SAT on Interest Payment Obligations under the SEBI Act

Readers may
recall that the securities law were amended in 2013 in order to confer
significant enforcement powers on SEBI. This was done initially by the Securities
Laws (Amendment) Ordinance, 2013
that was promulgated with effect from 18
July 2013. The Ordinance had to be re-promulgated before the amendments finally
took shape by way of the Securities Laws (Amendment) Act, 2014.
Among the
statutory provisions introduced with effect from 18 July 2013 is section 28A of
the Securities and Exchange Board of India Act, 1992 (the SEBI Act). This
provision states that where a person fails to: (i) pay the penalty imposed by
SEBI’s adjudicating officer, (ii) comply with SEBI’s direction for refund of
monies, (iii) comply with a direction of a disgorgement order, or (iv) pay any
fees due to SEBI, then various consequences follow. These include attachment of
the defaulter’s movable property, bank accounts, immovable property, and also
arrest of the person and detention in prison. The provision also states that,
for this purpose, section 220 and other stipulated provisions of the Income Tax
Act, 1961 (the IT Act) would apply. While section 28A of the SEBI does not
mention anything about interest payments on defaulted obligations, section 220(2)
of the IT Act provides for interest obligations on defaulted or delayed
In this
context, some legal questions arose before the Securities Appellate Tribunal
(SAT) in Dushyant N.
Dalal v. Securities and Exchange Board of India
. These were paraphrased by the
SAT as follows:
1. Whether
Section 28A inserted to the Securities and Exchange Board of India Act, 1992
(“SEBI Act” for short) with effect from 18.07.2013 imposes interest liability
on a person who fails to pay the amounts specified in Section 28A within the
stipulated time and if so, whether Section 28A can be invoked for demanding
interest on the amounts due to SEBI pursuant to the orders passed prior to
18.07.2013 is the question raised in all these appeals.
The above
paragraph reflects two issues, and I summarize the findings and reasoning of
SAT on each of them. The first, and the more lasting question, relates to
whether section 28A imposes any interest payment obligations at all on any
failure to make the payments required under the section. The thrust of the
appellants’ arguments was that section 28A itself does not contain any specific
obligation to pay interest on defaulted amounts and that, in the absence of any
statutory provisions, interest cannot be levied. However, this argument was not
accepted by SAT. It found that instead of specifying collection and recovery
mechanism in section 28A, Parliament thought it fit to incorporate by reference
the provisions of the IT Act in this regard. SAT noted:
Fact that
Section 28A of SEBI Act does not specifically mention the interest liability
for the delayed payment of the amounts specified therein cannot be a ground to
hold that there is no substantive provision in the SEBI Act to demand interest
on delayed payments. By incorporating Section 220 of the Income Tax Act in
Section 28A of SEBI Act, the legislature has statutorily imposed interest
liability on the delayed payment of the amounts set out in Section 28A of the
SEBI Act. In other words, the liability to pay interest under Section 28A read
with Section 220 is automatic and arises by operation of law. Therefore, the
argument of the appellants that there is no substantive provision in the SEBI
Act to demand interest and hence, the RO, could not demand interest for the
delayed payment cannot be accepted.
SAT concluded that section 28A imposes interest liability on persons who fail
to pay the amounts stipulated therein.
The second
question was a more immediate one, and related to timing. More specifically, it
was as follows: “when section 28A imposes the interest liability on the unpaid
amounts due to SEBI from 18.07.2013, whether interest could be demanded under section
28A on the amounts due to SEBI for the period prior to 18.07.2013”. After reviewing
the legal provisions, SAT concluded that the provisions relating to payment of
interest can only apply prospectively, i.e., from 18 July 2013. It observed:
20. Thus,
Section 28A, read with various provisions contained in Section 220 of the
Income Tax Act makes it abundantly clear that the rights and obligations set
out therein are prospective in nature. Accordingly, we hold that where the
orders passed by SEBI prior to 18.07.2013 do not envisage interest liability
for the delayed payment of the amounts specified in the respective orders, on
insertion of Section 28A, the RO is authorised to demand interest on the amount
remaining unpaid after expiry of 30 days from 18.07.2013 and not for the period
prior to 18.07.2013.
Based on the
facts of the individual cases before it, the SAT held that in all appeals,
except one, interest liability could not be imposed on the parties for the
period prior to the cut-off date above. In the one appeal though, since the
adjudicating officer had previously ordered the payment of interest, it was
From a broader
perspective, the SAT has clarified that section 28A imposes obligations on
payment of interest even though the result is arrived at through incorporation
of the specific provisions of the IT Act. This confirms the additional powers
that were sought to be available to SEBI to enforce the securities laws in a
more stringent manner, and further strengthens SEBI’s hands.

About the author

Umakanth Varottil

Umakanth Varottil is an Associate Professor at the Faculty of Law, National University of Singapore. He specializes in corporate law and governance, mergers and acquisitions and cross-border investments. Prior to his foray into academia, Umakanth was a partner at a pre-eminent law firm in India.

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