Disgorgement, which finds mention across several places in the new Companies Act, 2013, simply means repaying of the ill-gotten gains by the wrong doers to those who are affected by wrong doers action. There is no such provision in the existing Companies Act, 1956, experts said.
Anyone who earn gains or profits from illegal or unethical activities may be required to disgorge their gains and profits to the affected ones under the new company laws," said Lalit Kumar, partner in J Sagar Associates, a leading law firm.
The government has already notified a bulk of the sections dealing with 'disgorgement' under the new law which is expected to replace the existing company laws of 1956 in next 85 days.
According to experts, the provisions on disgorgement has been introduced to dissuade India Inc from indulging in furnishing fraudulent information to the Registrar of Companies (RoC), as has been observed over the recent years. Last year, several instances of filing of misinformation by companies were reported including over 50 companies and subsidiaries of Saradha and Rose Valley groups in West Bengal that have been involved in the chit fund scam.
As per section 38 related to disgorgement, all financial gains or disposable securities from anyone/any entity found guilty of indulging in illegal activities will be credited to IEPF. Also, the wealth of individual(s) including the key managerial persons like the CEO, CFO, company secretary, MD, directors etc will also be redirected to IEPF after suitable legal actions are initiated against them before the National Company Law Tribunal (NCLT).
The government has already cleared the decks for the creation of both NCLT and its appellate tribunal last week.
"Section 125 on Investor Education and Protection Fund clearly makes it mandatory for the government to distribute any disgorged amount among eligible and identifiable applicants who have suffered losses due to wrong actions by any person in accordance with the orders made by the court which had ordered disgorgement," Kumar of JSA said.