Satyam Scam: SAT Sets Aside SEBI Order Barring Ramalinga Raju & Others From Dealing In Securities Market For 14 Yrs, Seeks Fresh Order In 4 Months
The Securities Appellate Tribunal (SAT) has set aside an order of market’s regulator SEBI barring erstwhile promoters of Satyam - Ramalinga Raju, Rama Raju, and others – from dealing in the securities market for 14 years and ordering disgorgement of Rs. 813 crores.
SAT has remanded the matter back to SEBI and directed the Whole Time member who passed the order on November 2, 2018 to re-adjudicate the matter within four months observing it was unclear how the magic figure of “14 years” was arrived at.
The directions against B. Rama Raju and Mr. B. Ramalinga Raju were that they were prohibited from buying, selling or otherwise dealing in securities, for 14 years. Personally, they were directed to disgorge Rs. 26,62,50,000 with interest at 12 % from 7th January 2009. Along with B. Suryanarayana Raju and SRSR Holdings Pvt. Ltd. the disgorgement amount is Rs. 813,40,69,658.
Rajus contended that the order wrongly records illegal gain of nearly Rs. 26 crore, ignoring the sale of 6 lac shares for philanthropic purposes. They alleged that SEBI failed to give reasons regarding how it arrived at the disgorgement amount. SEBA also rejected their contention regarding the intrinsic value of the shares.
The Securities Appellate Tribunal has held that the approach of the Whole Time Member was patently erroneous and could not be sustained. No reason had been given as to why the magic figure of 14 years of restraint was appropriate against Mr. Ramalinga Raju and Mr. Rama Raju.
On the disgorgement issue, the Securities Appellate Tribunal observed that the Whole Time Member had adopted the “net profit” method, namely, the difference between the cost of acquisition of shares and the amount realized by sale less statutory taxes.
It further observed that while computing the unlawful gain in the matter of Ramalinga Raju and Rama Raju, the Whole Time Member held that they did not provide any information regarding the cost of acquisition and, therefore, an adverse inference was drawn and the value of the shares was taken as ‘nil’ as a result, the entire sale value was taken as the unlawful gain.
The Securities Appellate Tribunal has held this entire approach of the Whole Time Member is patently erroneous as the burden to quantify unlawful gains is on the SEBI and they cannot shift this burden.
The SAT further observed that where shares purchased were historic and includes bonus shares and these shares have grown in value over the years, in such cases, the calculation of unlawful gain by taking the value of the original cost of acquisition would not be the appropriate method.
It further observed that taking the original cost of acquisition without taking into consideration the market value of the shares, in SAT’s opinion, would lead to a faulty calculation of unlawful gain. The SAT held that the Whole Time Member fell in error in not considering the intrinsic value of shares.
Finally, the SAT held that the direction of the Whole Time Member to disgorge the amount jointly and severally also cannot be sustained and that the unlawful gains against each appellant has to be calculated separately which amount is required to be paid individually by the appellant.
Accordingly SAT passed the following order-
1. The Whole Time Member will consider the intrinsic value while calculating the unlawful gain.
2. The unlawful gain, if any, will be calculated individually for all the appellants by the Whole Time Member.
3. The Whole Time Member will consider the issue on interest.
4. The Whole Time Member will reconsider the issue on period of restraint afresh for all the appellants.
5. The Whole Time Member will reconsider the issue on pledge of shares.
Counsels: Sr. Advocate Mr. Gaurav Joshi for Mr. Ramalinga Raju and Sr. Advocate Mr. Ashok Gupta for Mr. Rama Raju
DSK Legal: Mr. Nirav Shah (Partner)