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TMI Blog2022 (5) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... ts alongwith interest at the rate of 12% p. a. from November 30, 2017 for the insider trading as well as to pay the penalty amount aggregating to Rs. 52 lacs. 2. The appellant nos. 1 was the chairman and the managing director of the company at the relevant moment of time. The appellant nos. 2 and 3 are the daughters of the appellant nos. 1. The company was listed on BSE Ltd. (hereinafter referred to as 'BSE') as well as on the National Stock Exchange of India Ltd. (hereinafter referred to as 'NSE'). Since 2016, the company was facing financial difficulties on account of slowdown in the jewellery market. The sales turnover of the company dropped from Rs. 1356 crores as on March 31, 2016 to Rs. 435 crores in the year ended March 31, 2018. This resulted in the share price of the scrip of the company dropping from Rs. 57.50 in the year 2015 to Rs. 20.25 in October / November 2017. Since the company was facing severe financial crunch and was under a constraint to repay its loan obligations, the appellant nos. 1, as a promoter, decided to sell his shareholding and shareholding of the appellant nos. 2 and 3 to enable them to infuse funds in the company so that the liabilities could be di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e matter thereafter. Further, this Tribunal directed the appellants to deposit the alleged amount towards avoided losses in an interest bearing escrow account with SEBI. 5. Based on the aforesaid directions of this Tribunal, the appellants filed its response and thereafter upon consideration of the material evidence on record, the impugned order was passed. The Whole Time Member (hereinafter referred to as 'WTM') found that the appellant nos. 1 was the managing director of the company and the appellant nos. 2 and 3 are the daughters of the appellant nos. 1 and were also the promoters of the company. The WTM found that the company had incurred a loss of Rs. 166.80 crores during the quarter ended September 2017 as compared to net loss of Rs. 6.62 crores during the quarter ended June 2017 which was an increase in the net loss by more than 25 times between the two consecutive quarters. The WTM further found that the quarterly financial results of the company for quarter ended September 2017 was disclosed to the stock exchanges after closing of the market on September 29, 2017. Further, the appellant nos. 1, being the chairman of the company was privy to the UPSI, namely, the financial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... results for the quarter ended September 2017 was not price sensitive information as per the Regulation 2(n) of the PIT Regulations. 8. On the other hand, the learned senior counsel for the respondent supported the judgment and contended that it was a clear case of insider trading as the appellants were in possession of the UPSI and had traded during the UPSI period. 9. At the outset, the appellants does not dispute that they were insiders as defined under the Regulation 2(g) read with Regulation 2(d) which defines "insider" and "connected person". Thus, it is not necessary for us to delve on this aspect. 10. The UPSI as provided under Regulation 2(n) means any information relating to a company or its security which is likely to materially affect the price of the securities and shall ordinarily include, namely, financial results, etc. It was urged that the word "ordinarily" does not mean that the financial results will always be considered as unpublished price sensitive information and would have to be considered on a case to case basis as to whether in the given circumstances the financial results were a price sensitive information or not. In this regard, we find that the losses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question was carried out pursuant to a statutory or regulatory obligation to carry out a bona fide transaction. (iv) the transaction in question was undertaken pursuant to the exercise of stock options in respect of which the exercise price was pre-determined in compliance with applicable regulations. (v) in the case of non-individual insiders :- (a) the individuals who were in possession of such unpublished price sensitive information were different from the individuals taking trading decisions and such decision making individuals were not in possession of such unpublished price sensitive information when they took the decision to trade; and (b) appropriate and adequate arrangements were in place to ensure that these regulations are not violated and no unpublished price sensitive information was communicated by the individuals possessing the information to the individuals taking trading decisions and there is no evidence of such arrangements having been breached; (vi) the trades were pursuant to a trading plan set up in accordance with regulation 5. Note : When a person who has traded in securities has been in possession of unpublished price sensitive information, h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd cancellation of orders placed a substantial strain on the business and financials of the company. The crash of the Chinese stock market in 2015 affected the global diamond market across the world as a result the company started defaulting in payment of interest against the working capital facilities of approximately Rs. 750 crores availed from several banks in November 2016. The appellants requested the consortium member banks for relief so as to secure working capital for larger orders, to avoid cancellation of those orders, but the banks refused to grant further loans which compelled the appellant nos. 1 to raise funds so as to avoid the company from being down-graded to a nonperforming asset. The WTM also noted that all the assets of the company were charged to the consortium banks and the appellant nos. 1 had pledged 40% of the shares as additional collateral. The appellant no. 1, thus, had no option but to sell his unencumbered shares of the company in order to raise some capital. The WTM further noted that total number of 29,75,000 shares of noticee nos. 1 were pledged with Comfort Fincap against the short term loan of Rs. 3 crores in addition to pledging shares having a v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oid further losses. In this regard, we find that the financial results were declared on November 29, 2017 on that date the closing price of the scrip of the company was Rs 21.60 per share. The declaration of the financial results on November 29, 2017 did not have a great impact in the price of the scrip on November 30, 2017. We find that the closing price of the scrip of the company on November 30, 2017 was Rs. 20.20 on NSE and Rs. 20.25 on BSE. Thus, there was hardly any price difference in the price of the scrip between 29th and 30th November 2017 and, therefore, it is incorrect to contend that the sale of the shares was made by the appellants for the purpose of avoiding further losses. 17. We are also find that the sale amount of the shares was not retained by the appellants for their personal use or gain. But the said money was infused in the company for its working capital. 18. In the light of the aforesaid, we are satisfied that the appellants have successfully discharged their burden under Regulation 4(1) of the PIT Regulations. We find that in the given circumstances, the appellants cannot be charged for insider trading. 19. For the reasons stated aforesaid, the impugned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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