2024 (12) TMI 1464 - AT - SEBI

Interest levied by the SEBI on the appellant - SEBI discretion to decide interest charged on outstanding registration fees - expert committee was constituted under Shri R. S. Bhatt (Bhatt Committee) recommended turnover as a fair basis of determination of the registration fee and recommended differential rates of fee for different types of transactions. HELD THAT - It cannot be held that this Tribunal had given any discretion to the SEBI for calculating interest deviating from the existing Regulations, which provides for mandatory charging of interest Respondent is right in his submission that in the given set of facts of this case, the word shall cannot be interpreted as may as held in the case of Anjum M. H. Ghaswala ORs 2001 (10) TMI 4 - SUPREME COURT We find that the Regulation 5 of the Schedule-III of the Stockbroker s regulations mandatorily provide for charging of interest at the rate of 15%. There exists no discretion in the hands of the SEBI in the matter. Further, charging of interest is in the nature of compensation for accretion to capital and cannot be compared with penalty which involves discretion based on facts and circumstances and underlying intention. Respondent should have given credit for the interest accrued from the date of this Tribunal s order dated December 6, 2006 till the order of the Hon ble Supreme Court s order dated November 24, 2015 - We find that vide the aforesaid order, the Hon ble Supreme Court has upheld the calculation of annual turnover fee made by the SEBI, which is in accordance with the applicable Stockbrokers Regulations, 2002. In view thereof, interest is rightly charged on the appellant on the outstanding dues of annual turnover fee . There is no merit in the claim of interest thereon, since the appellant has already got the credit for interest on the principal amount of Rs. 2.92 Crore for the entire period from 2006 till 2019, since no interest has been charged thereon. A brief period of September 6, 2003 till October 1, 2003, the appellant was having a credit balance of Rs. 74,55,793/-. No interest has been credited to the appellant for this period. In our view, appellant is entitled for the credit of 15% interest p. a. (simple) for the period from September 6, 2003 to October 1, 2003 on this amount lying in appellant s credit.

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered in this judgment include:

Whether the Securities and Exchange Board of India (SEBI) has the discretion to waive or reduce the interest charged on outstanding registration fees under the applicable regulations.
Whether the appellant is entitled to any credit for interest on payments made to SEBI during the period when the appellant's appeal was pending.
Whether SEBI's calculation of interest on the outstanding registration fee was in accordance with the applicable regulations.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Discretion to Waive or Reduce Interest

Relevant legal framework and precedents: Regulation 5 of the SEBI (Stockbrokers) Regulations, 1992 mandates the charging of interest at 15% per annum for delayed payment of fees. The regulation uses the term "shall," indicating a mandatory requirement.
Court's interpretation and reasoning: The Tribunal held that the use of "shall" in the regulation makes it mandatory for SEBI to charge interest, leaving no discretion to waive or reduce it. The Tribunal referenced the Supreme Court's decision in the case of Commissioner of Income Tax, Mumbai vs. Anjum M. H. Ghaswala & Ors., which supports the interpretation of "shall" as mandatory.
Key evidence and findings: The Tribunal found that the SEBI's regulations do not provide for any discretion to reduce interest and that the interest charged is not a penalty but a compensation for delayed payment.
Application of law to facts: The Tribunal applied the mandatory nature of the regulation to uphold SEBI's interest calculation.
Treatment of competing arguments: The appellant argued for judicial discretion in charging interest, citing cases like Union of India vs. Kuldeep Singh. However, the Tribunal found these arguments unpersuasive given the regulatory framework.
Conclusions: The Tribunal concluded that SEBI correctly applied the regulation, and the interest charged was mandatory.

Issue 2: Credit for Interest on Payments Made During Appeal

Relevant legal framework and precedents: The appellant sought credit for interest on payments made to SEBI during the appeal process, arguing that SEBI benefited from the use of these funds.
Court's interpretation and reasoning: The Tribunal found that SEBI had correctly calculated the annual turnover fee in accordance with regulations and that the appellant had already received credit for the principal amount during the appeal period.
Key evidence and findings: The Tribunal noted that the appellant had a credit balance for a brief period, during which no interest was credited to them.
Application of law to facts: The Tribunal determined that the appellant was entitled to interest on the credit balance for the specific period identified.
Treatment of competing arguments: The appellant's claim for interest on the entire period was rejected, but a limited credit was granted for the specific period where a credit balance existed.
Conclusions: The Tribunal partially allowed the appeal by granting interest credit for the specified period.

3. SIGNIFICANT HOLDINGS

Preserve verbatim quotes of crucial legal reasoning: "The word 'shall' cannot be interpreted as 'may' as held by the Hon'ble Supreme Court in the case of Commissioner of Income Tax, Mumbai vs. Anjum M. H. Ghaswala & Ors."
Core principles established: The mandatory nature of interest charges under SEBI regulations; limited discretion in regulatory frameworks.
Final determinations on each issue: SEBI's interest calculation was upheld as mandatory; the appellant was granted limited interest credit for a specific period.

ORDER

The appeal is partly allowed, modifying the impugned order to grant the appellant interest for the period from September 6, 2003, to October 1, 2003, on the credit balance.
The interest liability computed by SEBI is confirmed, subject to the granted credit.
No costs.

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