Prebon Yamane (India) Limited vs Sebi

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision: 06.06.2016

Appeal No. 58 of 2016

Prebon Yamane (India) Limited 4th Floor, Kalpataru Heritage, 127 M.G. Road, Fort, Mumbai- 400 001 ...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. Somasekhar Sundaresan, Advocate with Mr. Abishek V. and Mr. Dhaval Kothari, Advocates i/b J. Sagar Associates for the Appellant.

Mr. Minesh K. Shah, Advocate i/b P.V. Nelson Rajan, Advocate for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per: Justice J.P. Devadhar

1.

Appellant is aggrieved by the communication issued by the

Assistant General Manager of Securities and Exchange Board of India

("SEBI" for short) on 29.02.2016 whereby the appellant is called upon to

pay ` 1,09,65,164 towards the balance interest payable on the amount

withdrawn by the appellant pursuant to Apex Court order dated

27.03.2006.

2. Facts relevant for the purpose of the present appeal are as follows:- 2

a) By an order dated 27.08.2004 SEBI raised a demand

of ` 4,64,17,206 (` 4,37,20,256 principal amount +

` 26,96,950 towards interest under SEBI (Interest

Regularization Scheme 2003) as fees under the

Brokers Regulations.

b) Challenging the aforesaid order, appellant filed an

appeal before this Tribunal and by an order dated

17.08.2005 this Tribunal allowed the appeal and

directed SEBI to refund the aforesaid amount to the

appellant which was already paid by the appellant to

SEBI.

c) Challenging the aforesaid order of this Tribunal, SEBI

filed an appeal before the Apex Court. On

16.12.2005, the Apex Court by way of interim order

directed SEBI to deposit with this Tribunal the

amount which was deposited by the appellant with

SEBI. Accordingly, on 03.01.2006 SEBI deposited

the amount with this Tribunal which was invested in

fixed deposit with the Corporation Bank Ltd.

d) Subsequently, by its order dated 27.03.2006 the Apex

Court permitted the appellant to withdraw the amount

deposited with this Tribunal subject to the appellant

furnishing a bank guarantee. By the said order it was 3

also made clear that if the appeal filed by SEBI is

ultimately allowed, then, the appellant shall be liable

to refund the amount withdrawn with interest that

would have accrued on the amounts so withdrawn at

the relevant bank rate/rates prevailing from time to

time.

e) Accordingly, some time in October 2006 the appellant

withdrew ` 6,20,12,878 (` 4,64,17,206 being

principal amount and ` 1,55,95,672/- representing

interest accrued on ` 4,64,17,206/-.

f) Ultimately by an order dated 03.11.2015, the Apex

Court allowed the appeal filed by SEBI and reversed

the order of this Tribunal dated 17.08.2005. As a

result, appellant became liable to refund the amount

withdrawn with interest as per the Apex Court order

dated 27.03.2006.

g) In implementation of above Apex Court order, SEBI

by its letter dated 08.12.2015 called upon the

appellant to refund ` 11,59,57,867.

h) By a letter dated 30.12.2015 appellant informed SEBI

that the appellant is liable to refund ` 6,20,12,878/-

with simple interest on the principal amount of 4

` 4,64,17,206/- which comes to ` 8,15,11,450 and not

` 11,59,57,867 as claimed by SEBI and accordingly

deposited the said amount of ` 8,15,11,450 with

SEBI.

i) By its letter dated 04.02.2016 SEBI informed

appellant that interest on the principal amount of

` 6,20,12,878 comes to ` 3,04,63,737 and since the

appellant had paid interest of ` 1,94,98,572, it was

held that the appellant was liable to pay the balance

amount of `1,09,65,164.

j) By its letter dated 26.02.2016 appellant once again

reiterated that SEBI was not justified in calculating

compounded interest on the amount withdrawn and

that the amount of ` 8,15,11,450 paid by the appellant

on 30.12.2015 would represent the total amount

payable by the appellant pursuant to Apex Court order

dated 27.03.2006 read with Apex Court order dated

03.11.2015.

k) By the impugned communication dated 29.02.2016

the Assistant General Manager of SEBI reiterated that

the appellant was liable to pay balance interest

amounting to ` 1,09,65,164 and further informed the

appellant that if the said amount was not paid by 5

01.03.2016, appropriate action under Section 28A (1)

and 11(2)(ia) of SEBI Act, 1992 shall be initiated

against the appellant. Challenging the aforesaid

communication dated 29.02.2016 present appeal is

filed.

3. Basically two questions fall for consideration in this appeal.

Firstly, when the Apex Court order dated 27.03.2006 clearly records that

if SEBI appeal is ultimately allowed, the appellant shall refund the

amount withdrawn with interest at prevailing bank rate, whether the

appellant is justified in contending that the interest is payable only on the

principal amount withdrawn by the appellant and not on the total amount

withdrawn by the appellant. Secondly, whether SEBI is justified in

contending that the appellant is liable to pay compounded interest on the

amount withdrawn by the appellant.

4. As regards the first question is concerned it is not in dispute that

pursuant to Apex Court order dated 27.03.2006, the appellant had

withdrawn ` 6,20,12,878/- (` 4,64,17,206/- principal amount +

`1,55,95,672/- towards interest) subject to conditions set out in the Apex

Court order dated 27.03.2006 which reads thus:-

"ORDER

Subject to the respondent's furnishing a Bank

Guarantee to the extent of the amount deposited by the

appellant pursuant to the order of this Court, the 6

respondent will be at liberty to withdraw the deposited

amount. The Bank Guarantee shall be of a Nationalised

Bank and shall be kept renewed pending further orders of

this Court. The Bank Guarantee shall contain a clause that

in the event, the respondent does not take steps to renew the

Bank Guarantee within the time specified therefor the Bank

shall on its own and forthwith deposit the entire guaranteed

amount in Court.

It is being made clear that in the event, the appeal is

ultimately allowed, the appellant shall be liable to pay the

interest that would have accrued on the amounts so

withdrawn at the relevant bank rate/rates prevailing from

time to time.

Sd/- Sd/- (Usha Bhardwaj) (Madhu Saxena)

Court Master Court Master"

5. Since the Apex Court by its order dated 03.11.2015 set aside the

order of this Tribunal and restored the order of SEBI, as per the Apex

Court order dated 27.03.2006 appellant became liable to refund the

amount withdrawn i.e. ` 6,20,12,878/- with interest at bank rate

prevailing from time to time.

6. Argument of the appellant that interest is payable only on the

principal amount of ` 4,64,17,206/- and not on the total amount

withdrawn cannot be accepted, because, the Apex Court order dated 7

27.03.2006 specifically records that if SEBI appeal is ultimately allowed,

appellant would be liable to refund the amount withdrawn with interest at

prevailing bank rate which obviously means that interest payable was on

the entire amount withdrawn and not on any part thereof. It is relevant to

note that the Apex Court, after permitting the appellant to withdraw 'the

deposited amount', specifically recorded that if SEBI appeal is ultimately

allowed, the appellant would be liable to pay interest on 'the amount

withdrawn' at the bank rate/rates prevailing from time to time. When the

Apex Court has directed that interest would be payable on 'the amount

withdrawn' and not on 'the amount deposited' by the appellant, it is not

open to the appellant to argue that interest is payable only on that part of

the amount withdrawn which represents the principal amount and not on

the entire amount withdrawn by the appellant.

7. Admittedly, the amount deposited was `4,64,17,206/- whereas the

amount withdrawn was `6,20,12,878/- on account of interest component.

Once the interest component and the principal amount form integral part

of the amount withdrawn, it is not possible to segregate the interest

component as the interest component loses the character of an 'interest'

and forms part of the amount withdrawn. It is relevant to note that the

Apex Court in the case of Hyder Consulting (UK) Ltd. v/s Governor,

State of Orissa reported in (2015) 2 SCC 189, has held that where the

'sum directed to be paid by the Award' includes both the principal

amount and the interest component, then the interest component loses its

character as 'interest' and forms part of the total sum directed to be paid 8

under the Award and in such a case, obligation to pay interest would be

on the total sum directed to be paid and not only on the principal

component. Applying the ratio laid down by the Apex Court in the

aforesaid case, we answer the first question by holding that the appellant

is not justified in contending that interest is payable only on the principal

component and not on the entire amount withdrawn by the appellant.

8. Second question that falls for consideration in this appeal is,

whether SEBI is justified in contending that the appellant is liable to pay

compounded interest on the amount withdrawn by the appellant pursuant

to Apex Court order dated 27.03.2006. Nowhere in the Apex Court order

dated 27.03.2006 it is stated that if SEBI appeal is ultimately allowed,

appellant would be liable to pay compounded interest on the amount

withdrawn. In fact, the Apex Court order dated 27.03.2006 specially

records that the interest liability on the amount withdrawn would be at

the bank rate prevailing from time to time which obviously means that

the appellant would be liable to pay simple interest on the amount

withdrawn at the relevant bank rate prevailing from time to time. It is

contended by the counsel for SEBI, that since the amount deposited by

the appellant was invested by this Tribunal in a fixed deposit on which

compounded interest was paid, the appellant is liable to pay compounded

interest on the amount withdrawn. We see no merit in the above

contention because, firstly, the amount withdrawn by the appellant was

not directed to be invested and reinvested on quarterly basis so as to earn

compounded interest on the amount withdrawn. Secondly, when the 9

Apex Court order refers to the interest that would have accrued on the

amounts withdrawn at the relevant bank rate, it obviously means that the

Apex Court contemplated simple interest on the amount withdrawn at

relevant bank rate and not compounded interest as wrongly contended by

SEBI. In other words, the Apex Court order dated 27.03.2006 clearly

envisages that the appellant is liable to pay simple interest on the amount

withdrawn at the relevant bank rate/ rates prevailing from time to time.

Second question raised in the appeal is answered accordingly.

9. In the result, we quash the impugned communication of SEBI

dated 29.02.2016 by holding that the appellant is liable to pay simple

interest on the entire amount withdrawn i.e. on ` 6,20,12,878/- with

simple interest at the relevant bank rate prevailing from time to time from

the date on which the amount was withdrawn till that amount is repaid

with interest. SEBI is directed to recompute the simple interest payable

on ` 6,20,12,878/- being the amount withdrawn by the appellant at the

bank rate prevailing from time to time and recover the same from the

appellant after giving credit to the amount already paid by the appellant.

10. Appeal is disposed of in the above terms with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 06.06.2016 Prepared & Compared By: PK