The Securities Appellate Tribunal on Friday set aside last year's disgorgement order of Securities and Exchange Board of India against India's premier depository National Securities Depository Ltd and nine other entities, saying the regulator cannot issue the order at an interim stage.
In its judgment the tribunal said that all the accused entities should be given a chance for hearing, besides asking Sebi to establish whether these entities have made any unlawful gains through the IPO scam, which saw several entities cornering huge allotments during initial share issuances by applying for shares through thousands of illegal accounts.
The tribunal also wants Sebi to prove that these entities are indeed guilty. SAT also disposed off Sebi's instruction to NSDL board to revamp the management, after the counsel for the regulator told the tribunal that this was just "advisory" in nature.
In November last year, Sebi had issued disgorgement order, asking depositories, DPs and market intermediaries to deposit with it ill-gotten money totaling to Rs 116 crore (Rs 1.16 billion) within six months.
"The SAT order has not questioned the power of Sebi in issuing the disgorgement order. The tribunal has only questioned the timing of the order, saying the order cannot come at an interim stage without proving the guilt and without giving hearing opportunity to the accused," said a legal expert.
The IPO scam involved people submitting multiple applications in fictitious names to increase their allotment in a fixed price IPO.
Experts had questioned the order saying it did not target any of those who perpetrated the fraud but is directed against the depositories and the depository participants who opened the demat accounts used by the fraudsters.