TMI Blog2021 (5) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... pany is per se treated as UPSI. Thus, in the present case, information pertaining to the decision taken by the board of directors of the Company in its meeting held on May 10, 2018 regarding buy-back of the shares of the Company was a price sensitive information and before its disclosure to the stock exchanges on May 10, 2018 was UPSI-I, as alleged in the SCN. I note that ppreliminary discussion among MD, ED, COO and CFO in relation to the proposal for buyback of fully paid-up equity shares of the Company took place on April 25, 2018. Therefore, I find that UPSI-I came into existence on April 25, 2018. The said information remained UPSI-I till its disclosure to stock exchanges on May 10, 2018. In view of this, I find that the period from April 25 to May 10, 2018 is the period of UPSI-I, as alleged in the SCNs. Regarding UPSI-II in terms of the disclosure made by the Company on May 10, 2018, the general public was made aware that the Company was going to buy-back upto 1,21,14,285 fully paid-up equity shares of the Company of ₹ 10/- each at a price of ₹ 350/- per equity share which was an unpublished price sensitive information within the meaning of Regulation 2(1)(n)( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lled company of Noticee no. 3 and his family and Noticee no. 3 used Noticee no. 4 as a front entity for trading in the securities of PC Jeweller. The trading pattern and timing of trades of Noticee no. 4, the overarching influence and control of Noticee no. 3 over the affairs of Noticee no. 4, the proximity of Noticee no. 3 to the promoters (Prem Chand Gupta and Noticee no. 5), it is clear that trading by Noticee no. 4 in the futures contracts of PC Jeweller was due to the possession of UPSI-II. Thus, I find that Noticee no. 4 had possession of UPSI-II through Noticee no. 3 and thus, Noticee no. 4 was an insider in terms of Regulatio 2(1)(g)(ii) of PIT Regulations, 2015. We note that Noticee no. 5 was the MD of PC Jeweller. Thus, Noticee no. 5 is a connected person within the meaning of Regulation 2(1)(d)(i) of PIT Regulations, 2015. Therefore, Noticee no. 5 is an insider of PC Jeweller in terms of Reg. 2(1)(g)(i) PIT Regulations, 2015. The chronology of events which has been provided in the SCNs and also reproduced in the pre-paras of this order indicates that Noticee no. 5 was part of all the key discussions and was aware of the developments pertaining to buy-back offer, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no. 1 to 5 with respect to UPSI-I and UPSI-II. I note that there is no material available on record to indicate that the violations committed by Noticee no. 1 to 5 are repetitive in nature. In exercise of the powers conferred upon me under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of SEBI Act, 1992 read with Section 19 of the SEBI Act, 1992 and SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, hereby direct as under: (i) Noticee no. 1, 2, 3, 4 and 5 are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities (including units of mutual funds), directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of one (1) year, from the date of this order; (ii) Noticee no. 1, 2, 3, 4 and 5 are restrained from buying, selling or dealing in the securities of PC Jeweller Ltd., directly or indirectly, in any manner whatsoever, for a period of two (2) years, from the date of this order; (iii) The Noticee no. 1, 2 and 3 are directed to disgorge, jointly and severally, a sum of ₹ 6,17,60,184.13/- which was impounded by Impounding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s SEBI had conducted an investigation into the allegations of insider trading by certain entities in the scrip of PC Jeweller Limited (hereinafter referred as the Company / PC Jeweller ) for the period from April 2, 2018 to July 31, 2018 (hereinafter referred to as Investigation Period ). 2. The following directions were issued against the Noticees vide the Impounding Order dated December 17, 2019: . 29. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of Section 19 read with Sections 11(1), 11(4)(d) and Section 11B of the SEBI Act read with Regulation 10 of the Insider Trading Regulations, 2015, hereby issue the following directions: A. A sum of ₹ 6,17,60,184.13 shall be impounded jointly and severally, from Shivani Gupta, Sachin Gupta and Amit Garg, being the notional loss avoided on account of trades carried out in the trading accounts of Shivani Gupta, and B. A sum of ₹ 2,13,23,161.64 shall be impounded jointly and severally, from Quick Developers Pvt. Limited and Amit Garg, being the notional loss avoided/gains made on account of trades carried out in the trading account of Quick Developers Pvt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt equivalent to the total gains made/loss avoided on account of insider trading in the scrip of PC Jeweller along with interest; 2 Direction to restrain them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period. 34. Similarly, in light of the alleged violations of the provisions of Section 12A(e) of the SEBI Act and Regulation 3(1) of the Insider Trading Regulations, 2015 by Balram Garg, this Order shall be treated as a Notice under Sections 11(1), 11(4) and 11B(1) of the SEBI Act calling upon him to show cause as to why direction shall not be passed against him to restrain him from accessing the securities market and prohibiting him from buying, selling or otherwise dealing in securities for an appropriate period. . 35. As stated at paragraph 17, Padam Chand Gupta had passed away on January 28, 2019. Having regard to the same, no proceedings are initiated against him for the alleged violations of the provisions of Sections 12A(e) of the SEBI Act and Regulation 3(1) of the Insider Trading Regulations, 2015. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O H L C NSE 216.00 222.00 194.65 208.95 BSE 216.00 222.00 195.10 209.00 May 11, 2018 O H L C NSE 229.80 250.70 196.40 200.85 BSE 229.90 247.00 197.50 201.15 After the announcement, the scrip hit the upper circuit of 10%. 13/07/2018 @ 19:33 hours (NSE) 19:28:44 hours (BSE) Board approves withdra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SE that Board meeting will be held on May 25, 2018 to inter-alia, consider the proposal for buyback of Company s equity shares 29/04/2018 4. Preliminary discussion with officials of IDBI Capital Markets and Securities Ltd. for their potential engagement as Merchant Bankers for the proposed buyback issue. 04/05/2018 5. Company informed BSE and NSE that a separate Board meeting will be held on May 10, 2018 to inter-alia consider the proposal for buyback of Company s equity shares 05/05/2018 6. Email correspondences between Company and merchant bankers/auditors with regard to buyback assignment. and draft report/ certificate 07/05/2018 7. Statutory Auditors emailed Draft report/certificate to Co. Secy. Discussions among IDBI Capital Markets and Securities Ltd, Shardul Amarchand Mangaldas Co and PC Jeweller relating to certain queries on the proposed buyback issue. 09/05/2018 10/05/2018 8. Board in its meeting inter ali ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Exchange Open (Rs.) High ( Rs. ) Low ( Rs. ) Close ( Rs. ) Avg Daily Mkt Vol. Pre-UPSI Period-I (02/04/2018 to 24/04/2018) NSE 323.50 328.60 288.10 289.35 49,28,366 02-Apr-18 02-Apr-18 24-Apr-18 24-Apr-18 BSE 323.85 328.75 285.25 289.35 4,94,971 02-Apr-18 02-Apr-18 20-Apr-18 24-Apr-18 UPSI Period-I (25/04/2018 to 10/05/2018) NSE 288.00 290.55 94.55 208.95 11,64,10,614 25-Apr-18 25-Apr-18 03-May-18 10-May-18 BSE 289.25 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13-Jul-18 Post-UPSI Period-II (16/07/2018 to 31/08/2018) NSE 107.95 107.95 65.30 91.10 4,27,60,356 17-Jul-18 23-Jul-18 20-Jul-18 31-Jul-18 BSE 108.00 108.00 65.35 91.15 49,43,444 17-Jul-18 23-Jul-18 20-Jul-18 31-Jul-18 (July 14 July 15, 2018 trading holidays) f) Based on the information received from PC Jeweller, stock exchanges, stock brokers, banks and depositories as well as from Noticee No.1 and Noticee No.4 and based on the analysis of trading of entities during the Investigation Period, the SCNs alleges the following: g) Padam Chand Gupta being the Chairman of PC Jeweller is connected to the Company and was reasonably expected to have access to UPSI I and UPSI II and therefore, is a connected person and is an insider in te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Noticee no. 2 would have access to UPSI-I and UPSI-II, the SCNs allege that Noticee no. 2 is an insider in terms of 2(1)(g)(i) r/w. Reg, 2(1)(d)(i) of PIT Regulations, 2015. Additionally, from the analysis of trading pattern of Noticee no. 1, the SCN s concluded that Noticee No.2 (trading through the account of Noticee no. 1) had possession of UPSI I and UPSI II and hence, an insider in terms of Regulation 2(1)(g)(ii) of PIT Regulations, 2015. k) Noticee No.3 is the nephew of Padam Chand Gupta and Noticee No.5, and the son of Amar Chand Garg (Ex Vice Chairman of PC Jeweller). He was authorised by his sister in law (Noticee No.1), to trade on her behalf in respect of her trading account maintained with stock broker Karvy Stock Broking Limited ( Karvy ). Noticee No.2 and Noticee No.3 are paternal cousins. From the nature of relationship that existed between Noticee No.3 and Noticee No.2, Noticee No.1, Padam Chand Gupta and Noticee No.5, it would reasonably appear that Noticee no. 3 would have access to UPSI-I and UPSI-II, the SCNs allege that Noticee no. 3 is an insider in terms of 2(1)(g)(i) r/w. Reg, 2(1)(d)(i) of PIT Regulations, 2015. Additionally, from the analysis of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jeweller during the Investigation Period is tabulated below: Table-VIII: (a) Day-wise Trading in the account of Noticee No.1 Date Buy Volume Sell Volume Avg. Buy Price ( Rs. ) Avg. Sell Price ( Rs. ) Net Volume Buy Value ( Rs. in lacs) Sell Value ( Rs. in lacs) % activity in this scrip compared to all other scrips traded by entity UPSI-I : Pre-UPSI Period-I (April 02, 2018 to April 24, 2018) 02-Apr-18 - 3,60,000 - 313.70 3,60,000 - 1,129.33 100% 03-Apr-18 - 4,40,000 - 313.70 4,40,000 - 1,380.28 04-Apr-18 - 1,00,000 - 298.73 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 443.53 23-Apr-18 - 6,33,855 - 296.71 6,33,855 - 1,880.72 24-Apr-18 - 25,238 - 290.00 25,238 - 73.19 No trades observed during UPSI Period-I(April 25, 2018 to May 10, 2018) and Post-UPSI Period-I (May 11, 2018 to May 31, 2018) UPSI-II : Pre-UPSI Period-II (June 22, 2018 to July 06, 2018) 06-Jul-18 - 1,00,000 - 130.51 1,00,000 - 130.48 100% UPSI Period-II (July 07, 2018 to July 13, 2018) 09-Jul-18 5,000 1,05,000 131.74 131.64 1,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5,000 15,05,000 15,00,000 o) Investigation observed that Noticee No.1 traded from her trading accounts from April 02, 2018 i.e the day from which off market transfer of shares from Padam Chand Gupta s account to her demat account (NSDL) started and continued till April 24, 2018 (preliminary discussion on the proposal of buyback of shares at ₹ 350/- per share started on April 25, 2018 as per CFO s reply dated June 17, 2019). Average price of shares traded by Shivani Gupta during the period i.e. upto April 24, 2018 was ₹ 303.82. No trades were observed in the trading accounts of Noticee No.1 during the months of May and June 2018. However, sell trades were executed in the scrip of PC Jeweller from July 06, 2018 (SBI communicated their refusal to the buyback on July 07, 2018) till July 13, 2018, the day on which the PC Jeweller s Board approved the withdrawal of buyback proposal and the Company informed the same to stock exchanges on the same day after market hours. Noticee No.1 through her three trading accounts (orders placed by Noticee No.1, Noticee No.2 and Noticee No.3) had trad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2018 to May 31, 2018) Derivatives (Futures) 29-May-18 1,50,000 - 171.65 1,50,000 257.48 - 63% 31-May-18 - 1,50,000 - 168.71 1,50,000 - 253.06 31-May-18 1,50,000 - 169.58 1,50,000 254.36 - UPSI-II : UPSI Period-II (July 07, 2018 to July 13, 2018) Derivative (Futures) 11-Jul-18 - 2,25,000 - 128.92 2,25,000 - 290.07 100% 13-Jul-18 - 3,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Total Buy Value (in Rs. ) Total Sell Value (in Rs. ) Value of Futures as on 16/07/18 (in Rs. ) Unlawful Loss avoided / Profit earned (in Rs. ) (A) (B) (C) (D) E (F = A x C) (G = B x D) (H = B x E) (I) 1 Quick Developers Pvt Ltd. - 2,25,000 11-Jul-18 - 128.92 89.00 - 2,90,07,000.00 2,00,25,000.00 89,82,000.00 (I = G H) 2 3,00,000 20-Jul-18 3,00,000 13-Jul-18 75.41 119.76 - 2,26,23,000.00 3,59,28,000.00 - 1,33,05,000.00 (I = F - G) Total Profit earned 2,22,87,000.00 v) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 31-Jul-18 To Amit Garg by RTGS 2,00,00,000.00 1,18,18,317.84 w) Investigation observed from the KYC documents that Padam Chand Gupta, Noticees No.1 to 3 and 5 share common residential address and hold trading and demat account with Karvy. x) In view of the above, the SCNs allege that Padam Chand Gupta and Noticee No.5 have communicated UPSI-I II to Noticee No.1, Noticee No.2, Noticee No.3 and Noticee No.4 in violation of Section 12A(e) of SEBI Act, 1992 and Regulation 3(1) of PIT Regulations, 2015. However, owing to the death of Shri Padam Chand Gupta on January 28, 2019, no action has been proposed by the SCNs against him. y) Investigation observed from the trading pattern and timing of trades, executed by Noticee no. 1, 2 and 3 (through the trading account of Noticee no. 1) coupled with the proximity that Noticee no. 1, 2 and 3, had to Late Shri Padam Chand Gupta and Noticee no. 5, that Noticee No.1, Noticee No.2 and Noticee No.3 were in the knowledge of events taking place in PC Jeweller with regard to the buyback proposal and its withdrawal and therefore concluded that trades ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rket and prohibiting him from buying, selling or otherwise dealing in securities for an appropriate period. dd) The SCN, separately, called upon Noticees No.1 to 5 to show cause as to why appropriate penalty should not be imposed upon them under Sections 11B(2) read with 15G of SEBI Act, 1992 for the alleged violations, mentioned above. 5. The Noticees undertook inspection of documents on February 8, 2020.The Noticee no. 1 to 4 filed their combined reply dated March 5, 2020 to the impounding order and also a combined reply dated August 20, 2020 to the SCN and the Impounding Order. The Noticee no. 5 has filed his reply dated February 23, 2020 to the Impounding Order and reply dated August 7, 2020 to the SCN. All the Noticees were granted the opportunity of personal hearing in the matter on November 19, 2020, December 14, 2020, December 17, 2020 and December 24, 2020. All the Noticees sought adjournment on the earlier three hearings dates i.e. November 19, 2020, December 14, 2020, December 17, 2020 and the matter finally came to be heard on December 24, 2020. Noticee no. 5, has also filed written submissions in the matter on December 28, 2020. 6. The Noticee no. 1 to 4 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total of 57,14,182 shares of the Company to Noticee no. 1 during the FY 2016-17 and 2017-18, and Late Shri Padam Chand Gupta offered a total of 1,03,00,000 shares of the Company to Noticee no. 1 on April 2, 6, 10, 13, 17 and 20, 2018. Thus, in pursuance of the aforesaid Family Arrangement, Noticee no. 1 received a total of 1,60,14,182 shares of the Company. Evidently, the Family Arrangement dated April 10, 2015 was made due to estrangement between Noticee no. 2 and his family and the rest of the Param Chand Gupta family. In furtherance of the Family Arrangement dated April 10, 2015 and in order to secure the future of the family of Noticee no. 2, Noticee no. 1 sold the shares of the Company that were gifted to her by Smt. Krishna Devi and Late Shri Padam Chand Gupta. Noticee no. 2 also transferred shares of the Company held by him to his wife s account by way of Gift and these too were sold by Noticee no. 1. A total of 15.05 Lakh shares were sold by Noticee no. 1 during the UPSI Period-II. ii. In order for SEBI to establish that the Noticee no. 1 to 4 are connected persons , SEBI would have demonstrated that: I. The persons in question were office bearers of the Com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in another building at 1-C, Court Road, Civil Lane, Delhi 110054, alongwith Shri Amar Chand Garg and his family. In fact their address the extra words Front Side after the words 1-C , in order to indicate the separate building. Shri Amar Chand Garg was not associated with the Company. In any capacity at the relevant time and is therefore, neither an insider nor a connected person qua the Company in terms of Reg. 2(1)(d) of PIT Regulations, 2015. Shri Amar Chand Garg stepped down as Vice- Chairman of the Company in September 2011, over a year before the Company was listed. Therefore, the link sought to be established between him and Sri Amit Garg is absurd. Therefore, since Noticee no. 1, 2 and 3, are not connected persons , they also cannot be insiders under Reg. 2(1)(g)(i) of PIT Regulations, 2015. As far as, Reg. 2(1)(g)(ii) is concerned, SEBI would have to demonstrate that the said Noticees, despite not being connected persons , were in possession of or had access to UPSI. No material to this effect has been shown by SEBI. vi. Noticee no. 3 and his wife, were equal shareholders of Noticee no. 4, since May 29, 2015. They are not directors of Noticee no. 4 since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icee no. 1 are concerned, the same cannot be said to be motivated by any knowledge of the UPSI owing to the estrangement between Noticee no. 2 and Late Shri Padam Chand Gupta. IV. Noticee no. 3 was not an insider qua the Company and in any event, he did not trade in the shares of the Company during the relevant period. 7. The Noticee no. 5 vide his reply dated February 23, 2020 and August 7, 2020, submissions at the personal hearing held on December 24, 2020 and written submissions dated December 28, 2020, has raised the following key contentions to the allegations in the SCNs: i. FOUNDATIONAL FACTS NOT PROVED TO RAISE PRESUMPTION: SEBI has failed to place on record any material to prove that Noticee Nos. 1-4 are connected person to Noticee No. 5 as required by Regulation 2(1)(d)(ii)(a) read with 2(1)(f) of the PIT Regulations, 2015; as none of the said Noticees are financially dependent or consult the Noticee No. 5 in any decision relating to trading in securities. As per the law laid down by the Hon ble Supreme Court in Chintalapati Srinivasa Raju v SEBI, (2018) 7 SCC 443, merely because a person is related to a connected person that itself cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... diate relatives of Noticee No. 5. It was incumbent on SEBI to establish that these Noticees had frequent and relevant communication with the Noticee No. 5 before drawing the inference of alleged communication of UPSI-I and UPSI-II On the contrary the Noticee no. 5 has brought on record the following facts which contradict each and every assertion of SEBI against the Noticee No. 5: Family settlement between Mr. Amar Chand Garg with the joint family comprising of the three brothers in the year 2011 resulted in the family being separated in two branches. Thereafter Noticee no. 2 and his family separated from Mr. Padam Chand Gupta in the year 2015. Consequently, Noticee no. 2 resigned from the post of President (Gold Manufacturing) held by him in the Company on 31.03.2015, which resulted in the Noticee No. 1 2 severing their ties with PC Jeweller. Due to the aforesaid two estrangements, the Noticee No. 5 did not regularly interact with the families of both Mr. Amar Chand Garg (including Noticee No.3) and Noticees No. 1 2. Moreover Noticee no. 2, Noticee no. 1 and Noticee no. 3 have never been directors in the Company, therefore, no occasion arose for Noticee No. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of this Act or the rules or the regulations made thereunder; (f) . Relevant extract of provisions of PIT Regulations, 2015: Definitions. 2. (1) In these regulations, unless the context otherwise requires, the following words, expressions and derivations therefrom shall have the meanings assigned to them as under: (d) connected person means,- (i) any person who is or has during the six months prior to the concerned act been associated with a company, directly or indirectly, in any capacity including by reason of frequent communication with its officers or by being in any contractual, fiduciary or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship between himself and the company whether temporary or permanent, that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access. ((ii) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be deemed to be connected persons unless the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erson; or ii) in possession of or having access to unpublished price sensitive information; NOTE : Since generally available information is defined, it is intended that anyone in possession of or having access to unpublished price sensitive information should be considered an insider regardless of how one came in possession of or had access to such information. Various circumstances are provided for such a person to demonstrate that he has not indulged in insider trading. Therefore, this definition is intended to bring within its reach any person who is in receipt of or has access to unpublished price sensitive information. The onus of showing that a certain person was in possession of or had access to unpublished price sensitive information at the time of trading would, therefore, be on the person leveling the charge after which the person who has traded when in possession of or having access to unpublished price sensitive information may demonstrate that he was not in such possession or that he has not traded or or he couldnot access or that his trading when in possession of such information was squarely covered by the exonerating circumstances. Communication ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ermining whether a person has violated the regulation. He traded when in possession of unpublished price sensitive information is what would need to be demonstrated at the outset to bring a charge. Once this is established, it would be open to the insider to prove his innocence by demonstrating the circumstances mentioned in the proviso, failing which he would have violated the prohibition. 10. Section 11(1) of the SEBI Act, 1992 provides that it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. Section 11(2) provides that prohibiting insider trading in securities may be one of the measures, for this purpose. In discharge of its duty under Section 11(1) readwith Section 11(2)(g), SEBI had framed SEBI (Prohibition of Insider Trading) Regulations, . Further, Section 12A of SEBI Act, 1992, as introduced by SEBI (Amendment) Act, 2002, in Clause (d) provides that no person shall directly or indirectly in indulge in insider trading. The word indulge used in this Clause is of wide import. This Clause seeks to prohibit any assistance/aiding o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngs, it has to be determined whether Noticees no. 1 to 4 have violated Regulations 4(1) and (2) of the PIT Regulations, 2015. If yes, then, Noticees no. 1 to 4 can be said to be in violation of Section 12A(d) and (e) of the SEBI Act, 1992. Similarly, it has to be determined whether Noticee no. 5 has violated Regulation 3(1) of PIT Regulations, 2015. If yes, then, Noticee no. 5 can be said to be in violation of Section 12A(e). In this order, determination of these violations has been carried out under the following heads: A. Whether there were UPSI-I and UPSI-II, as alleged in the SCNs? B. Whether Noticees are insider , as alleged in the SCNs? C. Whether Noticee no. 1 to 4 has traded in the securities of P C Jeweller when in possession UPSI- I and II and Noticee no. 5 communicated UPSI -I and II to Noticee no. 1 to 4, as alleged in the SCNs? A. Whether there were UPSI-I and UPSI-II, as alleged in the SCN? 12. The information in respect of proposed buy back of upto 1,21,14,285 fully paid-up equity shares of ₹ 10/- each at a price of ₹ 350/- per equity share of PC Jeweller has been identified by the SCNs as UPSI-I. And the information in respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the company which are extinguished, therefore, consequent to a buy-back by a company, its paid-up capital stands reduced which results into change in capital structure of the company. In terms of Regulation 2(1)(n)(iii) of the PIT Regulations, 2015, information pertaining to change in capital structure of a company is per se treated as UPSI. Thus, in the present case, information pertaining to the decision taken by the board of directors of the Company in its meeting held on May 10, 2018 regarding buy-back of the shares of the Company was a price sensitive information and before its disclosure to the stock exchanges on May 10, 2018 was UPSI-I, as alleged in the SCN. I note that ppreliminary discussion among MD, ED, COO and CFO in relation to the proposal for buyback of fully paid-up equity shares of the Company took place on April 25, 2018. Therefore, I find that UPSI-I came into existence on April 25, 2018. The said information remained UPSI-I till its disclosure to stock exchanges on May 10, 2018. In view of this, I find that the period from April 25 to May 10, 2018 is the period of UPSI-I, as alleged in the SCNs. 14. Regarding UPSI-II, as alleged in the SCNs, I note that o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mation within the meaning of Regulation 2(1)(n)(iii), as discussed in the previous para, as the said information was pertaining to the change in the capital structure of the Company. As the said decision of buy-back of shares by the Company was abandoned by the Company on July 13, 2018 when its board of directors decided to withdraw the buy-back offer, therefore, as a corollary, I find that the said information was also an unpublished price sensitive information within the meaning of Regulations 2(1)(n)(iii) of the PIT Regulations, 2015 as being an information pertaining to the change in capital structure of the Company. I find that as mentioned above, the said unpublished price sensitive information which has been identified as UPSI-II in the SCNs, came into existence on July 07, 2018 when the State Bank of India refused to give its NOC to the proposed buy-back of the Company and remained so till it was disclosed to the stock exchanges by the Company on July 13, 2018. Thus, I find that the period from July 07, 2018 to July 13, 2018 is the period of UPSI-II, as alleged in the SCNs. With regards to UPSI-I as well as UPSI-II, I note that the Noticees have not disputed the identificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the SCNs as a connected person in terms of Regulation 2(1)(d)(i) of PIT Regulations, 2015. As per Regulation 2(1)(d)(i), connected person means any person who is associated with the company during the past six months, in any capacity including by reason of (i) frequent communication with the officers of the company; or (ii) being in any contractual, fiduciary or employment relationship; or (iii) being a director, officer or an employee of the company; or (iv) holds any position including a professional or business relationship between himself and the company; that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access. As per Regulation 2(1)(d)(i), if a person is found to be associated with a company during the past six months of the concerned act, in the ways mentioned thereunder, then such person becomes connected person. Regulation 2(1)(d)(i) envisages that certain associations with the company, in the ways mentioned in the definition, as allowing access or reasonable expected to allow access, to UPSI. It is worth to mention that ways of association mentioned in Regulation 2(1)(d)(i) ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lating to trading in securities, are also to be fulfilled. In the present case, allegations made in the SCNs show that Noticee no. 1, 2 and 3 have been shown as relatives of Late Shri Padam Chand Gupta and Noticee No. 5, who were the connected persons and were also insider as possessing UPSI-I and II, however, the SCNs do not allege that these Noticees were either financially dependent on or consulted with, in taking decisions relating to trading in securities, Late Shri Padam Chand Gupta and/or Noticee no. 5. Thus, the SCNs treats these Noticees as connected person under Regulation 2(1)(d)(i) instead of Regulation 2(1)(d)(ii). In my view, unless the persons belonging to the categories specified in Regulation 2(1)(d)(ii), satisfies the requirements under 2(1)(d)(i), separately, their deemed connection with the company concerned has to be tested on the touchstone of the parameters laid down under Regulation 2(1)(d)(ii). I note that as per the allegation made in the SCNs, Noticee no. 1, 2, 3 and 4 do not fall in any of the categories of association with the Company as envisaged in Regulation 2(1)(d)(i). I also note that it is not the case in the SCN that Noticee no. 1, 2 and 3 we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Gupta s family. Since then he and his wife had nothing to do with the business of the Company. Due to the aforesaid two estrangements the Noticee No. 5 claims that he did not regularly interact with the families of both Mr. Amar Chand Garg (including Noticee No.3) and Noticees No. 1 2. Moreover, according to Noticee no. 5 - Noticee no. 2, Noticee no. 1 and Noticee no. 3 have never been directors in the Company, therefore no occasion arose for Noticee No. 5 to communicate with the aforesaid three individuals either before or after or during the alleged UPSI period in respect of the business of the Company. 20. I note that the SCNs states that Late Shri Padam Chand Gupta, Notice No. 5 and Shri Amar Chand Garg are the real brothers. Here it is worth to point out that Late Shri Padam Chand Gupta was the Chairman and promoter of PC Jeweller, who alongwith Persons Acting in Concert held 60.24% in PC Jeweller. Noticee no. 5 was the MD of PC Jeweller. Both these persons were having UPSI-I and II. Noticee no. 2 is the son of Late Shri Padam Chand Gupta and nephew of Noticee no. 5. Noticee no. 1 is the wife of Noticee no. 2 and daughter-in-law of Late Shri Padam Chand Gupta. Not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso appears that Noticee no. 2 has paid rent worth ₹ 66 Lakhs to PC Jeweller. (ii) From the Annual Report of PC Jeweller for the FY 2018-19, I find that Noticee no. 2 was the nominee of the demat account of Late Shri Padam Chand Gupta and after the death of Shri Padam Chand Gupta, the holdings of the deceased in PC Jeweller are being held by Noticee no. 2 as the nominee. I am not implying that a nominee is the successor, but being a nominee is a position of trust and responsibility. If the relations between the father and son were so estranged since 2015, why would the Late Shri Padam Chand Gupta choose Noticee no. 2 as his nominee. He always had the option to make Mr. Nitin Gupta (son) or Smt. Krishna Devi (wife) to be the nominee. (iii) Noticee no. 1, 2, 3 and 5 share the same residential address i.e. 1-C, Court Road, Civil Lines, Delhi 110054 albeit they reside in different dwelling units within the same address, as submitted by them. Thus, the claims of Noticee no. 5 that Noticee no. 2 and his family ceases to have any connection/ association with PC Jeweller or his claim that he has no occasion to talk to Noticee no. 1, 2 and 3 since, they are not asso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y in this scrip compared to all other scrips traded by entity Pre-UPSI Period-I (April 02, 2018 to April 24, 2018) 02-Apr-18 - 3,60,000 - 313.70 3,60,000 - 1,129.33 100% 03-Apr-18 - 4,40,000 - 313.70 4,40,000 - 1,380.28 04-Apr-18 - 1,00,000 - 298.73 1,00,000 - 298.73 05-Apr-18 - 5,50,000 - 299.35 5,50,000 - 1,646.42 06-Apr-18 - 7,00,000 - 297.90 7,00,000 - 2,085.31 09-Apr-18 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1,00,000 - 130.51 1,00,000 - 130.48 100% UPSI Period-II (July 07, 2018 to July 13, 2018) 09-Jul-18 5,000 1,05,000 131.74 131.64 1,00,000 6.59 138.22 100% 10-Jul-18 - 55,000 - 132.50 55,000 - 72.87 11-Jul-18 - 3,45,000 - 129.01 3,45,000 - 445.08 12-Jul-18 - 2,00,000 - 124.66 2,00,000 - 249.32 13-Jul-18 - 8,00,000 - 120.82 8,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticee no. 1) came into possession of UPSI-II and immediately, started selling the shares of PC Jeweller to avoid loss that may arise in future due to the negative news of non-receipt of NOC for buyback from SBI and subsequent withdrawal of buyback offer by PC Jeweller resulting into fall in price of shares of PC Jeweller. vi) No trades seen during post-UPSI Period-II. vii) During UPSI Period-II, Noticee no. 1 had net sold 15,00,000 shares in the scrip which constituted 15.79% of the total market deliverable quantity. 25. In view of the above facts and circumstances, it is clear that Noticee no. 1 along with Noticee no. 2 and 3 (both of whom traded on behalf of Noticee no. 1) were in the know-how of the events taking place in the Company with regard to the buyback proposal and its withdrawal. Thus, I find that Noticee no. 1, 2 and 3 had possession of UPSI-I and UPSI-II and they were insiders in terms of Regulation 2(1)(g)(ii) of PIT Regulations, 2015. 26. Noticee no. 4 has contended that it did not have access to UPSI-I and UPSI-II by presenting the following: i) As on June 30, 2018 and before September 30, 2018, Noticee no. 4 did not hold any shares of PC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... im and Noticee no. 4, by calling them as an inconsequential and inconclusive evidence. However, from all the attendant facts and circumstances, I find that Noticee no. 4 was a wholly owned and controlled company of Noticee no. 3 and his family and Noticee no. 3 used Noticee no. 4 as a front entity for trading in the securities of PC Jeweller. 29. I shall now examine the trading pattern of Noticee no. 4 during the UPSI Period-II, which is as under: a. I note that Noticee No. 4 had 100% concentration in trading in the scrip Futures of PC Jeweller during the UPSI Period-II. b. Noticee No. 4 already had an open long position of 2.25 Lakh futures of PC Jeweller which was squared off with a short position on July 11, 2018, i.e. during UPSI Period-II. I note that by closing the open position at a time when UPSI-II was still not public, Noticee no. 4 has avoided a loss of ₹ 89.82 lakh. c. During the UPSI Period-II, Noticee No.4 opened another short position of 3 Lakh futures of PC Jeweller on July 13, 2018. I note that UPSI-II became public only after market hours on July 13, 2018. It is pertinent to note that a trader opens a short position only in anticipation o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that neither Noticee no. 2, nor Noticee no. 3, have disputed the fact that certain trades (specifically mentioned in the SCN and its Annexure), in the scrip of PC Jeweller, were executed by them through the trading accounts of Noticee no. 1 during the Investigation Period. 33. I note that Regulation 4(1) of the PIT Regulations, 2015 prohibits trading by insiders when in possession of UPSI. As discussed earlier, in terms of Regulation 2(1)(g), an insider can be either a connected person or a person who is in possession of or having access to UPSI. I note that the definition of connected person in Regulation 2(1)(d) of PIT Regulations, 2015 is based on the premise that in case of both type of connected persons falling under either Regulation 2(1)(d)(i) or under Regulation 2(1)(d)(ii), association mentioned in the ways mentioned therein allows access or reasonably expected to allow to access, to UPSI. Once a person is found to be connected person than by virtue of Regulation 2(1)(g)(i) such person becomes insider . When a connected person is charged with violation of Regulation 4(1) of PIT Regulations, 2015 i.e. trading by insider when in possession of UPSI, then by virtue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ath of Late Shri Padam Chand Gupta, no action has been proposed by the SCNs against him. I note that Noticee no. 5 was MD of PC Jeweller. Being MD, Noticee no. 5 was in-charge of the day to day control of the Company. Noticee no. 5 was duly involved in all the discussions/decisions pertaining to the proposed buy-back, NOC from SBI and subsequent withdrawal of buy-back. As observed in the paragraph 31 above, Noticee no. 5 has been found to be in possession of UPSI-I and UPSI-II. The close relationship amongst the Noticees have already been discussed above. Further, as noted in the previous paragraph, the trading pattern of Noticee no. 1, during the Investigation Period clearly indicate that Noticee no. 1, 2 and 3 were in possession of UPSI-I and UPSI-II. Therefore, I note that Noticee no. 1, 2 and 3 could not have got possession of UPSI-I and UPSI-II except from communication by Noticee no. 5 and Late Shri Padam Chand Gupta. Hence, I find that Noticee no. 5 has violated provision of Regulation 3(1) of PIT Regulations, 2015 which prohibits the communication of any UPSI by an Insider, except if it is in furtherance of some legitimate purpose or in discharge of any legal obligation. I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77; 2,00,25,000.00 LOSS AVOIDED (APPROX.) [(I)-(II) = (X)] ₹ 89,82,000.00 TABLE XIV NOTIONAL GAINS MADE BY NOTICEE NO. 4 PARTICULARS NO. OF FUTURES SOLD WHILE IN POSSESSION OF UPSI II 3,00,000 X WEIGHTED AVERAGE SALE PRICE ₹ 119.76 SUBTOTAL (I) ₹ 3,59,28,000.00 ( ) LESS NO. OF FUTURES SOLD WHILE IN POSSESSION OF UPSI II 3,00,000 X (MULTIPLY) CLOSING PRICE ON THE FOLLOWING TRADING DAY AFTER UPSI II BECAME PUBLIC ₹ 89.00 SUBTOTAL (II) ₹ 2,67,00,000.00 NOTIONAL GAINS (APPROX.) [(I)-(II) = (Y)] ₹ 92,28,000.00 TOTAL OF NOTIONAL LOSS AND GAINS BY NOTICEE NO. 4 (APPROX.) [(X)+(Y)] ₹ 1,82,10,000.00 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve disputed the value of the alleged unlawful gain made or loss avoided by them alongwith calculation of interest that has been shown in the interim order. 39. In view of the violation of the provisions of the PIT Regulations, 2015 and SEBI Act, 1992 by the Noticees, as noted above, I find that the Noticees are liable for issuance of appropriate directions for debarment from accessing the securities market and dealing in securities. Further, I find that directions under Section 11B(1) of the SEBI Act, 1992 be issued against Noticee no. 1, 2 and 3 to disgorge an amount of ₹ 6,17,60,184.13/-, jointly and severally, and against Noticee 3 and 4 to disgorge an amount of ₹ 2,13,23,161.64/-, jointly and severally. 40. I note that violations committed by the Noticees also renders them liable for imposition of penalty under Section 15G readwith Section 11B(2) of SEBI Act, 1992, which provide as under: SEBI Act, 1992: Penalty for insider trading. 15G. If any insider who,- (i) either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of any unpublished price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of penalty under Section 15J of SEBI Act, 1992, Board is required to have due regard to the following factors, namely: - (i) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (ii) the amount of loss caused to an investor or group of investors as a result of the default; (iii) the repetitive nature of the default. 42. In the instant case, I find that for the unlawful gains made and unlawful loss avoided by Noticee no.1 and 4, for their impugned trades during UPSI Period-II appropriate directions of disgorgement of unlawful gains made/loss avoided along with penal interest are being issued. I note that material available on record does not bring out any loss caused to any specific investor or a group of investors, as a result of violations committed by Noticee no. 1 to 5 with respect to UPSI-I and UPSI-II. I note that there is no material available on record to indicate that the violations committed by Noticee no. 1 to 5 are repetitive in nature. Directions: 43. In view of the above, I, in exercise of the powers conferred upon me under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of SEB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ra Kurla Complex, Bandra (E), Mumbai -400 051 and also to e-mail id:- [email protected] in the format as given in table below: Case Name Name of Payee Date of Payment Amount Paid Transaction No. Payment is made for: (like penalties/ disgorgement/ recovery/ settlement amount/ legal charges along with order details) 44. The restraints/ prohibition imposed in paras 43(i) and (ii), on the respective Noticees, shall run, concurrently. The obligation of the Noticees restrained/ prohibited by this Order, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, are allowed to be discharged irrespective of the restraint/ prohibition imposed by this Order. Further, all open positions, if any, of the Noticees, restrained/ prohibited in the present Order, in the F O segment of the recognised stock exchange(s), are permitted to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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