Interest on SEBI Act penalties starts after payment deadline per Section 28A, not from demand notice date

The SC held that interest on penalties under the SEBI Act accrues from the expiry of the payment period specified in the adjudication order, not from the date of subsequent demand notices. Section 28A and Explanation 4 clarify that interest is compensatory, aimed at offsetting the revenue loss due to delayed payment. Where no payment timeline is specified, a 30-day period under the Income Tax Act applies. The adjudication order's payment deadline operates as a notice of demand, making separate demand notices unnecessary. The appeals challenging the interest liability and its retrospective computation were dismissed. The appellants were directed to pay the interest within 15 days, affirming the Tribunal's order and upholding the enforcement framework's integrity. No costs were awarded.

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ISSUES:

• Whether interest on penalties imposed by the Adjudicating Officer under the SEBI Act is payable by the appellants.
• From which date the interest on unpaid penalties should accrue-whether from the date of the adjudication orders or from the date of demand notices issued by the Recovery Officer.
• Whether the Recovery Officer exceeded his jurisdiction by imposing retrospective interest computed from the date of the original adjudication orders despite the absence of any provision for interest in those orders.
• The nature and effect of incorporation or reference of Income Tax Act provisions, particularly Sections 220 and 156, into the SEBI Act for recovery and interest calculation purposes.
• The applicability and retrospective effect of Explanation 4 inserted into Section 28A of the SEBI Act.
• The legal character of interest on unpaid penalties under the SEBI Act-whether compensatory or penal.

RULINGS / HOLDINGS:

• Interest on penalties imposed by the Adjudicating Officer under the SEBI Act is payable by the appellants as a matter of law by operation of Section 28A read with Section 220 of the Income Tax Act, 1961.
• The interest shall accrue from the expiry of the 45-day period stipulated in the adjudication orders dated 28.08.2014, which constitute a clear and enforceable demand, and not from the date of the demand notices issued in 2022.
• The Recovery Officer did not exceed his jurisdiction by computing interest from the date of the adjudication orders, as the liability to pay interest arises upon default after the period fixed in the adjudication order, notwithstanding the absence of express provision for interest therein.
• The provisions of Sections 220 to 227, 228A, 229, 232 and related Schedules and Rules of the Income Tax Act, 1961 are incorporated into the SEBI Act by Section 28A "with necessary modifications" and apply as if they were provisions of the SEBI Act, making penalties recoverable as arrears of income tax including interest.
• Explanation 4 to Section 28A, inserted in 2019, clarifies that interest under Section 220 of the Income Tax Act shall commence from the date the amount became payable, and does not have retrospective effect to alter the legal position as it stood prior to insertion.
• Interest on unpaid penalties is compensatory in nature and not penal, intended to compensate the revenue for delayed payment rather than to punish the defaulter.

RATIONALE:

• The legal framework applied includes Section 28A of the SEBI Act, which incorporates relevant provisions of the Income Tax Act, 1961, including Section 220 governing interest on unpaid amounts, with necessary modifications to apply to SEBI penalties.
• The Court distinguished between "legislation by incorporation" and "legislation by reference," holding that the Income Tax Act provisions are incorporated into the SEBI Act as they stood at the time of insertion of Section 28A, and subsequent amendments like Explanation 4 clarify but do not retrospectively alter liability.
• The adjudication orders imposing penalties fixed a 45-day period for payment, constituting a statutory "notice of demand" for the purposes of interest calculation under the incorporated provisions.
• Reliance on precedent decisions clarified that interest liability arises automatically by operation of law upon default and does not require express mention in the original adjudication order.
• The Court rejected the appellants' contention that interest should only accrue from the date of the Recovery Officer's demand notices, reasoning that such a view would undermine the enforcement framework and encourage delay.
• In affirming the compensatory nature of interest, the Court cited established principles distinguishing interest from penalty, emphasizing the revenue's right to compensation for delayed payment of statutory dues.
• The decision reaffirmed the settled law as laid down in Dushyant N. Dalal v. SEBI and other authorities, confirming SEBI's power to levy interest on penalties from the date the liability crystallized.

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