SEBI Introduces Procedure for Interest Waiver or Reduction in Recovery Proceedings

Moneylife Digital Team 13 January 2025

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has outlined a procedure for seeking a waiver or reduction of interest in recovery proceedings initiated due to non-payment of penalties.

As per SEBI’s guidelines, applicants must submit their requests for waiver or reduction to the designated recovery officer, along with documentation supporting the fulfilment of three conditions under Section 220(2A) of the Income Tax (I-T) Act.

These conditions include the payment of an amount that causes genuine hardship to the applicant, the default being due to circumstances beyond the applicant’s control and the applicant’s cooperation in any related inquiry.

According to the SEBI circular, applications will be considered only if a notice of demand has already been served and the principal amount due has been fully paid.

Once the application is received, the recovery officer will forward it to the competent authority which is required to make a decision within 12 months. Pending applications when the circular was issued will also be addressed within 12 months, SEBI says.

If the application is rejected either partially or in full, the applicant must be given an opportunity to be heard.

Through its relevant provisions in the SEBI Act, the Securities Contracts (Regulation) Act (SCRA), and the Depositories Act, SEBI follows recovery procedures based on certain Sections of the Income Tax Act, 1961, with necessary modifications. Section 220(2) of the Income Tax Act empowers SEBI’s recovery officers to collect outstanding amounts along with interest, while Section 220(2A) allows for the waiver or reduction of this interest under specific conditions.

SEBI has delegated the authority to make decisions regarding these requests to two panels: a panel of executive directors (EDs) for interest amounts under Rs2 crore and a panel of whole-time members (WTMs) for amounts above this threshold.

However, a waiver or reduction of interest will not be allowed in cases where the interest is related to the failure of intermediaries to pay SEBI’s fees or in cases where the interest pertains to amounts ordered for disgorgement or refund under the provisions of the SEBI Act.

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