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SAT: SEBI cannot unlawfully withhold recovered amounts after its orders are set-aside

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In its May 15, 2020 order, Jayeshkumar Narottamdas Gandhi v. Securities and Exchange Board of India, the Securities Appellate Tribunal (SAT) directed SEBI to immediately refund the recovered amount SEBI had unlawfully withheld from the applicant, even after the order of the concerned adjudicating officer (“SEBI Order”) had been set-aside by SAT.  On June 24, 2019, SEBI had imposed a penalty of Rs. 6,00,000/- on Mr. Jayeshkumar Narottamdas Gandhi (Mr.Jayeshkumar) for violation of Regulations 3 and 4 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003. Subsequently, the recovery officer of SEBI recovered an amount of Rs. 6,35,521/- from Mr. Jayeshkumar (Recovered Amount). Being aggrieved by the SEBI Order, Mr. Jayeshkumar had filed an appeal before SAT and on February 21, 2020, SAT allowed the appeal and set-aside the SEBI Order (SAT Order).

Accordingly, Mr. Jayeshkumar sought a refund of the Recovered Amount from SEBI. However, SEBI refused to grant the refund on two grounds. Firstly, SEBI intended to appeal against the SAT Order and it would make a refund subject to the outcome of the appeal before the Supreme Court of India (Supreme Court). Secondly, the SAT Order did not provide any specific direction regarding the refund of the Recovered Amount. This was despite Mr. Jayeshkumar’s undertaking to SEBI that the amount would be placed back with SEBI within 15 days of any stay order being passed by the Supreme Court. Being aggrieved, Mr. Jayeshkumar filed a miscellaneous application before SAT.

In the present matter, the issue to be addressed by SAT was whether SEBI could retain amounts recovered by its recovery officers by virtue of orders which were subsequently set-aside by SAT.

After hearing the matter in an urgency application, SAT held that such retention of money by SEBI was unwarranted and without the authority of law. In its order, SAT opined that once the original order is set-aside, there is no justification to withhold the amount recovered pursuant to such an order as there would be no amount to be recovered. Further, SAT clarified that it was immaterial that the SAT Order did not provide any direction for refund of the Recovered Amount. Additionally, SAT noted that SEBI had not taken any steps to file an appeal (for over a month) before the lockdown, when the appeal was allowed as early as on February 21, 2020. Accordingly, SEBI was ordered to refund the Recovered Amount to Mr. Jayeshkumar immediately.

SAT’s decision in the present matter is a move in the right direction and it will ensure that SEBI promptly releases recovered amounts to noticees/appellants once relevant orders are set-aside by SAT.