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2017 (8) TMI 1495 - SECURITIES APPELLATE TRIBUNAL, MUMBAIInsider under the PIT Regulations - proceedings under PIT regulations abatement upon the death of a person who is alleged to have committed insider trading - WTM of SEBI justification in holding that each appellant was an ‘insider’ under the PIT Regulations and that the appellants pledged/ sold shares of Satyam when in possession of UPSI, and therefore the appellants are guilty of violating SEBI Act and the PIT Regulations? - whether the WTM of SEBI is justified in uniformly restraining the appellants from accessing the securities market for 7 years and whether, the quantum of unlawful gain directed to be disgorged by each appellant jointly and severally with Mr. B. Ramalinga Raju and Mr. Rama Raju with interest at the rate of 12% per annum from 07.01.2009 till payment, is in accordance with law? Held that:- One month prior to the UPSI came into existence, the Board of RPIL had authorized investments in the shares of Indian Petrochemical Corporation Ltd. (“IPCL) and therefore, it cannot be said that the shares of IPCL were purchased when in possession of UPSI. In the present case, Chintalapati group sold the shares of Satyam during the period when UPSI was existing. Therefore, the decision of SEBI in case of RPIL has no relevance to the facts of present case. In the result, decision of the WTM that Chintalapati group were insiders under the PIT Regulations and that they had sold the shares of Satyam when in possession of UPSI in violation of PIT Regulations cannot be faulted. The Scheme of PIT Regulations of 1992 makes it evident that these dual requirements need to be satisfied before a person can be called an “insider” under the PIT Regulations of 1992. The conjunctive “And” is, therefore, significant and cannot be ignored. As far as the second category of “insider” is concerned (Regulation 2(e)(ii)), it clearly refers to a person who “has received or has had access to such unpublished price sensitive information”. Thus, to fall under the second category of insiders, one must either have actually received the UPSI or actually had access to such UPSI in any manner without being a connected person. In these appeals, we are not concerned with this category of persons as SEBI has not invoked the second category. There is also no finding to that effect in the Impugned Order. First, when an alleged offender dies after SEBI has made a determination of violation of the PIT Regulations. In this category, SEBI can subject to the provisions of SEBI Act and the PIT Regulations can recover the unlawful gain from the legal heirs, if it is found that the unlawful gains accrued to the estate. Second, an alleged offender dies before proceedings under the PIT Regulations are initiated or during proceedings under PIT Regulations. This is more difficult case, because the determination under PIT Regulations cannot be done in the absence of a person. Without given a hearing to a person, SEBI cannot make a determination that the person had reasonable access to UPSI and was in possession of UPSI when he sold the shares. The finding of insider trading can only be done in the presence of the person concerned since these proceedings are personal to the alleged offender. The legal heir may not be in a position to represent the alleged offender. However, we do not intend to say more and reserve this matter for further consideration in an appropriate matter. In light of the abovesaid, I allow this appeal and hereby set aside the WTM Order.
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