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Supreme Court on recovery of interest in penalty orders

Finsec Law Advisors

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The Securities Laws (Amendment) Act, 2014 overhauled SEBI’s enforcement powers, including its powers to recover penalties and disgorged amounts. A recent issue has been the charging of interest on amounts owed to SEBI pursuant to penalty and disgorgement orders. The confusion arose under Section 28A of the SEBI Act which was unclear about interest on amounts payable under penalty and disgorgement orders. It was further unclear whether interest could be charged retrospectively for orders issued prior to the Amendment Act. The SAT clarified that such interest may only be charged prospectively from July 18, 2013, which is the date when Section 28A came into effect. In the present case, the Supreme Court while concurring with the SAT in terms of the prospective applicability of the interest provision, differed about the date of effect of the interest charging powers of SEBI. It clarified that Section 28A as on July 18, 2013 did not refer to Section 220 of the Income Tax Act which provides for the charging of interest obligations on defaulted payments. The reference to Section 220 was only introduced into Section 28A on August 25, 2014, when the ordinance was finally framed as an Amendment Act. Therefore, as per the Supreme Court, SEBI may charge interest on defaulted payments prospectively from August 25, 2014, as opposed to July 18, 2013.

The Supreme Court’s opinion seems to be in conflict with the words of the Amendment Act because Section 28A, including the reference to Section 220, was specifically brought into force from July 18, 2013. Therefore, interest ought to be levied on defaulted payments from that date.