In its July 12, 2019 order in the matter of Asia Texx Enterprises Ltd. v. SEBI, the Securities Appellate Tribunal (SAT), while observing that disgorgement is not a penalty, held that equitable remedy demands that the disgorgement can be made from any point of unjust enrichment, any need not be made only from where the unjust enrichment finally rests.
The appeal was preferred against an order by SEBI directing the Appellant to disgorge USD 92 million. In this convoluted case of Global Depository Receipts (GDRs) manipulation involving a listed company, Cals Refineries Limited (Cals), the Appellant stated that it received a sum of USD 92 million from Cals towards purchase of refinery machinery. While no machinery ever changed hands, this USD 92 million was immediately transferred by the Appellant to another entity, M/s Honor Finance Limited, from which the Appellant received GDRs of Cals. These GDRs were transferred free of cost to one Gagan Rastogi, the beneficial owner of the Appellant and a promoter of Cals. The Appellant contended that the amount merely changed hands through accounting entries and it never made any unlawful gain, and therefore, the disgorgement should not be ordered against it.
Disagreeing with this contention, SAT observed that the Appellants were unjustly enriched in this scheme as no machinery was ever transferred for which payment was received by it. In light of this, it held that if one entity which was unjustly enriched knowingly transferred those proceeds further to some other entity, then the regulator may disgorge the same from the original beneficiary or from any point in that transfer chain.
This is an enabling order as it allows SEBI to approach any entity in the transaction chain for disgorgement, once a violation is established.
