BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 209 of 2011
Date of Decision : 31.01.2012
Mrs. Chandrakala
962, Poonamallee Road, C-Block
BBC Purnima Apartments,
Chennai – 600 084.
…Appellant
Versus
The Adjudicating Officer,
Securities and Exchange Board of India,
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051. …Respondent
Mr. Vinay Chauhan, Advocate for the Appellant.
Dr. (Mrs.) Poornima Advani, Advocate wi th Mr. Ajay Khaire and Ms. Rachita
Romani, Advocates for the Respondent.
CORAM : P.K. Malhotra, Member
S.S.N. Moorthy, Member
Per : P.K. Malhotra, Member
Whether the appellant is guilty of ‘insider trading’ is the short question that
arises for our consideration in this appeal filed under section 15T of the Securities and
Exchange Board of India Act, 1992 (for short the Act) against the order dated August
30, 2011 passed by the adjudicating officer of the Securities and Exchange Board of
India (the Board) holding the appellant guilty of violating regulations 3(i) and 4 of the
Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations,
1992 (the regulations) and imposing a monetary penalty of ` 8 lakhs on her.
- Facts of the case, in brief, are that the Board conducted investigations into the
rise in price and volume in the scrip of M/s. Rasi Electrodes Ltd. (the Company) 2
during the period from June 8, 2007 to July 20, 2007. The scrip of the company is
listed on the Bombay Stock Exchange Ltd. It was noted that certain promoter entities
had traded in the scrip duri ng the investigation period. It was further noticed by the
Board that the agenda for the board meeting to be held on June 30, 2007 was
discussed internally between Mr. B Popatlal Kothari, chairman and managing director
and Mr. G Mahavirchand Kochar, whole time director of the company. The agenda
was finalized between June 19 to 21, 2007. Th e rate of dividend was finalized in the
meeting held on June 30, 2007. The period of June 19 to 30, 2007 was considered as a
period when the information about the financial results and dividend was unpublished
price sensitive information. It was further noted by the Board that the agenda for the
board meeting regarding bonus issue to be held on July 25, 2007 was discussed
internally during the period July 15 to 17, 2007 and the agenda papers were circulated
on July 17, 2007. The period July 15 to 17, 2007 was considered to be the period
when information about the issue of bonus shares was unpublished price sensitive
information. The Board analyzed the trading details of the company related entities
who dealt in the scrip when the price sensitive information was unpublished and
noticed the trading details as under:
S.
No
Entities 19/6/2007-30/6/2007 1/7/2007-6/7/2007 Client Name/
Code
Buy
Qty
Avg.
Buy
Price
( `)
Sell
Qty
Avg.
Sell
Price
( `)
Net
Buy
Qty
Buy
Qty
Avg.
Buy
Price
(“)
Sell
Qty
Avg.
Sell
Price
(“)
Net Sell
Qty
1 Ranjana
Kothari
(R2652) and
(N123145)
17505 25.54 1000 30.35 16505 10349 32.15 – – (10349)
2 Uttam Kumar
Kothari
(U470)
10060 26.02 – – 10060 – – 400 31.75 400
3 Chandrakala
(C999) and
(K2SW47)
4065 26.38 6300 25.79 (2235) 3550 31.41 1611 32.63 (1939)
4 P. Kashyap
Kothari
(P0144)
3700 25.25 – – 3700 – – – – –
The details of the appellant’s trading transactions were noted by the Board as under:
S. No Buy Date Buy
Qty
Buy
Value
Avg.
Buy
Price
Sell Date Sell
Qty
Sell
Value
Avg.
Sell Price
1 11/06/2007 60 1374 22.90
2 12/6/2007 1119 24768 22.12
3
3 15/6/2007 300 7503 25.01
4 20/6/2007 850 22474 26.44
5 21/6/2007 1300 33786 25.99
6 25/6/2007 1000 27250 27.25 25/6/2007 500 13550 27.10
7 26/6/2007 1100 29105 26.46
8
28/6/2007 900 22500 25.00 28/6/2007 3300 83550 25.32
9 29/6/2007 1315 35028 26.64 29/6/2007 100 2500 25.00
10
11 02/07/2007 1550 46198 29.81
12 03/07/2007 1400 45613 32.58
13 04/07/2007 200 6800 34.00
14 05/07/2007 200 6378 31.89
15 6/7/2007 600 19700 32.83 06/07/2007 1211 39383 32.52
16 07/07/2007 150 4908 32.72
13/7/2007 2000 86000 43
16/7/2007 150 6683 44.55 16/72007 2000 95000 47.5
17 17/7/2007 2000 97000 48.5 17/7/2007 4250 215450 50.69412
18 18/7/2007 5000 284500 56.90
19 19/7/2007 3600 221415 61.50 19/7/2007 9466 591830 62.52
20 20/7/2007 8000 494700 61.84 20/7/2007 1473 91031 61.80
Total 24484 1149329 46.94 30610 1506648 49.22
It was observed that the appellant is wife of Uttam Kumar Kothari who is the
promoter of the company and is brothe r of B Popatlal Kothari, chairman and
managing director and Ranjit Kumar Kothari, director of the company. Therefore,
according to the Board, the appellant was deemed to be a connected person with the
company and its directors who had access to unpublished price sensitive information
and hence an insider. The appellant is alle ged to have traded in the scrip of the
company based on the unpublished price sensiti ve information relating to financial
results, dividend and bonus issue. Hence, it was alleged that the appellant had
violated regulation 3(i), (i i) and 4 of the regulations . A show cause notice dated
March 11, 2011 was issued calling upon the appe llant to show cause as to why an
enquiry should not be held against he r and penalty imposed for the alleged
contravention of the regulations. The appellant denied the allegation. After
considering the reply of the appellant a nd granting personal hearing, the adjudicating
officer found the appellant guilty and, by the impugned order dated August 30, 2011,
imposed penalty as stated above. Hence, this appeal.
- We have heard the learned counsel fo r the parties who have taken us through
the records. It was submitted by the learned counsel for the Board that the case is
squarely covered by the earlier order of this Tribunal in the case of Ranjana R Kothari
(Appeal no.125 of 2011, decided on August 26, 2011) where the Tribunal has upheld 4
the order of adjudicating officer of the Bo ard against other three related entities
holding them guilty of the charge of inside r trading. The appellant is the wife of
Uttam Kumar Kothari who is the brother of B Popatlal Kothari, chairman and
managing director of the company and Ra njit Kumar Kothari, director of the
company. She also stays at the same addr ess as that of her husband and of the
chairman and managing director of the co mpany. As such, she is deemed to be a
connected person with the company and its directors and had access to unpublished
price sensitive information. Since she has traded while in possession of unpublished
price sensitive information the order of th e adjudicating officer needs to be upheld.
On the other hand, learned counsel for the appellant argued that the case of the
appellant stands on an entirely different footing and is not covered by the earlier order
of the Tribunal referred to above. In s upport of this contention, learned counsel for
the appellant submitted that Mr. Uttam Kumar Kothari, husband of appellant had
relinquished the interest in the company as promoter as early as 31 st March, 2005.
This is evident from the note below the intimation of details of the shareholders to the
stock exchanges furnished in terms of regulation 8(3) of the Securities and Exchange
Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997.
Since Mr. Uttam Kumar Kothar i, brother of the chairman and managing director of
the company and husband of the appellant, ceas ed to be promoter of the company in
2005, he was only a shareholder of the comp any and had no information about the
day to day working of the company. Theref ore, his wife, the appellant before us,
cannot be said to be a person “deemed to be a connected person”. Regarding
residential address of her husband and chairman and managi ng director of the
company, it was submitted that the address of the appellant is different from that of
the chairman and managing director of the company. They stay in different
apartments constructed on the same plot which has been mistaken as same address. It
was further submitted that the appellant’s tr ades were independent of the corporate
announcements and were never induced / driven by the said corporate announcement.
The appellant was trading in the ordinary course according to her own commercial
wisdom prior to the corporate announcements, during the said corporate
announcements and post corporate announc ements. The appellant had not only 5
bought the shares but had also sold the shares which belies the allegation that she was
acting on the basis of unpublished price sensitive information. - With a view to appreciate the rival contentions, it is necessary to refer to the
relevant provisions of the regulations wh ich have a bearing on the allegation against
the appellant and these provisions are reproduced hereunder for facility of reference:
“2(c) “connected person” means any person who—
(i) is a director, as defined in clause (13) of section 2 of
the Companies Act, 1956 (1 of 1956), of a
company, or is deemed to be a director of that
company by virtue of sub-clause (10) of section 307
of that Act; or
(ii) occupies the position as an officer or an employee
of the company or holds a position involving a
professional or business relationship between
himself and the company whether temporary or
permanent and who may reasonably be expected to
have an access to unpublished price sensitive
information in relation to that company.
Explanation :—For the purpose of clause (c), the words
“connected person” shall mean any person who is a
connected person six months pr ior to an act of insider
trading;
(e) “insider” means any person who,
(i) is or was connected with the company or is deemed
to have been connected with the company and is
reasonably expected to have access to unpublished
price sensitive information in respect of securities
of company, or
(ii) has received or has had access to such unpublished
price sensitive information ;
(h) “person is deemed to be a connected person”, if such
person—
(i) is a company under the same management or group,
or any subsidiary company thereof within the
meaning of sub-section (1B) of section 370, or sub-
section (11) of section 372, of the Companies Act,
1956 (1 of 1956), or sub-clau se (g) of section 2 of
the Monopolies and Restrictive Trade Practices Act,
1969 (54 of 1969) as the case may be;
(ii) is an intermediary as specified in section 12 of the
Act, Investment company, Trustee Company, Asset
Management Company or an employee or director
6
thereof or an official of a stock exchange or of
clearing house or corporation;
(iii) is a merchant banker, share transfer agent, registrar
to an issue, debenture tr ustee, broker, portfolio
manager, Investment Advisor, sub-broker,
Investment Company or an employee thereof, or, is
member of the Board of Trustees of a mutual fund
or a member of the Board of Directors of the Asset
Management Company of a mutual fund or is an
employee thereof who has a fiduciary relationship
with the company;
(iv) is a Member of the Board of Directors, or an
employee, of a public financial institution as
defined in section 4A of the Companies Act, 1956;
(v) is an official or an em ployee of a Self-regulatory
Organisation recognised or authorised by the Board
of a regulatory body;
(vi) is a relative of any of the aforementioned persons;
(vii) is a banker of the company.
(viii) relatives of the connected person; or
(ix) is a concern, firm, trust, Hindu undivided family,
company or association of persons wherein any of
the connected persons men tioned in sub-clause (i)
of clause (c), of this regulation or any of the
persons mentioned in sub-cl ause (vi), (vii) or (viii)
of this clause have more than 10 per cent of the
holding or interest;
(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) periodical financial results of the company;
(ii) intended declaration of dividends (both interim and
final);
(iii) issue of securities or buy-back of securities;
(iv) any major expansion plans or execution of new
projects.
(v) amalgamation, mergers or takeovers;
(vi) disposal of the whole or substantial part of the
undertaking; and
(vii) significant changes in polic ies, plans or operations
of the company;
7
(k) “unpublished” means information which is not published
by the company or its agents and is not specific in nature.
Explanation.—Speculative reports in print or electronic
media shall not be considered as published information.
- No insider shall—
(i) either on his own behalf or on behalf of any other
person, deal in securities of a company listed on any
stock exchange when in possession of any
unpublished price sensitive information; or
(ii) communicate or counsel or procure directly or
indirectly any unpublished price sensitive
information to any person who while in possession
of such unpublished price sensitive information
shall not deal in securities :
Provided that nothing contained above shall be applicable
to any communication required in the ordinary course of
business or profession or employment or under any law.
- Any insider who deals in securities in contravention of the
provisions of regulation 3 or 3A shall be guilty of insider
trading.” - It will be seen that regulation 3, among others, prohibits an insider, either on
his own behalf or on behalf of any othe r person, from dealing in securities of a
company listed on any stock exchange when he is in possession of any unpublished
price sensitive information and any person who deals in securities in contravention of
regulation 3 is said to be guilty of insider trading. - In the case before us, the learned couns el for the appellant has not disputed
that the appellant can be treated to be a person deemed to be connected person within
the meaning of regulation 2(h) of the regula tions and also that the information with
regard to declaration of financial resu lts, dividend and bonus was price sensitive
information. However, he vehemently ar gued that to prove the charge under
regulation 3, it must be brought on record that the appellant traded on the basis of
unpublished price sensitive in formation. According to th e learned counsel for the
appellant, there is no ma terial whatsoever brought on record by the adjudicating
officer to show that the appellant traded on the basis of price sensitive information. 8 - We have given our thoughtful consid eration to the provisions of the
regulations and to the facts of the case and are inclined to agree with learned counsel
for the appellant that his case stands on a di fferent footing as compared to the three
cases disposed of by this Tribunal in the case of Ranjana R Kothari, referred to above
and that the appellant has not traded on the basis of unpublished price sensitive
information. The prohibition contained in re gulation 3 of the regulations apply only
when an insider trades or deals in secu rities on the basis of any unpublished price
sensitive information and not otherwise. It means that the trades executed should be
motivated by the information in the possession of the insider. If an insider trades or
deals in securities of a listed company, it may be presumed that he / she traded on the
basis of unpublished price sensitive info rmation in his / her possession unless
contrary to the same is established. The bur den of proving a situation contrary to the
presumption mentioned above lies on the insider. If an insider shows that he / she did
not trade on the basis of unpublished price sensitive information and that he / she
traded on some other basis, he / she cannot be said to have violated the provisions of
regulation 3 of the regulations. Going by the facts of the present case, we are of the
view that appellant in the present case ha s placed sufficient material on record to
show that she has not traded on the basi s of unpublished price sensitive information.
It is a matter of record that in April, 2005, disclosure was made by the company to the
stock exchange that due to family arrangement Uttam Kumar Kothari, husband of the
appellant, has relinquished his interest in the company as promoter. It is also a matter
of record that the appellant used to trade regularly in the shares of the company and
her trades were genuine tran sactions carried out by her in the normal course of
business. We are also inclined to accept the argument of the learned counsel for the
appellant that where an entity is privy to unpublished price sensitive information it
will tend to purchase shares and not sell the shares prior to the unpublished price
sensitive information becoming public if the information is positive. In this case
declaration of financial results, dividend and bonus were positive information but the
appellant not only bought but also sold the shares not only during the period when the
price sensitive information was unpublished but also prior to and after the information 9
becoming public. A person who is in posse ssion of unpublished price sensitive
information which, on becoming public is likely to cause a positive impact on the
price of the scrip, would only buy shares a nd would not sell the shares before the
unpublished price sensitive information becomes public and would immediately
offload the shares post the information beco ming public. This is not so in the case
under consideration. The trading pattern of the appellant, as shown in the chart above,
does not lead to the conclusion that the appellant’s trades were induced by the
unpublished price sensitive information. We are not inclined to agree with the learned
counsel for the respondent that appellant’s case is covered by the earlier decision of
this Tribunal in the case of Ranjana R Kothari, referre d to above. In that case, the
learned authorized representative of the appellant admitted that charge of insider
trading stood established against the appellant. Further, appellants in that appeal only
purchased the shares while in possession of unpublished price sensitive information
and there was no trading by them prior to or after the information becoming public. In
the case in hand the charge of trading on the basis of unpublished price sensitive
information has not only been denied by th e appellant, it has also been able to
demonstrate through her trading pattern that the trading was not based on the
unpublished price sensitive information. We, therefore, cannot uphold the impugned
order.
In the result, the appeal is allowed and impugned order set aside with no order
as to costs.
Sd/-
P.K. Malhotra
MemberSd/- S.S.N. Moorthy Member31.01.2012
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