Securities and Exchange Board of India (Appointment of Administrator and Procedure for Refunding to the Investors) Regulations, 2018: An Overview

[Utkarsh Jhingan & Akhil Kumar]


Utkarsh and Akhil are 4th year students of NUALS, Kochi.


Securities Exchange Board of India (hereinafter “SEBI”) vide Notification Number: SEBI/LAD-NRO/GN/2018/39, dated October 3, 2018 notified the Securities and Exchange Board of India (Appointment of Administrator and Procedure for Refunding to the Investors) Regulations, 2018, (hereinafter “Regulation”). These Regulations have been made by SEBI in exercise of the powers conferred by Section 30 read with sub-section (1) of Section 11 and Section 28A of the Securities and Exchange Board of India Act, 1992[i] (15 of 1992), Section 23JB of the Securities Contracts (Regulations) Act, 1956[ii] (42 of 1956) and Section 19-IB of the Depositories Act, 1996[iii] (22 of 1996).

The Regulation aims to recover investors’ money in cases of felonious collective investment schemes. The provision of this Regulation shall apply mutatis mutandi in respect of the proceedings under the Securities Contracts (Regulation) Act, 1956 or the Depositories Act, 1996. These Regulations are a follow up to an earlier decision by the SEBI to empanel third party workers as receivers for management and sale of assets attached through regulatory orders for recovery of penalties and investors’ money from defaulters who have failed to return monies to the investors.

The order in the case of Opee Stock Link[iv] was the first disgorgement order that was passed by the Supreme Court. In this case, shares of Jet Airways Limited and Infrastructure Development Finance Company Ltd. were offered to the public at large. The issue of shares in relation to both the companies had been oversubscribed. However, there were several irregularities that had been committed by certain persons related to both the companies. As a result of these irregularities, the Supreme Court ordered to compensate the retail investors. Further, the passing of these Regulations is a step taken forward by SEBI to seek disgorgement of unlawful gains from the culprits.


The Regulation shall only be applicable in cases where a non-compliant entity of SEBI’s orders is untraceable. In such cases, the Recovery Officer (hereinafter “RO”) can appoint an administrator for the purpose of selling the attached properties and refunding the promoters. According to Provision 5 of the Regulation, only persons registered with Insolvency and Bankruptcy Board of India (hereinafter “IBBI”) as Insolvency Resolution Professionals (hereinafter “IRPs”) are eligible for such appointment.

The administrator under Regulation 5(4) has a duty to provide an undertaking to the Board of absence of any conflict of interest with the defaulter, directors, promoters, key managerial personnel and the group entities.[v] Additionally, he should also be a person who is independent/impartial and devoid of any conflict of interest throughout the tenure. It has been provided that any dispute regarding the conflict of interest of the Administrator shall be decided by the RO.

Terms of Appointment

Regulation 6 provides that both the terms of appointment and remuneration shall be decided on a case to case basis after taking into consideration the amount of work, number of investors and the amount involved.


The administrator shall perform his functions as per the directions of the RO. He is empowered to obtain any document regarding ownership and possession of properties, claims of investors, details of amounts raised and the amount of settled debt from the defaulter or any other person. He shall also maintain a record of the properties attached in the process, the bank as well as dematerialized accounts and the value of monies and securities held by the defaulter. Furthermore, he shall also sell the attached properties as per the directions of the RO.

The Regulations also empower the Administrator to carry out any act with the prior approval of the RO essential for the purpose of carrying out his duties thereto. In the process of discharging his functions, the Administrator can appoint independent charted accountants to verify the details of amount raised and the quantum of debt already settled. He shall also submit monthly report(s) as and when called by the RO for the purpose of determining the progress made by him.

 Sale of properties

The process of sale of properties will be undertaken by the Administrator after he conducts an independent valuation of the property. The Administrator also has the option of undertaking the sale of property via e-auction for which he can engage an e-auction agency. The RO after considering the valuation report may put a reserve price on the property. Regulation 9 states that the Administrator shall also issue advertisements in an English and Hindi Newspaper having nationwide circulation for the purpose of inviting claims from the investors. The defaulting company and its officers are also supposed to furnish an undertaking that they shall be liable for payment if any complaint is received in future by the Board from any investor.

Cost incurred in Administration and Repayment Process

The entire cost that is incurred in relation to the sale of properties, verification, remuneration of the administrator and any other person appointed by him in connection to the repayment process shall be borne by the defaulter. If he fails to pay, then the cost incurred in the administration and repayment process shall be given priority over other liabilities. Furthermore, the cost and expenses incurred should be reasonable, should be directly related to and necessary for the act and purpose mentioned in the Regulations.

Priority in Distribution of Sale Proceeds

The amount recovered from the sale of properties of the defaulters shall firstly be used for the purpose of adjusting the costs incurred by the Board including the charges to be paid to the administrator and persons appointed under him. Thereafter, the remaining amount shall go to the investors and the penalty/fee due from the defaulter to SEBI in the order of priority.

Return of Monies Exceeding the Liability

In circumstances where excess monies exist after the completion and payment of all the defaults and the amount due, it shall be paid to the defaulter upon the completion of three years after the completion of the refund process. It is the duty of the administrator to file a detailed recovery/repayment report to the RO as required.

Action in case of Default of the Administrator

The Regulation lays down various reasons on which the Administrator can be removed. These reasons include failure to comply with the terms and condition of appointment, engaging valuers and Chartered Accountants which are ineligible to act, failure to comply with any obligations and responsibilities under these Regulations, not complying with the directions of the RO and lastly, acting in such a manner that is prejudicial to the interest of investors.


Vide this Regulation; SEBI has decided to appoint administrators to supervise the entire refund-payment process including identification of eligible investors and payment of their dues. This will reduce any kind of fraudulent or sham transaction on the stock market. It is also in line with the Securities Contracts (Regulations) Act, 1956 which aims to keep a vigil over all the stock exchanges of India and prevents undesirable contracts in Securities market through a process of recognition and continued supervision. These Regulations will be germane to curb the irregularities in the capital market and protect the interests of the investors. Lastly, these Regulations will act as a catalyst in order to bring forth a systematic conduct of the securities market through the free transferability of securities with speed, precision and transparency.






[iv] SEBI v. M/S Opee Stock-Link Ltd.& Anr, CIVIL APPEAL NO. 2252 OF 2010.



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