TMI Blog2019 (10) TMI 109X X X X Extracts X X X X X X X X Extracts X X X X ..... t was as to what was the relationship of the appellant with other entities, namely, whether they were relatives or not. Information was supplied by the appellant in accordance with the provisions of the Companies Act, 1956. The letter of SEBI does not explicitly states that the appellant was required to furnish the information with regard to his professional or working relationship with the other entities. Even though the Appellant No. 1 may have professional or working relationship with the other entities, we are of the opinion that since there was no explicit clarity in the information sought the reply given by the appellant, being in accordance with the provisions of the Companies Act, 1956, was not misleading. SEBI ought to have been more professional and should have asked clear cut information which is explicit and is not vague. Consequently, we are of the opinion that the imposition of penalty in so far as providing misleading information cannot be sustained. Having perused the letter dated September 15, 2010 given by SEBI and the reply dated September 24, 2010 given by the appellant we find that the information sought was the relationship of the appellant with the other e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esiding Officer, Dr. C.K.G. Nair, Member And Mr M. T. Joshi, Judicial Member For The Appellants : Mr. Darius J. Khambatta, Senior Advocate with Mr. Pesi Modi, Senior Advocate, Mr. Joby Mathew, Mr. Neville Lashkari, Mr. Nikhil Shah and Mr. Tushar Hathiramani, Advocates i/b Joby Mathew Associates For The Respondent : Mr. Gaurav Joshi, Senior Advocate with Mr. Saurabh Pakale, Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates i/b The Law Point JUDGMENT Per: Justice Tarun Agarwala 1. Appellants being aggrieved by the order of the Adjudicating Officer ( AO for short) of the Securities and Exchange Board of India ( SEBI for short) dated October 15, 2015 have filed the present appeal wherein the following penalties were imposed namely:- a) Shri G. Bala Reddy, G Velangini Mary, Mary Ashwini and Sravanthi Yakkanti violated Regulation 3 and 4 of the PIT Regulations, 1992 read with sections 12A(d) and 12A(e) of the SEBI Act. Further, Sahasra Investments Pvt. Ltd. and BRG Energy Ltd. violated Regulation 3, 3A and 4 of the PIT Regulations, 1992 and sections 12A(d) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e way or the other and indulged in insider trading based on the unpublished price sensitive information ( UPSI ). Accordingly, a show cause notice was issued to show cause as to why a penalty should not be imposed for utilizing the UPSI under Regulation 2(ha) read with Regulation 2(k) of SEBI (Prohibition of Insider Trading) Regulations, 1992 ( PIT Regulations for short). The show cause notice further indicated that the appellants gave misleading information with regard to the relationship between the appellants. Further, some of the appellants did not declare the shares pledged by them. In short, the show cause notice stated:- i) You have funded the purchase of shares by Sravanthi and Mary who are connected to you and trade while in possession of price sensitive information. Thus act of yours are alleged to be violation of sections 12A(d) and 12A(e) of the SEBI Act, 1992 read with Regulation 3 and 4 of the PIT Regulations, 1992. Further you were the beneficiary of the funds received from the sale proceeds of the shares acquired through insider trading. Such act of you are alleged to be in violation of sections 12(A)(b) and 12A(c) of the SEBI Act read wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Promoter, Chairman and Director of Appellant Nos. 5 and 6. Appellant No. 2 is a Promoter of the company and wife of Appellant No. 1 and is Promoter and Managing director in Appellant No. 6 and Promoter and Director in Appellant No. 5. Appellant No. 3 is the wife of Appellant No. 7. Appellant No. 4 is an employee of the company, Appellant Nos. 5 and 6 are companies promoted by Appellant No. 1 in which Appellant Nos. 1 2 are also Directors. Appellant No. 7 is the husband of Appellant No. 3 and is also a cousin of Appellant No. 2. 8. The AO after considering the evidence have found that the aforesaid appellants are connected persons and are a homogeneous group. The AO further found that a non-resident investor Jeff Fineberg had 16,00,000 shares of the company which amounted to 3.42% of the paid up capital of the company and had contacted Appellant No. 1 for sale of his shares. Appellant No. 1 instead of buying the shares directly from this non-resident investor purchased these shares through a circuitous route. The Appellant No. 1 arranged for a bulk purchase of 15,85,683 shares through Appellant Nos. 3 and 4. Appellant No. 1 provided funds to Appellant Nos. 3 and 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount to a price sensitive information and, in any case, the lowest price bid being in the public domain cannot be an unpublished price sensitive information under the PIT Regulations, 1992. 13. In order to examine this aspect we need to consider what is price sensitive information and what is unpublished price sensitive information. In this regard, Regulation 2(ha) defines price sensitive information as: 2(ha) price sensitive information means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company. Explanation.-The following shall be deemed to be price sensitive information :- ( i) ( ii) ( iii) ( iv) any major expansion plans or execution of new projects. ( v) ( vi) ( vii) A perusal of the aforesaid definition indicates that any information which relates directly or indirectly to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... came in the public domain. It was thus urged that it was not an unpublished price sensitive information. In our opinion, this contention is patently misconceived and cannot be accepted. The definition of unpublished as defined under Regulation 2(k) has a definite connotation under Insider Trading Regulations and has to be construed strictly. Regulation 2(k) defines unpublished to mean information which has not been published by the company or its agent and is not specific in nature. Admittedly, the bagging of the contract was announced by the company only on the stock exchange platform on March 18, 2019. Prior to that the company had not published nor made any corporate announcements of this information. The opening of the bids by a third party does not amount to an information being published by the company or its agent under Regulation 2(k). Thus, the contention that the opening of the bids in which the company was found to be the lowest bidder came in the public domain is incorrect and cannot be construed as being published. 20. The Appellant No. 1 had specific information about the company s bid being the lowest. Being L1, the company through Appellant No. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned senior counsel contended that Appellant Nos. 3 and 4 are not promoters of the company nor were part of the promoter group of the company and therefore the shares pledged by them as collateral for the loans availed by them could not have been disclosed under Regulation 8A of the Takeover Regulations, 1997. It was contended that the requirement of disclosure under Regulation 8A of the Takeover Regulations, 1997 is on the promoter or the promoter group. The learned senior counsel urged that in the light of the aforesaid the imposition of penalty for non disclosure under Regulation 8A was wholly illegal and without any authority of law. 24. Regulation 8A(1) and (2) of the Takeover Regulations, 1997 provides as under: 8A. Disclosure of pledged shares . ( 1) A promoter or every person forming part of the promoter group of any company shall, within seven working days of commencement of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2009, disclose details of shares of that company pledged by him, if any, to that company. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 per cent of the total. Explanation IIFinancial Institutions, Scheduled Banks, Foreign Institutional Investors (FIIs) and Mutual Funds shall not be deemed to be a promoter or promoter group merely by virtue of their shareholding: Provided that the Financial Institutions, Scheduled Banks and Foreign Institutional Investors (FIIs) shall be treated as promoters or promoter group for the subsidiaries or companies promoted by them or mutual funds sponsored by them;] From a perusal of the definition of promoter and promoter group it is apparently clear that Appellant Nos. 3 and 4 do not fall in the category of promoter or promoter group. Regulation 8A specifically requires a promoter or every person forming part of the promoter group of the company to disclose the details of the pledging of their shares of the company. The mandate under Regulation 8A for disclosure is upon the promoter or every person forming part of the promoter group. Since the Appellant Nos. 3 and 4 admittedly are not promoters of the company nor are part of the promoter group, they cannot be held liable for violation of Regulation 8A of the Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionship of Appellant No. 1 with the other entities as depicted in the letter dated September 15, 2010 was given, taking into consideration the provisions of relatives set out in Scheduled 1A of the Companies Act, 1956. It was asserted that no false or misleading information was supplied and that the information supplied was in accordance with the Companies Act, 1956. 28. Having perused the letter dated September 15, 2010 given by SEBI and the reply dated September 24, 2010 given by the appellant we find that the information sought was the relationship of the appellant with the other entities. A perusal of the said letter would indicate that the information sought was as to what was the relationship of the appellant with other entities, namely, whether they were relatives or not. Information was supplied by the appellant in accordance with the provisions of the Companies Act, 1956. The letter of SEBI does not explicitly states that the appellant was required to furnish the information with regard to his professional or working relationship with the other entities. Thus, even though the Appellant No. 1 may have professional or working relationship with the other ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... under any law; or ( iii) counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price-sensitive information, shall be liable to a penalty [which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher.] 15HA. Penalty for fraudulent and unfair trade practices:- If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty [which shall not be less than five lakh rupees but which may extend to twentyfive crore rupees or three times the amount of profits made out of such practices, whichever is higher]. ( iii) In the instant case, the profits earned through insider trading was ₹ 14,05,05,006/-. Three times the profit amounts to ₹ 42,15,15,018 which is more than the penalty awarded by the AO. Thus, we do not find any error in the quantum of penalty imposed by the AO. 32. It was urged that the direction to pay penalty joint ..... X X X X Extracts X X X X X X X X Extracts X X X X
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