The Parliamentary assurance provided by the Government that the corrective actions taken by SEBI (Securities and Exchange Board of India) in the IPO scam would lead to reallocations of shares to victims adds a new dimension to the issue.

With SEBI earlier passing a disgorgement order on two depositories and a slew of depository participants (the institutions) for a meticulously calculated Rs 116 crore, it appeared as though the authorities had chosen to pursue the easier option of shooting the sitting ducks. But the Parliamentary assurance disabuses this view.

The Government would, after all, gun for the impostors and ask them to disgorge the shares they had engorged. Indeed, this should have been the course the authorities should have followed with the institutions, which were remiss in their duty of knowing their customers, and proceeded separately against them for negligence. But, having effectively asked them to disgorge, can the retail impostors be asked to disgorge again, though this time round it would be shares?

If the shares thus disgorged are reallocated what would happen to the cash amounting to Rs 116 crore to be coughed up by the depositories and participants? Would the victims get both cash and shares? Would this not be undue enrichment of the victims?

The Constitution bars double punishment for the same crime but it does not bar punishment of two sets of persons for the same crime. This fine distinction perhaps has emboldened the authorities to pursue both courses of action.

There is nothing wrong in punishing the perpetrator of crime as well as its abettor. If the depositories and the depository participants were remiss in performing their duties, it seems all that SEBI could have imposed by way of penalty was a maximum of Rs 1 crore under Section 15HB of the SEBI Act, 1992.

That SEBI chose to slap a bill of Rs 116 crore on the depositories and participants shows that the order passed by it was indeed an order for disgorgement and not for penalty. What is obtained from disgorgement legally belongs to the victims. This, then, raises the moot question: Can the victims be compensated twice over, once in the form of cash and again in the form of shares? Disgorgement is meant to restore status quo of the victims and not to unduly enrich them. The Parliamentary assurance impliedly is a censure of SEBI, which went overboard in passing a disgorgement order on the institutions which had not in the first place engorged.

Engorgement was done by rogue applicants. SEBI perhaps thought that buttonholing them would be difficult and, hence, went for the institutions, the sitting ducks.

Now the Government would have us believe that pursuing them would not only be not difficult but fair too because only the ones who had engorged can possibly be made to disgorge. The institutions, by all means, should be punished. But the punishment should be proportionate to their crime and not to their resources.

S. Murlidharan
(The author is a Delhi-based chartered accountant.)