Sebi disgorgement orders hit SAT wall

Regulator still doesn’t have a method to calculate illegal gains

- Pavan Burugula

Disgorgement orders issued by the Securities and Exchange Board of India (Sebi) continue to sputter at the appeals tribunal, exposing flaws in how the stock-market regulator attempts to recover illegal gains.

On 10 August, the Securities Appellate Tribunal (SAT) set aside Sebi's disgorgement order in the National Stock Exchange (NSE) dark fibre case. In 2023 so far, the tribunal has set aside disgorgement orders in at least three other cases, including the NSE co-location case, the Satyam scam, and a case pertaining to actor Arshad Warsi.

Disgorgement is a process through which Sebi claws back illegal gains made by market participants through fraudulent means. Also, in cases where actions by market manipulators cause losses to public investors, Sebi recovers the amount lost from the guilty. However, there is no uniform procedure to calculate such gains, and each adjudication officer takes his own call. Often, courts have held that the calculations made by Sebi officers have deviated from the principles of equitable approach, leading them to be overturned, legal experts said.