In a seminal ruling that fortifies SEBI’s post-adjudication enforcement framework, the Hon’ble Supreme Court in Jaykishor Chaturvedi & Others v. SEBI (2025 INSC 846) upheld the regulator’s power to recover interest on penalties from the date the penalty becomes due even if the original adjudication order is silent on interest.
This decision addresses a long-contested question in securities enforcement: From when does interest accrue on unpaid monetary penalties levied by SEBI, and is a separate demand notice essential for triggering interest liability?
The answer, emphatically, from Supreme Court is that adjudication orders themselves constitute enforceable demand notices, and interest liability flows automatically upon default.
Brief Facts
The appellants, who were promoter-directors of M/s Brijlaxmi Leasing and Finance Ltd., were found guilty of insider trading violations under SEBI’s 1992 Prohibition of Insider Trading Regulations. In 2014, penalties were imposed via adjudication orders. However, no interest component was specified therein.
Despite dismissal of their appeals up to the Hon’ble Supreme Court in 2019, the appellants failed to pay the penalties. SEBI initiated recovery in 2022 by issuing attachment orders on bank and demat accounts, including interest calculated retrospectively from 2014. This prompted the appellants to challenge the legality of retrospective interest and the need for a fresh demand.
Legal Issues Framed
- Whether interest on SEBI penalties is recoverable in the absence of an express direction in the adjudication order?
- Whether interest should be calculated from the date of adjudication or from the issuance of a recovery notice?
- Whether the 2019 Explanation to Section 28A of the SEBI Act applies retrospectively?
The Supreme Court’s Ruling – Key Takeaways
1. Nature of Interest Liability – Automatic & Statutory
The Court held that interest on unpaid penalties arises by operation of law once default occurs, even if the adjudication order does not mention interest. It is not a penal but a compensatory charge, justified by the delay in remitting funds due to the public exchequer. This principle is drawn from Section 220(2) of the Income Tax Act, which SEBI invokes through Section 28A of the SEBI Act.
2. Demand Notice Not Necessary – Adjudication Is Sufficient
The Court clarified that adjudication orders themselves are equivalent to demand notices under the SEBI Act. The statutory incorporation of recovery provisions from the Income Tax Act into Section 28A is not conditional upon issuance of a notice under Section 156 of the Income Tax Act. Thus, interest starts running from the expiry of the compliance period set in the adjudication order (45 days in this case), and not from any later recovery notice.
3. Explanation 4 to Section 28A – Clarificatory and Retrospective
Inserted in 2019, this Explanation states that interest shall accrue from the date the amount becomes payable. The Court categorically ruled that this is not a new substantive provision, but a clarification of existing law, and hence applies retrospectively.
4. Doctrine of Legislation by Reference
The Court undertook a thorough doctrinal analysis of whether SEBI’s reliance on Income Tax provisions amounts to legislation by incorporation or by reference ultimately concluding that SEBI adopts these recovery provisions with “necessary modifications” and that the original adjudication order itself satisfies the condition for triggering interest under Section 220.
Judicial Consistency: Aligning with Dushyant N. Dalal
The decision references and builds upon the precedent laid in Dushyant Dalal v. SEBI (2017) 9 SCC 660, where the Supreme Court recognized SEBI’s equitable power to claim interest even before Section 28A was enacted. However, in Jaykishor Chaturvedi, the statutory framework is fully in place, making the liability even stronger.
The Court distinguished J.K. Synthetics Ltd. v. CTO (1994) 4 SCC 276 which dealt with retrospective imposition of interest under a different statutory scheme, and held that such principles are inapplicable to the SEBI Act, where the liability crystallizes with adjudication, not with assessment or returns.
Regstreet Insights: Implications for Market Participants and Compliance Officers
This ruling sends a strong message to defaulters and dilatory litigants – mere pendency of appeal or absence of interest in the original order does not shield against future financial liability. Key implications include:
- Adjudication orders = enforceable demand notices.
- Delay in compliance = automatic interest liability.
- No strategic advantage in deferring payment under the hope of lower recovery or leniency.
- Compliance teams must track penalty timelines with precision, including interest accruals for reporting and provisioning.
While this development may raise concerns from a constitutional and rule of law perspective, along with important legal and policy implications, those issues will be addressed in a subsequent post. As the saying goes, “bad facts make bad law” – and this case exemplifies that principle perfectly. For now, this decision affirms SEBI’s authority to recover penalties and clarifies the legal framework underpinning its enforcement powers.
This judgment will likely recalibrate how penalty orders are evaluated not just for quantum, but for the duration of non-compliance and the accruing cost of delay.