For two decades the Securities and Exchange Board of India had a curious gap in its armoury: it could find a wrongdoer guilty, quantify the penalty, order disgorgement of ill-gotten gains, yet had no machinery of its own to actually collect the money. A defaulter who simply refused to pay forced SEBI to knock on the door of a civil court like any ordinary decree-holder. Section 28A, inserted by the Securities Laws (Amendment) Act, 2014 with retrospective effect from 18 July 2013, closed that gap by importing the formidable tax-recovery apparatus of the Income-tax Act, 1961 directly into the SEBI Act. This chapter dissects the provision clause by clause, traces the modes of recovery, and explains the rich case law on interest culminating in the Supreme Court's 2025 decision in Jaykishor Chaturvedi.
The Collection Gap That Section 28A Filled
A regulator is only as strong as its weakest enforcement link, and for SEBI that link was collection. Under the original scheme of the SEBI Act, 1992, an adjudicating officer could impose monetary penalties under Chapter VIA, and the Board could order refund of monies or disgorgement of unlawful gains under Section 11B. What the Act conspicuously lacked was any self-contained mechanism to enforce those money demands against a recalcitrant defaulter. Once a penalty crystallised, SEBI was left to pursue recovery as if it were an ordinary creditor, a position that sat uneasily with its status as the apex securities regulator entrusted with protecting the public exchequer and the investing public.
The practical consequence was that determined defaulters could treat a penalty order as a paper tiger. Sophisticated entities running collective investment schemes and unregistered deposit programmes, having mopped up thousands of crores from small investors, could delay payment almost indefinitely while the orders gathered dust. The Securities Laws (Amendment) Act, 2014 responded by inserting Section 28A, and Parliament deliberately gave it retrospective effect from 18 July 2013, the date the corresponding Ordinance had taken effect. The animating idea was simple but transformative: rather than reinvent a recovery code, the legislature grafted onto the SEBI Act the time-tested tax-recovery machinery already operating under the Income-tax Act, 1961.
Anatomy of Section 28A
Section 28A(1) is the operative heart of the provision. It is triggered when a person (a) fails to pay the penalty imposed by the adjudicating officer, (b) fails to comply with any direction of the Board for refund of monies, (c) fails to comply with a disgorgement direction issued under Section 11B, or (d) fails to pay any fees due to the Board. On any such default, the Recovery Officer may draw up under his signature a statement in the specified form specifying the amount due, that statement being styled a certificate, and then proceeds to recover the amount by one or more of the five enumerated modes.
Three sub-sections flesh out the powers. Sub-section (2) empowers the Recovery Officer to seek the assistance of the local district administration while exercising recovery powers, a meaningful provision when properties must be physically attached or auctioned across the country. Sub-section (3) contains a striking priority rule: notwithstanding anything in any other law, recovery pursuant to non-compliance with a Section 11B direction shall have precedence over any other claim against the person. Sub-section (4) defines the Recovery Officer as any officer of the Board authorised by general or special order in writing to exercise those powers, so the office is internal to SEBI rather than borrowed from the tax department.
The provision is reinforced by three Explanations. Explanation 1 is an anti-avoidance device: a defaulter's property includes assets transferred without adequate consideration, on or after the date the certified amount became due, to a spouse, minor child, son's wife or son's minor child, and such property remains attachable even after the minor attains majority. Explanation 2 directs that references to the assessee in the borrowed Income-tax provisions be read as references to the person named in the certificate. Explanation 3 substitutes the appeal to the Securities Appellate Tribunal under Section 15T for the income-tax appeal contemplated in Chapter XVIID and the Second Schedule.
The Five Modes of Recovery
Section 28A(1) lists five modes, escalating in severity, by which the certified amount may be recovered: (a) attachment and sale of the person's movable property; (b) attachment of the person's bank accounts; (c) attachment and sale of the person's immovable property; (d) arrest of the person and his detention in prison; and (e) appointing a receiver for the management of the person's movable and immovable properties. The Recovery Officer may deploy one or more of these modes, and they are not arranged as a rigid sequence the officer must climb step by step, though proportionality and the borrowed Income-tax safeguards naturally inform the choice.
It is the inclusion of mode (d), the power of arrest and civil detention, that most dramatically distinguishes Section 28A from the toolkit of an ordinary creditor and signals Parliament's intent to treat securities-law defaults with the seriousness of tax arrears. The receiver power in mode (e) allows SEBI to ringfence and manage income-generating assets pending sale, a vital tool where a defaulter holds operating businesses or rent-yielding properties. Because these are coercive powers over liberty and property, they are exercised through the detailed procedural code of the Income-tax Second and Third Schedules, complete with prescribed forms, notice requirements and avenues to file objections.
The Borrowed Income-tax Machinery
Section 28A does not write a fresh recovery code; it incorporates by reference a defined slice of the Income-tax Act, 1961. The provision applies, with necessary modifications, Sections 220 to 227, 228A, 229 and 232, together with the Second and Third Schedules to the Income-tax Act and the Income-tax (Certificate Proceedings) Rules, 1962. These provisions are to operate as if they were part of the SEBI Act and as if they referred to the amount due under the SEBI Act instead of to income-tax.
The legal technique here is legislation by incorporation. The borrowed provisions become an integral part of the SEBI Act and are read in the regulatory context, with the textual substitutions the Explanations command, references to the assessee read as references to the certified person, and the income-tax appeal read as an appeal to the SAT under Section 15T. The Second Schedule supplies the detailed attachment-and-sale procedure and the rules for arrest and detention; the Third Schedule and the 1962 Rules supply the procedural mechanics. Among the borrowed provisions, Section 220 of the Income-tax Act is the one that has generated the most litigation under the SEBI Act, because Section 220(2) attaches simple interest to amounts that remain unpaid after they become due, and the question of how that interest applies in the securities context occupied the courts for nearly a decade.
Who Is the Recovery Officer?
The Recovery Officer is the linchpin of the entire scheme, and Section 28A(4) keeps the office firmly within SEBI. The expression means any officer of the Board authorised, by general or special order in writing, to exercise the powers of a Recovery Officer. SEBI therefore designates its own senior officers to wear this hat, rather than relying on income-tax recovery officers, even though the procedural code those officers follow is borrowed wholesale from tax law. This design choice matters: it keeps institutional knowledge of the underlying securities default within the regulator and avoids the friction of routing recovery through a separate department.
The Recovery Officer's first act is to draw up the certificate specifying the amount due, the foundational document that launches recovery and against which the borrowed procedural safeguards operate. The officer enjoys quasi-judicial powers when adjudicating objections to attachment, for instance, claims by third parties that attached property does not belong to the defaulter, and the Explanation 1 anti-avoidance rule arms the officer against the common stratagem of parking assets in the names of family members. The interplay between this internal office and the conceptually distinct functions of investigation and adjudication illustrates how the 2014 amendment slotted a collection arm into SEBI's existing enforcement architecture.
Interest in Equity: Dushyant N. Dalal
The first great battleground under Section 28A was whether SEBI could charge interest on penalties and disgorgement amounts that fell due before the provision came into force on 18 July 2013. In Dushyant N. Dalal v. SEBI, (2017) 9 SCC 660, the appellants had been found, by an order of 2009, to have manipulated retail-investor demand in IPO allotments and to have made unlawful gains of over four crore rupees. By the time recovery was pressed, SEBI sought interest, but the period of default straddled the enactment of Section 28A.
The Supreme Court drew a careful line between the procedural and the substantive. Section 28A, in so far as it sets up recovery machinery, is procedural and would ordinarily apply retrospectively. But the levy of interest under the borrowed Section 220(2) of the Income-tax Act is substantive in character, and a substantive charge cannot be read back to a period before the provision existed. The Court therefore held that statutory interest under Section 28A read with Section 220(2) operates only prospectively from 18 July 2013. As a textual confirmation, the Court noted that the same 2014 amendment which inserted Section 28A with effect from 18 July 2013 separately inserted Section 15JB with effect from 20 April 2007, showing that Parliament knew how to backdate a substantive charge when it intended to.
That, however, did not let the defaulters off the hook for the earlier period. Invoking equity, the Court held that for the pre-2013 period SEBI could nonetheless recover interest under the Interest Act, 1978. There is, the Court reasoned, no greater equity than that the interest collected by SEBI is credited to the Consolidated Fund of India for public purposes, and that wrongdoers should not enjoy the time value of money they were ordered to pay. Dushyant Dalal thus produced a layered answer: equitable interest before 18 July 2013, statutory Section 220(2) interest thereafter.
Explanation 4 and the 2019 Clarification
The litigation that Dushyant Dalal left in its wake concerned the precise date from which Section 220(2) interest begins to run. Section 220 of the Income-tax Act is built around a formal notice of demand, and defaulters argued that in the SEBI context interest could only start after a separate Section 28A recovery demand notice was issued, not from the date the penalty itself became payable. To settle this, the legislature inserted Explanation 4 to Section 28A with effect from 21 February 2019, clarifying that the interest referred to in Section 220 of the Income-tax Act shall commence from the date the amount became payable by the person.
This raised its own temporal puzzle. If Explanation 4 effected a substantive change to when interest accrued, the reasoning in Dushyant Dalal would suggest it too could only operate prospectively from 2019. Defaulters seized on this to argue that for penalties imposed before 21 February 2019, interest could not be backdated to the original payment date. The competing view was that Explanation 4 changed nothing of substance and merely made explicit what Section 220 read with Section 28A had always meant, in which case it was clarificatory and could be applied to earlier defaults without offending the rule against retrospective substantive charges.
Adjudication Order as Notice of Demand: Jaykishor Chaturvedi
The Supreme Court resolved the Explanation 4 controversy in Jaykishor Chaturvedi v. SEBI, decided on 15 July 2025. The case arose from insider-trading penalties imposed in 2014 on the Chaturvedis; SEBI's 2022 recovery notices demanded the penalties together with interest at twelve per cent per annum running from the date of the original adjudication orders. The appellants contended interest should run only from the later recovery demand.
The Court rejected that argument and held that the adjudication order itself constitutes the notice of demand for the purposes of Section 28A read with Section 220 of the Income-tax Act. It followed that interest begins to run immediately after the compliance period fixed in the adjudication order expires, not from any subsequent Section 28A recovery notice. Crucially, the Court characterised Explanation 4 as clarificatory rather than substantive: it brought about no change in the legal position but merely articulated what the statutory scheme had always required, so it could properly be applied to defaults predating 2019.
Read together, Dushyant Dalal and Jaykishor Chaturvedi furnish a coherent doctrine. Statutory interest under Section 28A operates from 18 July 2013 onward; equity fills the gap for earlier defaults; and once a default falls within the statutory regime, interest at the Section 220(2) rate runs from the expiry of the compliance window in the adjudication order, treating that order as the demand. For aspirants, the takeaway is that the date of the adjudication order, not the date SEBI gets around to issuing a recovery certificate, is what starts the interest clock.
What Is Being Recovered: The Penalty Itself
Recovery presupposes a valid underlying demand, so it is worth recalling how the penalties that Section 28A enforces are fixed in the first place. The quantum of a penalty turns on the factors in Section 15J of the SEBI Act, namely the disproportionate gain or unfair advantage made, the loss caused to investors, and the repetitive nature of the default. In SEBI v. Roofit Industries Ltd., (2016) 12 SCC 498, the Supreme Court had read the Section 15J factors as an exhaustive code and, in the context of the then-applicable penalty provisions, left the adjudicating officer with little discretion to go below a prescribed figure.
That position was substantially recalibrated in Adjudicating Officer, SEBI v. Bhavesh Pabari, (2019) 5 SCC 90, where the Court overruled Roofit Industries on this point and held that the conditions in Section 15J are illustrative, not exhaustive. The adjudicating officer therefore enjoys controlled discretion to weigh mitigating circumstances when fixing the penalty. The relevance to recovery is direct: the amount eventually certified by the Recovery Officer under Section 28A is the figure crystallised through this calibrated discretionary exercise, and a defaulter who disputes the quantum must do so in the adjudication and appeal channels, not by resisting the recovery certificate. The certificate enforces, it does not re-adjudicate.
Anti-Avoidance and Priority of SEBI's Claim
Two structural features make Section 28A particularly potent against well-advised defaulters. The first is the anti-avoidance rule in Explanation 1. A familiar evasion tactic is to transfer assets into the names of family members once liability looms. Explanation 1 defeats this by treating, as the defaulter's own property, anything transferred without adequate consideration, on or after the date the certified amount became due, to a spouse, minor child, son's wife or son's minor child. The deeming continues even after a minor transferee attains majority, so the regulator can follow the asset rather than the title.
The second feature is the priority rule in sub-section (3). Where recovery is pursued for non-compliance with a Section 11B direction, typically a direction to refund investor monies, the recovery takes precedence over any other claim against the person, notwithstanding any other law in force. This is a strong statutory preference designed to protect defrauded investors ahead of ordinary commercial creditors, and it reflects the same public-interest logic the Supreme Court articulated in Dushyant Dalal when it spoke of monies being credited to the public exchequer. Together, these provisions ensure that neither clever asset transfers nor competing creditors easily dilute the pool available to compensate investors.
Section 28A in Action: The PACL and Sahara Recoveries
The provision's real-world bite is best seen in the mega collective-investment-scheme defaults. In the PACL matter, SEBI in 2014 directed the entity to wind up its schemes and refund roughly the colossal sums it had collected from crores of investors, and on default it moved to attach PACL's vast land holdings. The Supreme Court constituted a committee under Justice R.M. Lodha to dispose of the properties so that sale proceeds could be returned to investors, and Recovery Officers under Section 28A were tasked with examining the welter of objections to property attachments, including over a hundred applications challenging specific attachments. The episode shows the attachment-and-sale and receiver powers operating at scale, alongside the borrowed Income-tax procedure for adjudicating ownership disputes.
The Sahara recoveries, including proceedings against entities and directors such as Subrata Bhattacharya, similarly deployed the Section 28A machinery to attach and auction assets, most famously the move to auction the Aamby Valley township to satisfy refund obligations. These cases underline that Section 28A is not a dormant provision but the backbone of SEBI's actual collection effort in its largest investor-protection drives. They also show why the priority rule in sub-section (3) and the anti-avoidance rule in Explanation 1 are not academic, because at this scale defaulters routinely interpose third parties, family members and competing claimants.
Exam Pointers and Common Confusions
For judiciary and CLAT-PG candidates, a handful of distinctions repay attention. First, distinguish the source of the demand from the machinery of recovery: penalties flow from Chapter VIA adjudication, refunds and disgorgement from Section 11B, while Section 28A is purely the collection engine. Second, do not confuse the Recovery Officer, an internal SEBI officer under Section 28A(4), with an income-tax recovery officer; only the procedure is borrowed, not the personnel. Third, remember the procedural-versus-substantive split from Dushyant Dalal: the recovery mechanism is retrospective, but statutory interest is prospective from 18 July 2013, with equity bridging the earlier period.
Fourth, on the interest start date, the rule after Jaykishor Chaturvedi is that the adjudication order is itself the notice of demand, so interest runs from expiry of the compliance period in that order, and Explanation 4 (2019) is clarificatory, not a fresh substantive charge. Fifth, keep the five modes ready to recite, attachment and sale of movable property, attachment of bank accounts, attachment and sale of immovable property, arrest and detention, and appointment of a receiver. Finally, link Section 28A to its neighbours: it presupposes the Board's powers and functions and the institutional establishment of SEBI, and it is the enforcement endpoint of the regulatory chain that begins with registration and surveillance.
Frequently asked questions
When did Section 28A of the SEBI Act come into force?
Section 28A was inserted by the Securities Laws (Amendment) Act, 2014, but with retrospective effect from 18 July 2013, the date the corresponding Ordinance had taken effect. In Dushyant N. Dalal v. SEBI, (2017) 9 SCC 660, the Supreme Court treated 18 July 2013 as the watershed for the application of statutory interest under the provision.
What are the five modes of recovery available to the Recovery Officer?
Section 28A(1) lists: (a) attachment and sale of movable property; (b) attachment of bank accounts; (c) attachment and sale of immovable property; (d) arrest of the person and detention in prison; and (e) appointing a receiver to manage the person's movable and immovable properties. The Recovery Officer may use one or more of these modes.
Who is the Recovery Officer under Section 28A?
Under Section 28A(4), the Recovery Officer is any officer of the Board (SEBI) authorised by general or special order in writing to exercise recovery powers. The officer is internal to SEBI; only the procedural code is borrowed from the Income-tax Act, not the personnel of the tax department.
From what date does interest run on an unpaid SEBI penalty?
Following Jaykishor Chaturvedi v. SEBI (Supreme Court, 15 July 2025), the adjudication order itself is the notice of demand, so interest under Section 220(2) of the Income-tax Act runs from the expiry of the compliance period fixed in that order, not from a later Section 28A recovery notice. Explanation 4 (inserted 21 February 2019) was held to be clarificatory.
Could SEBI charge interest on penalties due before 18 July 2013?
Yes, but not as statutory interest. In Dushyant N. Dalal v. SEBI, the Court held that statutory interest under Section 28A read with Section 220(2) is substantive and applies only prospectively from 18 July 2013, while for the earlier period SEBI could recover interest in equity under the Interest Act, 1978, since the monies are credited to the public exchequer.
Can a defaulter avoid recovery by transferring assets to family members?
No. Explanation 1 to Section 28A is an anti-avoidance rule: property transferred without adequate consideration, on or after the date the certified amount became due, to a spouse, minor child, son's wife or son's minor child is treated as the defaulter's own property, and the deeming continues even after a minor transferee attains majority.