BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 55 of 2012
Date of decision: 08.10.2012 Mr. V. K. Kaul
Flat No. 8202 & 8204,
Sector B-XI,
Vasant Kunj,
New Delhi – 110070.
……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. Janak Dwarkadas, Senior Advocate with Mr. Chirag Kamdar, Ms. Ipsita Dutta
and Mr. Rohan Banerjee, Advocates for the Appellant.
Mr. D. J. Khambatta, Advocate General with Dr. Poornima Advani, Mr. Ajay Khaire
and Ms. Rachita Romani, 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 two Appeals no. 55 and 56 of 2012 which arise out
of orders dated January 4, 2012 passed by the adjudicating officer of the Securities
and Exchange Board of India (for short the Board) holding the appellants, in these
two appeals, guilty of violating Section 12A(d) and (e) of the Securities and
Exchange Board of India Act, 1992 (the Act) and imposing a penalty of 50 lacs and 10 lacs respectively under Section 15G(i) of the Act.
- Mr. V. K. Kaul, appellant in Appeal no. 55 of 2012, was a non-executive
independent director of Ranbaxy Laboratories Limited (Ranbaxy) for the period from 2
January 1, 2007 to December 18, 2008. Ranbaxy is the parent company of Solrex
Pharmaceuticals Limited (Solrex). Ranbaxy is also the holding company of Rexcel
Pharmaceutical Limited (Rexcel) and Solus Pharmaceutical Limited (Solus) which
are 100 per cent subsidiaries of Ranbaxy. Solrex is the partnership firm between
Rexcel and Solus. Therefore, Solrex is a company directly under the control of
Ranbaxy. - Certain alerts were generated at the National Stock Exchange Limited and the
Bombay Stock Exchange Limited during the period from March 17, 2008 to
April 9, 2008 on the basis of which the Board took up joint investigation in the
dealings of the scrip of Orchid Chemicals and Pharmaceuticals Ltd. (the target
company). Solrex made large investments in the scrip of the target company from
March 31, 2008 onward. It was noted that Mrs. Bala Kaul, appellant in Appeal no.
56 of 2012, wife of Mr. V. K. Kaul, appellant in Appeal no. 55 of 2012 had traded in
the scrip of the target company ahead of large investments made by Solrex in the
scrip of the target company. The funds for the said trading were provided by Mr. V.
K. Kaul and trading was done through Religare Securities Limited, who is also the
stockbroker of Solrex. Mrs. Bala Kaul bought a total of 35,000 shares at an average
price of131.71 on 27 th and 28 th March 2008 and sold them on April 10, 2008 at an average price of219.94. This trading was allegedly done on the basis of
Unpublished Price Sensitive Information (UPSI) available with Mr. V. K. Kaul to the
effect that Solrex is going to invest large amounts in the scrip of the target company.
The basis of this conclusion appears to be that the Board of Directors of Rexcel and
Solus had passed a resolution on March 20, 2008 to open a joint demat account in the
name of both companies on behalf of Solrex. Solrex bought shares of the target
company from March 31, 2008 onward. No other trading was done in this demat
account. Therefore, the Board came to the conclusion that the demat account was
opened for the purpose of purchase of shares of the target company and decision to
this effect was available on March 20, 2008 when the Board of Directors of Solus and
Rexcel passed resolution for opening demat account. It was further observed by the 3
Board that neither Solrex nor its partner firms Solus and Rexcel had financial strength
to make investments of large funds in the scrip of the target company. The funds
were provided by Ranbaxy to the extent of 151 crores. This funding was authorized
by the Board of Directors of Ranbaxy on March 28, 2008 to Mr. Malvinder Mohan
Singh, the then CEO and Managing Director of Ranbaxy, vide power of attorney
authorizing him transactions up to ` 800 crores. The Board came to the conclusion
that the decision to purchase shares of the target company would have been taken by
Ranbaxy on March 20, 2008 and on that basis the demat account was opened and
subsequently Mr. Malvinder Singh was authorized for funding to the subsidiaries of
Ranbaxy. Therefore, the UPSI came into existence on March 20, 2008. The decision
of Solrex to purchase shares of the target company in large quantity was price
sensitive information known only to the insiders. Mr. V. K. Kaul was in constant
touch with Mr. Malvinder Singh and Mr. Umesh Sethi, Vice President and Head
Global Finance of Ranbaxy and also on the Board of Rexcel and Solus. Mr. V. K.
Kaul, being an insider, purchased 35000 shares of the target company on behalf of his
wife Mrs. Bala Kaul, on 27 th and 28 th March 2008, ahead of trading in the scrip of the
target company by Solrex. It was, therefore, alleged that the appellant, being a
connected person of Ranbaxy under Regulation 2(c)(i) of the Securities and
Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (for
short the regulations), was an insider and traded on behalf of his wife in the scrip of
the target company based on UPSI in his possession and, thus, violated Section
12A(d) and (e) of the Act. - Show cause notice dated April 8, 2011 was issued to the appellants asking
them to furnish their reply to the charges. The appellants denied the charges
whereafter a personal hearing was also granted. After considering the material
available on record and the personal hearing, the adjudicating officer of the Board
held the appellants guilty of the charges and imposed penalty as stated above. Hence
this appeal. 4 - We have heard Mr. Janak Dwarkadas, senior advocate on behalf of the
appellant and Mr. Darius Khambatta, Advocate General on behalf of the Board. It
was argued by Mr. Janak Dwarkadas that the adjudicating officer of the Board has
erred in holding that the decision of Solrex to purchase shares of the target company
is UPSI. Referring to the definition of ‘price sensitive information’ under Regulation
2(ha) of the regulations, he submitted that only such information, which, if
published, is likely to materially affect the price of the securities of the company can
be treated as price sensitive information. Further, in terms of Regulation 2(k), the
actual publication of UPSI can be undertaken only by the company to which the UPSI
pertain. A combined reading of Regulations 2(ha) and 2(k) of the regulations indicate
that UPSI must be an information which can affect the price of the securities of a
company and which may be published by that company alone. According to learned
senior counsel, in the instant case, the information purported to be UPSI pertains to
the securities of the target company and the target company would never have been in
a position to publish such information as it was not privy to the purported UPSI.
Therefore, according to him, information relating to a third party investor seeking to
buy shares of a listed company from the market cannot be treated as UPSI regarding
the target company. The target company would not have any knowledge of this
information prior to the transactions. It was further argued by him that attributing
any other meaning to the concept of UPSI would be inconsistent with the scheme and
purpose of the regulations and in particular regulation 3A because it would result in a
situation where any company proposing to invest in another listed company would be
in violation of regulation 3A simply by being in possession or knowledge of its own
investment. It was also argued by him that show cause notice and the impugned
order are based on the report of the investigating officer but the report has not been
made available to the appellants. Thus, the whole inquiry is vitiated for violation of
principles of natural justice. Learned senior counsel for the appellants further
submitted that the adjudicating officer has erred in arriving at the conclusions on the
basis of circumstantial evidence giving a go by to the direct evidence available on
record. The statements made by Mr. Malvinder Singh, Mr. Umesh Sethi, Mr. 5
Sandeep Mohendroo, Mr. Amitabh Gupta and Mr. Sunil Kumar, associated with the
decision taking process of these companies have clearly stated that Mr. V. K. Kaul
was not associated with the decision about purchase of shares of the target company
and that he was not informed about such decision. In support, he relied on decisions
reported in Bariam Chemicals Ltd. vs. Company Law Board [AIR (1967) SC
295]; S. Harcharan Singh vs. S. Sajjan Singh [AIR (1985) SC 236]; In Re Jaypee
Cement Ltd. (2004) 122 Comp. Case 854, Sterlite Industries Ltd. vs. SEBI (2001)
34 SCL 485 (SAT); Dilip Pendse vs. SEBI (Order dated 19/11/2009). It was
further submitted that in any case, there was no UPSI and the decision to buy the
shares of the target company was taken on the basis of information already in public
domain. Mrs. Bala Kaul is a regular trader. The price of the scrip of the target
company was falling due to large quantities of shares being sold by foreign entity and
also by pledgee of the shares. However, the fundamentals of the company were
strong and, therefore, Mrs. Bala Kaul took advantage of the falling price and bought
the shares. It was, therefore, argued that order passed by the adjudicating officer in
both the appeals needs to be set aside. - Mr. Darius Khambata, learned Advocate General, appearing on behalf of the
respondent Board argued that the term ‘price sensitive information’ as defined in the
regulations is wide enough to include any information relating directly or indirectly to
a company. The regulations do not require that the UPSI must be in the possession of
or in the knowledge of the company in whose securities the insider deals. If an
insider deals in the securities of a company listed on any stock exchange when in
possession of UPSI relating to that company, regulation 3(i) of the regulations will
get attracted. Regulation 2(ha) of the regulations defines ‘price sensitive information’
to mean any information which relates directly or indirectly to ‘a company’ which, if
published, is likely to materially affect the price of securities of company. The
explanation to the said sub-regulation makes a deeming provision with regard to
certain information to be price sensitive. Regulation 2(k) defines ‘unpublished’ to
mean information which is not published by company or its agents and is not specific 6
in nature. The explanation further provides that speculative reports in print or
electronic media shall not be considered as published information. A bare reading of
the aforesaid provisions make it clear that the information must relate to ‘a company’
and not necessarily ‘the company’ which is dealing into the shares. He supported the
findings arrived at by the adjudicating officer with the judgments/orders referred to
by him in the impugned order including decisions in the case of United States of
America vs. Raj Rajaratnam [(2009) Cr. 1184 (RJH)], of United States District
Court, Southern District of New York; E. Sudhir Reddy vs. SEBI (Appeal no.
138 of 2011 decided on 16/12/2011); Rajiv B. Gandhi vs. SEBI (Appeal no. 50 of
2007 decided on 9/5/2008). Learned Advocate General also relied on the order of
this Tribunal in the case of Dr. Anjali Beke vs. SEBI (Appeal no. 148 of 2005
decided on 26/10/2006) to say that when a person receives UPSI or who has had
access to such information, he becomes an insider. Learned Advocate General also
referred to the judgment of the Supreme Court in the case of K. V. Muthu vs.
Angamuthu Ammal (1997) 2 SCC 53 to contend that while interpreting a definition,
it has to be borne in mind that the interpretation placed on it should not be repugnant
to the context, it should also be such as would aid the achievement of the purpose
which is sought to be served by the Act. A construction which would defeat or is
likely to defeat the purpose of the Act has to be ignored. He drew our attention to
Section 106 of the Evidence Act to say that the information with regard to UPSI was
specially in the knowledge of the appellant and burden of proof was on them. Since
the appellants had failed to discharge their duties, the Board was fully justified in
arriving at its own conclusion based on evidence available on record. The very fact
that Mr. V. K. Kaul purchased shares of the target company on 27 th and 28 th March,
2008 i.e. immediately after decision of Solrex to buy shares of the target company
and then disposing them of within a short span itself is a strong evidence that the
trading was based on insider information. Therefore, no fault can be found with the
conclusions arrived at by the adjudicating officer. 7 - With a view to appreciate the rival contentions, it is necessary to refer to the
relevant provisions of the regulations which 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 prior 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-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 director
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
8
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 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
persons mentioned in sub-clause (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 policies, plans or operations
of the company;
(k) “unpublished” means information which is not published
by the company or its agents and is not specific in nature.
9
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.
3A. No company shall deal in the securities of another company
or associate of that other company while in possession of
any unpublished price sensitive information.
- 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 other 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. - While we agree with learned senior counsel for the appellant that the decision
of Solrex to purchase shares of the target company may not be a UPSI for the target
company but it is definitely UPSI for Solrex because the decision of the Solrex to
purchase shares of the target company, if published, is likely to materially affect the
price of the securities of the target company. The decision taken by Solrex to
purchase shares of the target company is not a decision in public domain and known
only to insiders of Solrex. Hence it is a price sensitive information for Solrex.
Regulation 2(e) defines ‘insider’ to mean any person who, (i) is or was connected
with the company or is deemed to have been connected with the company and who is 10
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. It needs to be appreciated that the clause
makes a distinction between ‘the company’ and ‘a company’. When it refers to ‘the
company, the references is to the company whose Board of Directors is taking a
decision and when it refers to ‘a company’, the reference is to a company to which
the decision pertains. This has been explained even by the adjudicating officer by
way of an illustration in para 30 of his order dated January 4, 2012, in the case of
Mr. V. K. Kaul as under:-
“30. To illustrate, if noticee’s submission is accepted then a
situation will arise wherein a Director of the company X cannot be
held guilty of insider trading if he trades in the scrip of company Y
based on the UPSI, that company X is going to make a strategic
investment / placing a huge purchase order for plant and
machineries in company Y. Such a scenario will defeat the purpose
of PIT Regulations.”
We are, therefore, of the view that the term price sensitive information used in
regulation 2(ha) is wide enough to include information relating directly or indirectly
to ‘a company’. The Solrex had decided to purchase shares of the target company.
Here, Solrex is ‘the company’ and target company is ‘a company’. The decision of
Solrex to purchase shares of the target company is likely to materially affect the price
of securities of the target company. Only the insiders of Solrex are aware about this
decision of the company. If the insiders of Solrex are allowed to trade in the shares
of the target company ahead of purchase of shares by Solrex, surely the trading will
be on the basis of insider information. The decision of Solrex to purchase shares of
the target company is, therefore, UPSI for the insiders of Solrex and they are
prohibited from dealing in the shares of the target company till such information
becomes public. It is not obligatory under the regulations that the UPSI must be in
the possession or knowledge of ‘a company’ in whose securities an insider of ‘the
company’ deals. As long as, an insider of ‘the company’ deals in the securities of ‘a
company’ listed on any stock exchange while in possession of UPSI relating to that
company, the provisions of Regulation 3(i) of the regulations will get attracted. 11 - Let us now look at the status of Mr. V. K. Kaul as to whether, in the facts and
circumstances of this case, he falls within the definition of ‘insider’ as given in
regulation 2(e) of the Regulations. We are of the view that answer has to be in the
affirmative. He was the whole time director of Ranbaxy till December 31, 2003. In
2008, he was an independent director of Ranbaxy. He was also a member of the audit
committee and compensation committee of Ranbaxy. He has attended all the
meetings of these two committees which took place in the year 2008. The Board has
placed sufficient material on record in the form of record of telephone calls to show
that he was in constant touch with Mr. Malvinder Mohan Singh and Mr. Umesh Sethi
from March 24, 2008 to March 26, 2008 and was frequently talking to them on
telephone. A reasonable presumption can, therefore, be drawn that Mr. V. K. Kaul,
being connected person to the company, was aware about the decision taken on
March 20, 2008 and March 28, 2008 with regard to the opening of demat account,
authorization to Mr. Malvinder Mohan Singh to sanction loan and decision of Solrex
to invest in the scrip of the target company. - It was vehemently argued by learned senior counsel for the appellant that Mr.
Malvinder Singh and Mr. Umesh Sethi have categorically said that they did not
provide information regarding purchase of shares of the target company by Solrex.
As direct evidence in the form of statements of connected persons is available on
record, the Board cannot draw any conclusion against the appellant on the basis of the
circumstantial evidence. Learned senior counsel for the appellant then argued that the
Board had chosen to arrive at its findings on surmises and conjectures in the face of
contrary direct evidence supporting the innocence of the appellant that the calls
between Mr. Malvinder Singh, Mr. Umesh Sethi and Mr. V. K. Kaul would
necessarily have been for the purpose of sharing UPSI. Learned senior counsel relied
on few judgments including judgment in the case of Padola Veera Reddy vs. State of
Andhra Pradesh [AIR (1990) SC 79] and Sterlite Industries vs. SEBI [(2001) 34 SCL
485 (SAT)] to contend that to sustain a conviction based on circumstantial evidence, 12
the evidence must be complete and incapable of leading to any other explanation. He
reiterated that evidence merely probablising and endeavouring to prove the fact on
the basis of preponderance of probability is not sufficient to establish serious charges
like insider trading and market manipulation etc. - We have perused the statements of Mr. Malvinder Singh and Mr. Umesh Sethi
and other connected persons. Statements of Mr. Malvinder Singh and Mr. Umesh
Sethi have caveat that it is not possible to recount the minute details and it is also not
possible to recollect whether Mr. V. K. Kaul was contacted during the relevant
period. There is no reference to personal contact with Mr. V. K. Kaul in other
statements. Mr. Malvinder Singh has stated that it may not be possible for him to
recollect the minute details and, thus, it would be appropriate for the Board to refer to
documents of relevant entities which may throw some light and may provide some
information as regards the questions raised by the Board. Similarly, in other
statements, it is stated that the matter is three years old and statements are being made
as per “recollection”. Such statements cannot be said to be ‘direct evidence’ and,
therefore, we cannot find fault with the adjudicating officer in arriving at the
conclusion on the basis of circumstantial evidence available with the Board. - We are also unable to accept the arguments of learned senior counsel for the
appellants that either the principles of natural justice were not followed or that any
prejudice has been caused to the appellants by not making available complete report
of the investigating officer. Regulation 9 of the regulations specifically provide that
after consideration of the investigation report, the Board will communicate the
findings to the person suspected to be involved in the insider trading or violating
provisions of the regulations. There is no denying of the fact that findings of the
investigation report were made available to the appellants. When the requirements in
the rules were complied with, the question of violation of principles of natural justice
does not arise. 13 - It has been observed by this Tribunal earlier also in the case of Dilip S.
Pendse (supra) that charge of insider trading is one of the most serious charge in
relation to the securities market and having regard to the gravity of this wrong doing,
higher must be the preponderance of probabilities in establishing the same. In
support, reliance was also placed on the observations made by the Apex Court in the
case of Mousam Singha Roy v. State of West Bengal (2003) 12 SCC 377 in the
context of administration of criminal justice and observing that these principles apply
to civil cases as well where the charge is to be established not beyond reasonable
doubt but on the preponderance of the probabilities. The measure of proof in civil or
criminal cases is not an absolute standard and within each standard, there are degrees
and probabilities and in this context reference was also made to what Denning, L.J.
observed in Bater v. Bater (1950) 2 All E.R. 458 and we reproduced the same for
ease of reference :-
“It is true that by our law there 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. The degree depends on the
subject-matter. A civil court, when considering a
charge of fraud, will naturally require a higher degree
of probability than that which 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 require a degree of probability
which is commensurate with the occasion.”
We are also of the view that the adjudicating officer has rightly relied on the
observations of U. S.Court in Rajaratnam case (supra) on the relevance of
circumstantial evidence in para 38 of the impugned order which reads as under :-
“38. Regarding the issue of relevance of circumstantial evidence,
the Hon’ble District Court Southern District of New York in the
matter of United States of America V Raj Rajaratnam 09 Cr. 1184
(RJH) deided on 11.08.2011 has observed as follows:
14
“…Moreover, several other Courts of Appeals have
sustained insider trading convictions based on
circumstantial evidence in considering such factors as
“(1) access to information; (2) relationship between
the tipper and the tippee; (3) timing of contact
between the tipper and the tippee; (4) timing of the
trades; (5) pattern of the trades; and (6) attempts to
conceal either the trades or the relationship between
the tipper and the tippee.” United States v. Larrabee,
240 F.3d 18, 21-22 (1 st Cir. 2001)…”
The above principles are not in conflict with the regulatory framework prescribed by
the Board and can be looked into while deciding case of insider trading under the
Indian regulatory framework.
- The sequence of events, i.e. meeting of Board of Directors of Rexcel and
Solus on March 20, 2008, meeting of March 28, 2008 of the Board of Directors of
Ranbaxy authorizing Malvinder Singh for transactions up to ` 800 crores, telephonic
contacts on 24 th , 25 th and 26 th March 2008 between Mr. V. K. Kaul, Mr. Malvinder
Singh and Mr. Umesh Sethi and placing of orders by Mr. V. K. Kaul on behalf of his
wife with the broker for purchasing 35,000 shares of the target company on 27 th and
28 th March 2008 i.e. just before purchase of shares of the target company by Solrex
on March 31, 2012 leads to an irresistible conclusion that the trading done by Mr. V.
K. Kaul on behalf of his wife, Mrs. Bala Kaul was based on the UPSI in his
possession with regard to purchase of shares of the target company by Solrex. It is
interesting to note that Religare Securities Limited is not only the broker of Mrs. Bala
Kaul but also the broker of Rexcel, Solus and Solrex for purchase of shares of the
target company. It is also interesting to note that the same quantity of shares was sold
on April 10, 2008. It is, therefore, reasonably expected that Mr. V. K. Kaul had
access to the UPSI by virtue of his directorship in Ranbaxy, his attendance in the
meetings of the audit committee as well as compensation committee of Ranbaxy and
frequent telephone calls to Mr. Malvinder Singh and Mr. Umesh Sethi during the
relevant period. It is also interesting to note that in his letter dated February 25, 2011
addressed to the Board during the course of investigation, Mr. V. K. Kaul has stated 15
that he had no contact with these persons in the month of February, March and April, - However, the details of telephonic calls make it clear that this statement is not
correct. It is, therefore, reasonable to infer that Mr. V. K. Kaul has suppressed the
material fact. - It is highly improbable to believe the statement of Mrs. Bala Kaul that she
bought shares of the target company because of its intrinsic value and strong
fundamentals. If that was so, it is not clear, what made her sell these shares on April
10, 2008, when Solrex was still in the process of investing more money into the scrip
of the target company. It is also interesting to note that the funds for investment for
purchasing the scrip of the target company were made available by Mr. V. K. Kaul
and the sale proceeds of the scrip were also transferred back to him. Mrs. Bala Kaul,
in her reply dated January 1, 2011, has further stated that instructions to the
stockbroker for the transaction were also given telephonically by Mr. V. K. Kaul.
We, therefore, cannot find any fault with the findings arrived at by the adjudicating
officer that Mr. V. K. Kaul had traded in the scrip of the target company in the name
of his wife when he was in possession of UPSI that Solrex was to purchase large
number of shares of the target company for which funds were being arranged by
Ranbaxy. Therefore, we have no hesitation in upholding the impugned order.
In the result, the appeals are dismissed with no order as to costs. Sd/-
P. K. Malhotra
Member &
Presiding Officer ( Offg. )
Sd/-
S. S. N. Moorthy
Member
08.10.2012
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