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2017 (4) TMI 1196 - AT - Companies LawInterest liability on a person who fails to pay the amounts specified in Section 28A within the stipulated time - Held that - Once the provisions of Section 220 of the Income Tax Act are incorporated in Section 28A, full effect must be given to Section 220 of the Income Tax Act for recovery of the amounts referred to in Section 28A of SEBI Act. Not to do so would defeat the object with which Section 220 has been incorporated in Section 28A of SEBI Act. Thus, the arguments of the appellants if accepted it would render the provisions of Section 220 specifically incorporated in Section 28A redundant or otiose and therefore, such argument advanced by the appellants cannot be accepted. Fact that in the 1st & 2nd Ordinances promulgated by the President of India for amending the SEBI Act, Section 220 of the Income Tax Act was not sought to be incorporated in Section 28A, cannot be a ground to ignore the rights and obligations contained in Section 220 of the Income Tax Act which are specifically incorporated in Section 28A of SEBI Act by the Securities Laws (Amendment) Act, 2014 with retrospective effect from 18.07.2013. Very fact that the legislature, contrary to the provisions contained in the Ordinances, deemed it necessary to incorporate Section 220 of the Income Tax Act in Section 28A of SEBI Act for recovery of the amounts specified under Section 28A, clearly shows that the legislature intended to apply the rights and obligations contained in Section 220 of the Income Tax Act for recovery of the amounts specified under Section 28A of SEBI Act. Therefore, argument of the appellants that the interest liability contained in Section 220 of the Income Tax Act incorporated in Section 28A of SEBI Act would not be applicable for recovery of the amount specified under Section 28A cannot be accepted. Accordingly, we hold that Section 28A read with Section 220 inserted to SEBI Act with retrospective effect from 18.07.2013 imposes interest liability on a person who fails to pay the amounts specified in Section 28A of the SEBI Act within the stipulated time. 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 - Held that - 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. In the result, we hold that in all appeals, (except in Appeal No. 41 of 2014) since the penalty orders passed prior to 18.07.2013 do not contemplate interest liability for the delayed payment, the RO could not invoke Section 28A and demand interest on the unpaid amount for the period prior to 18.07.2013. 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 crore with interest @ 12% per annum quantified at ₹ 1.95 crore 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 passed by the WTM of SEBI on 21.07.2009 contained an obligation to pay interest @ 12% per annum on the unlawful gain of ₹ 4.05 crore till payment, the RO was justified in demanding interest on the unlawful gain of ₹ 4.05 crore from 21.07.2009 till payment. Accordingly, Appeal is dismissed.
Issues Involved:
1. Whether Section 28A of the SEBI Act imposes interest liability on delayed payments. 2. Whether Section 28A can be invoked for demanding interest on amounts due to SEBI from orders passed prior to 18.07.2013. Issue-wise Detailed Analysis: 1. Whether Section 28A of the SEBI Act imposes interest liability on delayed payments: The Tribunal addressed the appellants' contention that Section 28A does not contain a substantive provision for levying interest on delayed payments. The Tribunal rejected this argument, stating that the object of inserting Section 28A was to provide a mechanism for the recovery of amounts due to SEBI by incorporating the provisions of the Income Tax Act related to 'collection and recovery.' Specifically, Section 220 of the Income Tax Act, which mandates interest at 12% per annum for delayed payments, was incorporated into Section 28A. The Tribunal emphasized that the incorporation of Section 220 into Section 28A means that the interest liability on delayed payments is automatic and arises by operation of law. Thus, the absence of a specific mention of interest in Section 28A does not negate the statutory imposition of interest liability through the incorporated provisions of the Income Tax Act. 2. Whether Section 28A can be invoked for demanding interest on amounts due to SEBI from orders passed prior to 18.07.2013: The Tribunal considered whether interest could be demanded on amounts due to SEBI from orders passed before 18.07.2013. It concluded that Section 28A, which was introduced with retrospective effect from 18.07.2013, imposes interest liability from that date onwards. The Tribunal held that the interest obligation under Section 28A would commence from 18.07.2013 and not for the period prior to that date. The Tribunal noted that any substantive provision imposing a burden or liability is generally prospective unless otherwise provided. Since Section 28A was inserted with effect from 18.07.2013, the interest liability would apply from that date. The Tribunal clarified that for orders passed prior to 18.07.2013, the Recovery Officer (RO) could demand interest on unpaid amounts only if the amounts were not paid within 30 days from 18.07.2013. Findings Specific to Appeal No. 41 of 2014: In Appeal No. 41 of 2014, the Tribunal found that the order dated 21.07.2009 by the Whole Time Member (WTM) of SEBI explicitly required the appellants to pay the unlawful gain of ?4.05 crore with interest amounting to ?1.95 crore within 45 days. The order also stated that failure to pay within 45 days would result in additional debarment for seven years without prejudice to SEBI's right to enforce the disgorgement order. The Tribunal held that this order inherently included the obligation to pay continuing interest on the unlawful gain from 21.07.2009 till payment. Therefore, the RO was justified in demanding interest on the unlawful gain from 21.07.2009 till payment, and the appeal was dismissed. Conclusion: a) In all appeals except Appeal No. 41 of 2014, the penalty orders passed prior to 18.07.2013 did not contemplate interest liability for delayed payments. Therefore, the RO could not demand interest for the period prior to 18.07.2013. The matters were remanded to the RO for fresh computation of interest from 18.07.2013. b) In Appeal No. 41 of 2014, the WTM's order dated 21.07.2009 included an obligation to pay interest on the unlawful gain till payment. Thus, the RO's demand for interest from 21.07.2009 till payment was upheld, and the appeal was dismissed. The Tribunal stayed the decision for six weeks upon request from the counsel for the appellants in Appeal No. 41 of 2014 and the respondents in the remaining appeals.
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