Disgorgement of Profits: A Truly Equitable Remedy?

The Securities and Exchange Board of India (SEBI) was established with the main aim of protecting the investors and ensuring a free and fair investment market in India. The protection of investors is a crucial objective for the SEBI, and in this background, this paper analyses the mechanism of disgorgement of profits, which has been put in place as a measure of restitution for those investors against whom acts of mischief have been committed by any player in the Indian securities markets. The main questions addressed by this paper deal with the equitability of disgorgement of profits as a remedy to wronged investors, and consequently, whether it fulfils the SEBI’s primary function of investment protection. The authors aim to present a comparative analysis of the frameworks governing disgorgement of profits in India and the US, and accordingly, draw out the various flaws in the Indian framework. On conducting an analysis of various Indian and American laws, case laws and studies, the authors have reached a conclusion that, even though Indian framework of disgorgement consists of elements of both, penalty and equity, there exists an administrative gap in the implementation of this framework that prevents the disgorged funds from being utilised for restitution of the wronged investors. Accordingly, it has been suggested that, following the example of the American framework, detailed guidelines need to be framed in order to ensure that the disgorged funds are utilised to compensate the wronged investors for their losses, thereby making it a truly equitable remedy.