The Hon’ble Supreme Court of India in its recent judgment in Jaykishor Chaturvedi & Etc. v. Securities and Exchange Board of India, Civil Appeal Nos. 1551-1553 of 2023 held that interest on unpaid penalty shall become payable from the date of expiry of the period specified in the original adjudication order and no separate demand notice is required to be issued once liability is crystallized.

The Appellants had challenged the imposition of interest on unpaid penalties by the Securities and Exchange Board of India (“SEBI”). The adjudication order was passed in 2014 for violation of Regulation Nos. 13(4) and 13(4A) read with 13(5) of the SEBI (Prohibition of Insider Trading) Regulations 1992, with penalties upheld by the Supreme Court in 2019. In 2022, SEBI issued demand notices to the Appellants directing them to pay the penalties along with interest @ 12% P.A. from 2014-2022. Upon Appellants’ failure to comply, attachment notices were issued vis-à-vis their bank accounts and other assets. The Appellants approached the Securities Appellate Tribunal; however, their appeals were dismissed. Hence the present appeals were filed.

The Court took note of Section 28A of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”). It was observed that Section 28A was introduced with effect from 18.07.2013. It provides a mechanism for recovery of penalties and in case of default, contemplates the payment of interest by inter alia incorporating Section 220 of the Income Tax Act, 1961 (“IT Act”). In effect, making all sums due to SEBI (including penalties) recoverable as arrears, subjecting them to statutory interest under the IT Act. It was further observed that neither the SEBI Act nor the rules framed thereunder mandate issuance of a separate demand notice before recovery. Adjudication amounts to crystallization of liability. It was held that there is no requirement to issue a separate demand notice for payment of penalty under the adjudication order.

The next issue before the Court was the date from the which the interest would become payable, i.e., from the expiry of period specified in the adjudication order (2014) or 30 days from the demand notice issued by SEBI (2022). It was contended by the Appellants that as per Section 156 of the IT Act, interest would become payable 30 days after demand notice issued. The Court rejected their contention stating that Section 156 has not been incorporated in Section 28A of SEBI Act and the adjudicating officer is empowered to fix a period for payment. It was further observed that under Section 220(1) of the IT Act read with Section 28A of SEBI Act, interest becomes payable on failure to meet the demand within prescribed time. The Appellant’s failure rendered them ‘defaulters’ under Section 220(4) of the IT Act and therefore, accrual of interest from expiry of the period specified in the adjudication order was justified. It was held that the original order must be treated as the statutory trigger for calculation of interest. This judgment prevents defaulters from delaying payment for wait of formal orders.

By - Ansh Mittal