Disgorgement requires proven unlawful gains and prior hearing; ex parte imposition without notice violated natural justice.

Disgorgement could not be founded on an assumed finding of no illegal gains where the earlier enquiry had only examined alleged irregularities and had not quantified or determined unlawful profits. Acceptance of the enquiry report in disciplinary proceedings did not amount to a finding barring separate disgorgement action. The disgorgement order was also unsustainable because it was passed ex parte without a show-cause notice or hearing, violating natural justice. As disgorgement is an equitable remedy aimed at preventing unjust enrichment, it must rest on established unlawful gains and be imposed only after basic procedural fairness. The order was set aside, with liberty to proceed in accordance with law.

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Issues: (i) Whether the enquiry proceedings had recorded any finding that the appellant had made no illegal gains so as to preclude separate disgorgement proceedings; (ii) Whether the impugned disgorgement order could stand when it had been passed without affording the appellant an opportunity of hearing.

Issue (i): Whether the enquiry proceedings had recorded any finding that the appellant had made no illegal gains so as to preclude separate disgorgement proceedings?

Analysis: The enquiry was directed at the appellant's alleged wrongful acts as a depository participant and did not undertake any exercise to quantify or determine ill-gotten gains. The observations relied upon by the appellant were read in the context of the alleged irregularities and did not amount to a definitive finding that no illegal gains had been made. Acceptance of the enquiry report in the disciplinary proceedings did not convert those observations into a finding on disgorgement.

Conclusion: No finding had been recorded that barred the authority from initiating disgorgement proceedings on the ground of absence of illegal gains.

Issue (ii): Whether the impugned disgorgement order could stand when it had been passed without affording the appellant an opportunity of hearing?

Analysis: Disgorgement is an equitable remedy aimed at preventing unjust enrichment, but it can be directed only against persons shown to have made gains from unlawful conduct and after observance of basic procedural fairness. The impugned order was passed ex parte against the appellant without issuing a show-cause notice or granting a hearing, even though the amount was determined and liability fastened jointly and severally. Such action violated the principles of natural justice.

Conclusion: The disgorgement order could not be sustained and was liable to be set aside for breach of natural justice.

Final Conclusion: The appeal succeeded, the disgorgement order was set aside, and the authority was left free to proceed in accordance with law.

Ratio Decidendi: Disgorgement, being an equitable remedy to prevent unjust enrichment, cannot be imposed without a prior opportunity of hearing and cannot rest on assumptions of illegal gain where no finding on such gain has been recorded.

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