REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 5677 of 2017

DUSHYANT N. DALAL AND ANOTHER … APPELLANTS

VERSUS

SECURITIES AND EXCHANGE BOARD

OF INDIA … RESPONDENT

WITH

CIVIL APPEAL NOS. 10410-10412 of 2017

J U D G M E N T

R.F. Nariman, J.

1.The present appeals raise an interesting question under

Section 28A of the Securities and Exchange Board of India Act,

1992 (SEBI Act), namely, as to whether interest can be

1

recovered on orders of penalty issued under the Act and/or

orders of disgorgement of unlawful gains, when the said

amounts 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 the integrity of the market. By doing this,

they denied other RIIs of allotment of their legitimate shares in

initial public offers (IPOs) of various companies and made an

unlawful gain of Rs.4,05,61,579/- to the detriment of other RIIs.

The conclusion, therefore, was that they had employed

fraudulent, deceptive and manipulative practices to garner

shares meant for RIIs in the aforesaid IPOs and hence violated

Section 12A (a), (b) and (c) of the SEBI Act, and Regulations 3

and 4(1) of the Securities and Exchange Board of India

(Prohibition of Fraudulent and Unfair Trade Practices Relating

2

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 of

this order; and

b) The noticees shall disgorge the unlawful gain of

Rs.4.05 crores (rounded off from Rs. 4,05,61,579).

c) The noticees shall also pay Rs.1.95 crores

(rounded off from Rs. 1,94,69,558), being the

simple interest at the rate of 12% per annum for 4

years (2005-09) on the unlawful gain Rs.

4,05,61,579.

d) The noticees shall pay the above amount of Rs.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 Rs.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

3

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, Rs. 6 crores,

along with interest payable within 15 days of the receipt of the

notice, was demanded, failing which recovery was to be made

under Section 28A of the SEBI Act. By a second demand notice

dated 12.12.2013, stated to be in continuation of the first

demand notice, interest was demanded at 13% per annum from

21.7.2009 upto 12.12.2013 amounting to Rs.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 undergone the full debarment period and hence,

attachment levied on their demat accounts, except account

No.40333429, was released. By the impugned judgment dated

10.3.2017, the SAT ultimately found that, with effect from

4

18.7.2013, Section 28A read with Section 220 of the Income

Tax Act, 1961 empowered SEBI to collect interest, but that so

far as the appellants were concerned, it was held that interest

payable by the appellants could not be quantified at the time of

passing the order dated 21.7.2009 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 Rs. 4.05 crores with interest @

12% per annum quantified at Rs. 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

passed by the WTM of SEBI on 21.07.2009

contained an obligation to pay interest @ 12% per

annum on the unlawful gain of Rs. 4.05 crores till

payment, the RO was justified in demanding interest

on the unlawful gain of Rs. 4.05 crores from

21.07.2009 till payment. Accordingly, Appeal No. 41

of 2014 is dismissed.”

4.Insofar as the penalty orders are concerned, the facts are

similar. In SEBI v. Ashok Panchariya, C.A. 10410 of 2017, a

penalty order dated 13.11.2009 was passed for a sum of Rs. 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

5

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 Rs. 25 lakhs was

demanded, together with interest, under Section 28A of the

SEBI Act. On 3.6.2014, the amount of Rs. 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 Rs. 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

6

ordinance), but held that since the awarding of interest belongs

to the realm of substantive and not procedural law, the

aforesaid provision could not be held to be retrospective, and

that, therefore, interest demands that were prior to this date

were set aside. It is against this part of the order that SEBI has

appealed.

6.Shri Subramonium Prasad, learned counsel appearing on

behalf of the appellants in C.A.5677 of 2017, has argued before

us that, on his facts, it was clear that the order dated 21.7.2009

had, while awarding interest for the years 2005 to 2009, not

expressly awarded any future interest and that this was done

deliberately inasmuch as if the amount of Rs. 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 passed by the SAT, the appellants were

7

permitted to sell their shares, as a result of which they were

able to make the payment of Rs. 6 crores on 6.1.2014. He

further argued that their case should not have been segregated

from the penalty cases by the SAT and that, along with the

other individuals in these cases, they should have been made

to pay interest only on the unpaid amount from 18.7.2013 and

not otherwise. On law, Shri Prasad argued that equity cannot

override written law but can only supplement 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 hand, argued that in the

order dated 21.7.2009, the debarment for a period of 7 years

was without prejudice to SEBI’s right to enforce disgorgement,

which would necessarily include future interest. He added that

8

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 the defendant is not entitled

9

to, and should, therefore, pay for the use of this unjust benefit

by 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 same provision. The second ordinance also lapsed and a

third ordinance dated 28.3.2014 was then promulgated with the

same Section.

9.However, the Bill which led to the amendment of the SEBI

Act, and which inserted Section 28A, eventually included

Section 220 of the Income Tax Act as well.

1

10.Ultimately, Section 28A was enacted by the Securities

Laws (Amendment) Act of 2014 by which this Section was

1

Section 220 is an important provision, in that under sub-section (2) thereof, interest is

leviable in the circumstances mentioned therein.

10

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 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 (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

11

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.

Explanation 2.— Any reference under the provisions

of the Second and Third Schedules to the Income-

tax Act, 1961 (43 of 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 (43 of 1961), shall be construed as a

reference to 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

12

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.”

11.A number of judgments have held that interest belongs to

the field of substantive and not procedural law. Foremost

among these judgments is J.K. Synthetics Ltd. v. Commercial

Taxes Officer (1994) 4 SCC 276 at 291, in which a Constitution

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 charging interest on delayed

payments, etc. Ordinarily the charging section which

fixes the liability is strictly construed but that rule of

13

strict construction is not extended to the machinery

provisions which are construed like any other

statute. The machinery provisions must, no doubt,

be so construed 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 Manganese Ore Co.

Ltd. v. CIT [(1986) 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 that meaning to it as is conveyed

by the language used and the purpose to be

14

achieved. Therefore, any provision made in a

statute for charging or levying interest on delayed

payment of tax must be construed as a substantive

law and not adjectival law. So construed and

applying the normal rule of interpretation of statutes,

we find, as pointed out by us earlier and by

Bhagwati, J. in the Associated Cement Co.

case [(1981) 4 SCC 578 : 1982 SCC (Tax) 3 :

(1981) 48 STC 466] , that if the Revenue’s

contention 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 this Court dealt with

the Interest on Delayed Payments to Small Scale and Ancillary

Industrial Undertakings Act, 1993, as follows:-

“51. There is no doubt about the fact that the Act is

a substantive law as vested rights of entitlement to

a higher rate of interest in case of delayed payment

accrues in favour of the supplier and a

corresponding liability is imposed on the buyer. This

Court, time and again, has observed that any

15

substantive law shall operate prospectively unless

retrospective operation 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 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:

16

“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 equitable grounds therefore, for which a

written demand is mandatory.”

15.He also referred us to Tahazhathe Purayil Sarabi & Ors.

v. Union of India & Another, (2009) 7 SCC 372 at 380-381, in

the context of death caused by a rail accident. The Court

noticed that the Railway Acts do not grant any substantive

power to levy interest, but went on to state that interest could

be awarded on principles contained in Section 3 of the Interest

Act, 1978 and Section 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 principle has been enunciated that

in cases where a money award is made, the

17

principles of Section 34 of the Civil Procedure Code

and Section 3 of the Interest Act could be invoked to

award interest from the date of the award till the

realisation thereof.”

Shri Datar then referred to Ferro Alloys Corpn. Ltd. v. A.P.

State Electricity Board and another, (1993) Supp (4) SCC

136 at 178-181, paragraphs 128-133 where, according to him,

the Court upheld interest payable in equity as a principle of law,

though 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. State of M.P. and others, (2003) 8 SCC

648, Indian Council For Enviro-Legal Action v. Union of

India, (2011) 8 SCC 161 and Union of India v. Tata

Chemicals Limited, (2014) 6 SCC 335 at 350, paragraphs 38-

18

39 to buttress his submission that interest can always be

granted on equitable considerations.

16.We are of the view that an examination of the Interest Act,

1978 would clearly establish that 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:

19

“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 of

circumstances which attracts the

equitable jurisdiction, as, for example,

the non-performance of a contract of

which equity can give specific

performance.”

19.This view of the law has since been followed in a number

of judgments. In Satinder Singh v. Amrao Singh, (1961) 3

SCR 676 at 697, this Court held as under:

“The power to award interest on equitable grounds

or under any other provisions of the law is expressly

saved by the proviso to s. 1. This question was

considered by the Privy Council 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:

20

“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 Section

1 of the Interest Act, 1839 to award interest on

equitable grounds.”

21.The 63

rd

Law Commission on the Interest Act, 1839 went

into the aspect of grant of interest from the date of cause of

action till the date of institution of proceedings in great detail.

After setting out Section 1, together with the proviso, of the

1839 Act, the Law Commission recommended in paragraph

4.4A as under:

“4.4A. But, in general, proceedings, other than suits

would be outside the section. We are of the view

that 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 example, where immovable property is

purchased or acquired, and the price or

21

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

2

, 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

3

, 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 of the power preserved by the

proviso. A few important situations are, accordingly,

considered below.

xxx xxx xxx

7.15. Interest may also be recovered in equity in

some other cases; for example, where a particular

relationship exists between the creditor and the

debtor, such as, mortgagor and mortgagee, obligor

and obligee on a bond, executor and beneficiary,

principal and agent, principal and surety, trustee

and cestui que trust, vendor and purchaser, or in the

case of arrears and annuities. These cases need

2

Mahabir Prasad v. Durga Dutt, (1961) 3 SCR 639; AIR 1961 SC 990.

3

Sitaram v. Wamurad, AIR 1948 Nagpur 49, 50 para 6.

22

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 confusing, and, from the point

of view of drafting, inaccurate. We, therefore,

recommend its deletion.”

We also recommend that the words “enactment or

other rule of law or usage having the force of law”

should be substituted for the word “law”, in this part

of the proviso.”

(Emphasis supplied)

23.Parliament accepted the recommendation of the Law

Commission and enacted the Interest Act of 1978.

Section 2(a) reads as under:

“Section 2 – Definitions

In this Act, unless the context otherwise requires,-

(a) “court” includes a tribunal and an arbitrator;”

The Act has, therefore, been expanded to cover not

merely civil courts but Tribunals as well.

23

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 aforesaid, and without

prejudice to the generality of the provisions of sub-

section (1), the court shall, in each of the following

cases, allow interest from the date specified below

to the date of institution of the proceedings at such

rate as the court may consider reasonable, unless

the court is satisfied that there are special reasons

why interest should not be allowed, namely:-

(a) where money or 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.

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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 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 decision of the Privy Council in Bengal

Nagpur Rly. Co. Ltd. v. Ruttanji Ramji [(1937-38) 65

IA 66 : AIR 1938 PC 67] holding that interest can be

awarded on equitable grounds, all rendered with

reference to the said proviso to Section 1 of the old

Interest Act (Act of 1839), will be useful to interpret

the provisions of the new Act (Act of 1978) may

require detailed examination in an appropriate

case.”

26.The important question which has to be answered in the

present case is as to whether the expression “other rule of law”

25

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 the words “or other rule of law” in

section 4(1). The other rule of law being on grounds

of equity. Even under the Interest Act, 1839, interest

was payable under the proviso to section 1 which

reads: “Provided that interest shall be payable in all

cases in which it is now payable by law.” Interest

was payable by law under that Act in equity. This

was recognized in a series of judgments. For

instance in Trojan and Co. v. Nagappa Chettiar,

1953 SCR 789, the Supreme Court, in paragraph

23, observed that 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

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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.

4

However, since it has not

4

The same 2014 Amendment which introduced Section 28A, with effect from 18.7.2013, also

introduced Section 15JB retrospectively, with effect from 20.4.2007. This is a positive

indication that Section 28A was intended only to have prospective application. It must be

27

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 that have been passed by the

same whole-time member of SEBI. Thus, in Mr. Dhaval A.

Mehta v. Securities and Exchange Board of India, the order

passed by the same whole-time member reads as follows:

“11… Accordingly, in exercise of powers conferred

upon me under Section 19 read with Sections 11,

11(4) and 11B of the SEBI Act, 1992 and after

taking into account the period of prohibition already

undergone by the Noticee pursuant to the interim

Order, I hereby direct that the Noticee, Mr. Dhaval

A. Mehta (PAN No. ALKPM 2611G): (a) to disgorge

the above unlawful gain of Rs. 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

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.

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in whatsoever manner or accessing securities

market in any manner, directly or indirectly, for a

further period of 2 years from the date of issuance

of this Order. In case the amount is not disgorged

within the specified time, the Noticee shall be

restrained from buying, selling or dealing in

securities market in whatsoever manner or

accessing securities market, directly or indirectly, for

an additional period of 5 years without prejudice to

SEBI’s right to enforce disgorgement.”

(Emphasis supplied)

30.Similarly, in Netanand Bhambu’s case, by an order dated

7.5.2009, the same gentleman passed 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 Rs.

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

29

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 whole-

time 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

whatsoever or accessing the securities market,

directly or indirectly, for a period of one year from

the date of this Order; and

b) Chandrakant Amratlal Parekh shall disgorge

the unlawful gain of Rs.24,29,340 (Rupees

twenty four lakhs twenty nine thousand three

hundred and forty only). He shall also pay the

interest on this unlawful gain at the rate of 6% (six

percent) per annum for 4 ½ years (October 2005 –

April 2010, i.e. from the date of listing of the IPO of

Suzlon till this Order), amounting to Rs.6,55,922. He

shall thus disgorge a total amount of Rs.30,85,262

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. In case the aforesaid amount is not paid

within the specified time, he 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 along

with further interest till actual payment is made.”

(Emphasis supplied)

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32.All the aforesaid orders show that the said whole-time

member was fully cognizant of his power to grant future interest

which he did in all the aforesaid cases. In fact, in the last

mentioned case, whose facts are very similar to the facts of the

present case, the order was passed “without prejudice to

SEBI’s right to enforce disgorgement along with further interest

till actual payment is made.” The words “along with further

interest till actual payment is made” are conspicuous by their

absence in the order dated 21.7.2009. In the circumstances, we

are of the view that Shri Subramonium Prasad is correct in his

submission. If there is default in payment of Rs. 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 Rs. 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 gain of Rs.4.05 crores

31

till payment. We, therefore, allow C.A. 5677 of 2017 and set

aside the SAT’s judgment in this appeal as well.

………………………… ......J.

(R.F. Nariman)

..……………………...........J.

(Sanjay Kishan Kaul)

New Delhi;

October 04, 2017.

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