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TMI Blog2017 (10) TMI 149X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 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 Section 28A, in any of 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. Going to the facts in Civil Appeal No. 5677 of 2017 Shri Subramonium Prasad is correct in his submission. If there is default in payment 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. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unlawful gain of ₹ 4.05 crores (rounded off from ₹ 4,05,61,579). c) The noticees shall also pay ₹ 1.95 crores (rounded off from ₹ 1,94,69,558), being the simple interest at the rate of 12% per annum for 4 years (2005-09) on the unlawful gain ₹ 4,05,61,579. d) The noticees shall pay the above amount of ₹ 6 crores (Rupees six crores) within 45 (forty five) days from the date of this order by way of crossed demand 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 Securities Appellate Tribunal (SAT) on 12.11.2010. An appeal from the order of the SAT to this Court met with the same fate on 21.2.2011. 3. By a notice of demand dated 25.9.2013, ₹ 6 crores, along with interest payable within 15 days of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 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 been breached by the respondents. An appeal was carried against the aforesaid order, which was dismissed by the SAT on 6.5.2010. By a recovery certificate dated 30.5.2014, the aforesaid amount of ₹ 25 lakhs was demanded, together with interest, under Section 28A of the SEBI Act. On 3.6.2014, the amount of ₹ 25 lakhs was deposited by the respondents, by way of demand drafts, with the SEBI. Acting on the basis of a show cause notice dated 10.7.2014, an order was passed by the Recovery Officer, 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 introd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that Section 28A belongs to the realm of procedural law, and when Section 220(2) of the Income Tax Act gets attracted, because of Section 28A, such interest belonging to the realm of procedural law would necessarily be payable. Even otherwise, according to learned counsel, interest is payable 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 the Government. He cited a number of judgments to show that even though there may be no direct statutory provision in the SEBI Act enabling SEBI to charge interest for the past period, interest may yet be awarded in equity. He also referred to various authorities on the law of restitution, to submit that interest is payable under this law because the defendant has received a benefit unjustly, which t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 of this Act and referred to the amount due under this Act instead of to income-tax under the Income-tax Act, 1961. Explanation 1.- For the purposes of this subsection, the person s movable or immovable property or monies held in bank accounts shall include any property or monies held in bank accounts which has been transferred directly or indirectly on or after the date when the amount specified in certificate had become due, by the person to his spouse or minor child or son s wife or son s minor 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as would effectuate the object and purpose of the statute and not defeat the same. (See Whitney v. IRC [1926 AC 37 : 42 TLR 58], CIT v. Mahaliram Ramjidas [(1940) 8 ITR 442 : AIR 1940 PC 124 : 67 IA 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 levied under law and it cannot be recovered by way of damages for wrongful detention of the amount. (See Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ramji [AIR 1938 PC 67 : 65 IA 66 : 67 CLJ 153] and Union of India v. A.L. Rallia Ram [(1964) 3 SCR 164, 185-90 : AIR 1963 SC 1685]). Our attention was, however, drawn by Mr. Sen to two cases. Even in those cases, CIT v. M. Chandra Sekhar [(1985) 1 SCC 283 : 1985 SCC (Tax) 85 : (1985) 151 ITR 433] and Central Provinces M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest against the buyer, the Act cannot be construed to have retrospective effect. Since the Act envisages that the supplier has an accrued right to claim a higher rate of interest in terms of the Act, the same can only be said to accrue for sale agreements after the date of commencement of the Act i.e. 23-9-1992 and not any time prior. 14. However, Shri Arvind Datar brought to our notice several judgments in which interest in equity could be awarded if the fact circumstance so warranted. The first of these judgments is Clariant International Limited and Another v. Securities and Exchange Board of India , (2004) 8 SCC 524 at 539, where after noticing 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 is wrongfully withheld and there are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest can be granted in equity for causes of action from the date on which such cause of action arose 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 or sums be payable by virtue of some written instrument at a certain time; or if payable otherwise, then from the time when demand of payment shall have been made in writing, so as such demand shall give notice to the debtor that interest will be claimed from the date of such demand until the time of payment: provided that interest shall be payable in all cases in which it is now payable by law. 18. The judgment of the Privy Council in Bengal Nagur Railway Co. Ltd. v. Ruttanji Ramji and others , AIR 1938 PC 67 at 70, while referring to Section 1 proviso held: The Interes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o to section 1, awarded interest where the equity of the case so required. For example, where immovable property is purchased or acquired, and the price or compensation (as the case may be) has not yet been paid, there is readiness to award interest. Same is the position where there is a fiduciary relationship. 7.3. The Supreme Court has observed (Mahabir Prasad v. Durga Dutt , (1961) 3 SCR 639; AIR 1961 SC 990 ) , with reference to the words interest shall be payable in all cases in which it is now payable by law , occurring in the proviso to section 1, that the proviso applies 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 certain particular situations, without, of course, impairing the generality ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r other property has been deposited as security for the performance of an obligation imposed by law 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 Another v. Smt. S. Sindhu, (2006) 5 SCC 258 at 263-264, while considering the changes made by the Interest Act, 1978, stated as follows: 15. Even assuming that interest can be awarded on grounds of equity, it can be awarded only on the reduced sum to be quantified and paid from the date when it becomes due under the policy (that is on the date of death of the assured) and not from any earlier date. We do not propose to examine the question as to whether interest can be awarded at all, on equitable grounds, in view of the enactment of the Interest Act, 1978 making a signific ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Code of Civil Procedure on the basis that section 34 is based upon principles of justice, equity and good conscience. 28. We agree with the aforesaid statement of the law. It is clear, therefore, 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 interest in equity. The present is a case where interest would be payable in equity for the reason that all penalties collected by SEBI would be credited to the Consolidated 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 Section 28A read with Section 220(2) of the Income Tax Act only prospectively. (The same 2014 Amendment which introduced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 interest on this unlawful gain at the rate of 10% (ten percent) per annum from the date of listing of the IPOs of Nandan and FCS, till the date of payment. The noticees shall disgorge the amount within 45 (forty five) days from the date of this order by way of crossed demand draft drawn in favor of Securities and Exchange Board of India , payable at Mumbai. In case the aforesaid amount 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 five years, without prejudice to SEBI s right to enforce disgorgement. (Emphasis su ..... X X X X Extracts X X X X X X X X Extracts X X X X
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