TaxTMI 
TaxTMI 
2025 (7) TMI 1011
X X X X Extracts X X X X
X X X X Extracts X X X X
....ication, advisory, and portfolio management, among others. 2.1. The company in the year 1995-96 went in to initial public offer for fully paid-up share capital of 56,48,500 shares of face value of Rs.10/- each. The fully paid up 5,64,85,000 shares of the company were split from Rs.10/- to Re.1 each from 30.06.2005. 2.2. While so, the respondent conducted examination of scrip of the company and found that the promoters and directors of the company purchased shares of the company on various dates between October 2012 and July 2013 in violation of the provisions of Regulation Nos.13(4) and 13(4A) read with 13(5) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 For short, "the PTI Regulations". 2.3. Upon issuance of show cause notices, the Adjudicating Officer passed adjudication orders on 28.08.2014 under section 15-I of the SEBI Act read with Rule 5 of the SEBI Rules, 1995, imposing penalty on the appellants. 2.4. Challenging the aforesaid orders, the appellants by names Jaykishor Chaturvedi, Siddharth Jaykishor Chaturvedi, and Ankur Jaykishor Chaturvedi preferred appeals bearing Nos.435, 436 and 434 of 2014, respectively, before the Tribunal under Section 15E of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nt Civil Appeals. CONTENTIONS OF THE PARTIES 3. The main contention of the learned counsel for the appellants is that the Recovery Officer of the respondent exceeded the powers vested under section 28A of the SEBI Act by imposing retrospective interest computed from the date of the original adjudication orders dated 28.08.2014 under section 15-I of the SEBI Act, despite the absence of any provision for the imposition of interest in the said order. 3.1. Elaborating further, the learned counsel submitted that the scheme of recovery proceedings under the SEBI Act is governed by Section 28A read with Sections 220 to 227, 228A, 229, 232, along with the Second and Third Schedules to the Income Tax Act, 1961, and the Income Tax (Certificate Proceedings) Rules, 1962. Section 220(2) in unambiguous terms, stipulates that interest would be imposable at the rate of 1% per month after the 30th day from the date of the demand notice as it stood prior to insertion of Explanation- 4 to Section 28A, which came into force on 21.02.2019. Explanation - 4 states that the interest referred to in Section 220 of the Income Tax Act, 1961 shall commence from the date the amount becomes payable by the per....
X X X X Extracts X X X X
X X X X Extracts X X X X
....etrospective application [See: J.K. Synthetics Ltd v. CTO (1994) 4 SCC 276 and State of Punjab v. Bhajan Kaur (2008) 12 SCC 112]. Thus, according to the learned counsel, Explanation - 4 to Section 28A of the SEBI Act, would not apply to the case of the appellants, as the amendment was introduced long after the original adjudication orders, which had attained finality by a common judgment dated 28.02.2019 in C.A.No(s).11311 of 2013 etc. cases. Since the amendment cannot be applied retrospectively, in light of the decisions referred to above, interest for the purposes of Section 28A shall not commence from the date of the adjudication orders. Instead, it shall be computed in accordance with the plain language of Section 220(2) of the Income Tax Act, 1961 i.e., after 30 days from the date of notice of demand. 3.5. The learned counsel further pointed out that in Dushyant N. Dalal and another v. SEBI (2017) 9 SCC 660, this Court after referring to various judgments, upheld the levy of interest in equity as a principle of law, in the absence of express statutory provisions for interest. In that case, the appeal related to an adjudication order of penalty dated 13.11.2009 i.e., prior to ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....abling SEBI to recover interest from the date on which the liability originally arose, in consonance with principles of equity and the Interest Act, 1978. 4.1. It was further submitted that in the present case, the cause of action arose on 28.08.2014, i.e., upon the imposition of penalties by the Adjudicating Officer of SEBI, on each of the appellants, accompanied by a direction to effect payment within 45 days from the date of receipt of the adjudication orders. Section 220(1) of the Income Tax Act, 1961 does not contemplate the issuance of any independent notice of demand, but refers to the notice of demand served under Section 156. It mandates that the amount specified in such notice shall be paid within 30 days, failing which interest at the rate of 12% per annum becomes payable under Section 220(2) on the amounts specified therein, calculated from the expiry of the period prescribed under Section 220(1). Since Section 156 of the Income Tax Act is not incorporated into Section 28A of the SEBI Act, the expression 'notice of demand' referred to in Section 220(1), for the purposes of recovery under the SEBI Act would be referrable to the demand raised by SEBI - inter alia through....
X X X X Extracts X X X X
X X X X Extracts X X X X
....1,133,33 4.4. Thus, according to the learned counsel, there is no merit in the present appeals and the same are liable to be dismissed. DISCUSSION AND FINDINGS 5. We have heard the learned counsel appearing on either side and perused the materials available on record. 6. Concededly, the Adjudicating Officer passed the adjudication orders dated 28.08.2014, imposing penalties of Rs.11,00,000/- in the case of Jaykishor Chaturvedi Rs.5,00,000/- in the case of Siddharth Jaykishor Chaturvedi and Rs.7,00,000/- in the case of Ankur Jaykishor Chaturvedi, for the alleged violation of Regulation Nos.13(4) and 13(4A) read with 13(5) of the PIT Regulations. The said adjudication orders were affirmed by the 3-Judge Bench of this Court vide judgment dated 28.02.2019 in C.A. No (s).11311 of 2013 etc. cases and hence, the same had attained finality. 7. Seemingly, the appellants failed to pay the penalties imposed by the Adjudicating Officer, even after the same was affirmed by this Court. Consequently, the respondent issued demand notices dated 13.05.2022, directing the appellants to pay the penalties along with interest @ 12% per annum from 28.08.2014 to 13.05.2022 within 15 days from the dat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....vision for interest on delayed payments. 9.4. Although outside Chapter VI-A, Section 28A which was inserted by the Securities Laws (Amendment) Act, 2014 in Chapter VII, dealing with Miscellaneous matter, with effect from 18.07.2013, deals with the recovery when any person fails to pay amounts due under the Act. It states that if a person fails to pay a penalty imposed under the SEBI Act, the SEBI Recovery Officer may prepare a certificate specifying the amount due and recover it by attachment or other measures. Crucially, it provides that for the purposes of recovery, the provisions of Sections 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 - shall apply, with necessary modifications, as if those provisions and the rules were the provisions of the SEBI Act and referred to amounts due under this Act, instead of income-tax. In particular, Income-tax Act, Section 220 (which is thereby incorporated) imposes interest at 1% per month (or part thereof) on any tax (here, SEBI dues) remaining unpaid after the due date. Thus, Section 28A effectively makes all sums due to SEBI (including penaltie....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... date of attainment of majority by such minor child or son's minor child, as the case may be, continue to be included in the person's movable or immovable property or monies held in bank accounts for recovering any amount due from the person under this Act. Explanation 2.- Any reference under the provisions of the Second and Third Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings) Rules, 1962 to the assessee shall be construed as a reference to the person specified in the certificate. Explanation 3. - Any reference to appeal in Chapter XVIID and the Second Schedule to the Income-tax Act, 1961 shall be construed as a reference to appeal before the Securities Appellate Tribunal under section 15T of this Act. The Explanation Inserted by Act 21 of 2019, s. 42 and the Second Schedule (w.e.f. 21.2.2019) [Explanation 4. The interest referred to in section 220 of the Income-tax Act, 1961 shall commence from the date the amount became payable by the person. (2) The Recovery Officer shall be empowered to seek the assistance of the local district administration while exercising the powers under sub-section (1). (3) Notwithstanding anything c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ction (1)" (w.e.f. 1.4.1989) [for every month or part of a month comprised in the period commencing from the day immediately following the end of the period mentioned in sub-section (1)] Substituted by Act 4 of 1988, Section 85, for "fifteen per cent. per annum from the day commencing after the end of the period mentioned in sub-Section (1)" (w.e.f. 1.4.1989) and ending with the day on which the amount is paid: [Provided that, where as a result of an order under section 154, or section 155, or section 250, or section 254, or section 260, or section 262, or section 264] Inserted by Act 13 of 1963, Section 14 (w.e.f. 1.4.1962) [or an order of the Settlement Commission under sub-section (4) of section 245-D] Inserted by Act 4 of 1988, Section 85 (w.e.f. 1.4.1989) [the amount on which interest was payable under this section had been reduced, the interest shall be reduced accordingly and the excess interest paid, if any, shall be refunded:] Inserted by Act 13 of 1963, Section 14 (w.e.f. 1.4.1962) [Provided further that where as a result of an order under sections specified in the first proviso, the amount on which interest was payable under this section had been reduced and subsequent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er the Income Tax Act, the Assessing Officer is required to serve a notice of demand upon the assessee. This notice mandates payment of the specified amount within 30 days from the date of its service. A reading of the provisions makes it clear that for the purpose of recovery of amounts due under the SEBI Act, certain provisions of the Income Tax Act have been incorporated into the SEBI Act. At this juncture, it will be relevant to point out the difference between "legislation by incorporation" and "legislation by reference". In the case of "legislation by incorporation", the provisions of the original Act, once specified, become an integral and independent part of the subsequent Act. The provisions of the original Act are deemed to be incorporated in the subsequent Act as if they were enacted within it. On the other hand, in the case of "legislation by reference", the provisions are generally referred to for applicability, and the effect of such reference is that not only the provisions existing at the time the subsequent Act was enacted are applied, but also any subsequent amendments made to the provisions referred to in the original enactment. Therefore, in the case of "legisl....
X X X X Extracts X X X X
X X X X Extracts X X X X
....xpress omission, insertion or substitution of any matter, then, unless a different intention appears, the repeal shall not affect the continuance of any such amendment made by the enactment so repealed and in operation at the time of such repeal." 54. We say 'not identical' because in the class of cases contemplated by section 6A of the General Clauses Act, the function of the incorporating legislation is almost wholly to effect the incorporation and when that is accomplished, they die as it were a natural death which is formally effected by their repeal. In cases, however, dealt with by Brett, L. J., the legislation from which provisions are absorbed continue to retain their efficacy and usefulness and their independent operation even after the incorporation is effected." (ii) Ujagar Prints and Ors. v. Union of India (UOI) and Ors. MANU/SC/0675/1988: AIR 1989 SC 516 "49. Referential legislation is of two types. One is where an earlier Act or some of its provisions are incorporated by reference into a later Act. In this event, the provisions of the earlier Act or those so incorporated as they stand in the earlier Act at the time of incorporation, will be read into the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ered to in certain situations. These have been set out in State of Madhya Pradesh v. Narasimhan MANU/SC/0226/1975 : (1976) 1 SCR 6 : AIR 1975 SC 1835. In that case, the Supreme Court was considering the question whether the amendment of Section 21 of the Penal Code by the Criminal Law Amendment Act, 1958, was also applicable for purposes of the Prevention of Corruption Act 1947, which by Section 2 incorporates, for the purposes of that Act, the definition of 'public servant' in Section 21 of the Penal Code. Answering the question in the affirmative, the Court outlined the following propositions: Where a subsequent Act incorporates provisions of a previous Act, then the borrowed provisions become an integral and independent part of the subsequent Act and are totally unaffected by any repeal or amendment in the previous Act. This principle, however, will not apply in the following cases: (a) Where the subsequent Act and the previous Act are supplemental to each other; (b) where the two Acts are in pari materia; (c) where the amendment in the previous Act, if not imported into the subsequent Act also, would render the subsequent Act wholly unworkable and ineffectual; a....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... dealing with both the doctrines of legislation by incorporation as well as by reference. Normally, when it is by reference or citation, the amendment to the earlier law is accepted to be applicable to the later law while in the case of incorporation, the subsequent amendments to the earlier law are irrelevant for application to the subsequent law unless it falls in the exceptions stated by this Court in M.V. Narasimhan case [State of M.P. v. M.V. Narasimhan, MANU/SC/0226/1975 : (1975) 2 SCC 377: 1975 SCC (Cri) 589]. It could well be said that even where there is legislation by reference, the Court needs to apply its mind as to what effect the subsequent amendments to the earlier law would have on the application of the later law. The objective of all these principles of interpretation and their application is to ensure that both the Acts operate in harmony and the object of the principal statute is not defeated by such incorporation. Courts have made attempts to clarify this distinction by reference to various established canons. But still there are certain grey areas which may require the court to consider other angles of interpretation. 122. In Maharashtra SRTC [MANU/SC/0187/2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....MRTP Act." [Emphasis supplied] 9.8. There is yet another possibility, where, in the original Act, there can be an incorporation of another provision from the same or a different enactment. In such cases, the incorporated provision should also be deemed to have been incorporated into the subsequent Act. Furthermore, when there is a general reference in the original Act that forms part of the incorporation in the subsequent Act, the general reference also gets incorporated into the subsequent Act as a reference. Section 220 of the Income Tax Act deals with the period within which the demand made under Section 156 is to be paid. Section 156, by itself, does not specify any period within which the payment is to be made. However, the proviso to Section 156 makes it clear that a separate demand is not necessary when an assessment is made under Section 143(1) of the Income Tax Act, and the intimation of assessment is to be treated as the notice of demand. At this juncture, it is necessary to point out that the period of 30 days mentioned in Section 220 can also be reduced for the reasons stated in the proviso, provided the prescribed procedure is followed. The reference in Section 220(....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... issuance of a demand notice before recovery, has not been incorporated into the SEBI Act. Under the SEBI Act, the levy of penalties under various circumstances is governed by Chapter VIA, which deals with penalties and adjudication. The adjudication is carried out in accordance with the procedure laid down in the Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995. Section 28A of the SEBI Act, introduced with effect from 18.07.2013, provides the mechanism for recovery of penalties and, in cases of default, contemplates the payment of interest by incorporating certain provisions of the Income Tax Act. In effect, Section 28A is a substantive law insofar as the levy of interest. The adjudication is conducted as per the mechanism outlined under SEBI Act and the rules framed thereunder. Notably, the provisions of the SEBI Act or its rules do not mandate the issuance of a separate demand notice before recovery. Adjudication amounts to a crystallization of liability, and the demand is a natural sequitur. Therefore, there is no corresponding requirement for issuance a separate notice of demand seeking payment of the amount determined u....
X X X X Extracts X X X X
X X X X Extracts X X X X
....om the expiry of 30 days following the SEBI's notices dated 13.05.2022. 11.1. The appellants contend that interest, if payable, should accrue only from the date of the demand notices issued on 13.05.2022, rather than from the date of the adjudication orders. Conversely, the respondent argues that interest is due from the expiry of the 45-day period following the adjudicating orders dated 28.08.2014 as those orders constituted enforceable demands. 11.2. As seen above, section 220(1) of the Income Tax Act, 1961 does not independently envisage the issuance of a demand notice. Instead, it refers to the notice served under section 156, requiring payment within 30 days. Failure to comply attracts interest at 12% per annum under section 220(2), calculated from the expiry of the 30-day period. However, since section 156 is not incorporated into section 28A of the SEBI Act, the expression 'notice of demand' for recovery under the SEBI Act must be understood to include adjudication orders issued under Chapter VIA of the SEBI Act. We have already held that the adjudication officer was well within his rights to fix a period for payment. One of the purposes of specifying such a period in the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....uld be credited to the Consolidated Fund under Section 15-JA of the SEBI Act. There is no greater equity than such money being used for public purposes. Deprivation of the use of such money would, therefore, sound in equity. This being the case, it is clear that, despite the fact that Section 28-A belongs to the realm of procedural law and would ordinarily be retrospective, when it seeks to levy interest, which belongs to the realm of substantive law, the Tribunal is correct in stating that such interest would be chargeable under Section 28-A read with Section 220(2) of the Income Tax Act only prospectively. The same 2014 Amendment which introduced Section 28-A, with effect from 18-7-2013, also introduced Section 15-JB retrospectively, with effect from 20-4-2007. This is a positive indication that Section 28-A was intended only to have prospective application. It must be clarified, however, that interest is chargeable only with effect from 25-8-2014, as Section 220 was not referred to, while enacting Section 28-A, in any of the three Ordinances preceding the Amendment Act of 2014. However, since it has not taken into account the Interest Act, 1978 at all, we set aside the Tribunal&....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of the liability - serving to compensate for the time value of money and the disruption caused by delayed payment, rather than to impose an additional punitive burden. In this regard, it will be useful to refer to the following decisions: (i) Bhai Jaspal Singh v. CCT (2011) 1 SCC 39 : (2010) 35 VST 456 : "36. Interest is compensatory in character and is imposed on an assessee who has withheld payment of any tax as and when it is due and payable. The interest is levied on the actual amount of tax withheld and the extent of delay in paying the tax on the due date. Essentially, it is compensatory and different from penalty which is penal in character (see Pratibha Processors v. Union of India [(1996) 11 SCC 101: AIR 1997 SC 138]). (ii) Commissioner of Income-Tax v. Dhanalakshmy Weaving Works (2000) 245 ITR 13 : 1999 SCC OnLine Ker 597 : (2000) 160 CTR 374 : "8... "Interest" is a consideration paid either for use of money or for forbearance in demanding it after it has fallen due. It is a compensation allowed by law or fixed by parties or permitted by custom or usage for use of money belonging to another or for the delay in paying the money after it has become payable. It can b....