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TMI Blog2012 (10) TMI 1259X X X X Extracts X X X X X X X X Extracts X X X X ..... aking illegal profit of ₹ 60,72,000 each. This, according to the Board, was violative of the provisions of Regulation 4(b) and 4(d) of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 1995 (for short the FUTP Regulations). Therefore, after holding an enquiry in accordance with the laid down procedure, the whole time member of the Board held both the appellants guilty of the aforesaid violations and by his order dated November 13, 2007, issued direction under Section 11B of Securities and Exchange Board of India Act, 1992 restraining the appellants from accessing the securities market and prohibiting them from buying, selling or dealing in securities either directly or indirectly for a period of two years. On completion of these proceedings, the Board issued a fresh show-cause notice on February 29, 2008 initiating disgorgement proceedings against the appellants under Sections 11 and 11B of the Act. By the said show-cause notice, the appellants were given an opportunity to respond to the allegations contained in the show-cause notice. The appellants filed their reply. Personal hearing w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket should also have a rational connection with the above referred persons and, therefore, it will not include an individual who is merely an investor. The appellants in the present case are only investors in the securities and do not belong to the class of persons referred to in Section 12 of the Act. Therefore, directions, as enunciated under Section 11B of the Act cannot be issued to them. (iii) The shares of the company were allotted on January 13, 2000 whereas the show-cause notice for disgorgement was issued only on February 29, 2008. Thus, there is a delay of 8 years which, by any standard, cannot be considered reasonable. Therefore, the action is barred by limitation. Alternatively, the order needs to be quashed on the ground of inordinate delay alone. (iv) It was further argued by the learned counsel for the appellants that even on merits, the appellants have a strong case. The appellants have borrowed money for investment in the shares from M/s. Rajesh Jhaveri and the amount was utilized for the purpose of subscribing to the shares of the company. The appellants had subscribed to the shares through cheques by withdrawing the credit balance and finance from M/s. Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... demand or by legal compulsion. In commercial terms, disgorgement is the forced giving up of profits obtained by illegal or unethical acts. It is a repayment of ill-gotten gains that is imposed on wrongdoers by the courts. Disgorgement is a monetary equitable remedy that is designed to prevent a wrongdoer from unjustly enriching himself as a result of his illegal conduct. It is not a punishment nor is it concerned with the damages sustained by the victims of the unlawful conduct. Disgorgement of ill-gotten gains may be ordered against one who has violated the securities laws/regulations but it is not every violator who could be asked to disgorge. Only such wrongdoers who have made gains as a result of their illegal act(s) could be asked to do so. Since the chief purpose of ordering disgorgement is to make sure that the wrongdoers do not profit from their wrongdoing, it would follow that the disgorgement amount should not exceed the total profits realized as the result of the unlawful activity. In a disgorgement action, the burden of showing that the amount sought to be disgorged reasonably approximates the amount of unjust enrichment is on the Board. A similar view was taken by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly. The words persons associated with the securities market are of much wider import than intermediaries. Persons associated with denotes a person having connection or having intercourse with the other, in the present case that other with whom a person is to have connection or intercourse in the securities market . The term securities market has not been defined under the statute. But taking the meaning of securities as defined in the Securities (Contracts) Regulation Act, 1956, because that is the definition of securities adopted under the SEBI Act, and the ordinary meaning of the word market , it will mean a place or institution where the business of selling or buying of securities is carried on. Selling, buying or dealing with securities is the essential ingredient of a market. Though securities market has not been defined, the definition of stock exchange under section 2(i) of the Securities Contracts (Regulation) Act means any body of individuals whether corporate or not, constituted for the purpose of assisting, regulating or controlling the business of buying, selling or dealing in securities. Securities has been defined under section 2(h) to include share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... old Multifab Limited v/s SEBI (Appeal No. 115 of 2002 before the SAT) We have perused the judgments/orders cited by learned counsel for the appellants and we feel that all these orders were passed in the peculiar facts and circumstances of the relevant case. In so far as the decisions under the tax matters are concerned, these were rendered keeping in view the statutory time limit prescribed in relation to related matters like assessment proceedings or penalty proceedings. While dealing with the issue of delay in conducting the proceedings by the Board in matters relating to market manipulation, we have observed in the case of Subhkam Securities Private Limited vs. Securities and Exchange Board of India (Appeal no. 73 of 2012 decided on 25.7.2012) that expeditious disposal of such proceedings by the Board alone will ensure that the Board is carrying out its duties effectively to protect the interests of investors in securities and to promote the development of and regulating the securities market as mandated by Section 11(1) of the Act. We have also observed that inordinate delay in conducting enquiries and in punishing the delinquent not only permits market manipulator to opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Board decides to disgorge the delinquent of the unlawful gains. We are, therefore, of the considered view that the matter cannot be reexamined on merits in disgorgement proceedings. What can be disputed in disgorgement proceedings is the amount of illegal gains if the appellant feels that the amount worked out by the Board is not correct. In the case of present appellants, we notice that the whole time member of the Board has arrived at a positive finding that the appellants had got the preferential allotment of shares without any consideration. It is appellants own case that sale consideration received by them was ₹ 60,72,000/- each. Therefore, we cannot find any fault with the findings of the whole time member that amount of unlawful gain in case of each appellant is ₹ 60,72,000/-. 10. The last argument of learned counsel for the appellants was that charging of interest with effect from January, 2000 is arbitrary and bad in law. We find merit in the argument of learned counsel for the appellants that when the disgorgement proceedings itself were initiated by the issue of a show-cause notice on February 29, 2008, the interest could not be charged from January, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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