Securities Appellate Tribunal Overturns SEBI's Disgorgement Order

The Securities Appellate Tribunal set aside the Securities and Exchange Board of India's order directing appellants to disgorge Rs. 115.82 crores within six months. The Tribunal found the SEBI order determining disgorgement amount without establishing guilt or illegal gains violated principles of natural justice. It emphasized that determining disgorgement should follow the establishment of guilt and illegal gains, and entities should not be automatically liable without such determinations. The lack of procedural fairness in not allowing the appellants to present their case before disgorgement determination was deemed a violation of natural justice. SEBI was permitted to initiate proper disgorgement proceedings against entities found liable based on established guilt and illegal gains.

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Issues involved: Determination of disgorgement amount u/s SEBI Act, 1992 without establishing guilt or illegal gains, violation of principles of natural justice.

Summary:

Issue 1: Determination of disgorgement amount without establishing guilt or illegal gains

The judgment by the Securities Appellate Tribunal dealt with a series of appeals against an order by the Securities and Exchange Board of India (SEBI) directing the appellants to jointly and severally disgorge an amount of Rs. 115.82 crores within six months. The SEBI order was based on preliminary findings related to certain entities cornering IPO shares and making windfall gains. The Tribunal noted that the SEBI order determined the disgorgement amount without establishing the guilt of the appellants or confirming any illegal gains made by them. The Tribunal found this approach to be in violation of the principles of natural justice. It emphasized that determining disgorgement should only occur after establishing guilt and illegal gains, and that not every entity is automatically liable for disgorgement without such determinations.

Issue 2: Violation of principles of natural justice

The Tribunal highlighted that the appellants were directed to disgorge the amount without being given an opportunity to present their case or show cause as to why they should be required to disgorge the amount. This lack of procedural fairness was deemed a violation of natural justice. The Tribunal emphasized that the appellants should have been afforded a fair hearing before any determination of disgorgement amount was made. Consequently, the Tribunal set aside the SEBI order against the appellants, allowing SEBI to initiate proper disgorgement proceedings in accordance with the law against entities found liable for disgorgement based on established guilt and illegal gains. The appeals were allowed with no order as to costs.

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