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 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 L 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 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 L 4.05 crores (rounded off from L 4,05,61,579). c) The noticees shall also pay L 1.95 crores (rounded off from L 1,94,69,558), being the simple interest at the rate of 12% per annum for 4 years (2005-09) on the unlawful gain L 4,05,61,579. d) The noticees shall pay the above amount of L 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 L 6 crores is not paid within the specified time, the noticees shall be restrained from buying, selling or dealing in securities market in any manner whatsoever or accessing the securities market, directly or indirectly, for a further period of seven years, without prejudice to SEBI's right to enforce disgorgement." An appeal from this order was dismissed by the Securities Appellate Tribunal (SAT) on 12.11.2010. An appeal from the order of the SAT to this Court met with the same fate on 21.2.2011.
(3.) By a notice of demand dated 25.9.2013, L 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 L 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 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 L 4.05 crores with interest @ 12% per annum quantified at L 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 L 4.05 crores till payment, the RO was justified in demanding interest on the unlawful gain of L 4.05 crores from 21.07.2009 till payment. Accordingly, Appeal No. 41 of 2014 is dismissed." ;