BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 217 of 2011
Date of decision: 22.06.2012 Mr. Anil Harish
305-309, Neelkanth,
98, Marine Drive,
Mumbai – 400 02.
… Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No.C-4A, ‘G’ Block,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051.
… Respondent
Mr. Haresh Jagtiani, Senior Advocate with Mr. Zal Andhyarujina, Mr. Vinay Chauhan,
Mr. Sharan Jagtiani, Mr. Suprabh Jain and Mr. Anant Upadhyay, Advocates for the
Appellant.
Mr. Mihir Mody, Advocate with Mr. Mobin Shaikh, Advocate for the Respondent.
Coram : P. K. Malhotra, Member & Officiating Presiding Officer
S.S.N. Moorthy, Member
Per : P. K. Malhotra
This order will dispose of two Ap peals no. 217 and 218 of 2011 which arise
out of two orders dated October 31, 2011 pa ssed by the adjudicating officer of the
Securities and Exchange Board of India (for short the Board) holding the appellants
guilty of violating Regulation 3 of the Securities and Exchange Board of India
(Prohibition of Insider Trading) Regulati ons, 1992 (insider trading regulations) and
imposing a penalty of Rs.20 lacs on the appellant in Appeal no. 217 of 2011 and
Rs.3.40 lacs on the appellant in Appeal no. 218 of 2011. Counsel for the parties agree
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that since the two orders arise out of the co mmon set of facts, they can be disposed of
by a common order.
- The allegation against the appellants is that they have traded in the shares of
M/s. Valecha Engineering Ltd. (the company) while in possession of unpublished price
sensitive information. Shri Anil Haris h, appellant in Appeal no. 217 of 2011 was the
chairman of the company at the relevant time and the appellant in Appeal no. 218 of
2011 Mrs. Ratna Harish is the mother of Mr. Anil Harish. It was alleged that Mr. Anil
Harish being privy to the unpublished price sensitive information had traded in the
scrip of the company and also disseminated the same to the other person before the
information was made public by the compa ny and has thereby violated the provisions
of the insider trading regulations. - The facts of the case, in brief, are that the Board had conducted investigations
into the alleged irregularities in the affairs, trading and dealings in the shares of the
company based on certain inputs received fr om the National Stock Exchange of India
Ltd. (NSE) regarding price movement in the shares of the company during the period
January 1, 2009 to December 31, 2009. The shar es of the company were listed on the
NSE and the Bombay Stock Exchange Ltd. (BSE). The investigation prima facie
revealed that there was delay by the co mpany in disseminating price sensitive
information to the stock exchanges regardi ng its bagging of certa in orders and the
promoters and the company/related entities had benefitted by purchasing shares of the
company prior to dissemination of price sensitive information to public. A show cause
notice dated May 18, 2011 was issued to Mr. Anil Harish alleging that he had traded in
the shares of the company on August 21, 2009 and August 25, 2009, that is, just prior
to the price sensitive corporate announ cement made by the company on August 28,
2009 towards its getting projects worth Rs.172 crores. It was further alleged that from
the documents submitted by the company it is revealed that the Government of
Arunachal Pradesh, vide its letter date d August 22, 2009, instructed the company to
proceed with the work awarded to the comp any vide its earlier letter dated July 31, 3 - It was also observed by the Board that in the meeting held on July 31, 2009,
chaired by the appellant, the board of directors had discussed this matter and therefore
the appellant was privy to the informati on regarding award of contracts which the
Board had considered to be price sensitive information. It is alleged that the appellant
had traded in the scrip of the company on August 21, 2009 buying 9600 shares on BSE
and 10400 shares on NSE and also on August 25, 2009 buying 9960 shares on BSE
and 10040 shares on NSE. It was further obs erved that Mrs. Ratna Harish, Appellant
in Appeal no. 218 of 2011, had also traded in the scrip of the company on August 25,
2009 i.e. just prior to the announcement in respect of getting the projects worth Rs.172
crores. The appellant filed a detailed reply dated July 4, 2011 denying the allegations.
The appellants were also granted personal hearing when they filed a number of
documents in support of their case. After c onsidering the material available on record,
the adjudicating officer passed the impugned or ders holding the appellants guilty of
violating Regulation 3 of the insider trad ing regulations and imposing penalties as
stated above. Hence this appeal. - We have heard Mr. Haresh Jagtiani, Senior Advocate for the appellant in
Appeal no. 217 of 2011, Mr. Zal Andhyarujina, Advocate for the appellant in Appeal
no. 218 of 2011 and Mr. Mihir Mody, Advocat e for the respondent Board, at length,
who have also taken us through the relevant records. Having heard the counsel for the
parties and after perusing the record, we are of the considered view that the appeals
must succeed. Regulation 3 of the Securities and Exchange Board of India
(Prohibition of Insider Trading) Regulat ions, 1992 prohibits d ealing, communicating
or counseling on matters relating to insider trading and reads as under:
“Prohibition on dealing, communica ting or counseling on matters
relating to insider trading. - 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 counsel or proc ure directly or indirectly
any unpublished price sensitive information to any 4
person who while in possession of such unpublished
price sensitive information shall not deal in securities”
Provided that nothing contained ab ove shall be applicable to
any communication required in the ordinary course of business
or profession or employment or under any law.”
To bring home the charge of insider trading, one of the essential re quirements is that
the information must be the ‘price sensitiv e information’. Regulation 2(ha) of the
Regulations defines price sensitive information as under:
“2(ha) “price sensitive information” means any information
which relates directly or indir ectly to a company and which if
published is likely to materially affect the price of securities of
company.
Explanation. – The following sh all be deemed to be price
sensitive information:-
(i) periodical financial results of the company;
(ii) intended declaration of di vidends (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 policies, plans or operations of
the company”
In the show-cause notice issued to the appe llant, it is alleged that getting projects
worth Rs.172 crores, information with regard to which was disseminated to the stock
exchanges, was price sensitive information. The said information was sent to the stock
exchanges on August 25, 2009 and reads as under:
“Sub:- Valecha Engineering Li mited bagged projects worth
Rs.172.00 Crores.
Dear Sir,
This is to inform you that Valecha Engineering Limited has
bagged Projects worth Rs.172 Crores:
VALECHA ENGINEERING LIMITED BAGS PROJECTS
WORTH RS.172.00 Crores.
Valecha Engineering Limited a Leading Infrastructure
Development Company has r ecently bagged new projects
worth Rs.172.00 crores approximately which includes Two
Road Projects at Arunachal Pradesh worth Rs.79.00 crores,
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Construction of Waste Tank Farm for Bhabha Atomic
Research Centre, Trombay, Mumbai worth Rs.15,00 crores,
Bridge work at Thane Mumb ai worth Rs.46.00 crores and
Bridge work at Indore worth Rs.32.00 crores.
VEL has an organization structur e in place with professional
management and latest state-of-art machinery with a constant
up gradation as a corporate ph ilosophy. The company is well
positioned for rapid growth with the infrastructure being given
the necessary attention in the economy since the recent past.
Thanking you,
Yours faithfully,
For VALECHA ENGINEERING LIITED
Sd/-
KAVITA VALECHA SHARMA
COMPANY SECRETARY”
The above information was disseminated on the website of the NSE on August 25,
2009 and on the website of BSE on August 27, 2009. It is the case of the appellants
that the company is in the bus iness of undertaking infrastructure projects. Since it is
the business of the company to carry out th ese projects, the orders bagged by it are in
the nature of stock in trade in the busin ess and it is not an unusual occurrence.
However, the company has laid down a policy in accordance with the general
condition under regulation 36(7) of the List ing Agreement between the company and
the stock exchanges that when the company reaches a level of orders of 100 crores, it
informs the stock exchanges. This has been the practice of the company for a number
of years and is not an exceptional occurrence. The company has followed a constant
practice of informing the stock exchange as and when orders of about Rs.100 crores
are received. Such intimations were furnis hed in the past also to BSE on 18/4/2007,
12/11/2007, 26/3/2008, 22/7/2008 and 11/11/ 2008. Intimation given to the stock
exchanges on August 25, 2009 was one such intimation and was not a price sensitive
information as alleged by the Board. It was further submitted that the AGM of the
company was held on August 20, 2009 and at that time the shareholders were informed
that the company had orders of about 1000 crores on hand which would normally be
implemented in about 1 ½ to 2 years. We are surprised to note that the adjudicating
officer while holding the appellant guilty has not dealt with this aspect of the matter at
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all. On the contrary, he has proceeded on the assumption that the information
disseminated to the stock exchange on August 25, 2009 was a price sensitive
information. Whether information is price se nsitive and on what date it became price
sensitive will depend on the facts and circumst ances of each case. In case of Gujarat
NRE Mineral Resources Ltd. vs. SEBI (Appeal no. 207 of 2010 decided on
18.11.2011) where this Tribunal was dealing with the case of an investment company
whose business was only to make investments in the securities of other companies, it
was held that earning income by buying and selling securities held in investment is the
normal activity of the investment company a nd every decision to buy it or to sell its
investments would have no effect on the price of the securities of the company. By
way of an illustration the Tribunal has also observed that if a manufacturing company
were to sell its product or buy raw material, it would be a part of its normal business
activity and would not be price sensitive. On the same analogy, when a company
which is in the business of infrastructure pr ojects, bags an order in the normal course
of its business, although it may be required to give intimation to the stock exchanges
under Regulation 36(7) of the Listing agreement, the information need not necessarily
be price sensitive. It will depend on the facts and circumstances of each case. In the
case in hand, by its letter dated 25th August, 2009, the company has given intimation to
the stock exchange regarding bagging of ne w project worth Rs.172 crores. It needs to
be noted that this intimation is not in resp ect of one project but in respect of five
different projects out of which two road projects are from Arunachal Pradesh worth
Rs.79 crores only.
- We find that the intimation given to the stock exchange on August 25, 2010
was not in respect of one project but was in respect of five different projects out of
which two road projects are from Arunach al Pradesh worth Rs.79 crores only. The
other contracts were relating to constructio n of waste tank farm for Bhabha Atomic
Research Centre, Trombay worth Rs.15 cror es, bridge work at Thane worth Rs.46
crores and bridge work at Indore worth Rs.32 crores . When a company having 7
contracts worth Rs.1000 crores pending with it for execution bags a few new projects
through the tendering process such information need not necessarily be price sensitive.
It needs to be appreciated that the projects relating to Arunachal Pradesh were awarded
after a long drawn up tendering pr ocess keeping in view the transparency norms to be
followed by the government departments/public sector undertakings and the persons
participating in the tendering process knew about the developments which took place
at each and every stage of the tendering proc ess. Opening of tenders is done in the
presence of bidders where the bidders came to know the lowest bidder who is likely to
get the award. Usually, there is a long tim e gap between the date when the lowest
bidder is declared and the contract is actually awarded to the lowest bidder. During all
this period, the information with regard to the lowest bidder and processing of the
award of contract in his favour is known to all the pa rticipants. Under such
circumstances, award of the contract to an infrastructure company cannot be said to be
a price sensitive information. The adjudicating officer has not dealt at all with the
issue whether award of the contract was a pr ice sensitive information. In fact, he has
proceeded on the assumption that the announcement made by the company on August
25, 2009 is a price sensitive information. In para 21 of the impugned order he has
recorded that “there is no dispute over the issue that the aforesaid announcement of the
company was indeed a price sensitive informa tion”. This is incorrect in view of the
fact that the appellant has throughout taken a stand that information with regard to
award of contract by Arunachal Pradesh Government was not a price sensitive
information. - In view of our finding above, the order passed by the adjudicating officer
cannot be sustained. We may point out so me other discrepancie s in the order for
which the order seems to be vitiated. In para 17 of the impugned order in the case of
Mr. Anil Harish, it has been observed by th e adjudicating officer that major chunk of
purchases were made by the appellant just prior to corporate announcement made by
the company regarding “its ba gging of the said project worth Rs.172 crores from the 8
Government of Arunachal Pradesh on Augus t 28, 2009”. Again in para 21 of the
order, it is recorded by him that “the price movement in the shares of the company as
has been detailed in the table at paragr aph 20 above, do indicate that during the last
week of August, 2009, its price had moved almost in tandem with the BSE sensex and
the corporate disclosure made by th e company on August 28, 2009 regarding its
getting orders worth Rs.172 crore from the Government of Arunachal Pradesh, had no
significant impact on the price of the scrip”. We are constr ained to observe that the
adjudicating officer has not properly examin ed the information given by the appellant
to the stock exchange which clearly shows that the orders from the Arunachal Pradesh
Government were in respect of two road projects worth only Rs.79 crore and not worth
Rs.172 crores. The impugned order proceeds on the assumption that the company had
bagged orders worth Rs.172 crores from the Government of Arunachal Pradesh
whereas it had received orders only to the extent of Rs.79 crore from the Government
of Arunachal Pradesh. We also noticed th at the adjudicating officer has traversed
beyond the charge in the show cause notice. In para 4 of the show-cause notice dated
May 18, 2011, reference is made only to the tr ansaction entered into by the appellant
on August 21, 2009 and August 25, 2009. However, in the impugned order the
appellant has been held guilty even in respect of transa ctions made by him on August
28, 2009. The transactions of August 28, 2009 were not the subject matter of the show-
cause notice. In any case, since the disclo sures were made to the stock exchanges on
August 25, 2009 which were disseminated to the public by NSE on August 25, 2009
itself and by BSE on August 27, 2009, the adjudicating officer has erred in taking note
of the transactions of August 28, 2009 also. In short, the order cannot be sustained for
the reasons that there is no finding record ed by the adjudicating officer that the
information with regard to bagging of award from the Government of Arunachal
Pradesh was a price sensitive information; the contracts relating to Arunachal Pradesh
government were only to the tune of Rs.79 crore and not Rs.172 crores and the
tradings of the appellants on August 28, 2009 have also been taken into account which
were after the date of publication of the information and were also not a subject matter 9
of the show-cause notice. Since we are holdi ng that in the facts and circumstances of
the case, the bagging of contracts by the company from the Arunachal Pradesh
Government was not price sensitive information, the charge against appellant in
Appeal no. 218 of 2011 also fails.
In view of the foregoing discussion s, we set aside the impugned order and
allow the appeals with no order as to costs.
Sd/-
P. K. Malhotra
Member &
Presiding Officer ( Offg.)Sd/- S.S.N. Moorthy Member22.06.2012
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