Disgorgement vs. Penalties: SAT Ruling on Tax Adjustments in Alpesh Vasanji Furiya v. SEBI

In May 2026, the Securities Appellate Tribunal addressed a question with significant practical consequences for India’s capital markets enforcement landscape: can a party against whom SEBI has ordered disgorgement of unlawful gains reduce that amount by the income tax already paid on those very gains? In Alpesh Vasanji Furiya v. SEBI, the SAT answered clearly in the negative. Taxation and securities law enforcement, the tribunal held, are independent obligations operating under separate statutory frameworks — they do not offset each other. This article examines the factual background of the case, the legal reasoning underpinning the ruling, the doctrinal history of disgorgement in India that supports it, and the unresolved question of fairness it leaves behind.

I. Introduction

There is a quiet but consequential tension in Indian regulatory enforcement that rarely receives the attention it deserves. When SEBI orders disgorgement of alleged unlawful gains, those same gains have frequently already been subjected to income tax. The accused has filed their returns, paid capital gains tax at the applicable rate, and — in their own accounting — discharged their liability to the state. When SEBI then demands the full profit back, the person facing enforcement finds themselves in a position that, at least intuitively, feels like paying twice for the same transaction.

This is precisely the argument the Securities Appellate Tribunal confronted in its May 8, 2026 order in Alpesh Vasanji Furiya v. SEBI. The case arose from a coordinated trading scheme linked to television stock recommendations, and the SAT’s ruling on the tax adjustment question carries implications well beyond its facts. It draws a firm jurisdictional boundary between two of the state’s most potent economic enforcement instruments — SEBI’s disgorgement power under securities law and the income tax machinery — and refuses to permit them to operate as a set-off against each other.

II. Factual Background

The proceedings originated from SEBI’s investigation into trading activity surrounding stock recommendations made on a television programme hosted by market commentator Pradeep Pandya. SEBI examined trades conducted between November 2019 and October 2021, focusing on whether Alpesh Furiya and related entities had systematically coordinated their purchases with Pandya’s recommendations before those recommendations were publicly broadcast.

The pattern uncovered was not subtle. WhatsApp communications and trading records presented before the tribunal showed that Furiya would contact Pandya before acquiring shares in specific scrips. Positions were accumulated quietly ahead of the televised recommendations. After the recommendations aired and the broader retail market reacted, share prices moved. The pre-positioned holdings were then sold into that momentum. SEBI characterised this as a deliberate exploitation of informational asymmetry — the kind of trading that hollows out market integrity by allowing select participants to front-run public information at the expense of ordinary investors.

SEBI issued its disgorgement order on June 11, 2024, directing recovery of the entire profit from the impugned trades under the Prohibition of Fraudulent and Unfair Trade Practices (PFUTP) Regulations, 2003. The main appeal was decided by SAT on January 29, 2026. The applicants thereafter filed a review application raising three grounds: the methodology of disgorgement computation, the refusal to adjust the disgorgement amount for income tax already paid, and the imposition of Rs. 25 lakh in litigation costs. SAT waived the costs but rejected both substantive grounds.

III. The Tax Adjustment Argument and SAT’s Ruling

The argument for a tax adjustment was not without surface logic. The applicants had, on their own case, disclosed the trading gains in their income tax returns and paid capital gains tax on them at the applicable rates. The Income-tax Act — whether the 1961 Act or the newly enacted 2025 Act — taxes securities transaction gains at the point of realisation, without carving out an exception for gains that are later determined to be fraudulent or that are subsequently subject to disgorgement proceedings. The tax authority collects its due when the profit arises, with no mechanism to revisit that collection if the underlying gain is later found to be tainted.

From the applicants’ standpoint, this created an outcome that felt disproportionate. The state, through SEBI, was demanding return of the full unlawful gain; but the state, through its tax administration, had already extracted a portion of that same gain. The effective result, they contended, was that they were being made to surrender more than they had actually retained — the full pre-tax profit to SEBI, with no credit for the portion already paid as tax.

The SAT rejected this reasoning firmly.

The tribunal held that securities law enforcement and income tax treatment are governed by entirely separate statutory frameworks and serve distinct regulatory purposes. SEBI’s power to order disgorgement derives from Section 11B of the SEBI Act, 1992, as substantially amended by the Finance Act, 2018. The Income-tax Act operates through its own independent machinery — with its own appellate structure, its own mechanisms for rectification and refund, and its own administrative authority in the form of the Income Tax Department. These two systems are not designed to interact at the enforcement stage, and SAT proceedings are not the appropriate forum in which to adjudicate tax claims or grievances. If the applicants believed they were entitled to a refund, credit, or adjustment on account of tax already paid on gains now disgorged, the tribunal said, that claim had to be pursued before the relevant tax authority under the relevant provisions of the tax statute.

IV. Doctrinal Foundations: The Legal Nature of Disgorgement

The SAT’s conclusion is entirely consistent with the established jurisprudence on disgorgement under Indian securities law, and understanding that jurisprudence clarifies why the tax adjustment argument was always unlikely to succeed.

Disgorgement, as a remedy, is gain-focused rather than loss-focused. It does not aim to punish the wrongdoer by causing them a net loss; its sole objective is to eliminate unjust enrichment — to return the wrongdoer to the exact position they would have occupied had the unlawful conduct never occurred. The Indian position, settled through a series of SAT judgments over two decades, characterises disgorgement as a monetary equitable remedy rather than a penal measure. In Dhaval Mehta v. SEBI (SAT Appeal No. 155 of 2008), the tribunal held explicitly that disgorgement is neither a punishment nor concerned with damages suffered by other parties. In Karvy Stock Broking Ltd. v. SEBI, SAT reiterated that disgorgement is the forced relinquishment of profits obtained through illegal means — an equitable restoration, not an additional burden.

This doctrinal framing also explains the rejection of the applicants’ second ground — that disgorgement should be restricted to gains attributable only to post-recommendation price movement rather than the full profit on the impugned trades. Once the tribunal found that the trades were structured around foreknowledge of Pandya’s upcoming recommendations — a factual finding supported by the WhatsApp records and the trade sequencing — the entire profit from those trades was tainted by that informational advantage. There was no clean analytical basis to segregate a portion of gain as independent of the unlawful scheme. The informational edge was not merely a contributing factor; it was the foundational condition for the entire trading strategy.

It is worth noting that SEBI’s power to order disgorgement was itself contested for many years before being placed on firm statutory footing. In Rakesh Agrawal v. SEBI, an early SAT ruling had characterised disgorgement as penal and therefore outside the scope of Section 11B, which at the time authorised only remedial directions. SEBI persisted in recharacterising disgorgement as a compensatory and equitable remedy, and the power was eventually upheld in Roopalben Nareshbhai Panchal, In re. The Finance Act, 2018 then provided express statutory authorisation, settling what had been a long doctrinal dispute and reinforcing SEBI’s enforcement toolkit considerably.

V. The Unresolved Problem: Double Recovery by the State

Where the Furiya ruling is more unsatisfying is in what it does not address — and this is the dimension of the case that practitioners and scholars should watch closely.

The SAT’s direction to seek relief under the Income-tax Act implicitly presupposes that such relief is available. But the Income-tax Act does not expressly recognise disgorgement under SEBI regulations as a deductible expenditure, a capital loss, or a ground for refund of assessed income. Section 37 of the Income-tax Act, which permits deductions for expenditure incurred wholly and exclusively for business purposes, is an unlikely candidate — a court or tribunal would face considerable difficulty accepting that a disgorgement payment arising from fraudulent conduct qualifies as legitimate business expenditure. The alternative route of claiming a refund on the basis that income on which tax was paid has since been disgorged is equally untested and uncertain.

The result is a structural gap. SAT, by its own reasoning, lacks jurisdiction to address the tax dimension of disgorgement proceedings. The income tax statute has not expressly addressed the securities enforcement dimension. A person against whom both a disgorgement order and a tax assessment have been made in respect of the same underlying gains may, at least in the short term, face a situation in which the aggregate state recovery exceeds the original profit. Whether that outcome is constitutionally defensible — whether it engages principles against double jeopardy or the constitutional guarantee against arbitrary state action under Article 14 — is a question the ruling leaves entirely open.

VI. Conclusion

The SAT’s ruling in Alpesh Vasanji Furiya v. SEBI is a significant clarification of the relationship between securities enforcement and tax law in India. By holding that income tax paid on unlawful gains cannot be offset against SEBI-ordered disgorgement, the tribunal has maintained the purity and effectiveness of disgorgement as an equitable remedy — ensuring that tax compliance cannot be deployed as a device to dilute the amount recoverable by SEBI in enforcement proceedings.

The ruling is doctrinally sound and consistent with the established character of disgorgement as a gain-stripping, non-punitive remedy. It is also practically significant: it confirms that market participants operating in India’s securities markets face genuinely independent exposures under securities regulation and tax law, and that risk management in one domain does not substitute for compliance in the other.

What it leaves unanswered is a legitimate concern about fairness. If the tax statute cannot provide the relief the SAT implicitly presupposes is available, the framework as it currently stands permits the state to recover, through two separate channels, more than the wrongdoer actually retained. Resolving that gap — through legislative clarification, tax authority guidance, or ITAT jurisprudence — is the next necessary step in building a coherent intersection between India’s securities enforcement and fiscal regimes. Practitioners who understand both frameworks, and the space between them, will be at the centre of that evolving conversation.