Satyam Scam: SAT sets aside SEBI orders barring Rajus from securities market for 14 years, ordering disgorgement of ₹813 crore

The Securities Appellate Tribunal (SAT) on Thursday set aside orders of the Securities and Exchange Board of India (SEBI) passed in 2018 barring Ramalinga Raju and others from dealing in the securities market for 14 years, for their roles in the Satyam Scam case of 2009..A Bench of Presiding Officer Justice Tarun Agarwala, Judicial Member Justice MT Joshi and Technical Member Meera Swarup sent the matter back to the Whole Time Member (WTM) of SEBI for fresh consideration..The Appellate Tribunal was hearing appeals filed by SRSR Holdings, Ramalinga Raju, Suryanarayana Raju, Rama Raju and others against orders dated October 16, 2018 and November 2, 2018 passed by the WTM of SEBI.By this order, the appellants were prohibited from participating in the securities market for 14 years, and were directed to disgorge a total amount of ₹813.4 crore in light of unlawful gains they made through the Satyam scam. SEBI had held that the books of accounts of Satyam were inflated for several years, showing artificial cash and bank balances..Before the SAT, counsel for the appellants argued that the order of disgorgement was patently erroneous and was made without any application of mind, and that the quantification was incorrect, as it does not take into account the intrinsic value of the shares held by the Rajus.It was also submitted that the WTM passed an order not for disgorgement, but for restitution, and that restitution was a separate remedy which cannot be conflated with the concept of disgorgement. Further, they argued that the direction to the Rajus to disgorge the amount jointly and severally was contrary to the provisions of the SEBI Act.After hearing the contentions, SAT noted that the WTM had adopted the “net profit” method, taking into account the difference between the cost of acquisition of shares and the amount realised by sale less statutory taxes. In light of the fact that the appellants did not provide any information regarding the cost of acquisition, the value of the shares was taken as nil, and thus, the entire sale value was taken as an unlawful gain. Such an approach was patently erroneous, the Appellate Tribunal held."The mere fact that the appellants did not provide the cost of acquisition of the shares did not discharge the burden upon the WTM. The WTM was still required to arrive at some costing of the value of the shares."It also noted that the underlying value of the stock must be disentangled while computing the illegal gain. "While calculating the amount of illegal gain, the inherent and underlying value of the stock cannot be considered as a component of the unlawful gain," the order stated..The Bench went on to find that the direction to disgorge an amount jointly and severally was used loosely without understanding the true import of the meaning of joint and several liability."...where the unlawful gains have been computed against each of the noticees the damage caused is no longer indivisible and is divisible, then in terms of Section 11B of the SEBI Act, the unlawful gain has to be disgorged by that noticee individually to the extent of the unlawful gain computed against its name. That is to say, each of the noticee is liable only for the unlawful gains attributable to his own act," it held..The Appellate Tribunal also found SEBI's order barring the appellants from the securities market for 14 years erroneous for the following reasons:No reason has been given as to why the magic figure of 14 years of restraint was appropriate. No reason is given, nor any discussion is made with regard to the restraint of 14 years against B Ramalinga Raju and B Rama Raju.WTM has wrongly misconstrued the order of the Supreme Court and, consequently, the finding that B Suryanarayana Raju and SRSR Holdings are equal perpetrators is without any basis..For these reasons, among others, SAT allowed the appeals and set aside the SEBI order. The matter was remitted to SEBI to pass a fresh order within four months after giving an opportunity of hearing to the appellants..Senior Advocates Vikram Nankani, Kevic Setalvad and Gaurav Joshi appeared for the appellants. They were briefed by Advocates KRCV Seshachalam, Sabeena Mahadik and Sagar Hate of Vishesha Law Services; Advocates LS Shetty and Darshan Bafna of LS Shetty and Associates; and DSK Legal Partner Nirav Shah also appeared.SEBI was represented by Senior Advocate Shiraz Rustomjee, who was briefed by Advocates Jai Chhabria, Shreya Parikh, Prateek Pai, Mihir Mody and Mayur Jaisingh of K Ashar & Co..[Read order]