BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 64 of 2012
Date of Decision : 03.10.2012
Mr. Manoj Gaur
A-9/27, Vasant Vihar,
New Delhi – 110 057.
…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. Janak Dwarkadas, Senior Advocate with Mr. P.N. Modi and Mr. Anant
Upadhyay, Advocates for the Appellant.
Mr. Darius Khambatta, Advocate General with Mr. Aditya Mehta and Mr. Mobin
Shaikh, Advocates for the Respondent.
CORAM : P.K. Malhotra, Member & Presiding Officer (Offg.)
S.S.N. Moorthy, Member
Per : P.K. Malhotra
This order will dispose of three Appeals no. 59, 60 and 64 of 2012 which arise
out of a common order dated January 5, 2012 passed by the adjudicating officer of the
Securities and Exchange Board of India (the Board) holding the appellants guilty of
violating Regulation 3 and 4 of the S ecurities and Exchange Board of India
(Prohibition of Insider Trading) Regulati ons, 1992 (for short the Regulations) and
imposing a penalty of ` 10 lakhs each under section 15G of the Securities and
Exchange Board of India Act, 1992 (the Act).
- The appellant in Appeal no. 64 of 2012, Mr. Manoj Gaur, is the Executive
Chairman of the Jaiprakash Associates Lt d. (the company). Appellant in Appeal no.
59 of 2012 Mrs. Urvashi Gaur is wife of Mr. Manoj Gaur and appellant in Appeal no.
60 of 2012 Mr. Sameer Gaur is the brother of Mr. Manoj Gaur. By virtue of their 2
being wife and brother respectively of Mr. Manoj Gaur they are persons deemed to be
connected to the appellant in terms of regulation 2(h) of the Regulations. - The Board carried out inve stigations into the trading in the scrip of the
company during the period September 29, 2008 to October 27, 2008 and came to a
prima-facie conclusion that Mr. Manoj Gaur, Executive Chairman of the company
was in possession of Unpublished Price Se nsitive Information (UPSI) relating to
financial results of the company for th e quarter ending September 30, 2008 which
was passed on by him to Mrs. Urvashi Gaur and Mr. Sameer Gaur and both of them
traded on the basis of UPSI, thereby viola ting the provisions of the Regulations. The
case of the Board is that the company received the trial balances for the quarter
ending September 30, 2008 from various units in the first week of October 2008.
Thereafter, the company made announcement on October 11, 2008 through the stock
exchange that in the board meeting scheduled to be held on October 21, 2008, the
matter with regard to unaudited financial results for the quarter ending September 30,
2008, interim dividend for the year 2008-09 a nd rights issue will be considered.
Accordingly, as required under the code of conduct of the company prescribed in
terms of the Regulations, the company had closed its trading window from October
11, 2008. - The investigations carried out by the Bo ard revealed that Mrs. Urvashi Gaur
bought 1000 shares of the company on October 14, 2008 and Mr. Sameer Gaur
bought a total of 7400 shares on October 13, 14 and 16, 2008. The allegation is that
both these entities, being deemed to be c onnected persons to Mr. Manoj Gaur within
the meaning of regulation 2(h) of the Re gulations, traded in the shares of the
company on the basis of UPSI that wa s passed on by Mr. Manoj Gaur to these
connected persons before the actual declara tion of the financial results in the board
meeting held on October 21, 2008. - Show cause notices da ted March 22, 2011 were issu ed to all the three
appellants asking them to show cause why enquiry should not be held against them 3
and penalty imposed under the Act for viola ting the provisions of the Regulations as
specified in the show cause notice. A personal hearing was also granted to the
appellant. Thereafter, the impugned order dated January 5, 2012 was passed and a
penalty of10 lakhs was imposed on Mr. Manoj Gaur for violating regulation 3(ii) of the Regulations and penalty of10 lakhs each was imposed on Urvashi Gaur and
Sameer Gaur for violating regulations 3(i) and 4 of the Regulations. Hence this
appeal. - We have heard Mr. Janak Dwarkadas, Senior Advocate and Mr. P.N. Modi,
learned advocate for the appellant and Mr. Darius Khambatta, Advocate General and
Mr. Mihir Mody, advocate on behalf of the respondent Board. Mr. Janak Dwarkadas,
learned senior counsel for the appellant in Appeal no. 64 of 2012, submitted that the
show cause notice and the impugned orde r expressly refer to and rely upon the
investigation report but the Board has failed to furnish a copy of the same to the
appellant inspite of the fact that the appellant made a request to that effect in its reply
to the Board. According to le arned senior counsel, this is in gross violation of
principles of natural justice and vitiates the order. Learned senior counsel further
submitted that the entire foundation of the case, as set out in the show cause notice, is
that consolidated trial balances of the fina ncial results of the company for the quarter
ending September 2008 were available on October 12, 2008 which were approved by
the Board on October 21, 2008. Therefore, the period from October 12, 2008 to
October 21, 2008 was considered to be the period when UPSI was in existence.
According to learned senior counsel, the a ppellant has comprehensively replied to it
contending that the quarterly results were not known till October 17, 2008 when the
consolidated and finalized results were placed before the audit committee. According
to him, without dealing with this submission of the appellant, the adjudicating officer
has drawn a presumption that since the trading window was closed by the company
on October 11, 2008, it proves that UPSI was in existence from that date. It was
submitted by the learned senior counsel that it is not open to the respondent Board to
abandon the entire foundation of the charge in the show cause notice and make out a
totally new case for the first time in the impugned order. According to learned senior 4
counsel, the order is liable to be set as ide on this ground alone. It was further
submitted by him that the findings arrived at by the adjudicating officer in the
impugned order are totally misconceived a nd untenable. The charge in the show
cause notice and in the order is of viola ting Regulation 3 of the Regulations which
bars insider from trading while in possessi on of UPSI or communicating it to a third
party and bars any such third party also from trading while in possession of such
UPSI. The impugned order proceeds on the as sumption that the closure of trading
window, as prescribed under the code of conduct framed under the Regulations, by
itself proves the existence of UPSI. Acco rding to learned senior counsel, this
proposition is legally untenable. Accordin g to him, the prohi bition contained in
regulation 3 of the Regulations is an ab solute prohibition and applies to every
category of investor regardle ss of its position qua the company whereas the code of
conduct provides for an additional restrict ion / prohibition which applies only to the
categories specified in the code of conduct and prohibits them from trading during the
period of closure of the trading window. According to learned senior counsel, closure
of the trading window does not presuppose the automatic existence of UPSI. It was
further contended by him that the burden to prove the date of existence of UPSI lies
upon the Board which cannot be presumed by the mere fact of closure of trading
window by the company, as has been concl uded by the adjudicating officer in the
impugned order. It was further submitted by him that the adjudicating officer has
failed to give his finding as to the date on which UPSI came into existence and has
drawn conclusion that the company closed its trading window from October 11, 2008
and that itself indicates that there was UPSI in existence on that day. Learned senior
counsel vehemently argued that neither the regulations nor the code of conduct
presupposes nor provides that the closure of trading window by the company shall be
deemed to mean that the UPSI has come in to existence. Learned senior counsel also
referred to the affidavit-in-reply filed by the respondent Board and stated that it is for
the first time that the respondent Board has sought to rely on the letter dated October
14, 2008 from the company to the ICICI Ba nk (principal lender of the company)
seeking no objection for a dividend upto 15 per cent to allege that the financial results
were known to the appellant even as on October 14, 2008. According to learned 5
senior counsel, it makes it clea r that the Board’s case is bu ilt on “shifting sands”. It
can never be assumed that the routine le tter dated October 14, 2008 sent to the Bank
was based on the knowledge of the final results for the quarter ending September,
2008 despite the fact that othe r evidence to the contrary was made available to the
Board. According to learned senior couns el, the Board has totally ignored the
evidence on record that quarterly financial results were available only on October 17,
2008 as is evident from the letter date d February 15, 2010 and May 31, 2010, the
affidavit of the Director Finance and the letter of the auditors. Assuming that the trial
balances were available on October 11, 2008, the same, in any case, cannot become
UPSI because trial balances ar e to be consolidated in the finance departments of the
company and it is only when final accounts are prepared and approved by the audit
committee that the financial results can be considered to be UPSI. - Mr. Darius Khambatta, learned A dvocate General, appearing for the
respondent Board, supported the order passed by the adjudicating officer stating that
appellant is the Executive Chairman of th e company. In the letter dated February 15,
2010, issued by the Senior Vice President – Corporate Affairs and Company Secretary
of the company and addressed to the inve stigation department of the Board, the
company itself has stated that the issue with regard to the interim dividend was
discussed on October 11, 2008 while consider ing items to be included in the agenda
for proposed board meeting for considering the quarterly results. In the said letter, it
is stated that trial balances for the quarter ending September 30, 2008 started reaching
from various units in the corporate offi ce in the first week of October 2008 till
October 10, 2008 and thereafter the work of consolidation of the trial balances was
taken in hand. The said lett er further states that the unpublished financial results of
the company as a whole for the quarter ending September 30, 2008 were made
available by the company on October 11, 2008. The appellant, being the Executive
Chairman of the company, was aware of the performance of the company for the
quarter ending September, 2008 on Oc tober 11, 2008 itself. The company had
informed the stock exchanges on October 11, 2008 that its next board meeting was
scheduled to be held on October 21, 2008 to consider the quarterly financial results, 6
interim dividend and rights issue. Therefore, the company also closed its trading
window on October 11, 2008 in accordance with clause 13 of the company’s code of
conduct for prevention of insider trading, framed by the company in pursuance of
regulation 12 of the Regulations. On Oct ober 14, 2008, the appellant wrote letter to
its lending bank seeking its approval for interim dividend upto 15 per cent
considering the performance of the compa ny. Therefore, the appe llant was aware of
the financial performance of the company on October 11, 2008 and, it cannot be said
that at the time of writing letter to the lender bank or at the time of sending notice to
the stock exchanges for holding the next board meeting, the appellant was not in
possession of the UPSI. Mrs. Urvashi Gaur and Mr. Sameer Gaur bought shares of
the company on October 13, 14 and 16, 2008 when the trading window of the
company was closed and Mr. Manoj Gaur wa s in possession of UPSI and hence the
provisions of the Regulations were violate d. It was further argued by learned senior
counsel for the Board that merely because the financial results were crystalized on
October 17, 2008 for placing it before aud it committee it does not mean that the
appellant could not have as certained the performance of the company from the
information available in the trial balances of the company which were available to
him on October 11, 2008. He further submitted that regulation 3 of the Regulations
prohibit an insider from dealing in securities of a company when in possession of any
unpublished price sensitive information or to communicate any unpublished price
sensitive information to any person. Pursuant to regulation 12 of the insider trading
Regulations, all listed companies are required to frame a code of conduct as near to
the model code of conduct as possible without diluting the provisions of model code
of conduct prescribed under the Regulati ons. The company had framed a code of
conduct prescribing closure of the trading window and su ch closing of the trading
window is for the purpose of restraining misuse of UPSI. The closing of trading
window strongly suggests existence of UPSI. Therefore, there is nothing wrong in the
conclusion arrived at by the adjudicating officer that since the company itself had
closed the trading window on October 11, 2008, it indicates the ex istence of UPSI.
Learned senior counsel for the respondent Board further submitted that un-collated
trial balances of the various units receive d in the headquarters of the company could 7
very well constitute price sensitive inform ation and there is no requirement that the
trial balances must be crystalized/collated into periodical financial results before it
can constitute price sensitive information. It was further submitted that availability of
trial balances from different units of a company is information that is sufficiently
collated for an Executive Chairman of the company to determine whether
performance of the company is good and, therefore, constitutes price sensitive
information. - On the issue of alleged violation of th e principles of natu ral justice in not
making copy of the investigation report avai lable, learned seni or counsel for the
Board relied on regulation 9(1) of the Regul ations which requires only the finding of
the investigation report to be communicated to a person su spected of insider trading.
In paragraph 3 of the show cause notice is sued to the appellant, the findings of the
investigation report were made available to the appellant and, therefore, there is no
legal obligation on the Board to furnish the entire investigation report to the appellant.
It was further submitted that the adjudicating officer has not relied upon any material
that was contained in the investigation re port except the material which is expressly
set out in the show cause notice. With rega rd to the allegation that in the show cause
notice, information about the financial resu lts of the company was UPSI with effect
from October 12, 2008 but in the impugned order the date has been shifted to October
11, 2008, it was submitted by the learned senior counsel for the Board that reference
to the existence of UPSI from Octobe r 12, 2008 in the show cause notice was a
summary of the findings of the investiga tion report whereas existence of UPSI with
effect from October 11, 2008 is the finding a rrived at by the adjudicating officer on
the basis of closure of trading window by the company. It was, therefore, submitted
that the order passed by the adjudicating officer does not call for any interference. - Before dealing with the rival submissions let us have a look at the relevant
provisions of the regulations.
“ Definitions. - In these regulations, unless the context otherwise requires :—
(a) ……………
(b) ……………. 8
(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:
(d) ………..
(e) “insider” means any person who,
(i) is or was connected with th e 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 a company, or
(ii) has received or has had access to such unpublished price
sensitive information;
(f) ……….
(g) ……….
(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-clause
(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 dir ector 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 trustee, 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 have 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 employee 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 mentioned in sub-clause (i) of clause (c), of this
regulation or any of the pers ons mentioned in sub-clause
(vi), (vii) or (viii) of this cl ause 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 a ffect the price of securities of
company.
Explanation.—The following shall be deemed to be price
sensitive information :—
(i) periodical financial results of the company; 9
(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;
(k) “unpublished” means informati on which is not published by the
company or its agents and is not specific in nature.
Explanation.—Speculative reports in pr int or electronic media
shall not be considered as published information.
Prohibition on dealing, communicating or counselling 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 or counsel or pr ocure 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.
3A. No company shall deal in the s ecurities of another company or
associate of that other compa ny while in possession of any
unpublished price sensitive information.
3B. ……………………………….
Violation of provisions relating to insider trading. - Any insider who deals in securi ties in contravention of the
provisions of regulation 3 or 3A shall be guilty of insider trading.
5 to 8 ………………………………….
Communications of findings, etc. - (1) The Board shall, after consider ation of the investigation report
communicate the findings to the person suspected to be involved in
insider trading or violation of these regulations.
(2) The person to whom such find ings has been communicated shall
reply to the same within 21 days;
(3) On receipt of such a reply or explanation, if any, from such person,
the Board may take such measures as it deems fit to protect the
interests of the investors and in the interests of the securities market
and for the due compliance of th e provisions of the Act, the
regulations made thereunder includ ing the issue of directions under
regulation 11.
10 to 11 …………………………………..
Code of internal procedures and conduct for listed companies and
other entities. - (1) All listed companies and or ganisations associated with
securities markets including : 10
(a) the intermediaries as mentioned in section 12 of the Act, asset
management company and trustees of mutual funds ;
(b) the self-regulatory organisations recognised or authorised by
the Board;
(c) the recognised stock exchanges and clearing house or
corporations;
(d) the public financial institutions as defined in section 4A of the
Companies Act, 1956; and
(e) the professional firms such as auditors, accountancy firms,
law firms, analysts, consultants, etc., assisting or advising
listed companies,
shall frame a code of internal procedures and conduct as near
thereto the Model Code specified in Schedule I of these
Regulations without diluting it in any manner and ensure
compliance of the same.
(2) The entities mentioned in sub -regulation (1), shall abide by the
code of Corporate Disclosure Practi ces as specified in Schedule II of
these Regulations.
(3) All entities mentioned in s ub-regulation (1), shall adopt
appropriate mechanisms and procedures to enforce the codes specified
under sub-regulations (1) and (2).
(4) Action taken by the entities mentioned in sub-regulation (1)
against any person for violation of the code under sub-regulation (3)
shall not preclude the Board from initiating proceedings for violation
of these Regulations. - Para 3.2 of the Model code of conduct as prescribed in Schedule I to the
regulations is also relevant for our purpose and the same is reproduced hereunder for
ease of reference:-
“3.2 Trading window
3.2.1 The company shall specify a trading period, to be called
“Trading Window”, for trading in the company’s securities. The
trading window shall be closed during the time the information
referred to in para 3.2.3 is un-published.
3.2.2 When the trading window is cl osed, the employees / directors
shall not trade in the company’s securities in such period.
3.2.3 The trading window shall be, inter alia, closed at the time:-
(a) Declaration of financial results (quarterly, half-yearly
and annually).
(b) Declaration of dividends (interim and final).
(c) Issue of securities by way of public/ rights/bonus etc.
(d) Any major expansion plans or execution of new projects.
(e) Amalgamation, mergers, takeovers and buy-back.
(f) Disposal of whole or substantially whole of the
undertaking.
(g) Any changes in policies, pl ans or operations of the
company.
3.2.3A The time for commencement of closing of trading window
shall be decided by the company.
3.2.4 The trading window shall be opened 24 hours after the
information referred to in para 3.2.3 is made public.
3.2.5 All directors/ officers/design ated employees of the company
shall conduct all their dealings in the securities of the Company only
in a valid trading window and sh all not deal in any transaction
involving the purchase or sale of th e company’s securities during the
periods when trading window is closed, as referred to in para 3.2.3 or 11
during any other period as may be specified by the Company from
time to time.
3.2.6 In case of ESOPs, exercise of option may be allowed in the
period when the trading window is cl osed. However, sale of shares
allotted on exercise of ESOPs shall not be allowed when trading
window is closed.” - In compliance with the requirement of regulation 12(1) the company has also
framed a code of conduct of internal proced ures, relevant provisions of which are as
under:-
“ CODE OF CONDUCT :
1 & 2 ……………. - The Code of Conduct shall, be applicable to :
a. All the Directors on the Board of Directors of the Company;
b. * All management staff of the Grade – Vice President and
above of all the Departments;
c. * All employees of the Finance Department of the Company;
d. All employees of Accounts and Secretarial Departments of the
Grade N6 and above.
e. All connected persons and persons deemed to be connected as
defined in the Regulations.”
“UNPUBLISHED PRICE SENSITIVE INFORMATION:
- ‘Unpublished Price Sensitive Information’ means any
information which is material a nd unpublished i.e. generally not
known or published by the Company for general information but,
which if published or known, is lik ely to materially affect the
price of securities of the Company in the stock market. This will
include, but shall not be limited to, financial results, intended
declaration of dividends, issue of securities, any major expansion
plans or execution of new proj ects, amalgamation, mergers and
take-overs, disposal of the whole or substantially the whole of the
undertaking, such other information as may affect the earnings of
the Company, any changes in policie s, plans or operations of the
Company, etc.”
“PRESERVATION OF UNPUBLI SHED PRICE SENSITIVE
INFORMATION :
- The Directors and Designated Employees shall maintain
confidentiality of all ‘Unpublished Price Sensitive
Information’. The Directors and De signated Employees shall
not pass on such information to any person directly or indirectly
by way of making a recommendation for the purchase or sale of
securities of the Company based on the same.”
“PREVENTION OF MISUSE OF UNPUBLISHED PRICE
SENSITIVE INFORMATION: - All Directors and Designated Em ployees shall be subject to
certain trading restrictions as enumerated below; 12
a. The Company has designated a ‘Trading Window’ period
being the period during which transactions in the shares of
the Company can be effected by Directors and Designated
Employees_(hereinafter referred to as ‘Trading Window’)
for trading in the Company’s securities;
b. The TRADING WINDOW shall remain closed from the
date of notice given to Stock Exchanges for convening the
meeting of the Board of Directors of the Company to
consider:
i. Declaration of Financial results (quarterly, half-
yearly and annual);
ii. Declaration of dividends (interim and final);
iii. Issue of securities by wa y of public/ rights/bonus
etc. ;
iv. Any major expansion plans or execution of new
projects ;
v. Amalgamation, mergers, takeovers and buy-back ;
vi. Disposal of whole or s ubstantially whole of the
undertaking ; and
vii. Any changes in policies, plans or operations of the
Company.
c. The Directors/Designated Empl oyees shall not trade in the
Company’s securities during the period when the TRADING
WINDOW is closed and will have to forego the opportunity
to trade in the Company’s securities during such period.
d. The TRADING WINDOW shall be opened 24 hours after
the information referred to in Clause (b) is made public.
e. All Directors and Designated Employees shall conduct all
their dealings in the securities of the Company only in a valid
TRADING WINDOW and shall, not deal in any transaction
involving the purchase or sale of the Company’s securities
during the periods when Trading Window is closed or during
any other period as may be specified by the Company from
time to time.”
- Referring to the order of this Tribuna l in the case of Dilip S. Pendse vs.
Securities and Exchange Board of I ndia [Appeal no. 80 of 2009 decided on
November 19, 2009] it has been rightly pointed out by learned senior counsel for the
appellant that the charge of insider tradi ng is one of the most serious charges in
relation to the securities market and having regard to the gravity of this wrong doing
higher must be the prepondera nce of probabilities in esta blishing the same. This is
what the Tribunal has observed in the said order.
“The charge of insider trading is one of the most serious charges in
relation to the securities market and ha ving regard to the gravity of this
wrong doing, higher must be the pr eponderance of probabilities in
establishing the same. In Mousam Singha Roy v. State of West Bengal
13
(2003) 12 SCC 377, the learned judges of the Supreme Court in the
context of the administration of criminal justice observed that, “It is also
a settled principle of criminal juri sprudence that the more serious the
offence, the stricter the degree of proof, since a higher degree of
assurance is required to convict the accused.” This principle applies to
civil cases as well where the charge is to be established not beyond
reasonable doubt but on the preponderance of probabilities. The measure
of proof in civil or criminal cases is not an absolute standard and within
each standard there are degrees of pr obability. In Hornal v. Neuberger
Products Ltd. (1956) 3 All E.R.970 Hodson, L.J. observed as under:
“Just as in civil cases the balance of probability may be
more readily tilted in one case than in another, so in
criminal cases proof beyond reasonable doubt may
more readily be attained in some cases than in others.”
We are also tempted to refer to wh at Denning, L.J. observed in Bater v.
Bater (1950) 2 All E.R. 458 wherein he was resolving the difference of
opinion between two Lord Justices regarding the standard of proof
required in a matrimonial case. This is what he said:
“It is true that by our law th ere is a higher standard of
proof in criminal cases than in civil cases, but this is
subject to the qualification that there is no absolute
standard in either case. In criminal cases the charge
must be proved beyond reasonable doubt, but there may
be degrees of proof within that standard. Many great
judges have said that, in proportion as the crime is
enormous, so ought the proof to be clear. So also in
civil cases. The case may be proved by a preponderance
of probability, but there may be degrees of probability
within that standard. Th e degree depends on the
subject-matter. A civil court, when considering a
charge of fraud, will natu rally require a higher degree
of probability than that wh ich it would require if
considering whether negligence were established. It
does not adopt so high a degree as a criminal court,
even when it is considering a charge of a criminal
nature, but still it does requi re a degree of probability
which is commensurate with the occasion.”
- Again in the case of Shri E. Sudhir Reddy vs. Securities and Exchange Board
of India [Appeal no. 138 of 2011 decided on December 16, 2011] this is what we
have observed with reference to the regulations dealing with insider trading.
“A shareholder becomes an owner of the company to the extent of the
value of shares held by him. He is therefore, entitled to his share in the
profits earned by the company. Theref ore, performance of a company is
of primary importance to the investor s as well as to the general public
who might be interested in investin g in the company. The shareholders
and general public get information about the company either through the
annual report or during the annual general meeting. However, persons in
the company or otherwise concerned w ith the affairs of the company are
in possession of such information before it is actually made public. The
directors of the company or for th at matter even professionals like
Chartered Accountants and Advocat es advising the company on its
business related activities are privy to the performance of the company
14
and come in possession of information which is not in public domain.
Knowledge of such unpublished price sensitive information in the hands
of persons connected to the compa ny puts them in an advantageous
position over the ordinary shareholders and the general public. Such
information can be used to make gains by buying shares anticipating rise
in the price of the scrip or it can also be used to protect themselves
against losses by selling the shares before the price falls. Such trading by
the insider is not based on level play ing field and is detrimental to the
interest of the ordinary shareholders of the company and general public.
It is with a view to curb such pract ices that section 12A of the Sebi Act
makes provisions for prohibiting in sider trading and the Board also
framed the Insider Trading Regulations to curb such practice.”
Regulation 3 of the Regulations prohibits an insider from dealing in securities of a
company when in possession of unpublished price sensitive information or to
communicate unpublished price sensitive information to any person. Regulation 2(ha)
of the Regulations defines price sensitive information as any information which
relates directly or indirectly to a comp any and which, if published, is likely to
materially affect the price of securities of the company. The explanation to the said
definition clause deems certain information to be price sensitive and this includes
periodical financial results of a company. In accordance with the code of conduct
prescribed by the company the directors and employees of the company are required
to keep price sensitive information confidential and not to pass on such information to
any person. Para 8 of the code of conduct give s definition of UPSI and it specifically
says that it will include, but shall not be limited to, financial results, intended
declaration of dividends, issue of securities……etc. With a view to prevent misuse
of UPSI, the code of conduct also prescr ibes closing of the trading window and it
inter alia provides that the trading window shall remain closed from the date of notice
given to stock exchanges for convening the m eeting of the board of directors of the
company to consider declaration of financ ial results, dividends, rights issue……etc.
and shall be opened 24 hours after the information is made public.
- There is no denying the fact that Mr. Manoj Gaur being the Executive
Chairman of the company is an insider a nd Mrs. Urvashi Gaur and Mr. Sameer Gaur
being the wife and brother respectively of Mr. Manoj Gaur are deemed to be
connected persons and hence they also fall within the definition of ‘insider’ for the
purposes of the said Regulations. The clos ure of the trading window is surely a 15
restriction on the freedom of the director / employees of the company to trade in the
shares of the company but such a restricti on is a reasonable rest riction to restrain
these persons from taking advantage of th e UPSI which may be in their possession
and which is not known to the public shareholders. A bare perusal of Schedule I in
the model code of conduct, prescribed unde r the Regulations and code of conduct as
prescribed by the company, will make it clea r that the closure of the trading window
is not only confined to the period during th e existence of UPSI but it can also be
closed on other occasions. However, if we read these provisions with the definition of
price sensitive information as given in re gulation 2(ha) of the Regulations, it will
make it abundantly clear that as and when periodical financial results of the company
are under consideration, the information relating to periodical financial results of the
company is invariably price sensitive a nd trading window will be closed till such
information is made public. When the Board sought information from the company
with regard to the financ ial results for the quarter ending September 30, 2008 the
company was evasive in its reply and, therefore, Board had no option but to arrive at
its own conclusion with regard to date of existence of UPSI on th e basis of material
made available by the company. It was for the company to inform the Board about the
date from which, according to the company, the UPSI came into existence. If the
company fails to provide the desired in formation or furnish information, which
according to Board is not correct, the Board may draw its own conclusion on the basis
of material available on record. Admittedly, the company in its letter dated February
15, 2010 had informed the Board that the tria l balances from various units started
reaching the accounts department at corporat e office in the first week of October
2008 till October 10, 2008 and thereafter the company made an announcement on
October 11, 2008 with regard to the board meeting to be held on October 21, 2008.
It is in the later communications that th e company changed its stand with regard to
availability of UPSI on the ground that the consolidated and finalized quarterly results
were placed before the committee and were avai lable on October 17, 2008.
The definition of price sensitive info rmation under regulation 2(ha) of the
Regulations is very wide and includes any information with regard to periodical
financial results of the company. Admittedly, when the trial balances for the quarter 16
ending September 30, 2008 were available with the headquarters of the company by
October 10, 2008, we see no reason to disagree with the conclusion arrived at by the
adjudicating officer that UPSI came into existence on October 11, 2008. The
adjudicating officer has based his decision on the observation that as company closed
its trading window from October 11, 2008, the UPSI existed on that day. We are of
the view that even going by the facts of th e case and the information made available
by the company during the course of investigations, the company has admitted that
the trial balances for the quarter endi ng September 2008 were available with the
appellant on October 11, 2008. We are also of the view that such trial balances fall
within the definition of any information re lating to financial results of the company
which is known only to a few persons in the company and which are not in public
domain. Since the findings arrived at by th e adjudicating officer can be supported on
the basis of material made available by the company during the investigation and
relied upon by the Board, we have no hesi tation in upholding his findings dehors the
observation that the information was UPSI solely on the basis that the company itself
had closed the trading window from October 11, 2008. - It was strenuously argued by the learne d senior counsel for the appellant that
the corporate announcement dated October 11, 2008 made to the stock exchange
regarding three issues viz. financial results for the quarter , dividends and rights issue
were in public domain and could not be considered as UPSI. We are unable to accept
this argument. As stated above, the definition of price sensitive information as
provided in regulation 2(ha) of the Regulations is wide enough to include information
relating to periodical financial results. What has been disclosed to the stock exchange
is that these issues will be considered in the board meeting to be held on October 21, - What has not been disclosed are the financial results or the amount of dividend
or details of the rights issue. If we accept this argument of the learned senior counsel
for the appellant that the moment a notice is sent to the stock exchange with regard to
consideration of certain issues without details thereof, the same cannot be considered
to be UPSI, it will be narrowing down the scope of the regulations defeating the very
purpose of framing the regulati ons to prohibit insider trad ing while in possession of 17
UPSI. When the company receives trial balances which are to be collated and
ultimately examined by the internal committees, only those persons who are dealing
with the issue are privy to such information and such information cannot be said to be
in public domain. In the facts and circumstan ces of this case, the availability of the
trial balances from the various units in the corporate office, which were discussed
with the Executive Chairman of the company, leads us to the only conclusion that on
the basis of trial balances, the UPSI was in existence on October 11, 2008 and
Mr. Manoj Gaur being the Executive Chairm an of the company was in possession of
the same. The question that arises for furthe r consideration is whether he had passed
on this information to Mrs. Urvashi Gaur, his wife, and Mr. Sameer Gaur, his brother,
who are appellants in the other two appeal s and whether the trading done by them on
October 13,14 and 16, 2008 is based on the UPSI. - We had an occasion to deal with a similar situation in the case of Mrs.
Chandrakala vs. The Adjudicating Officer, S ecurities and Exchange Board of India
[Appeal no 209 of 2011 decided on January 31, 2012] where we have observed that
prohibition contained in regu lation 3 of the Regulations apply only when an insider
trades or deals in securities on the basis of any unpublished price sensitive
information and not otherwise. It means th at the trades executed should be motivated
by the information in the possession of the in sider. If an insider trades or deals in
securities of a listed company, it may be presumed that he has traded on the basis of
unpublished price sensitive information unless contrary to the same is established.
The burden of proving a situa tion contrary to the presum ption mentioned above lies
on the insider. If an insider shows that he did not trade on the basis of unpublished
price sensitive information and that he traded on some other basis, he cannot be said
to have violated the provisions of regulation 3 of the Regulations. - We have looked into the trading pattern of Mrs. Urvashi Gaur and Mr. Sameer
Gaur. We find that both of th em are regularly trading not only in the scrip of the
company but in the scrip of other companie s as well. Even the trading pattern in
respect of trading in the shares of th e company shows that only 1000 shares were 18
purchased by Mrs. Urvashi Gaur on Oct ober 17, 2008 when she was already holding
of 38,985 shares on that date and even ther eafter she had been purchasing the shares
of the company regularly. As on March 23, 2012, she was holding 59,045 shares of
the company. She is the wife of Mr. Ma noj Gaur, the Executive Chairman of the
company. If Mr. Manoj Gaur had passed on UPSI to Mrs. Urvashi Gaur and she
traded on the basis of that UPSI she would not have trad ed in 1000 shares only. We
cannot lose sight of the fact that the company is a widely held listed company with a
paid up capital divided into 212,64,33,182 equity shares out of which promoter group
holds 44.44 per cent. It is a large infras tructure company engaged in highways,
cement, power and education sector and the Executive Chairman of such company
would not like to risk th e reputation of himself and the company for 1000 shares.
Similarly, Mr. Sameer Gaur is also a regular trader of shares of the company. Before
trading on October 13,14 and 16, 2008 he was holding 1,10,250 shares of the
company. The first sale of 1400 shares was made by him only on May 8, 2009. Till
date, he is holding 62,882 shares. Looking at the trading pattern, the number of shares
purchased and going by their status, it seems highly improbable that trading was done
by them on the basis of UPSI. On the other ha nd, it is more probable that they traded
in the normal course of business. If the intention of Mr s. Urvashi Gaur and
Mr. Sameer Gaur had been to capitalize on th e UPSI allegedly communicated by
Mr. Manoj Gaur, the quantum of purchase wo uld not have been so small. Both the
appellants are financially independent and trade independently which is clear from
their trading pattern that they have been buying the shares in similar quantities in the
immediate past as well as on later dates. - Looking at the totality of the facts and circumstances of the case, it is highly
improbable that trading done by Mrs. Urvash i Gaur or Mr. Sameer Gaur on October
13, 14 and 16, 2008 was based on UPSI or that they received any UPSI from
Mr. Manoj Gaur. In the appeal, a ground had been taken on behalf of Mrs. Urvashi
Gaur and Mr. Sameer Gaur that with re spect to the tradi ng during the ‘window
closing period’, the Model code of conduct of the company was not applicable to
them as they do not fall in the category of director or designated employee and, 19
therefore, there cannot be a prohibition or embargo on them to trade during the
window closing period of the company. It is in teresting to note that in para 3 of the
code of conduct, prescribed by the company, it is stated that the code shall be
applicable to all connected persons and persons deemed to be connected as prescribed
in the Regulations. If we strictly apply the code of conduct as prescribed by the
company, Mrs. Urvashi Gaur and Mr. Same er Gaur are covered by the same and
could not have traded when the trading window was closed. However, we note that
there is no such charge against them and, th erefore, we are leaving the matter at that.
The finding of the ad judicating officer to the effect that Mr. Manoj Gaur was in
possession of UPSI on October 11, 2008 can be upheld on the basis of information
provided by the company itself that the trial balances for the quarter ending
October 30, 2008 were available on that da y. However, the adjudicating officer has
failed to bring on record any evidence, dir ect or circumstantial, to show that Mr.
Manoj Gaur passed on the UPSI to Mrs. Urvashi Gaur and Mr. Sameer Gaur and thus
violated regulation 3(ii) of the Regulations. The trading pattern of Mrs. Urvashi Gaur
and Mr. Sameer Gaur also belies the findings that the trading in the scrip of the
company done by Mrs. Urvashi Gaur on October 14, 2008 or by Mr. Sameer Gaur on
October 13, 14 and 16, 2008 was based on UPSI. - It may be noted that the trading has not been done by Mr. Manoj Gaur who is
not supposed to trade during the closure of trading window. The trading is done by
his wife and brother. No doubt, being deemed to be connected persons to Mr. Manoj
Gaur, they were insiders. But no evidence has been brought on record, direct or
circumstantial, to show that they were in possession of UPSI about the financial
results of the company for the quarte r ending September 30, 2008. As we have
observed earlier, having regard to the gr avity of charge of insider trading, higher
degree of preponderance of probabilities is needed to bring home the charge. The
adjudicating officer has not brought any material on record to show that they were in
possession of UPSI. 20 - We may now take note of some othe r arguments which were advanced on
behalf of the appellan ts. It was alleged that the principles of natural justice were
violated on the ground that copy of inves tigation report was not provided to the
appellants which has resulted in denial of fair hearing to them. It was also alleged that
entirely a new case has been made out by the adjudicating officer while holding that
the UPSI existed from October 11, 2008 wh ereas in the show cause notice, it was
alleged that the information about the financial results etc. of the company was UPSI
with effect from October 12, 2008. We are inclined to agree w ith the submissions
made by learned Advocate General on behalf of the Board that there is no violation of
the principles of natural justice on any of these counts. Regulation 9(i) of the
Regulations specifically provides that only the findings of the investigation report are
to be communicated to a pe rson suspected of insider trading. Such findings were
furnished to the appellants. The investig ation report is not the evidence on which
reliance was placed by the adjudicating officer. Since the adj udicating officer has
complied with the statutory requirements, there is no legal obligation on the Board to
furnish the entire investigation report to the appellants. Lear ned counsel for the
parties have relied on certain case law relating to principles of natural justice. We do
not consider it necessary to refer to all those details in view of the fact that regulation
9 of the Regulations makes it obligatory to communicate the findings in the
investigation report and not the whole report. It is nobody’s case that such findings
were not made available. If the procedur e laid down in the regulations has been
followed by the adjudicating officer, the grie vance of violation of principles of
natural justice is without any foundation. We are also inclined to agree with the
learned Advocate General that reference to the existence of UPSI from October 12,
2008 in the show cause notice was only a summary of the findings of the
investigation report whereas existence of UPSI with effect from October 11, 2008 is
the finding arrived at by the adjudicating offi cer on the basis of material available on
record. Therefore, in our opinion, there was no breach of principles of natural justice
and no new case has been made out by the adjudicating officer. 21 - To summarise, we are of the considered view that the trial balances for the
quarter ending September 2008, which were available with the company by October
11, 2008, was price sensitive information within the meaning of regulation 2(ha) of
the Regulations and was unpublished till th e collated and finalised accounts were
placed before the Board on October 21, 2008. Mr. Manoj Gaur became privy to it
when trial balances were considered on October 11, 2008 and therefore, he was in
possession of UPSI on that date. However, the Board has not brought any evidence on
record, direct or circumstantial, to show that he had passed on this information to
either Mrs. Urvashi Gaur or Mr. Sameer Gaur or that the trading done by Mrs.
Urvashi Gaur on October 13, 2008 or Mr. Sa meer Gaur on October 13, 14 and 16,
2008 was based on UPSI.
We, therefore, set aside the impugned order and allow all the three appeals
with no order as to costs.
Sd/-
P.K. Malhotra
Member &
Presiding Officer (Offg.)Sd/- S.S.N. Moorthy Member03.10.2012
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