The Appellate Tribunal remanded the case to SEBI’s Whole Time Member (WTM) for further consideration.
Matter sent to WTM
The Securities and Exchange Board of India (SEBI) issued orders in 2018 barring Ramalinga Raju and others from dealing in the securities market for 14 years in connection with their roles in the Satyam Scam case in 2009. A Bench comprised of Presiding Officer Justice Tarun Agarwala, Judicial Member Justice MT Joshi, and Technical Member Meera Swarup remanded the case to SEBI’s Whole Time Member (WTM) for further consideration.
Fine of 813.4 Crore
The Appellate Tribunal was hearing appeals filed by SRSR Holdings, Ramalinga Raju, Suryanarayana Raju, Rama Raju, and others against orders issued by SEBI’s WTM on October 16, 2018 and November 2, 2018. The appellants were barred from participating in the securities market for 14 years and ordered to pay a total of 813.4 crore in restitution for illegal gains made in the Satyam scam. SEBI found that Satyam’s books of accounts had been inflated for several years, displaying fictitious cash and bank balances.
Arguments of Appellants
Counsel for the appellants argued before the SAT that the order of disgorgement was clearly erroneous and made without any application of mind, and that the quantification was incorrect because it did not account for the intrinsic value of the Rajus’ shares.
It was also argued that the WTM issued a restitution order rather than a disgorgement order, and that restitution is a separate remedy that cannot be conflated with the concept of disgorgement. They also claimed that the order directing the Rajus to disgorge the money jointly and severally violated the provisions of the SEBI Act.
Conclusions by SAT
After hearing the arguments, SAT noted that the WTM used the “net profit” method, which takes into account the difference between the cost of acquiring shares and the amount realised by sale less statutory taxes. Because the appellants did not provide any information regarding the cost of acquisition, the value of the shares was assumed to be nil, and thus the entire sale value was considered an unlawful gain. The Appellate Tribunal ruled that such an approach was clearly incorrect.
Matter Remitted
The Bench went on to find that the direction to disgorge an amount jointly and severally was used indiscriminately without understanding the true meaning of joint and several liability. The Appellate Tribunal also ruled that SEBI’s order barring the appellants from trading in securities for 14 years was incorrect. SAT allowed the appeals and overturned the SEBI order for these and other reasons. The case was remanded to SEBI for a new order within four months after the appellants were given an opportunity to be heard.