount was correct, including whether interest could be impliedly waived or imposed retrospectively.2. ISSUE-WISE DETAILED ANALYSISIssue 1: Issuance of Recovery Certificate without Notice of DemandRelevant legal framework and precedents: Section 28A of the SEBI Act incorporates provisions from the Income Tax Act, specifically Sections 220 to 227, for the recovery of dues. The appellant contended that a notice of demand under Section 220(1) was necessary before issuing a recovery certificate.Court's interpretation and reasoning: The Tribunal referred to its prior decision in Dushyant N. Dalal's case, which was affirmed by the Supreme Court. It held that Section 220(1) does not require a separate notice of demand under the SEBI Act, as the amounts demanded under SEBI orders are deemed to include such notice.Key evidence and findings: The Tribunal noted that the Adjudicating Officer's order imposing a penalty also directed payment within a specified period, which suffices as a notice of demand.Application of law to facts: The Tribunal applied the precedent from Dushyant Dalal's case, concluding that no separate notice was required under Section 28A read with Section 220.Treatment of competing arguments: The appellant's argument that a separate notice was necessary was rejected based on the established interpretation of the law.Conclusions: The Tribunal found that the issuance of the recovery certificate without a separate notice of demand was lawful.Issue 2: Calculation and Imposition of InterestRelevant legal framework and precedents: Section 28A of the SEBI Act, read with Section 220(2) of the Income Tax Act, provides for the imposition of interest on delayed payments. The appellant argued that interest was waived when the penalty was reduced, and that it could not be imposed retrospectively.Court's interpretation and reasoning: The Tribunal, citing the Supreme Court's affirmation in Dushyant Dalal's case, held that interest liability is automatic and arises by operation of law. The Tribunal also considered the Interest Act, 1978, which allows for interest from the date the penalty became due.Key evidence and findings: The Tribunal emphasized that the SEBI Act's incorporation of the Income Tax Act's recovery provisions inherently includes interest on delayed payments.Application of law to facts: The Tribunal determined that interest was chargeable from the date of the Adjudicating Officer's order, as stipulated by the relevant statutory provisions.Treatment of competing arguments: The appellant's contention of implied waiver and retrospective imposition was deemed misconceived, as the statutory framework clearly mandates interest on delayed payments.Conclusions: The Tribunal upheld the Recovery Officer's calculation of interest from the date of the initial penalty order.3. SIGNIFICANT HOLDINGSCore principles established: The incorporation of Income Tax Act provisions into the SEBI Act via Section 28A allows for the recovery of dues without a separate notice of demand. Interest on delayed payments under SEBI orders is automatic and arises by operation of law, applicable from the date the penalty becomes due.Final determinations on each issue: The Tribunal dismissed the appeals, affirming that the recovery process and interest calculation were conducted in accordance with the legal framework.