Supreme Court holds SEBI recovery powers apply from adjudication order; interest on unpaid penalties accrues from expiry of 45-day compliance period

A Bench of Justices J.B. Pardiwala and R. Mahadevan heard appeals by promoter-directors challenging SEBI’s recovery proceedings and attachment notices issued for unpaid penalties. The appellants contested notices of attachment dated 23.06.2022 and the Recovery Officer’s computation of interest at 12% per annum from the date of adjudication orders dated 28.08.2014.

The Court dismissed the appeals and upheld SEBI’s recovery action. It held that Section 28A of the SEBI Act incorporated, with necessary modifications, the recovery machinery in Sections 220–227 of the Income-tax Act, 1961, and that interest on unpaid penalties became payable as a matter of law where an adjudication order fixed a period for payment. The Court observed that adjudication orders which specified time for payment amounted to enforceable demands and crystallised liability once they attained finality. The Court, in its reasoning, observed: “In the present case, the 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. The pendency of any challenge after the period specified for payment only postpones or reduces the liability to pay interest; and the interim order granted if any, would also not absolve the appellants from the obligation to pay interest. … 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. The appellants’ failure to comply within the specified time rendered them ‘defaulters’ under Section 220(4) of the Income Tax Act, justifying the accrual of interest from the expiry of the 45-day compliance period.”

Background The appellants — Jaykishor Chaturvedi, Siddharth Jaykishor Chaturvedi and Ankur Jaykishor Chaturvedi — were promoter-directors of Brijlaxmi Leasing and Finance Ltd. SEBI’s examination found insider trading contraventions in transactions during 2012–2013 and adjudicating orders dated 28.08.2014 imposed penalties (Rs.11 lakh, Rs.5 lakh and Rs.7 lakh respectively). Those orders were challenged before SAT and this Court; a three-judge Bench affirmed the penalties on 28.02.2019 and the adjudication orders attained finality. SEBI’s Recovery Officer issued demand notices on 13.05.2022 seeking payment with interest at 12% per annum from 28.08.2014 and, on appellants’ failure to pay, attachment notices to banks and depositories were issued on 23.06.2022.

The appellants argued that the Recovery Officer exceeded jurisdiction by computing retrospective interest from the date of the adjudication orders and that interest, if any, should run only from 30 days after the demand notice (Section 220 of the Income-tax Act) or from the date Explanation 4 to Section 28A came into force (21.02.2019). They relied on precedents limiting retrospective imposition of substantive liabilities. SEBI relied on Dushyant N. Dalal and other authorities recognising SEBI’s power to recover interest under Section 28A read with Section 220 and on the proposition that an adjudication order fixing a payment period constituted the demand for purposes of recovery.

The Court examined the nature of Section 28A, the distinction between legislation by incorporation and by reference, and the interplay with Sections 156 and 220 of the Income-tax Act. It held that Section 28A effected a substantive recovery regime and that where the adjudication order specified a period for payment the order itself was the statutory trigger for interest. The Court treated the demand notices of 13.05.2022 as reiterations rather than fresh demands and found that interest at 12% per annum accrued from the expiry of the 45-day compliance period fixed by the adjudicating officer. The Court recorded that interest was compensatory in nature and directed payment of interest calculated by SEBI within 15 days of receipt of the judgment. All appeals were dismissed; no costs were awarded.

Case Details: Case No.: CIVIL APPEAL NO(S). 1551 - 1553 OF 2023 Case Title: Jaykishor Chaturvedi & Etc. v. Securities and Exchange Board of India Appearances: For the Petitioner(s): Advocates not specified in the judgment text For the Respondent(s): Advocates not specified in the judgment text