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Supreme Court of India
Jaykishor Chaturvedi vs Securities And Exchange Board Of India on 15 July, 2025
1
2025 INSC 846 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO(S). 1551 - 1553 OF 2023
JAYKISHOR CHATURVEDI & ETC. … APPELLANT(S)
VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA … RESPONDENT
JUDGMENT
R. MAHADEVAN, J.
1. All these appeals are filed under Section 15Z of the Securities and Exchange
Board of India Act, 19921 challenging the common judgment and order dated
29.09.20222 passed by the Securities Appellate Tribunal, Mumbai 3, in Appeal
Nos.626 to 628 of 2022 preferred by the appellants. By the impugned order, the
Tribunal dismissed the challenge to the notices of attachment dated 23.06.2022
issued against the appellants.
Signature Not Verified
Digitally signed by
VISHAL ANAND
Date: 2025.07.15
17:43:47 IST
Reason:
1
Hereinafter referred to as “SEBI Act”
2
For short, “the impugned order”
3
For short, “the Tribunal”
2
FACTUAL MATRIX
2. According to the appellants, they are the promoter-directors of
M/s. Brijlaxmi Leasing and Finance Limited, a company incorporated under the
Companies Act and limited by shares, which is listed on the Bombay Stock
Exchange and engaged in providing various financial services, including lending,
loan syndication, advisory, and portfolio management, among others.
2.1. The company in the year 1995-96 went in to initial public offer for fully
paid-up share capital of 56,48,500 shares of face value of Rs.10/- each. The fully
paid up 5,64,85,000 shares of the company were split from Rs.10/- to Re.1 each
from 30.06.2005.
2.2. While so, the respondent conducted examination of scrip of the company
and found that the promoters and directors of the company purchased shares of the
company on various dates between October 2012 and July 2013 in violation of the
provisions of Regulation Nos.13(4) and 13(4A) read with 13(5) of the SEBI
(Prohibition of Insider Trading) Regulations, 19924.
4
For short, “the PTI Regulations”
3
2.3. Upon issuance of show cause notices, the Adjudicating Officer passed
adjudication orders on 28.08.2014 under section 15-I of the SEBI Act read with
Rule 5 of the SEBI Rules, 1995, imposing penalty on the appellants.
2.4. Challenging the aforesaid orders, the appellants by names Jaykishor
Chaturvedi, Siddharth Jaykishor Chaturvedi, and Ankur Jaykishor Chaturvedi
preferred appeals bearing Nos.435, 436 and 434 of 2014, respectively, before the
Tribunal under Section 15E of the SEBI Act. Vide order dated 04.08.2015, the
Tribunal dismissed these appeals. Aggrieved by the same, the appellants preferred
further appeals bearing Civil Appeal Nos.14729, 14730, and 14728 of 2015,
respectively, before this Court.
2.5. By a common judgment dated 28.02.2019 in C.A.No(s).11311 of 2013 etc.
cases, a 3-Judge Bench of this Court disposed of all these appeals upholding the
quantum of penalty imposed on the appellants.
2.6. Thereafter, the respondent through its Recovery Officer, Western Regional
Office, issued demand notices dated 13.05.2022 directing the appellants to pay the
penalties imposed by the Adjudicating Officer vide orders dated 28.08.2014 along
with interest @ 12% p.a. from 28.08.2014 to 13.05.2022. However, the appellants
failed to comply with the demand for payment issued by the respondent.
4
2.7. Consequently, the respondent issued notices of attachment of bank accounts
on 23.06.2022, to the Principal Officer / Chairman & Managing Director /CEO of
all Banks in India, ordering the following attachment with immediate effect:
(a) All account/s by whatever name called including lockers of the Defaulter
(appellants), either singly or jointly with any other person/s held with the Bank.
(b) All other amount/ proceeds due or may become due to the Defaulter
(appellants) or any money held or may subsequently hold for or on account of the
Defaulter (appellants).
2.8. The Respondent also issued notices of attachment of demat accounts on
23.06.2022 to National Securities Depository Ltd. and Central Depository Services
(I) Ltd., ordering the following attachment with immediate effect:
(a) All Demat account/s by whatever name called of the Defaulter, either
singly or jointly with any other person/s held with the Depositories.
(b) All funds/folios/schemes held by whatever name called of the defaulters
(appellants), either singly or jointly with any other person/s held with the
Depositories.
2.9. Aggrieved by the aforesaid actions taken by the respondent, the appellants
preferred appeals bearing Nos.626, 627, and 628 of 2022 before the Tribunal on
5
the ground that the recovery proceedings and attachment notices issued are
excessive in nature and grossly disproportionate to the penalties imposed by the
Adjudicating Officer. By the impugned order, the Tribunal dismissed all these
appeals. Hence, the appellants are before us with the present Civil Appeals.
CONTENTIONS OF THE PARTIES
3. The main contention of the learned counsel for the appellants is that the
Recovery Officer of the respondent exceeded the powers vested under section 28A
of the SEBI Act by imposing retrospective interest computed from the date of the
original adjudication orders dated 28.08.2014 under section 15-I of the SEBI Act,
despite the absence of any provision for the imposition of interest in the said order.
3.1. Elaborating further, the learned counsel submitted that the scheme of
recovery proceedings under the SEBI Act is governed by Section 28A read with
Sections 220 to 227, 228A, 229, 232, along with the Second and Third Schedules
to the Income Tax Act, 1961, and the Income Tax (Certificate Proceedings) Rules,
1962. Section 220(2) in unambiguous terms, stipulates that interest would be
imposable at the rate of 1% per month after the 30 th day from the date of the
demand notice as it stood prior to insertion of Explanation– 4 to Section 28A,
which came into force on 21.02.2019. Explanation – 4 states that the interest
referred to in Section 220 of the Income Tax Act, 1961 shall commence from the
6
date the amount becomes payable by the person. This implies that prior to the
insertion of Explanation – 4 to Section 28A of the SEBI Act, interest was to be
levied in accordance with Section 220 of the Income Tax Act, 1961 – that is, after
30 days from the issuance of the notice of demand, and not from the date the
amount became payable by the person. Whereas, the notice of demand dated
13.05.2022 issued under section 28A of the SEBI Act by the respondent comprised
the penalty amount imposed along with interest at 12% p.a. computed from the
date of the adjudication orders.
3.2. It is further submitted that Section 220 of the Income Tax Act, 1961
provides for the recovery of any amount payable under a notice of demand. Section
156 of the Income Tax Act, 1961 defines a notice of demand as a demand, in the
prescribed form for the payment of any tax, interest, penalty, fine or any other sum
payable in consequence of any order passed. The phrase, “in consequence of any
order passed” refers to the original adjudication orders dated 28.08.2014 which
imposed only a penalty and did not award any interest. Therefore, the Recovery
Officer of the respondent exceeded his jurisdiction by computing interest on the
penalty amount at 12% per annum from the date of the adjudication orders, when
such order did not direct the payment of any interest.
3.3. It is also submitted that the demand notices, in essence, amount to a
rewriting of the original adjudication orders, which had already attained finality.
7
Hence, interest on the penalty would be leviable only at the rate of 1% per month
from 13.05.2022, i.e., 30 days after the date of the demand notices issued by the
respondent, and not from 28.08.2014, the date of the adjudication orders.
3.4. Placing reliance on the decisions of this Court in Sedco Forex International
Drill Inc. v. Commissioner of Income Tax5, Shyam Sundar & others v. Ram Kumar
and another6, and Keshavlal Jethalal Shah v. Mohanlal Bhagwandas and another7,
the learned counsel submitted that the insertion of Explanation – 4 to Section 28A
of the SEBI Act, which came into effect from 21.02.2019, cannot be applied
retrospectively, as it alters the legal position as it stood earlier by introducing
provisions relating to the levy of interest. It is also submitted that the imposition of
interest is a matter of substantive law, and therefore, cannot have retrospective
application [See: J.K. Synthetics Ltd v. CTO8 and State of Punjab v. Bhajan Kaur 9].
Thus, according to the learned counsel, Explanation – 4 to Section 28A of the SEBI
Act, would not apply to the case of the appellants, as the amendment was
introduced long after the original adjudication orders, which had attained finality
by a common judgment dated 28.02.2019 in C.A.No(s).11311 of 2013 etc. cases.
Since the amendment cannot be applied retrospectively, in light of the decisions
referred to above, interest for the purposes of Section 28A shall not commence
5
(2005) 12 SCC 717
6
(2001) 8 SCC 24
7
(1968) 3 SCR 623
8
(1994) 4 SCC 276
9
(2008) 12 SCC 112
8
from the date of the adjudication orders. Instead, it shall be computed in
accordance with the plain language of Section 220(2) of the Income Tax Act, 1961
i.e., after 30 days from the date of notice of demand.
3.5. The learned counsel further pointed out that in Dushyant N. Dalal and
another v. SEBI10, this Court after referring to various judgments, upheld the levy
of interest in equity as a principle of law, in the absence of express statutory
provisions for interest. In that case, the appeal related to an adjudication order of
penalty dated 13.11.2009 i.e., prior to the insertion of Section 28A into the SEBI
Act, which provision was introduced by the Securities Laws (Amendment) Act,
2014, with effect from 18.07.2013. Whereas, in the present case, the adjudication
orders against the appellants are dated 28.08.2014 i.e., after the insertion of Section
28A into the SEBI Act. Section 28A as it then stood, was clear and unambiguous,
providing for the levy of interest under section 220(2) of the Income Tax Act, 1961
at the stage of recovery, in the event of non-payment of penalties imposed under
the adjudication orders within 30 days from the date of service of the demand
notices by the Recovery Officer. Despite being cognizant of the power to provide
for future interest, as was done in Dushyant N. Dalal, the Adjudicating Officer in
the case of the present appellants, made no such provision for future interest and
the adjudication orders therefore attained finality in their existing form.
10
(2017) 9 SCC 660
9
3.6. Referring to the judgments of this Court in Shiv Kumar Sharma v. Santhosh
Kumari11, and Shamsu Suhara Beevi v. G.Alex and another 12, the learned counsel
submitted that it is trite law that the exercise of equity cannot override or violate
express statutory provisions; and the equity jurisdiction may be invoked only
where the law is silent or does not operate in the field.
3.7. With these submissions and case laws, the learned counsel prayed that these
appeals be allowed by setting aside the levy of interest at 12% p.a. charged from
28.08.2014, as well as the recovery certificates issued by the respondent and the
notices of attachment issued in pursuance thereof.
4. Per contra, the learned counsel for the respondent submitted that the issues
involved herein are no longer res integra, having been conclusively adjudicated by
this Court in Dushyant N. Dalal (supra), wherein, this Court affirmed the authority
of SEBI to levy interest, including on penalty amounts, pursuant to Section 28A of
the SEBI Act read with Section 220 of the Income Tax Act, 1961. In doing so, this
Court expressly rejected the contrary views previously adopted by the Securities
Appellate Tribunal, which had limited the recovery of interest to periods
subsequent to the enactment of Section 28A in 2013. This Court further clarified
that the provision for levying interest embodies both substantive and procedural
elements of law, thereby enabling SEBI to recover interest from the date on which
11
(2007) 8 SCC 600
12
(2004) 8 SCC 569
10
the liability originally arose, in consonance with principles of equity and the
4.1. It was further submitted that in the present case, the cause of action arose on
28.08.2014, i.e., upon the imposition of penalties by the Adjudicating Officer of
SEBI, on each of the appellants, accompanied by a direction to effect payment
within 45 days from the date of receipt of the adjudication orders. Section 220(1)
of the Income Tax Act, 1961 does not contemplate the issuance of any independent
notice of demand, but refers to the notice of demand served under Section 156. It
mandates that the amount specified in such notice shall be paid within 30 days,
failing which interest at the rate of 12% per annum becomes payable under Section
220(2) on the amounts specified therein, calculated from the expiry of the period
prescribed under Section 220(1). Since Section 156 of the Income Tax Act is not
incorporated into Section 28A of the SEBI Act, the expression ‘notice of demand’
referred to in Section 220(1), for the purposes of recovery under the SEBI Act
would be referrable to the demand raised by SEBI – inter alia through a penalty
order passed under Chapter VIA of the SEBI Act. In the instant case, the direction
issued by the Adjudicating Officer of SEBI in the adjudication orders dated
28.08.2014, requiring payment of penalties by the appellants within 45 days from
the receipt of the said orders, would constitute the ‘notice of demand’
contemplated under section 156 of the Income Tax Act (with necessary
11
modification as envisaged by Section 28A (1) of the SEBI Act). Consequently, the
appellants’ failure to comply with the said direction would render them ‘deemed
defaulters’ within the meaning of Section 220(4) of the Income Tax Act.
Therefore, the levy of interest from 28.08.2014 until the date of payment is fully
warranted and justified as per the applicable statutes and the settled legal position.
4.2. It was also submitted that Section 28A of the SEBI Act makes the provisions
of Sections 220 to 227, 228A, 229, 232 and the Second and Third Schedules to the
Income Tax Act, 1961 and the Income Tax (Certificate Proceedings) Rules, 1962
apply “with necessary modifications” as if the said provisions and Rules made
thereunder were the provisions of the SEBI Act. In the present case, the order of
the Adjudicating Officer of SEBI dated 28.08.2014 itself required that the penalty
amount be paid within 45 days from the date of receipt of the order. The demand
notices dated 13.05.2022 issued by the Recovery Officer of SEBI were
necessitated solely due to the appellants’ failure to pay the penalty demanded and
were intended to inform them of the outstanding dues as on that date, along with
the proposed recovery actions, such as, attachment and detention. The appellants
had unsuccessfully challenged the imposition of the penalty before both the
Tribunal and this Court. Therefore, they cannot now contend that the cause of
action for payment of the penalty arose only on 13.05.2022, when notice was
issued by the Recovery Officer of SEBI.
12
4.3. Ultimately, it was submitted that as on date, the appellants remain liable to
pay the following sums by way of interest:
Name Penalty Recovered Interest
amount amount till date pending
(Rs.) (Rs.) (Rs.)
Siddharth J.Chaturvedi 5,00,000/- 5,00,465.85 5,34,640.77
Jaykishore Chaturvedi 11,00,000/- 11,00,000/- 11,79,533.33
Ankur J. Chaturvedi 7,00,000/- 7,00,000/- 7,41,133,33
4.4. Thus, according to the learned counsel, there is no merit in the present
appeals and the same are liable to be dismissed.
DISCUSSION AND FINDINGS
5. We have heard the learned counsel appearing on either side and perused the
materials available on record.
6. Concededly, the Adjudicating Officer passed the adjudication orders dated
28.08.2014, imposing penalties of Rs.11,00,000/- in the case of Jaykishor
Chaturvedi, Rs.5,00,000/- in the case of Siddharth Jaykishor Chaturvedi and
Rs.7,00,000/- in the case of Ankur Jaykishor Chaturvedi, for the alleged violation
of Regulation Nos.13(4) and 13(4A) read with 13(5) of the PIT Regulations. The
13
said adjudication orders were affirmed by the 3-Judge Bench of this Court vide
judgment dated 28.02.2019 in C.A. No (s).11311 of 2013 etc. cases and hence, the
same had attained finality.
7. Seemingly, the appellants failed to pay the penalties imposed by the
Adjudicating Officer, even after the same was affirmed by this Court.
Consequently, the respondent issued demand notices dated 13.05.2022, directing
the appellants to pay the penalties along with interest @ 12% per annum from
28.08.2014 to 13.05.2022 within 15 days from the date of receipt of the notices,
failing which, recovery proceedings would be initiated against them. Even then,
the appellants failed to make the payments. As a result, the respondent issued
notices of attachment of the bank accounts and demat accounts against the
appellants. Challenging the same, the appellants preferred appeals, which were
dismissed by the Tribunal, by the impugned order dated 29.09.2022, observing that
the penalty amount had not been paid even though the adjudication orders were
passed eight years ago. It further held that if the amount is not paid within 45 days,
interest becomes payable under Section 28A of the SEBI Act. Aggrieved by the
dismissal of the appeals, the appellants have preferred these appeals before us.
14
8. Now, the questions to be determined in these appeals are, whether interest
on penalties imposed by the Adjudicating Officer is payable by the appellants, and
if so, from which date – whether from the date of the adjudication orders passed by
the Adjudicating Officer or the demand notices issued by the respondent?
9. Before proceeding further, it is necessary to examine the legal position
related to the issue involved herein.
9.1. Chapter VI A, comprising of Sections 15A–15HB prescribe penalties for
various defaults under the SEBI Act viz., failure to furnish information, return, etc.
Section 15A provides that a person who fails to file a return or furnish information,
shall be liable to a penalty which shall not be less than one lakh rupees but which
may extend to one lakh rupees for each day during which, such failure continues,
subject to a maximum of one crore rupees. Likewise, Sections 15B–15HB impose
monetary penalties for other contraventions. However, none of these sections
themselves mention that interest is payable on the penalty; and they only set out
the penalty amounts. Even Section 15JA merely directs that penalties recovered are
credited to the Consolidated Fund.
9.2. Section 15I authorizes SEBI to appoint adjudicating officers to impose
penalties under Sections 15A–15HB. But, it does not by itself mention any interest
liability on delayed payment.
15
9.3. Section 15J directs that in determining the penalty amount under Sections
15A–15HB, the adjudicating officer shall have due regard to certain factors viz.,
disproportionate gain, loss to investors, repetitive nature of default, etc. It also
contains no provision for interest on delayed payments.
9.4. Although outside Chapter VI-A, Section 28A which was inserted by the
Securities Laws (Amendment) Act, 2014 in Chapter VII, dealing with
Miscellaneous matter, with effect from 18.07.2013, deals with the recovery when
any person fails to pay amounts due under the Act. It states that if a person fails to
pay a penalty imposed under the SEBI Act, the SEBI Recovery Officer may
prepare a certificate specifying the amount due and recover it by attachment or
other measures. Crucially, it provides that for the purposes of recovery, the
provisions of Sections 220 to 227, 228A, 229, 232, the Second and Third
Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate
Proceedings) Rules, 1962 – shall apply, with necessary modifications, as if those
provisions and the rules were the provisions of the SEBI Act and referred to
amounts due under this Act, instead of income-tax. In particular, Income-tax Act,
Section 220 (which is thereby incorporated) imposes interest at 1% per month (or
part thereof) on any tax (here, SEBI dues) remaining unpaid after the due date.
Thus, Section 28A effectively makes all sums due to SEBI (including penalties)
recoverable as arrears and subjects them to statutory interest under the Income-tax
16
Act. For ease of reference and specificity, the provisions of Section 28A of the
SEBI Act and Section 220 of the Income Tax Act, 1961 are reproduced below:
“28-A. 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 11-B or fails to pay any fees due to the Board, the Recovery Officer may
draw up under his signature a statement in the specified form specifying the amount
due from the person (such statement being hereafter in this Chapter referred to as
certificate) and shall proceed to recover from such person the amount specified in
the certificate by one or more of the following modes, namely:-
(a) attachment and sale of the person‘s movable property;
(b) attachment of the person‘s bank accounts;
(c) attachment and sale of the person‘s immovable property;
(d) arrest of the person 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 and the Income-tax
(Certificate Proceedings) Rules, 1962, as in force from time to time, insofar 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 sub-section, 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 immovable property or monies held in bank accounts for recovering any
amount due from the person under this Act.
17
Explanation 2.- Any reference under the provisions of the Second and Third
Schedules to the Income-tax Act, 1961 and the Income-tax (Certificate Proceedings)
Rules, 1962 to the assessee shall be construed as a reference to the person specified
in the certificate.
Explanation 3. – Any reference to appeal in Chapter XVIID and the Second Schedule
to the Income-tax Act, 1961 shall be construed as a reference to appeal before the
Securities Appellate Tribunal under section 15T of this Act.
13
[Explanation 4.
The interest referred to in section 220 of the Income-tax Act, 1961 shall commence
from the date the amount became payable by the person.
(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 any other claim against such person.
(4) For the purposes of sub-sections (1), (2) and (3), the expression “Recovery
Officer” means any officer of the Board who may be authorised, by general or
special order in writing, to exercise the powers of a Recovery Officer.]”
“220.When tax payable and when assessee deemed in default.
(1) Any amount, otherwise than by way of advance tax, specified as payable in a
notice of demand under section 156 shall be paid within [thirty days] 14 of the service
of the notice at the place and to the person mentioned in the notice:
Provided that, where the [Assessing Officer]15 has any reason to believe that it will
be detrimental to revenue if the full period of [thirty days] aforesaid is allowed, he
may, with the previous approval of the [Joint Commissioner]16, direct that the sum
specified in the notice of demand shall be paid within such period being a period less
than the period of [thirty days] aforesaid, as may be specified by him in the notice of
demand.
[(1A) Where any notice of demand has been served upon an assessee and any appeal
or other proceeding, as the case may be, is filed or initiated in respect of the amount
13
The Explanation Inserted by Act 21 of 2019, s. 42 and the Second Schedule (w.e.f. 21.2.2019)
14
Substituted by Act 4 of 1988, Section 85, for ” thirty-five days” (w.e.f. 1.4.1989)
15
Substituted by Act 4 of 1988, Section 2, for ” Income-tax Officer” (w.e.f. 1.4.1988)
16
Substituted by Act 21 of 1998, Section 3, for ” Deputy Commissioner” (w.e.f. 1.10.1998)
18specified in the said notice of demand, then, such demand shall be deemed to be
valid till the disposal of the appeal by the last appellate authority or disposal of the
proceedings, as the case may be, and any such notice of demand shall have the effect
as specified in section 3 of the Taxation Laws (Continuation and Validation of
Recovery Proceedings) Act, 1964 (11 of 1964).](2) If the amount specified in any notice of demand under section 156 is not paid
within the period limited under sub-section (1), the assessee shall be liable to pay
simple interest at [one per cent.]17[for every month or part of a month comprised in
the period commencing from the day immediately following the end of the period
mentioned in sub-section (1)]18 and ending with the day on which the amount is paid:
[Provided that, where as a result of an order under section 154, or section 155, or
section 250, or section 254, or section 260, or section 262, or section 264] 19 [or an
order of the Settlement Commission under sub-section (4) of section 245-D] 20[the
amount on which interest was payable under this section had been reduced, the
interest shall be reduced accordingly and the excess interest paid, if any, shall be
refunded:]21
[Provided further that where as a result of an order under sections specified in the
first proviso, the amount on which interest was payable under this section had been
reduced and subsequently as a result of an order under said sections or section 263,
the amount on which interest was payable under this section is increased, the
assessee shall be liable to pay interest under sub-section (2) from the day
immediately following the end of the period mentioned in the first notice of demand,
referred to in sub-section (1) and ending with the day on which the amount is paid:][Provided further that in respect of any period commencing on or before the 31st day
of March, 1989 and ending after that date, such interest shall, in respect of so much
of such period as falls after that date, be calculated at the rate of one and one-half
per cent for every month or part of a month.]22
….”17
Substituted by Act 4 of 1988, Section 85, for ” fifteen per cent. per annum from the day commencing
after the end of the period mentioned in sub-Section (1)” (w.e.f. 1.4.1989)
18
Substituted by Act 4 of 1988, Section 85, for “fifteen per cent. per annum from the day commencing
after the end of the period mentioned in sub-Section (1)” (w.e.f. 1.4.1989)
19
Inserted by Act 13 of 1963, Section 14 (w.e.f. 1.4.1962)
20
Inserted by Act 4 of 1988, Section 85 (w.e.f. 1.4.1989)
21
Inserted by Act 13 of 1963, Section 14 (w.e.f. 1.4.1962)
22
Inserted by Act 4 of 1988, Section 85 (w.e.f. 1.4.1989)
19In conclusion, once Section 28A of the SEBI Act came into force with effect
from 18.07.2013, the legal position stands settled that any penalty imposed by the
Adjudicating Officer under the SEBI Act and remaining unpaid beyond the
stipulated period is recoverable in the same manner as arrears of income tax under
the Income Tax Act, 1961. As a necessary corollary, interest on such unpaid
penalty also becomes statutorily leviable under section 220(2) of the Income Tax
Act, which prescribes simple interest at the rate of 1% per month (12% per annum)
for any amount specified in a demand notice that is not paid within the prescribed
time.
9.5. To elucidate further, we will also look into the provision of Section 156 of
the Income Tax Act, 1961, which reads as under:
“156. Notice of demand- When any tax, interest, penalty, fine or any other sum
[Certain words omitted by Act 13 of 1966, Section 32 and Schedule III (w.e.f.
1.4.1967).] is payable in consequence of any order passed under this Act, the
[Assessing Officer]23 shall serve upon the assessee a notice of demand in the
prescribed form specifying the sum so payable:
[Provided that where any sum is determined to be payable by the assessee under
sub-section (1) of section 143, the intimation under that sub-section shall be deemed
to be a notice of demand for the purposes of this section.]249.6. It is clear from the above provision that when any tax, interest, penalty, fine
or any other sum (other than advance tax) is payable under the Income Tax Act,
the Assessing Officer is required to serve a notice of demand upon the assessee.
23
Substituted by Act 4 of 1988, Section 2, for” Income-tax Officer” (w.e.f. 1.4.1988)
24
Inserted by Act 18 of 2008, Section 40 (w.e.f. 1.4.2008)
20
This notice mandates payment of the specified amount within 30 days from the
date of its service. A reading of the provisions makes it clear that for the purpose of
recovery of amounts due under the SEBI Act, certain provisions of the Income Tax
Act have been incorporated into the SEBI Act. At this juncture, it will be relevant
to point out the difference between “legislation by incorporation” and “legislation
by reference”. In the case of “legislation by incorporation”, the provisions of the
original Act, once specified, become an integral and independent part of the
subsequent Act. The provisions of the original Act are deemed to be incorporated
in the subsequent Act as if they were enacted within it. On the other hand, in the
case of “legislation by reference”, the provisions are generally referred to for
applicability, and the effect of such reference is that not only the provisions
existing at the time the subsequent Act was enacted are applied, but also any
subsequent amendments made to the provisions referred to in the original
enactment. Therefore, in the case of “legislation by incorporation”, only the
provisions as they existed on the date of incorporation into the subsequent law are
applicable. In contrast, in the case of “legislation by reference”, the law as it exists
on the date of application, including any subsequent modifications or amendment,
is applicable. Thus, in the case of “legislation by incorporation”, modifications to
the provisions in the original Act are not carried into the subsequent Act.
21
9.7. It will be useful to refer to the following judgments of this court on this
aspect:
(i) The Collector of Customs, Madras v. Nathella Sampathu Chetty and Ors.25
“…..To consider that the decision of the Privy Council has any relevance to the
construction of the legal effect of the terms of section 23A of the Foreign Exchange
Regulation Act is to ignore the distinction between a mere reference to or a citation
of one statute in another and an incorporation which in effect means the bodily
lifting of the provisions of one enactment and making it part of another so much so
that the repeal of the former leaves the latter wholly untouched. In the case,
however, of a reference or a citation of one enactment by another without
incorporation, the effect of a repeal of the one “referred to” is that set out in
section 8(1) of the General Clauses Act:
“8(1) Where this Act, or any Central Act or Regulation made after the
commencement of this Act, repeals and re-enacts, with or without modification, any
provision of a former enactment, then references in any other enactment or in any
instrument to the provision so repealed shall, unless a different intention appears :
be construed as references to the provision so re-enacted. ”
52. On the other hand, the effect of incorporation is as stated by Brett, L. J., in
Clarke v. Bradlaugh (1881) 8 Q.B.D. 63:
“Where a statute is incorporated, by reference, into a second statute the repeal of the
first statute by a third does not affect the second”.
53. This is analogous to, though not identical with the principle embodied in
section 6A of the General Clauses Act enacted to define the effect of repeals effected
by repealing and amending Acts which runs in these terms:
“6A. Where any Central Act or Regulation made after the commencement of this Act
repeals any enactment by which the text of any Central Act or Regulation was
amended by the express omission, insertion or substitution of any matter, then,
unless a different intention appears, the repeal shall not affect the continuance of
any such amendment made by the enactment so repealed and in operation at the time
of such repeal.”
54. We say ‘not identical’ because in the class of cases contemplated by section 6A of
the General Clauses Act, the function of the incorporating legislation is almost
wholly to effect the incorporation and when that is accomplished, they die as it were
a natural death which is formally effected by their repeal. In cases, however, dealt
with by Brett, L. J., the legislation from which provisions are absorbed continue to
25
MANU/SC/0089/1961 : AIR 1962 SC 316
22
retain their efficacy and usefulness and their independent operation even after the
incorporation is effected.”
(ii) Ujagar Prints and Ors. v. Union of India (UOI) and Ors.26
“49. Referential legislation is of two types. One is where an earlier Act or some of
its provisions are incorporated by reference into a later Act. In this event, the
provisions of the earlier Act or those so incorporated as they stand in the earlier
Act at the time of incorporation, will be read into the later Act. Subsequent changes
in the earlier Act or the incorporated provisions will have to be ignored because,
for all practical purposes, the existing provisions of the earlier Act have been re-
enacted by such reference into the later one, rendering irrelevant what happens to
the earlier statute thereafter.
Examples of this can be seen in Secretary of State v. Hindustan Co-operative
Insurance Society MANU/PR/0038/1931 : AIR 1931 PC 149, Bolani Ores Ltd. v.
State MANU/SC/0313/1974 : AIR 1975 SC 17, Mahindra and Mahindra Ltd v.
Union of India MANU/SC/0391/1979 : AIR 1979 SC 798. On the other hand, the
later statute may not incorporate the earlier provisions. It may only make a
reference of a broad nature as to the law on a subject generally, as in Bhajiya
v.Gopikabai MANU/SC/0403/1978 : (1978) 3 SCR 561 : AIR 1978 SC 793, or
contain a general reference to the terms of an earlier statute which are to be made
applicable. In this case any modification, repeal or re-enactment of the earlier
statute will also be carried into in the later, for here, the idea is that certain
provisions of an earlier statute which become applicable in certain circumstances
are to be made use of for the purpose of the latter Act also. Examples of this type of
legislation are to be seen in Collector of Customs v. Nathella Sampathu
Chetty MANU/SC/0089/1961 : (1962) 3 SCR 786 : AIR 1962 SC 316, New Central
Jute Mills Co. Ltd. v. Assistant Collector MANU/SC/0339/1970 : (1971) 2 SCR 92 :
AIR 1971 SC 454 and Special Land Acquisition Officer, City Improvement Trust
Board Mysore v. P. Govindan MANU/SC/0384/1976 : (1977) 1 SCR 549 : AIR
1976 SC 2517…Ed. Whether a particular statute falls into the first or second
category is always a question of construction. In the present case, in my view, the
legislation falls into the second category. Section 3(3) of the 1957 Act does not
incorporate into the 1957 Act any specific provisions of the 1944 Act. It only
declares generally that the provisions of the 1944 Act shall apply “so far as may
be”, that is, to the extent necessary and practical, for the purposes of the 1957 Act
as well.
26
MANU/SC/0675/1988: AIR 1989 SC 516
23
50. That apart, it has been held even when a specific provision is incorporated and
the case apparently falls in the first of the above categories, that the rule that
repeals, modifications or amendments of the earlier Act will have to be ignored is
not adhered to in certain situations. These have been set out in State of Madhya
Pradesh v. Narasimhan MANU/SC/0226/1975 : (1976) 1 SCR 6 : AIR 1975 SC
1835. In that case, the Supreme Court was considering the question whether the
amendment of Section 21 of the Penal Code by the Criminal Law Amendment Act,
1958, was also applicable for purposes of the Prevention of Corruption Act 1947,
which by Section 2 incorporates, for the purposes of that Act, the definition of ‘public
servant’ in Section 21 of the Penal Code. Answering the question in the affirmative,
the Court outlined the following propositions:
Where a subsequent Act incorporates provisions of a previous Act, then the borrowed
provisions become an integral and independent part of the subsequent Act and are totally
unaffected by any repeal or amendment in the previous Act. This principle, however, will
not apply in the following cases:
(a) Where the subsequent Act and the previous Act are supplemental to each other;
(b) where the two Acts are in pari materia;
(c) where the amendment in the previous Act, if not imported into the subsequent Act also,
would render the subsequent Act wholly unworkable and ineffectual; and
(d) where the amendment of the previous Act, either expressly or by necessary intendment,
applies the said provisions to the subsequent Act.”
(iii) Girnar Traders and Ors. v. State of Maharashtra and Ors.27
“86. At the very outset, we may notice that in the preceding paragraphs of the
judgment, we have specifically held that the MRTP Act is a self-contained code.
Once such finding is recorded, application of either of the doctrines i.e. “legislation
by reference” or “legislation by incorporation”, would lose their significance
particularly when the two Acts can coexist and operate without conflict.
87. However, since this aspect was argued by the learned Counsel appearing for
the parties at great length, we will proceed to discuss the merit or otherwise of this
contention without prejudice to the above findings and as an alternative plea.
These principles have been applied by the courts for a considerable period
now. When there is general reference in the Act in question to some earlier Act
but there is no specific mention of the provisions of the former Act, then it is
clearly considered as legislation by reference. In the case of legislation by
reference, the amending laws of the former Act would normally become
27
MANU/SC/0029/2011: 2011 3 SCC 1
24
applicable to the later Act; but, when the provisions of an Act are specifically
referred and incorporated in the later statute, then those provisions alone are
applicable and the amending provisions of the former Act would not become part
of the later Act. This principle is generally called legislation by
incorporation. General reference, ordinarily, will imply exclusion of specific
reference and this is precisely the fine line of distinction between these two
doctrines. Both are referential legislations, one merely by way of reference and the
other by incorporation. It, normally, will depend on the language used in the later
law and other relevant considerations. While the principle of legislation by
incorporation has well-defined exceptions, the law enunciated as of now provides
for no exceptions to the principle of legislation by reference. Furthermore, despite
strict application of doctrine of incorporation, it may still not operate in certain
legislations and such legislation may fall within one of the stated exceptions.
xxx xxx xxx
121. These are the few examples and principles stated by this Court dealing with
both the doctrines of legislation by incorporation as well as by reference.
Normally, when it is by reference or citation, the amendment to the earlier law is
accepted to be applicable to the later law while in the case of incorporation, the
subsequent amendments to the earlier law are irrelevant for application to the
subsequent law unless it falls in the exceptions stated by this Court in M.V.
Narasimhan case [State of M.P. v. M.V. Narasimhan, MANU/SC/0226/1975 :
(1975) 2 SCC 377: 1975 SCC (Cri) 589]. It could well be said that even where
there is legislation by reference, the Court needs to apply its mind as to what effect
the subsequent amendments to the earlier law would have on the application of the
later law. The objective of all these principles of interpretation and their
application is to ensure that both the Acts operate in harmony and the object of the
principal statute is not defeated by such incorporation. Courts have made attempts
to clarify this distinction by reference to various established canons. But still there
are certain grey areas which may require the court to consider other angles of
interpretation.
122. In Maharashtra SRTC [MANU/SC/0187/2003 : 2003:INSC:137 : (2003) 4 SCC
200] the Court was considering the provisions of the MRTP Act as well as the
provisions of the Land Acquisition Act. The Court finally took the view by adopting
the principle stated in U.P. Avas Evam Vikas Parishad [ MANU/SC/0055/1998 :
1998:INSC:31 : (1998) 2 SCC 467] and held that there is nothing in the MRTP Act
which precludes the adoption of the construction that the provisions of the Land
Acquisition Act as amended by Central Act 68 of 1984, relating to award of
compensation would apply with full vigour to the acquisition of land under the
25MRTP Act, as otherwise it would be hit by invidious discrimination and palpable
arbitrariness and consequently invite the wrath of Article 14 of the Constitution.
While referring to the principle stated in Hindusthan Coop. Insurance Society
Ltd. [ MANU/PR/0038/1931 : (1930-31) 58 IA 259: AIR 1931 PC 149] and
clarifying the distinction between the two doctrines, the Court declined to apply any
specific doctrine and primarily based its view on the plea of discrimination but still
observed: (Maharashtra SRTC case [ MANU/SC/0187/2003 : 2003:INSC:137 :
(2003) 4 SCC 200], SCC p. 208, para 11)
11. … The fact that no clear-cut guidelines or distinguishing features have been spelt out to
ascertain whether it belongs to one or the other category makes the task of identification
difficult. The semantics associated with interpretation play their role to a limited extent.
Ultimately, it is a matter of probe into legislative intention and/or taking an insight into the
working of the enactment if one or the other view is adopted. The doctrinaire approach to
ascertain whether the legislation is by incorporation or reference is, on ultimate analysis,
directed towards that end. The distinction often pales into insignificance with the
exceptions enveloping the main rule.
123. In the case in hand, it is clear that both these Acts are self-contained codes
within themselves. The State Legislature while enacting the MRTP Act has
referred to the specific Sections of the Land Acquisition Act in the provisions of
the State Act. None of the Sections require application of the provisions of the
Land Acquisition Act generally or mutatis mutandis. On the contrary, there is a
specific reference to certain Sections and/or content/language of the Section of the
Land Acquisition Act in the provisions of the MRTP Act.”
[Emphasis supplied]
9.8. There is yet another possibility, where, in the original Act, there can be an
incorporation of another provision from the same or a different enactment. In such
cases, the incorporated provision should also be deemed to have been incorporated
into the subsequent Act. Furthermore, when there is a general reference in the
original Act that forms part of the incorporation in the subsequent Act, the general
reference also gets incorporated into the subsequent Act as a reference. Section 220
of the Income Tax Act deals with the period within which the demand made under
26
Section 156 is to be paid. Section 156, by itself, does not specify any period within
which the payment is to be made. However, the proviso to Section 156 makes it
clear that a separate demand is not necessary when an assessment is made under
Section 143(1) of the Income Tax Act, and the intimation of assessment is to be
treated as the notice of demand. At this juncture, it is necessary to point out that the
period of 30 days mentioned in Section 220 can also be reduced for the reasons
stated in the proviso, provided the prescribed procedure is followed. The reference
in Section 220(1) to Section 156 is limited to the purpose of reckoning the period
of 30 days from the date of issuance of the demand notice. Therefore, in the strict
sense, the limited reference to Section 156 in Section 220(1) cannot be treated
either as a “legislation by incorporation” or a “legislation by reference”.
9.9. The SEBI Act, 1992 was primarily enacted to protect the interests of
investors in securities, to promote the development and regulation of the securities
market, and to address matters incidental thereto. These include, but are not limited
to, preventing fraudulent activities and malpractices in trading, guiding investors
through the mobilisation and allocation of resources, ensuring safety in
investments by prohibiting insider trading, curtailing price rigging, promoting fair
practices in the trading of securities and stocks, and regulating financial
intermediaries through the creation of codes of conduct for take overs, as well as
conducting inquiries and audits of the stock market. To achieve these objects, the
27
SEBI Board takes cognizance of offences committed by companies and their
directors and initiates action by way of levying penalties, suspending trading
privileges, or recommending imprisonment. A company, though a juristic person,
capable of suing and being sued in its own name, can be inflicted with punishments
of penalty or suspension from trading, but cannot be punished by imprisonment.
However, the directors and other connected persons covered by the PTI
Regulations, who were at the helm of affairs at the time of the violation, can be
subjected to punishment. It is trite law that in cases where directors of a company
are prosecuted, the company is also liable to be prosecuted, because, in certain
cases, but for the violation by the company, the directors cannot be prosecuted.
The Board, armed with powers under Sections 29 and 30 of the SEBI Act, has also
framed various rules and regulations to achieve the Act’s objectives. Any violation
of the SEBI Act, its rules or its regulations – and violations of certain provisions
under the Companies Act by a listed company – can trigger adjudication by SEBI.
Thus, it can be seen that adjudication under SEBI Act is triggered only by a
violation. In contract, under the Income Tax Act, the levy and collection are
enabled by charging provisions. Section 156 of the Income Tax Act, which deals
with the issuance of a demand notice before recovery, has not been incorporated
into the SEBI Act. Under the SEBI Act, the levy of penalties under various
circumstances is governed by Chapter VIA, which deals with penalties and
28
adjudication. The adjudication is carried out in accordance with the procedure laid
down in the Securities and Exchange Board of India (Procedure for Holding
Inquiry and Imposing Penalties) Rules, 1995. Section 28A of the SEBI Act,
introduced with effect from 18.07.2013, provides the mechanism for recovery of
penalties and, in cases of default, contemplates the payment of interest by
incorporating certain provisions of the Income Tax Act. In effect, Section 28A is a
substantive law insofar as the levy of interest. The adjudication is conducted as per
the mechanism outlined under SEBI Act and the rules framed thereunder. Notably,
the provisions of the SEBI Act or its rules do not mandate the issuance of a
separate demand notice before recovery. Adjudication amounts to a crystallization
of liability, and the demand is a natural sequitur. Therefore, there is no
corresponding requirement for issuance a separate notice of demand seeking
payment of the amount determined under the adjudication order. The adjudication
authority is well within his powers to fix a period for payment of the amount
specified in the adjudication order, and upon default, the liability to pay interest
becomes inevitable.
10. In the present case, although the original adjudication orders dated
28.08.2014 did not expressly mention interest, the liability to pay interest arises as
a matter of law by operation of section 28A read with section 220 of the Income
Tax Act. The appellants admittedly failed to pay the penalty within the 45-day
29
period as directed in the adjudication orders, and the payment was eventually made
after nearly nine years, only pursuant to the order of this Court dated 24.04.2023. It
is a settled principle that statutory dues not paid within the prescribed time attract
statutory interest, irrespective of whether such interest was specifically mentioned
in the original order or not. All that is required is an enabling provision to demand
interest. Once such a provision is available, the liability to pay interest becomes
axiomatic upon the expiry of the period provided for payment of the penalty. As
stated earlier, the enabling provision to recover interest was already in vogue when
the adjudication order was passed. Accordingly, the appellants are liable to pay
interest at 12% per annum on the unpaid penalty amounts for the period of delay.
Therefore, the contentions of the appellants that interest cannot be levied
retrospectively is misplaced, as is their reliance on the judgments of this court –
since not only are the facts different, but also are the statutory provisions involved.
In fact, in J.K. Synthetics Ltd, the issue was the interpretation of the provisions of
the Rajasthan Sales Tax Act, 1954, specifically whether interest was to be
calculated from the date of filing the return or from the date of assessment. The
Constitutional Bench of this court held that the liability to pay interest would
accrue only after the tax liability was crystallized upon assessment. In the present
case, interest is demanded after adjudication – not from the date of the violation –
and therefore, the principle laid down in J.K. Synthetics is not applicable.
30
11. Now, the next question is whether interest on the unpaid penalty should
accrue from the expiry of the 45-day period stipulated in the Adjudicating
Officer’s orders dated 28.08.2014, or from the expiry of 30 days following the
SEBI’s notices dated 13.05.2022.
11.1. The appellants contend that interest, if payable, should accrue only from the
date of the demand notices issued on 13.05.2022, rather than from the date of the
adjudication orders. Conversely, the respondent argues that interest is due from the
expiry of the 45-day period following the adjudicating orders dated 28.08.2014 as
those orders constituted enforceable demands.
11.2. As seen above, section 220(1) of the Income Tax Act, 1961 does not
independently envisage the issuance of a demand notice. Instead, it refers to the
notice served under section 156, requiring payment within 30 days. Failure to
comply attracts interest at 12% per annum under section 220(2), calculated from
the expiry of the 30-day period. However, since section 156 is not incorporated
into section 28A of the SEBI Act, the expression ‘notice of demand’ for recovery
under the SEBI Act must be understood to include adjudication orders issued under
Chapter VIA of the SEBI Act. We have already held that the adjudication officer
was well within his rights to fix a period for payment. One of the purposes of
31
specifying such a period in the adjudication order is to determine the period from
which payment of interest is to be calculated, if the assessee commits a default.
11.3. 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.
[See: Calcutta Jute Manufacturing Co. and another v. Commercial Tax Officer 28].
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. As already mentioned, since section
156 is not incorporated into the SEBI Act, the original order must be treated as the
statutory trigger for the purpose of calculation of interest. Moreover, the demand
notice dated 13.05.2022 merely reiterated the earlier demand and did not create a
28
1997 106 (STC) 433
32
fresh liability. To hold otherwise would undermine the effectiveness of the original
compliance period and incentivize delay.
11.4. In Dushyant Dalal (supra), this court affirmed that the Interest Act, 1978
empowers tribunals, including SAT, to award interest from the date the cause of
action arose until the initiation of recovery proceedings based on equitable
considerations. The following passage of the said decision is relevant:
“32. We agree with the aforesaid statement of the law. It is clear, therefore, that the
Interest Act of 1978 would enable Tribunals such as 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 15-JA 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 28-A 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 28-A read with Section 220(2) of
the Income Tax Act only prospectively.29 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. Civil Appeals Nos.
10410-12 of 2017 are allowed insofar as the penalty cases are concerned.”The liability of interest is fortified after the enactment of section 28A, which is a
substantive law. Furthermore, Explanation 4 to section 28A inserted on
29
The same 2014 Amendment which introduced Section 28-A, with effect from 18-7-2013, also
introduced Section 15-JB retrospectively, with effect from 20-4-2007. This is a positive indication that
Section 28-A 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 28-A, in any of the three Ordinances preceding the Amendment Act of 2014.
33
21.02.2019, explicitly states that interest under section 220 shall accrue from the
date the amount became payable. We have already held that the liability to pay
penalty stood triggered from the date of adjudication and that no separate notice of
demand is necessary. Further, in the present case, as the adjudication order itself
specified the time for payment of the penalty, the liability to pay interest would
commence upon the expiry of the period mentioned in the assessment notice. An
“explanation” in any law serves to clarify, restrict, or expand the scope of the main
provision. The nature and effect of an Explanation must be understood in the
context of the object of the Act, and in particular, the provision to which the
Explanation is inserted. The Explanation introduced in 2019, in our view, did not
bring about any substantive change but merely clarified the existing legal position.
We also foresee another situation: where the original adjudication order under the
SEBI Act does not specify any time for payment, the period of 30 days under
Section 220 of the Income Tax Act should be deemed to apply for making the
payment, failure of which would trigger the liability to pay interest. Thus, the
adjudication officer’s order which specified payment within 45 days, effectively
operates as a notice of demand, rendering any separate demand notice redundant.
11.5. At this juncture, it is to be pointed out that interest on unpaid penalties is
compensatory in nature, not penal. Its primary purpose is not to punish the
defaulter, but to make good the financial loss occurred to the Revenue on account
34
of delay in receiving the payment that was lawfully due. When a penalty is
imposed, a specific period is granted for compliance. If the payment is not made
within that stipulated period, the delay deprives the Revenue of the timely use of
funds that rightfully belong to the public exchequer. Therefore, the accrual of
interest upon default is automatic and flows from the nature of the liability –
serving to compensate for the time value of money and the disruption caused by
delayed payment, rather than to impose an additional punitive burden. In this
regard, it will be useful to refer to the following decisions:
(i) Bhai Jaspal Singh v. CCT30:
“36. Interest is compensatory in character and is imposed on an assessee who has
withheld payment of any tax as and when it is due and payable. The interest is
levied on the actual amount of tax withheld and the extent of delay in paying the tax
on the due date. Essentially, it is compensatory and different from penalty which is
penal in character (see Pratibha Processors v. Union of India [(1996) 11 SCC 101:
AIR 1997 SC 138]).
(ii) Commissioner of Income-Tax v. Dhanalakshmy Weaving Works31:
“8…
“Interest” is a consideration paid either for use of money or for forbearance in
demanding it after it has fallen due. It is a compensation allowed by law or fixed by
parties or permitted by custom or usage for use of money belonging to another or for
the delay in paying the money after it has become payable. It can be said to be the
cost of using credit or funds of another. The liability for payment of interest at the
rate stipulated accrues automatically on a failure to pay the amount of tax by the due
date. This is so because such a provision is not a claim for any tax, but is a
procedural matter providing machinery for recovery of tax which is compensatory in
30
(2011) 1 SCC 39 : (2010) 35 VST 456
31
(2000) 245 ITR 13 : 1999 SCC OnLine Ker 597 : (2000) 160 CTR 374
35nature (see Karimtharuvi Tea Estate Ltd. v. State of Kerala, [1966] 60 ITR 262
(SC); CST v. Qureshi Crucible Centre, [1993] 89 STC 467 (SC) and Prahlad
Rai v. STO, [1992] 84 STC 375 (SC)). Liability to pay interest arises by operation of
law, being automatic. Looking at the nature of levy, it is clear that it is compensatory
in character and not in the nature of penalty. It is seen that there are several
provisions where the Legislature has made a distinction between interest payable
and penalty imposable. The ultimate liability for tax being not there does not dilute
the requirements for the non-compliance of which interest is levied under section
201(1A).
9. Judged in that background, the levy of interest is justified and the Tribunal was
not justified in deleting it. The answer to the reframed question is in the negative, in
favour of the Revenue and against the assessee. Reference application is accordingly
answered.”
Thus, we hold that interest must accrue from the expiry of the 45-day compliance
period following the adjudication orders dated 28.08.2014. The subsequent
demand notices are nothing but reminders and are not the first demand notices
before the accrual of liability for interest. Accepting the appellants’ position would
encourage defaulters to delay payment indefinitely under the guise of awaiting
formal orders, thereby undermining the efficacy of the enforcement framework and
resulting in a loss to the revenue.
11.6. In view thereof, the authorities relied upon by the appellants lack persuasive
value, and we find no infirmity or illegality in the order passed by the Tribunal that
would warrant our interference.
36
CONCLUSION
11.7. Accordingly, all these appeals stand dismissed. The appellants are directed
to pay interest calculated by the respondent, within a period of 15 days from the
date of receipt of a copy of this judgment. No costs. Consequently, connected
miscellaneous application(s), if any, shall stand closed.
…………………………J.
[J.B. Pardiwala]
…………………………J.
[R. Mahadevan]
NEW DELHI;
JULY 15, 2025.
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