In a significant verdict, the Supreme Court held that interest on unpaid penalties under the SEBI Act is applicable retrospectively and that liability starts from the expiry of the period mentioned in the adjudication order, not from any later demand notice.
The case arose when SEBI imposed penalties on certain individuals for violating insider trading regulations. The adjudication orders were issued in 2014, giving 45 days for payment. However, the penalties remained unpaid even after the Supreme Court upheld the orders. Later, SEBI sent demand notices in 2022, seeking payment along with 12% interest per annum from 2014 to 2022. When the appellants didn’t comply, SEBI moved to attach their bank accounts. Their appeals to the Securities Appellate Tribunal were dismissed, prompting them to approach the Supreme Court.
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“Under Section 220(1) read with Section 28A of the SEBI Act, interest becomes payable upon failure to meet the demand within the prescribed time,”— Justices JB Pardiwala and R Mahadevan
The apex court clarified that no separate demand notice is needed after the liability is crystallized in the adjudication order. The adjudicating officer is fully empowered to fix a deadline for payment.
“Adjudication amounts to a crystallization of liability, and the demand is a natural sequitur. Therefore, there is no corresponding requirement for issuance of a separate notice of demand.”— Supreme Court
The bench referred to Explanation 4 of Section 28A, inserted in 2019, to stress that interest under Section 220 accrues from the date the penalty becomes payable, not from the date of the demand notice.
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“The adjudication officer’s order specifying payment within 45 days effectively operates as a notice of demand, making any separate demand notice redundant.”— Supreme Court
Importantly, the Court underlined that interest on unpaid penalties is compensatory, not punitive. It is intended to cover the financial loss suffered by the Revenue due to delayed payment.
“The accrual of interest upon default is automatic and flows from the nature of the liability — serving to compensate for the time value of money.”— Supreme Court
In conclusion, the Supreme Court rejected the appellants' arguments and upheld the interest liability at 12% per annum from the end of the 45-day compliance window in 2014.
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“Accepting the appellants’ position would encourage defaulters to delay payment indefinitely under the guise of awaiting formal orders.”— Supreme Court
Case Title: Jaykishor Chaturvedi & Ors. vs Securities and Exchange Board of India
Civil Appeal No(s). 1551 - 1553 of 2023