Securities and Exchange Board of India (“SEBI”) issued a circular dated January 10, 2025, providing comprehensive guidelines for seeking waiver or reduction of interest in recovery proceedings initiated for failure to pay penalties.
Below are the key highlights of these guidelines:
Legal Framework for Recovery Proceedings
Section 28A of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”), Section 23JB of the Securities Contracts (Regulation) Act, 1956, and Section 19IB of the Depositories Act, 1996 specify that during the recovery of dues, certain provisions from the Income-tax Act, 1961 (“IT Act”) namely Sections 220 to 227, 228A, 229, 232, along with the Second and Third Schedules and the Income-tax (Certificate Proceedings) Rules, 1962 will apply with necessary modifications. These provisions are treated as part of the securities laws, with references to income tax replaced by the amounts due under these Acts.
Additionally, Section 220(2) of the Income-tax Act authorizes the SEBI Recovery Officer to recover dues with applicable interest, while Section 220(2A) empowers designated authorities to waive or reduce such interest under specific conditions.
Delegation of Powers
SEBI has delegated the power to waive or reduce interest as follows:
Panel of Executive Directors: For amounts less than ₹2 crores.
Panel of Whole-time Members: For amounts ₹2 crores and above.
Ineligibility for Waivers
Applications for interest waiver or reduction will not be considered in cases where:
Interest is levied on intermediaries for failure to remit fees under respective intermediary regulations.
Interest is levied on disgorgement or refund amounts under Sections 11, 11B, or 11(4) of the SEBI Act.
4. Application Process
Applications must be submitted in the format specified in Annexure A of the circular.
Supporting documents must establish compliance with the conditions under Section 220(2A) of the IT Act, including proof of genuine hardship, uncontrollable circumstances leading to default, and cooperation in proceedings.
Applications can only be filed after payment of the principal amount due.
Timeline for Disposal
Orders for accepting or rejecting applications must be passed within 12 months from the end of the month in which a complete application is received.
Opportunity for Representation
Applicants will be given an opportunity to present their case before any rejection of their application.
Conclusion
SEBI’s updated procedure ensures a clear, structured approach to addressing genuine hardships faced by entities in recovery proceedings. These measures aim to promote fairness and efficiency while maintaining compliance with regulatory provisions.
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