Prasad V. Potluri vs Sebi

Date of Decision : 12.04.2019

Appeal No. 451 of 2018

PVP Global Ventures Private Limited Plot No. 83 & 84, Punnaiah Plaza, Road No. 2, Banjara Hills, Hyderabad - 500 033. ..... Appellant Versus Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ... Respondent

Mr. P.R. Ramesh, Advocate for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Ms. Vidhi Jhawar, Advocate i/b The Law Point for the Respondent.

WITH Appeal No. 450 of 2018 PVP Ventures Limited KRM Center, 9th Floor, No. 2, Harrington Road, Chetpet, Chennai - 600031. ..... Appellant Versus Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. .... Respondent

Mr. P.R. Ramesh, Advocate for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Ms. Vidhi Jhawar, Advocate i/b The Law Point for the Respondent. 2

WITH Appeal No. 452 of 2018

Prasad V. Potluri KRM Center, 9th Floor, No. 2, Harrington Road, Chetpet, Chennai - 600031. ..... Appellant

Versus

Securities and Exchange Board of India SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. .... Respondent

Mr. P.R. Ramesh, Advocate for the Appellant.

Mr. Gaurav Joshi, Senior Advocate with Ms. Vidhi Jhawar, Advocate i/b The Law Point for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member

Per : Justice Tarun Agarwala, Presiding Officer

1.

This batch of appeals involves a common issue and,

therefore, the same are being decided together. For facility,

the facts stated in Appeal No. 451 of 2018, PVP Global

Ventures Private Limited vs. Securities and Exchange Board

of India ('SEBI' for short) are being taken into consideration. 3

2. The appellant is a private limited company and is

engaged in the business of investment and real estate.

Pursuant to a report received from National Stock Exchange

of India Limited ('NSE' for short) an investigation was

conducted by SEBI on its parent company PVP Ventures Ltd.,

a listed company and appellant in Appeal No. 450 of 2018,

for the period September 01, 2009 to October 30, 2009.

Pursuant to the said investigation, it was found that the

appellant had violated Section 12A(d) and (e) of the

Securities and Exchange Board of India Act, 1992 ('SEBI

Act' for short) and Regulation 3(i) and (ii) read with

Regulation 4 of SEBI (Prohibition of Insider Trading)

Regulations, 1992, pursuant to which the Adjudication

Officer of SEBI after making necessary enquiry and, after

providing an opportunity of hearing, passed an order dated

March 27, 2015 imposing a penalty upon the appellant. The

appellant being aggrieved filed an appeal before the Securities

Appellate Tribunal which was disposed off. Thereafter the

appellant filed a SLP before Supreme Court which was

dismissed on September 14, 2018.

3. Thus, the penalty imposed by the Adjudicating Officer

became payable. The Recovery Officer issued a certificate 4

dated October 26, 2018 under section 28A of the SEBI Act

read with Section 222 of the Income Tax Act, 1961 certifying

that a sum of Rs. 21,45,53,425/- was payable which amount

included the penalty imposed by the Adjudicating Officer

along with interest from March 27, 2015 to October 25, 2018

@ 12% p.a. Subsequently, a notice of attachment of bank

account was issued by the Recovery Officer dated November

19, 2018. The appellant being aggrieved by this notice of

attachment of bank account has filed the present appeal

praying not only for quashing for the notice of attachment of

bank account but also praying that direction be issued to the

Recovery Officer to issue a fresh certificate after appropriate

computation of interest.

4. We have heard Shri P.R. Ramesh, the learned counsel

for the appellant and Shri Gaurav Joshi, the learned senior

counsel along with Ms. Vidhi Jhawar for the respondent.

The contention of the learned counsel for the appellant is, that

the recovery certificate is wholly illegal in as much as a

certificate cannot be issued straightway under Section 28A of

the SEBI Act. It was urged that before issuing a certificate the

Recovery Officer was required to issue a notice of demand

under Section 220(1) of the Income Tax Act. It was also 5

urged in the alternative that calculation of interest was

incorrect in as much as when the penalty imposed was

reduced by this Tribunal, the interest was waived impliedly.

It was also contended that the interest thus cannot be imposed

with retrospective effect and interest, if any, could at best be

payable from the date of the Supreme Court order. In support

of his submission the learned counsel for the appellant has

placed reliance upon a decision of the Supreme Court in

Commissioner of Customs (Import), Mumbai vs. M/s. Dilip

Kumar and Company & Ors. (Civil Appeal No. 3327 of 2007

dated July 30, 2018) in which it has been held that a taxing

statute cannot be interpreted on any presumption or

assumption and that the taxing statute has to be interpreted

strictly.

5. On the other hand, the learned senior counsel for the

respondent Shri Gaurav Joshi contended that the controversy

raised in the present appeal is squarely covered by a decision

of this Tribunal in Mr. Dushyant N. Dalal & Anr. vs. SEBI

decided on March 10, 2017 (Appeal No. 41 of 2014) which

judgment was affirmed by the Supreme Court reported in

2017 SCC OnLine SC 1188. The learned senior counsel 6

contended that in the light of the aforesaid decision all the

appeals are devoid of any merit and liable to be dismissed.

6. Before dealing with the rival contentions it would be

appropriate to quote section 28A of SEBI Act (to the extent

relevant) and Section 220 of the Income Tax Act, 1961,

which read thus:-

Section 28A of SEBI Act, 1992 w. r. e. f. 18/07/2013

"Recovery of amounts.

28A. (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; 7

(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 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 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.-.............

Explanation 2.-- Any reference under the provisions of

the Second and Third Schedules to the Income-tax Act,

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, shall be construed as a reference to appeal before 8

the Securities Appellate Tribunal under section 15T of

this Act.

(2) ...........

(3) ...........

(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.]"

Section 220 of Income Tax Act, 1961

"When tax payable and when assessee deemed in

default.

220. (1) Any amount, otherwise than by way of advance

tax, specified as payable in a notice of demand under

section 156 shall be paid within thirty days of the service

of the notice at the place and to the person mentioned in

the notice :

Provided that, where the Assessing Officer has any

reason to believe that it will be detrimental to revenue if

the full period of thirty days aforesaid is allowed, he

may, with the previous approval of the Joint

Commissioner, direct that the sum specified in the notice

of demand shall be paid within such period being a 9

period less than the period of thirty days aforesaid, as

may be specified by him in the notice of demand.

(2) If the amount specified in any notice of demand under

section 156 is not paid within the period limited under

sub-section (1), the assessee shall be liable to pay simple

interest at one per cent for every month or part of a

month comprised in the period commencing from the day

immediately following the end of the period mentioned in

sub-section (1) and ending with the day on which the

amount is paid :

Provided that, where as a result of an order under

section 154, or section 155, or section 250, or section

254, or section 260, or section 262, or section 264 or an

order of the Settlement Commission under subsection (4)

of section 245D, the amount on which interest was

payable under this section had been reduced, the interest

shall be reduced accordingly and the excess interest

paid, if any, shall be refunded :

Provided further that in respect of any period

commencing on or before the 31st day of March, 1989

and ending after that date, such interest shall, in respect

of so much of such period as falls after that date, be

calculated at the rate of one and one-half per cent for

every month or part of a month.

10

(2A) Notwithstanding anything contained in sub-section

(2), the Chief Commissioner or Commissioner may

reduce or waive the amount of interest paid or payable

by an assessee under the said sub-section If he is

satisfied that-

(i) payment of such amount has caused or

would cause genuine hardship to the

assessee;

(ii) default in the payment of the amount on

which interest has been paid or was payable

under the said sub-section was due to

circumstances beyond the control of the

assessee; and

(iii) the assessee has co-operated in any inquiry

relating to the assessment or any proceeding

for the recovery of any amount due from

him].

(2B) Notwithstanding anything contained in subsection

(2), where interest is charged under subsection (1A) of

section 201 on the amount of tax specified in the

intimation issued under sub-section (1) of section 200A

for any period, then, no interest shall be charged under

sub-section (2) on the same amount for the same period. 11

(3) Without prejudice to the provisions contained in

subsection (2), on an application made by the assessee

before the expiry of the due date under sub-section (1),

the Assessing Officer may extend the time for payment or

allow payment by instalments, subject to such conditions

as he may think fit to impose in the circumstances of the

case.

(4) If the amount is not paid within the time limited under

sub-section (1) or extended under sub-section (3), as the

case may be, at the place and to the person mentioned in

the said notice the assessee shall be deemed to be in

default.

(5) If, in a case where payment by instalments is allowed

under sub-section (3), the assessee commits defaults in

paying any one of the instalments within the time fixed

under that sub-section, the assessee shall be deemed to

be in default as to the whole of the amount then

outstanding, and the other instalment or instalments shall

be deemed to have been due on the same date as the

instalment actually in default.

(6) Where an assessee has presented an appeal under

section 246 or section 246A the Assessing Officer may, in

his discretion and subject to such conditions as he may

think fit to impose in the circumstances of the case, treat 12

the assessee as not being in default in respect of the

amount in dispute in the appeal, even though the time for

payment has expired, as long as such appeal remains

undisposed of.

(7) Where an assessee has been assessed in respect of

income arising outside India in a country the laws of

which prohibit or restrict the remittance of money to

India, the Assessing Officer shall not treat the assessee

as in default in respect of that part of the tax which is due

in respect of that amount of his income which, by reason

of such prohibition or restriction, cannot be brought into

India, and shall continue to treat the assessee as not in

default in respect of such part of the tax until the

prohibition or restriction is removed.

Explanation.--For the purposes of this section, income

shall be deemed to have been brought into India if it has

been utilised or could have been utilised for the purposes

of any expenditure actually incurred by the assessee

outside India or if the income, whether capitalised or not,

has been brought into India in any form."

7. The object and intention of inserting Section 28A to the

SEBI Act was to provide a mechanism for recovery of the

amount due to SEBI. Instead of prescribing an independent

mechanism for collection and recovery of the amounts due to 13

SEBI, the legislature deemed it fit to follow the mechanism

provided under the Income Tax Act and accordingly inserted

Section 28A to SEBI Act wherein the provisions of the

Income Tax Act relating to collection and recovery have been

incorporated. Thus, the legislature by inserting Section 28A to

SEBI Act has provided that if a person fails to pay the

amounts referred in Section 28A, then the Recovery Officer

shall draw up a statement/certificate and proceed to recover

the amounts specified in the certificate by any one or more of

the five modes specified therein and for that purpose the

provisions of Section 220 to 227, 228A, 229, 232, the Second

and Third Schedules to the Income-tax Act, 1961 and the

Income-tax (Certificate Proceedings) Rules, 1962 as in force

from time to time, in so far as may be, would apply with

necessary modifications as if the said provisions and the rules

made thereunder were the provisions of SEBI Act and

referred to the amount due to SEBI under the SEBI Act.

8. The Tribunal in Dushyant Dalal's case after considering

the provision of Section 28A of SEBI Act read with Section

220 of the Income Tax Act held:-

"It is relevant to note that Section 220(1) of the Income

Tax Act does not contemplate issuance of any notice of 14

demand, but refers to the notice of demand served under

Section 156 and mandates that the amount specified in

the said notice of demand shall be paid within 30 days

failing which interest @ 12% per annum would be

payable under Section 220(2) on the amounts set out in

the notice of demand from the end of the period

mentioned under Section 220(1). Since Section 156 of the

Income Tax Act is not incorporated in Section 28A of

SEBI Act, the expression 'notice of demand' referred to

in Section 220(1) for the purposes of recovery under the

SEBI Act would be referable to the amounts demanded by

SEBI under the disgorgement orders passed under

Section 11B or under the penalty orders passed under

Chapter VIA of the SEBI Act. Thus, on insertion of

Section 28A with retrospective effect from 18.07.2013,

the amounts demanded by SEBI which are enumerated in

Section 28A, must be paid within 30 days, failing which

the amounts demanded are liable to be recovered with

interest @ 12% per annum.

Fact that Section 28A of SEBI Act does not specifically

mention the interest liability for the delayed payment of

the amounts specified therein cannot be a ground to hold

that there is no substantive provision in the SEBI Act to

demand interest on delayed payments. By incorporating

Section 220 of the Income Tax Act in Section 28A of SEBI 15

Act, the legislature has statutorily imposed interest

liability on the delayed payment of the amounts set out in

Section 28A of the SEBI Act. In other words, the liability

to pay interest under Section 28A read with Section 220

is automatic and arises by operation of law. Therefore,

the argument of the appellants that there is no

substantive provision in the SEBI Act to demand interest

and hence, the RO, could not demand interest for the

delayed payment cannot be accepted."

9. The order of the Tribunal holding that no separate notice

is required to be issued under Section 28A read with 220 of

Income Tax Act was affirmed by the Supreme Court in the

appeal filed by Dushyant N. Dalal.

10. We further find that the Adjudicating Officer in its order

while imposing penalty had also directed the appellant to pay

the penalty amount within 45 days. In our view this order of

penalty would also be deemed to include a notice of demand

and thus a formal requirement for issuance of a separate

notice of demand pursuant to the order of penalty is no longer

required. Thus, the contention raised by the appellant is not

sustainable and is rejected.

16

11. The contention that interest was impliedly waived when

the penalty was reduced by the Tribunal or that interest

cannot be imposed with retrospective effect is patently

misconceived. Hon'ble Supreme Court while affirming the

judgment of this Tribunal in Dushyant Dalal's matter held as

under:-

"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. However, since it has not 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." 17

12. From the aforesaid, it becomes clear that interest was

not only chargeable under Section 28A read with Section

220(2) of the Income Tax Act but the provisions of Interest

Act, 1978 could also be taken into consideration and interest

could be charged from the date on which the penalty became

due.

13. In the light of the aforesaid, we are of the view that the

Recovery Officer was justified in charging interest from the

date of the order passed by the Adjudicating Officer.

14. In view of the aforesaid, we find no merit in these

appeals and are dismissed. In the circumstances there shall be

no order on costs.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member 12.04.2019 Prepared and compared by:msb