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The Securities Appellate Tribunal (SAT) has asked SEBI to compensate an investor to the tune of ₹18 lakh from the ₹4.5 crore that the regulator collected as disgorgement amount in a market manipulation case. SEBI has rarely distributed the disgorged amount but the SAT order on August 2 has laid down a principle that ‘disgorgement without restitution does not serve any purpose and SEBI cannot take shelter under the plea that it does not have the wherewithal to distribute the proceeds to investors,’ experts told BusinessLine . SAT, in its order, said it ‘did not agree with helplessness of SEBI’ even as it sympathised with the regulator’s argument that distribution of disgorged money to market investors was a complex task.
After unearthing the 2005 IPO scam, SEBI under the then chairman M Damodaran and whole-time member G Anantraman, had set up a mechanism to ‘distribute disgorged amount to investors’, who lost their share in the retail quota.
The SAT order said, “The basic idea behind disgorgement is restitution. In the given context, we are of the view that as an investor protection measure the appellants need to be compensated, since disgorgement without restitution does not serve any purpose.
“We direct SEBI to compensate the appellants by ₹18,25,041, the amount they invested in the shares of Vital Communications (VCL), in 2002. SEBI shall pay the said amount to appellants either from the amount being disgorged from VCL and connected entities as given in the impugned order or from SEBI’s Investor Protection and Education Fund within a period of three months from the date of this order.”
“Each year, SEBI collects hundreds of crores via disgorgement orders.
“The purpose of this is rehabilitation of wronged market investors but it has not been religiously followed by SEBI. Even in the case involving the NSE co-location matter, SEBI has ordered disgorgement of around ₹1,000 crore but its end-use is not known,” a regulatory official said.
Detection of fraud & order
SEBI detected fraud in the trading of VCL shares and even ordered disgorgement. Investors Ram Kishori Gupta and Harish Chandra Gupta had moved SAT for compensation as they were investors in the company.
In 2013, SEBI had ordered disgorgement with regard to VCL but despite the SAT order did not compensate the investors.
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