Securities and Exchange Board of India Act, 1992 – s.28A – Income Tax Act, 1961 – s.220(1), (2), (4) – Recovery of amounts – When tax payable and when assessee deemed in default – Interest on unpaid penalties imposed by the Adjudicating Officer, if payable by the appellants – If yes, from which date- whether interest on the unpaid penalty should accrue from the expiry of the 45-day period stipulated in the Adjudicating Officer’s orders dtd.28.08.2014, or from the expiry of 30 days following the respondent’s notices dtd.13.05.2022: Held: Adjudicating Officer’s order itself constituted a clear and enforceable demand for payment of penalties within 45 days – This order attained finality following the appellants’ unsuccessful challenges before the SAT and this Court, thereby crystallizing the liability – Once the adjudication order has attained finality, the obligation to pay the penalty stands revived from the date of adjudication – U/s.220(1), Income Tax Act r/w s.28A, SEBI Act, interest becomes payable upon failure to meet the demand within the prescribed time – Thus, appellants’ failure to comply within the specified time rendered them ‘defaulters’ u/s.220(4), Income Tax Act, justifying the accrual of interest from the expiry of the 45-day compliance period – Further, since s.156, Income Tax Act is not incorporated into the SEBI Act, the original order must be treated as the statutory trigger for the purpose of calculation of interest – Moreover, the demand notice dtd.13.05.2022 merely reiterated the earlier demand and did not create a fresh liability – The enabling provision to recover interest was already in vogue when the adjudication order was passed – Appellants liable to pay interest at 12% p.a on the unpaid penalty amounts for the period of delay – Plea of the appellants that interest cannot be levied retrospectively, misplaced – Interest to accrue from the expiry of the 45-day compliance period following the adjudication orders dtd.28.08.2014 – Order of the Tribunal dismissing the challenge to the notices of attachment issued against the appellants, not interfered with – SEBI Rules, 1995 – SEBI (Prohibition of Insider Trading) Regulations, 1992 – Regulation Nos.13(4) and 13(4A) r/w 13(5). [Paras 10, 11.3, 11.5, 11.6]
Securities and Exchange Board of India Act, 1992 – Explanation 4 to s.28A – Appellants contended that the Explanation 4 to s.28A inserted in 2019, cannot be applied retrospectively, as it alters the legal position as it stood earlier by introducing provisions relating to the levy of interest:
Held: An “explanation” in any law clarifies, restricts, or expands the scope of the main provision – The nature and effect of an Explanation must be understood in the context of the object of the Act, and in particular, the provision to which the Explanation is inserted – Explanation 4 to s.28A inserted on 21.02.2019, explicitly states that interest u/s.220, Income Tax Act shall accrue from the date the amount became payable – The liability to pay penalty stood triggered from the date of adjudication and that no separate notice of demand is necessary – Further, in the present case, as the adjudication order itself specified the time for payment of the penalty, the liability to pay interest would commence upon the expiry of the period mentioned in the assessment notice – The Explanation introduced in 2019, did not bring about any substantive change but merely clarified the existing legal position – Also, where the original adjudication order under the SEBI Act does not specify any time for payment, the period of 30 days u/s.220, Income Tax Act should be deemed to apply for making the payment, failure of which would trigger the liability to pay interest – Thus, the adjudication officer’s order which specified payment within 45 days, effectively operates as a notice of demand, rendering any separate demand notice redundant – Adjudication amounts to a crystallization of liability, and the demand is a natural sequitur – Thus, there is no corresponding requirement for issuance a separate notice of demand seeking payment of the amount determined under the adjudication order – Adjudication authority is well within his powers to fix a period for payment of the amount specified in the adjudication order, and upon default, the liability to pay interest becomes inevitable – Securities Laws (Amendment) Act, 2014 – Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 – Income Tax Act, 1961. [Paras 11.4, 9.9]
“Legislation by incorporation”; “Legislation by reference” – Income Tax Act, 1961 – ss.220(1), 156 – Limited reference to s.156 in s.220(1) not to be treated either as a “legislation by incorporation” or a “legislation by reference” – Explained – Securities and Exchange Board of India Act, 1992. [Para 9.6, 9.8]
Income Tax Act, 1961 – Securities and Exchange Board of India Act, 1992 – Interest on unpaid penalties – Nature – Compensatory, not penal – Purpose, stated. [Para 11.5] Securities and Exchange Board of India Act, 1992 – Adjudication, when triggered – Chapter VIA – s.28A – Levy of penalties – Penalties and Adjudication – Securities Laws (Amendment) Act, 2014 – SEBI (Prohibition of Insider Trading) Regulations, 1992 – Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 – Income Tax Act, 1961 – ss. – s.220(1), (2), (4), 156. [Para 9.9]
As published in the Supreme Court Reports, Supreme Court of India. Headnotes prepared by: Divya Pandey. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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