INDIA Law and Practice Contributed by: Vijayendra Pratap Singh, Asif Ahmed, Tanmay Sharma and Bhanu Jindal, AZB & Partners
voidable. In such cases, the principles under Section 65 of the Contract Act apply, which provide that any person who has received any advantage under such an agreement or contract is bound to restore it, or to make compensation for it to the person from whom they received it. The term “received any advantage” provides for restitution of an innocent party to such position as though they had not entered into such a con - tract. This allows any undue gain received under such a contract to be restituted to an innocent party. This principle has been further diluted by Indian courts to the effect that the primary aim of awarding compensation is not to penalise the defaulting party but to put an innocent party in such same position as though it had not entered into such a contract. Therefore, where compen - sation can be determined based on principles of computing damages under the Contract Act, there may not be any need to award compensa - tion by restitution. It may be noted that provisions relating to dis - gorgement of unlawful gains typically obtained through wrongful means (which is inclusive of fraud) were introduced in the SEBI Act and sub - sequently introduced by Section 212(14A) of the Companies Act, which came into effect from 15 August 2019. As stated in 3.3 Sharehold- ers’ Claims Against Fraudulent Directors , the Companies Act already allows for initiation of proceedings and for the relief of freezing assets and disgorgement of property, as disgorgement is a civil action in the nature of an equitable relief, and not a penal action. Therefore, the SFIO would also be bound by the same principle for disgorgement. Similar principles have also been accepted by the Securities Appellate Tribunal for directing disgorgement under the SEBI Act. It was noted that a repayment of ill-gotten gains imposed
on wrongdoers is a monetary equitable remedy designed to prevent a wrongdoer from unjustly enriching themselves as a result of their illegal conduct, and is not a punishment. Therefore, the principle applied under the statutes is caveated by the fact that the disgorgement has to be lim - ited to the unlawful gains obtained, and should never exceed them. It is now a settled principle that disgorgement of ill-gotten proceeds can be directed under various expropriatory statutes; however, this is limited to attachment/confiscation of property to the extent of monies that have been appropri - ated illegally. These provisions therefore do not allow for exemplary damages for illicit acts com - mitted by a party. 7.2 Laws to Protect “Banking Secrecy” Indian law statutorily imposes the duty of fidel - ity, confidentiality and secrecy upon various intermediaries such as banks, public financial institutions and credit information companies. However, these obligations are subject to certain exceptions. The obligation to maintain secrecy, fidelity and confidentiality applies to: • banks under the Banking Regulation Act, 1949 (Section 34A); • public financial institutions through the Public Financial Institutions (Obligation as to Fidelity and Secrecy) Act, 1983; • credit information companies through the Credit Information Companies (Regulation) Act, 2005; and • intermediaries processing payments under the Payment and Settlement Systems Act, 2007. These obligations are punishable through vari - ous regulatory, monetary and criminal sanctions. The Bankers’ Book Evidence Act, 1891 also pro -
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