9911796707
TMI Blog2021 (9) TMI 1524X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulations made thereunder would be liable to disgorge an amount equivalent to the unlawful gain or loss averted by such contravention. Thus, disgorgement can only happen if the person contravenes the provisions of the Act or Regulations. Secondly, the disgorgement is equivalent to the wrongful gain made or loss averted. Thus, disgorgement cannot exceed the amount of wrongful gains.The concept of disgorgement under the SEBI laws is based on the principle that a person in possession of wrongful gains by which he is enriched may be asked to part with the amount equivalent to such gains alongwith interest. Black s Law Dictionary defines disgorgement as The act of giving up something (such as profits illegally obtained) on demand or by legal compulsion. To disgorge means to deprive a person of the value by which he is unjustly enriched. Further, disgorgement is an equitable remedy designed to deprive a wrong doer of his unjust enrichment. It aims in ensuring that a person in possession of the wrongful gain does not continue to enjoy them. Section 11B of the Act only talks about disgorgement of unlawful gains/profits. The concept of net profits is not existing in Section 11B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espondent : Mr. Gaurav Joshi, Senior Advocate with Mr. Nishit Dhruva, Mr. Hridhay Khurana, Mr. Yash Garach and Ms. Aalisha Shah, Advocates i/b MDP Partners ORDER 1. Eleven appeals has been filed against a common order dated 31st July, 2020 passed by the Whole Time Member ( WTM for short) holding that the appellants had indulged in reversal trades and had made unlawful gains and the appellants were directed to disgorge the amount so calculated jointly and severally. 2. The facts leading to the filing of the present appeal is, that investigation was conducted in the trading of the scrip of Polytex India Limited for the period 13th April, 2012 to 17th December, 2012. Based on the investigation an ex-parte ad-interim order dated 10th May, 2013 was passed restraining the eleven entities from accessing and dealing in the securities market either directly or indirectly. Subsequently, the ex-parte ad-interim order was confirmed on 7th January, 2014. Thereafter, an impounding order was passed on 20th August, 2015. 3. Subsequently, a show cause notice dated 30th December, 2016 was issued alleging that the trading noticees received funds from the financing notices which were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... given and calculations of only certain entities were given. Accordingly, this Tribunal passed the following order which is extracted hereunder: 34. In the result we pass the following directions:- (a) Appeal No. 356 of 2019 is allowed and we permit the appellant to liquidate the shares lying in the margin account of Ghogari (Appellant in Appeal No. 207 of 2019) to the extent of the legally permissible debit amount. (b) In respect of other 11 appeals while upholding the finding in the impugned order that the appellants have violated provisions of SEBI Act and PFUTP Regulations and therefore upholding the direction relating to the restraint imposed on the appellants we remit the matter to SEBI with the following directions:- (i) Bring out date-wise details of reversal trades in respect of the trading noticees. (ii) Bring out details of calculation of profits in respect of all the trading noticees. (iii) SEBI shall provide (i) and (ii) above to all the appellants and thereafter recalculate the amount of disgorgement against the appellants and pass an order within three months from the date of this order after giving an opportunity of hearing. 35. All appeals are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , we find that the remand order of this Tribunal was limited and confined to providing details of reversal trades and further to provide details of calculations of the profits of all the appellants and, accordingly, this Tribunal had directed the WTM to bring out date wise details of reversal trades in respect of the trading noticees and bring out details of calculations of profits in respect of all the noticees. 12. It is correct that the date wise details of reversal trades in respect of the trading noticees qua the appellants have not been provided in the impugned order and, to that extent, the appellants are justified in contending that the order of this Tribunal has not been complied with. But we are of the opinion that by not providing these details in the impugned order the impugned order does not get vitiated for the reasons stated hereunder. 13. We find that the details of these reversal trades is voluminous and runs into several pages. However, such details were duly provided to the appellants as per our directions given in para 34(b)(iii). We also find that no finding has been given with regard to which trade is a reversal trade with another trading noticee and eve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Thus, merely because this appellant has incurred a loss does not mean that he will go scot-free for the violations committed by him under the SEBI Act and the PFUTP Regulations. In this regard, the principle of joint tortfeasors is fully applicable. The Supreme Court in Khenyei v. New India Assurance Company Ltd Ors (2015) 9 SCC 273 held as under: 3. It is a case of composite negligence where injuries have been caused to the claimants by combined wrongful act of joint tortfeasors. In a case of accident caused by negligence of joint tortfeasors, all the persons who aid or counsel or direct or join in committal of a wrongful act, are liable. In such case, the liability is always joint and several. The extent of negligence of joint tortfeasors in such a case is immaterial for satisfaction of the claim of the plaintiff/claimant and need not be determined by the court. However, in case all the joint tortfeasors are before the court, it may determine the extent of their liability for the purpose of adjusting inter-se equities between them at an appropriate stage. The liability of each and every joint tortfeasor vis-a-vis to plaintiff/claimant cannot be bifurcated as it is joint and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... avenes the provisions of the Act or Regulations. Secondly, the disgorgement is equivalent to the wrongful gain made or loss averted. Thus, disgorgement cannot exceed the amount of wrongful gains. 21. The concept of disgorgement under the SEBI laws is based on the principle that a person in possession of wrongful gains by which he is enriched may be asked to part with the amount equivalent to such gains alongwith interest. 22. Black s Law Dictionary defines disgorgement as The act of giving up something (such as profits illegally obtained) on demand or by legal compulsion. To disgorge means to deprive a person of the value by which he is unjustly enriched. Further, disgorgement is an equitable remedy designed to deprive a wrong doer of his unjust enrichment. It aims in ensuring that a person in possession of the wrongful gain does not continue to enjoy them. Section 11B of the Act only talks about disgorgement of unlawful gains/profits. The concept of net profits is not existing in Section 11B but the same has been carved out by Courts exercising equitable jurisdiction. Some Courts have granted only deduction of statutory dues, others have granted other legitimate expenses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ance shall be made in respect of such expenditure. Explanation 2. For the removal of doubts, it is hereby declared that for the purposes of sub-section (1), any expenditure incurred by an assessee on the activities relating to corporate social responsibility referred to in section 135 of the Companies Act, 2013 (18 of 2013) shall not be deemed to be an expenditure incurred by the assessee for the purposes of the business or profession. 26. The aforesaid provision debars an assess claiming any deduction from business profits any expenditure which may be incurred for any purpose which is an offence or which is prohibited by law. The aforesaid principle equally applies to SEBI laws since disgorgement is not a penalty nor is punitive as held by this Tribunal in Gagan Rastogi vs. SEBI, in appeal no.91 of 2015 decided on 12th July, 2019. 27. In view of the aforesaid, administrative expenses and brokerage charges are in the nature of business expenses and are not legitimate expenses for the purpose of claiming deductions in order to arrive at the net profit. Disgorgement being an equitable remedy and even though the profits results from wrongdoings, the appellants were rightly d ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
