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

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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

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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

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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

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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

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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

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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

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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

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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

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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.

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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

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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

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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

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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

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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

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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:

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“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

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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-

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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 63rd 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  observed2,  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 case3, 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.   

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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.  

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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”

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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

26

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.

28

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

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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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