LEGAL UPDATE : COMPANIES ACT 2013

​LEGAL UPDATE | COMPANIES ACT, 2013

​NCLAT Upholds SFIO’s Role in Disgorgement Proceedings — IL&FS Matter

Case: B.S.R. & Associates LLP & N. Sampath Ganesh v. Serious Fraud Investigation Office & Ors.

NCLAT, Principal Bench, New Delhi | 25 August 2026

​The NCLAT has dismissed appeals challenging the maintainability of disgorgement proceedings arising from the SFIO investigation into IL&FS Securities Services Ltd. (ISSL).

​📖 What are Disgorgement Proceedings?

Disgorgement is an equitable, civil remedy designed to deprive wrongdoers of their ill-gotten gains. Unlike a penalty or punitive fine, disgorgement does not seek to punish; rather, it aims to:

​Strip Illicit Profits: Force individuals, officers, or entities to surrender any unjust enrichment, wrongful advantage, or unlawful profit derived directly from fraud or mismanagement.

​Restitution & Accountability: Restore recovered assets back to affected stakeholders, creditors, or victims where feasible, ensuring that fraud never remains profitable for perpetrators or negligent gatekeepers.

​🔍 The Issue

The appellants argued that Section 212(14A) of the Companies Act, 2013 vests the power to seek disgorgement exclusively with the Central Government, and that the SFIO could not independently initiate or pursue that action.

​⚖️ NCLAT’s Finding

The Tribunal held that where the Central Government has taken the executive decision to initiate proceedings, the SFIO can act as its authorised representative to institute and pursue the matter before the NCLT.

The Tribunal therefore rejected the challenge to the maintainability of the proceedings.

​📌 Why is this important?

An SFIO investigation carries severe consequences extending far beyond conventional criminal prosecution. Depending on the facts and statutory thresholds, corporate stakeholders face multi-pronged exposure:

➡️ Disgorgement / recovery proceedings

➡️ Personal liability exposure (including attachment of personal assets)

➡️ Inquiries into fraudulent conduct under Section 339

➡️ Regulatory sanctions and criminal prosecution

​💡 PRACTICAL TAKEAWAY

For Directors, KMPs, Auditors, and corporate boards facing an SFIO inquiry: treat the investigation as a multi-dimensional legal risk, not just a criminal probe. Maintaining ironclad audit trails, contemporaneous governance records, independent transaction reviews, and strict professional compliance is paramount.

​Applicable Provisions:

📍 Section 212(14) — SFIO investigation report & prosecution

📍 Section 212(14A) — Disgorgement of wrongful gain & personal liability

📍 Sections 241 & 242 — Oppression, mismanagement & public interest remedies

📍 Section 339 — Liability for fraudulent conduct of business

​🔗 Read on Official NCLAT:

https://nclat.nic.in/display-board/view_order

​By: Adv. Ankita Pandey

Trademark Attorney & Legal Consultant

(Alacrity Corporate Solutions Pvt Ltd.)

Founder: Pranav Kumar

Contact: +91 0120 4126564 / +91 97160-50088

Email: services@alacritycorp.com

Website: www.alacritycorp.com

​Disclaimer: This post is for educational and informational purposes only and does not constitute formal legal advice.

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