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Dushyant N. Dalal And Another Versus Securities And Exchange Board of India

2017 (10) TMI 149 - SUPREME COURT OF INDIA

Interest recovered on orders of penalty issued - Section 28A of the Securities and Exchange Board of India Act, 1992 - whether interest can be recovered on orders of penalty issued under the Act and/or orders of disgorgement of unlawful gains, when the said amounts have remained unpaid? - Held that:- The Interest Act of 1978 would enable Tribunals such as the SAT to award interest from the date on which the cause of action arose till the date of commencement of proceedings for recovery of such i .....

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rospective, when it seeks to levy interest, which belongs to the realm of substantive law, the Tribunal is correct in stating that such interest would be chargeable under Section 28A read with Section 220(2) of the Income Tax Act only prospectively. - This is a positive indication that Section 28A was intended only to have prospective application. It must be clarified, however, that interest is chargeable only with effect from 25.8.2014, as Section 220 was not referred to, while enacting Sec .....

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ayment of ₹ 6 crores within the stipulated time, no future interest is payable inasmuch as a much severer penalty of being debarred from the market for 7 years was instead imposed. We have noticed how the appellant has, in fact, suffered the aforesaid debarment and how he made payment of ₹ 6 crores on 6.1.2014 from the sale of shares. The SAT was incorrect in stating that the order dated 21.7.2009 contained an obligation to pay interest at the rate of 12% per annum on the unlawful ga .....

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mounts have remained unpaid. In the penalty cases, it is SEBI who is before us as appellant, whereas in the disgorgement case, it is private individuals who are before us. 2. First, the facts in C.A. 5677 of 2017, the disgorgement case. By an order dated 21.7.2009, passed by a whole-time member of SEBI, the noticees, namely Shri Dushyant N. Dalal and Mrs. Puloma D. Dalal, were found to have manipulated the demand for shares in the retail individual investor category (RII) and thereby distorted t .....

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curities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Markets) Regulations, 2003 (PFUTP Regulations). Given this, the following directions were issued: a) The noticees [Mr. Dushyant Natwarlal Dalal (PAN AAAPD 5859Q) and Mrs. Puloma Dushyant Dalal (PAN AAEPD 2909B)] shall not buy, sell or deal in the securities market in any manner whatsoever or access the securities market, directly or indirectly, for a period of 45 days from the date o .....

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and draft drawn in favour of Securities and Exchange Board of India , payable at Mumbai. e) In case the aforesaid amount ₹ 6 crores is not paid within the specified time, the noticees shall be restrained from buying, selling or dealing in securities market in any manner whatsoever or accessing the securities market, directly or indirectly, for a further period of seven years, without prejudice to SEBI s right to enforce disgorgement. An appeal from this order was dismissed by the Securitie .....

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009 upto 12.12.2013 amounting to ₹ 2,13,30,000/-. The appellants before us replied to the aforesaid notices of demand by a letter dated 13.1.2014, stating that the said amount of interest was not payable in law. This was turned down by an order dated 16.1.2014, passed by the Recovery Officer, SEBI, in which the objections of the appellants were rejected and bank accounts of the appellants were attached. By an interim order dated 6.9.2016, the SAT noticed that the appellants had already und .....

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09 and, therefore, it was held: In Appeal No. 41 of 2014 the directions given by the WTM of SEBI on 21.07.2009 was to disgorge the unlawful gain of ₹ 4.05 crores with interest @ 12% per annum quantified at ₹ 1.95 crores up to 21.07.2009 within 45 days from 21.07.2009 failing which, the appellants were debarred from entering the Securities market for a period of 7 years without prejudice to the right of SEBI to recover the unlawful gain with interest till payment. Since the order pass .....

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25 lakhs under Section 15HA of the SEBI Act, which was made payable within 45 days of the receipt of the said order. This was because it was found that wrongful and misleading disclosures were made by the respondents to the Bombay Stock Exchange, by which investors were deprived of important information at the relevant point of time. This was an unfair trade practice for which the respondents were held liable, inasmuch as Regulations 3(a) to 3(d), 4(1) and 4(2)(a) of the PFUTP Regulations had b .....

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fficer, SEBI on 19.8.2014 directing the respondents to pay interest at 12% per annum for the period of 13.11.2009 till 3.6.2014, amounting to ₹ 13,66,849/-. 5. In an appeal to the SAT against the order of the Recovery Officer, the SAT held that interest was payable on and from 18.7.2013 (i.e. the date of introduction of Section 28A by way of ordinance), but held that since the awarding of interest belongs to the realm of substantive and not procedural law, the aforesaid provision could not .....

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smuch as if the amount of ₹ 6 crores was not paid within 45 days from the date of the order, the consequence was specified as being debarment for a further period of 7 years which was so severe that further future interest was deliberately not found necessary to be awarded. He brought to our notice certain other orders passed by the same whole-time member of the SEBI in which, in similar circumstances, future interest was also provided. He pointed out that by an order dated 6.12.2013 passe .....

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plement it and cited Raghunath Rai Bareja and another v. Punjab National Bank and others, (2007) 2 SCC 230 at 241-242, paragraphs 29-33. He also relied upon the principle that an executing Court cannot go behind a decree or add to it and that since future interest was expressly not provided for in his case, the SAT was in error in going behind the order dated 21.7.2009. He also argued that casus omissus cannot be filled by Courts, but only by the Legislature. 7. Shri Arvind Datar, on the other h .....

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in equity. Considering the larger public interest of disgorgement amounts and penalty amounts not being paid within the stipulated time, interest would certainly attach as public interest demands that such amounts be made payable to the public exchequer. He referred to Section 15JA of the SEBI Act, which makes it clear that all amounts realized by way of penalties by SEBI are to be credited to the Consolidated Fund of India and would, therefore, be public monies which can be utilized as such by .....

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way of interest. 8. Having heard learned counsel for both sides, it is first important to underline the genesis of Section 28A. The said Section was first inserted by an ordinance dated 18.7.2013. As it then stood, Section 28A did not refer to Section 220 of the Income Tax Act but only referred to Sections 221 to 227, 228A and 229, 231 and 232 along with the Second and Third schedules to the said Act. Since this ordinance lapsed, a second ordinance was promulgated on 16.9.2013, re-enacting the .....

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dment) Act of 2014 by which this Section was brought into force, with effect from the date of the first ordinance i.e. with effect from 18.7.2013. Section 28A reads as follows: 28A. Recovery of Amounts. (1) If a person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any direction of the Board for refund of monies or fails to comply with a direction of disgorgement order issued under section 11B or fails to pay any fees due to the Board, the Recovery Officer m .....

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erson and his detention in prison; (e) appointing a receiver for the management of the person s movable and immovable properties, and for this purpose, the provisions of sections 220 to 227, 228A, 229, 232, the Second and Third Schedules to the Income-tax Act, 1961 (43 of 1961) and the Income-tax (Certificate Proceedings) Rules, 1962, as in force from time to time, in so far as may be, apply with necessary modifications as if the said provisions and the rules made thereunder were the provisions .....

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r child, otherwise than for adequate consideration, and which is held by, or stands in the name of, any of the persons aforesaid; and so far as the movable or immovable property or monies held in bank accounts so transferred to his minor child or his son s minor child is concerned, it shall, even after the date of attainment of majority by such minor child or son s minor child, as the case may be, continue to be included in the person s movable or immovable property or monies held in bank accoun .....

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appeal before the Securities Appellate Tribunal under section 15T of this Act. (2)The Recovery Officer shall be empowered to seek the assistance of the local district administration while exercising the powers under sub-section (1). (3) Notwithstanding anything contained in any other law for the time being in force, the recovery of amounts by a Recovery Officer under sub-section (1), pursuant to non-compliance with any direction issued by the Board under section 11B, shall have precedence over .....

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ution Bench held: 16. It is well-known that when a statute levies a tax it does so by inserting a charging section by which a liability is created or fixed and then proceeds to provide the machinery to make the liability effective. It, therefore, provides the machinery for the assessment of the liability already fixed by the charging section, and then provides the mode for the recovery and collection of tax, including penal provisions meant to deal with defaulters. Provision is also made for cha .....

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A 239], India United Mills Ltd. v. Commissioner of Excess Profits Tax, Bombay [(1955) 1 SCR 810 : AIR 1955 SC 79 : (1955) 27 ITR 20] and Gursahai Saigal v. CIT, Punjab [(1963) 3 SCR 893 : AIR 1963 SC 1062 : (1963) 48 ITR 1]). But it must also be realised that provision by which the authority is empowered to levy and collect interest, even if construed as forming part of the machinery provisions, is substantive law for the simple reason that in the absence of contract or usage interest can be lev .....

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6) 3 SCC 461 : 1986 SCC (Tax) 601 : (1986) 160 ITR 961], all that the Court pointed out was that provision for charging interest was, it seems, introduced in order to compensate for the loss occasioned to the Revenue due to delay. But then interest was charged on the strength of a statutory provision, may be its objective was to compensate the Revenue for delay in payment of tax. But regardless of the reason which impelled the Legislature to provide for charging interest, the Court must give tha .....

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ention is accepted it leads to conflicts and creates certain anomalies which could never have been intended by the Legislature. 12. This judgment has been repeatedly followed and the law reiterated in a number of judgments. We need refer to only one such judgment, which is India Carbon Limited v. The State of Assam, (1997) 6 SCC 479 at 482-483. 13. We were also referred to Purbanchal Cables & Conductors Pvt. Ltd. v. Assam State Electricity Board & Another, (2012) 7 SCC 462 at 484, where .....

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tion is clearly made out in the language of the statute. Only a procedural or declaratory law operates retrospectively as there is no vested right in procedure. 52. In the absence of any express legislative intendment of the retrospective application of the Act, and by virtue of the fact that the Act creates a new liability of a high rate of interest against the buyer, the Act cannot be construed to have retrospective effect. Since the Act envisages that the supplier has an accrued right to clai .....

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cing that Regulation 44 of the 1997 SEBI Regulations was substituted with effect from September 2002 so that interest could be statutorily charged, this Court stated that interest could be awarded on equitable considerations as follows: 30. Interest can be awarded in terms of an agreement or statutory provisions. It can also be awarded by reason of usage or trade having the force of law or on equitable considerations. Interest cannot be awarded by way of damages except in cases where money due i .....

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on 34 of the Code of Civil Procedure. The Court held: 30. As we have indicated hereinbefore, when there is no specific provision for grant of interest on any amount due, the court and even tribunals have been held to be entitled to award interest in their discretion, under the provisions of Section 3 of the Interest Act and Section 34 of the Civil Procedure Code. xxx xxx xxx 35. Though, both the two aforesaid cases were in relation to awards having been made under the Arbitration Act, a principl .....

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on the facts of that case, equity was not attracted so as to enable electricity boards to charge interest on security deposits. He also sought to rely upon NTPC Ltd. v. M.P. SEB (2011) 15 SCC 580, in which interest was not awarded on equitable grounds only because, on facts, it was held that it cannot be said that NTPC held on to excess amounts in an unjust way, so as to justify the claim of electricity boards for interest on these amounts. Shri Datar also cited South Eastern Coalfields Ltd. v. .....

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se till the date of institution of proceedings. 17. Section 1 of the old Interest Act, 1839 read as follows:- Power of Court to allow interest. It is, therefore, hereby enacted that, upon all debts or sums certain payable at a certain time or otherwise, the Court before which such debts or sums may be recovered may, if it shall think fit, allow interest to the creditor at a rate not exceeding the current rate of interest from the time when such debts or sums certain were payable, if such debts o .....

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IR 1938 PC 67 at 70, while referring to Section 1 proviso held: The Interest Act however contains a proviso that interest shall be payable in all cases in which it is now payable by law . This proviso applies to cases in which the Court of equity exercises jurisdiction to allow interest. As observed by Lord Tomlin in Maine and New Brunswick Electrical Power Co. v. Hart (1929 AC 631): In order to invoke a rule of equity, it is necessary in the first instance to establish the existence of a state .....

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in Bengal-Nagpur Railway Co. Ltd. v. Ruttanji Ramji [65 IA 66 SC : AIR 1938 PC 67]. Referring to the proviso to s. 1 of the Act the Privy Council observed this proviso applies to cases in which the Court of equity exercises its jurisdiction to allow interest . 20. In Hirachand Kothari v. State of Rajasthan, 1985 Supp SCC 17 at 25-26, this Court held: It was further held in Amrao Singh case [AIR 1961 SC 908 : (1961) 3 SCR 676 : (1961) 2 SCJ 372] that the Court had ample power under proviso to Se .....

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at the section should be widened to cover proceedings other than suits. The discretion to award interest is as much needed in relation to other proceedings, as in relation to an ordinary civil suit. We are recommending an amendment of the section for the purpose. 22. After examining the proviso to Section 1, the Law Commission found that: 7.2 Broadly speaking, courts have, in cases decided in reliance on the proviso to section 1, awarded interest where the equity of the case so required. For exa .....

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to cases in which the courts of Equity exercised jurisdiction to allow interest. xxx xxx xxx 7.5. A similar approach is illustrated by a Nagpur case (Sitaram v. Wamurad, AIR 1948 Nagpur 49, 50 para 6), where it was stated: We are of opinion that we are exercising equitable powers in maintenance cases where a charge has been created by a decree. xxx xxx xxx 7.8. Having carefully considered this aspect of the matter, we have come to the conclusion that it would be just and fair to provide for cer .....

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trust, vendor and purchaser, or in the case of arrears and annuities. These cases need not be provided for by specific provisions. The general provision in the proviso to section 1 will continue to take care of them. xxx xxx xxx 7.17 This concludes consideration of points of substance as to the power to award interest under the proviso. We now deal with a verbal point arising from the words now payable by law . We are of the view that the word now should be omitted from the proviso. The word is .....

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(a) court includes a tribunal and an arbitrator; The Act has, therefore, been expanded to cover not merely civil courts but Tribunals as well. 24. We are directly concerned with Section 4 of the Act which reads as follows:- Section 4 - Interest payable under certain enactments (1) Notwithstanding anything contained in section 3, interest shall be payable in all cases in which it is payable by virtue of any enactment or other rule of law or usage having the force of law. (2) Notwithstanding as af .....

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or contract, from the date of the deposit; (b) where the obligation to pay money or restore any property arises by virtue of a fiduciary relationship, from the date of the cause of action; (c) where money or other property is obtained or retained by fraud, from the date of the cause of action; (d) where the claim is for dower or maintenance, from the date of the cause of action. By Section 6(1), the Interest Act of 1839 was repealed. 25. This Court in Life Insurance Corporation of India and Anot .....

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rounds, in view of the enactment of the Interest Act, 1978 making a significant departure from the old Interest Act (32 of 1839). The present Act does not contain the following provision contained in the proviso to Section 1 of the old Act: interest shall be payable in all cases in which it is now payable by law . How far the decisions of this Court in Satinder Singh v. Amrao Singh [(1961) 3 SCR 676 : AIR 1961 SC 908] and Hirachand Kothari v. State of Rajasthan [1985 Supp SCC 17] and the decisio .....

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n other rule of law contained in Section 4(1) would enable the Court to continue with the position as it was under the proviso to Section 1 of the 1839 Act - namely, whether this expression would subsume interest being awarded in equity. 27. We find that a learned single Judge of the Bombay High Court has, in Prabhavati Ramgarib B. v. Divisional Railway Manager, (2010) 4 Mah LJ 691 at 702-703, specifically held as follows: 35. The petitioner s claim for interest would fall within the ambit of th .....

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it was well settled that interest is allowed by a Court of equity in the case of money obtained or retained by fraud. Interest was, therefore, awarded in equity. 36. The position is not different under the Interest Act, 1978. The words, in section 4(1) or other rule of law would include interest payable in equity. In fact, interest has been awarded by our Courts in equity as well as on principles analogous to section 34 of the Code of Civil Procedure on the basis that section 34 is based upon pr .....

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ed Fund under Section 15JA of the SEBI Act. There is no greater equity than such money being used for public purposes. Deprivation of the use of such money would, therefore, sound in equity. This being the case, it is clear that, despite the fact that Section 28A belongs to the realm of procedural law and would ordinarily be retrospective, when it seeks to levy interest, which belongs to the realm of substantive law, the Tribunal is correct in stating that such interest would be chargeable under .....

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the three Ordinances preceding the Amendment Act of 2014.) However, since it has not taken into account the Interest Act, 1978 at all, we set aside the Tribunal s findings that no interest could be charged from the date on which penalty became due. The Civil Appeals 10410- 10412 of 2017 are allowed insofar as the penalty cases are concerned. 29. However, going to the facts in Civil Appeal No. 5677 of 2017, we feel that Shri Subramonium Prasad is on firm ground. He has pointed out similar orders .....

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val A. Mehta (PAN No. ALKPM 2611G): (a) to disgorge the above unlawful gain of ₹ 72 lakhs and interest thereon @ 10% from the date of listing (August 12, 2005) of the IDFC IPO till the date of actual disgorgement, within 45 days of passing of this Order, by remitting the amount by a crossed demand draft in favour of SEBI, (b) be restrained from buying, selling or dealing in securities market in whatsoever manner or accessing securities market in any manner, directly or indirectly, for a fu .....

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the following order: 14…b. Mr. Netanand Bhambu (PAN: ACVPBB753A), Netanand Surajram Bhambu-HUF (PAN: AADHN2778P), Anand Netanand Choudhary- HUF (PAN: AAEHA7368H), Ms. Sarvani Choudhary (PAN: ACSPC7691P) and Ms. Vinita A. Choudhary (PAN: AEFPC1269F) shall disgorge the unlawful gain, as indicated in column 11 of the table under Para 8 above, against their names, totaling to ₹ 9,58,950 (Rupees nine lakhs fifty eight thousand nine hundred and fifty only). They shall also pay the intere .....

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market in any manner whatsoever or accessing the securities market, directly or indirectly, for a further period of five years, without prejudice to SEBI s right to enforce disgorgement. (Emphasis supplied) 31. On 10.5.2010, in Chandrakant Amratlal Parekh v. Securities and Exchange Board of India, the same wholetime member passed the following order: 12 a) Chandrakant Amratlal Parekh (PAN: AHXPP5708J) be restrained from buying, selling or dealing in the securities market in any manner whatsoeve .....

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