SC: Interest Automatically Applies After SEBI Order Deadline

The Hon’ble Supreme Court of India in the case of Jaykishor Chaturvedi & Etc. versus Securities and Exchange Board of India (2025 SCC OnLine SC 1441), dated July 15, 2025, has held that interest on unpaid penalties imposed under the Securities and Exchange Board of India (SEBI) Act, 1992, is recoverable from the date on which the liability becomes enforceable under the adjudication order passed under the Act, even if the order does not expressly stipulate interest.

The appellants were promoter-directors of a listed company who acquired shares in violation of Regulation 13(4) and Regulation 13(4A) read with Regulation 13(5) of the SEBI (Prohibition of Insider Trading) Regulations, 1992. Following investigation and issuance of show cause notices, the Adjudicating Officer of SEBI passed adjudication orders imposing monetary penalties on each of the appellants. These orders were unsuccessfully challenged before the Securities Appellate Tribunal (SAT) and subsequently before the Hon’ble Supreme Court, thereby attaining finality. However, the penalties remained unpaid for several years. Subsequently, SEBI, through its Recovery Officer, issued demand notices to the appellant requiring payment of the penalties along with interest at the rate of 12 percent per annum from the date of the original adjudication orders. When the appellants failed to comply, SEBI issued orders attaching their bank and demat accounts. These actions were challenged on the ground that interest was neither directed nor contemplated in the original adjudication orders and that Explanation 4 to Section 28A of the SEBI Act, inserted in 2019, dealing with recovery of amounts, could not operate retrospectively for application of interest.

The Court examined the scheme of the SEBI Act and noted that while Chapter VIA of the SEBI Act, which deals with penalties and adjudication, does not specifically provide for the imposition of interest, Section 28A authorises recovery proceedings where any person fails to pay penalties imposed under the Act. Section 28A expressly incorporates, with necessary modifications, the recovery machinery contained in Sections 220 to 227, 228A, 229, and 232 of the Income Tax Act, 1961, as well as the relevant Schedules and Rules. Section 220(2) of the Income Tax Act provides that where an amount is not paid within the prescribed period following a notice of demand under Section 156, interest at one percent per month shall accrue until payment. The Court held that although Section 156 is not specifically incorporated into the SEBI Act, the adjudication order itself, particularly when it stipulates a period for compliance, functions as a demand notice for the purpose of triggering interest. The liability to pay interest therefore arises upon expiry of the time prescribed in the adjudication order, and no separate notice of demand is required.

The Court further clarified that Explanation 4 to Section 28A, which states that interest shall commence from the date the amount becomes payable, is merely declaratory in nature and does not alter the existing legal position. As such, the Explanation does not create a new obligation and does not amount to a retrospective imposition of liability. The adjudication orders in the present case clearly stipulated that the penalties were payable within forty-five days. The appellants’ failure to comply within that period rendered them defaulters in terms of the applicable statutory scheme. The Court noted that allowing interest to run only from the date of a subsequent demand notice would defeat the purpose of the statutory framework and encourage willful delay. The obligation to pay interest, being compensatory in nature and aimed at neutralizing the time value of public funds withheld, arises by operation of law and not by express direction. Accordingly, the Court directed the appellants to pay applicable interest.

This ruling reaffirms that SEBI adjudication orders are sufficient to trigger interest liability. It upholds the statutory basis for recovering interest on unpaid penalties.