Abhijit Rajan vs Sebi

Name of Entity Date of Amount Infusion Amount (` in Crores) Abhijit Rajan 24.06.2013 5.00 Pacific Energy Pvt. Ltd. 28.06.2013 6.00 Abhijit Rajan 13.07.2013 5.00 Abhijit Rajan 02.08.2013 5.00 Abhijit Rajan 10.08.2013 7.00 Abhijit Rajan 14.08.2013 0.50 Abhijit Rajan 31.08.2013 10.00 Abhijit Rajan 17.09.2013 8.00 Total 46.50

6. Not only this during the relevant period besides selling

the shares the appellant had raised Rs.5.15 crores from

CICPL on 20th August, 2018, by selling his own properties to

CICPL in the following manner"-

9

Nature of Property Value Date of Date of (` in Payment Agreement Crores) Agricultural Land-Village Kale, 0.90 28.08.2013 28.08.2013 District-Pune Agricultural Land-Village 1.10 28.08.2013 28.08.2013 Kolgaon, District-Raigad Agricultural Land-Village 2.40 28.08.2013 28.08.2013 Kolgaon, District-Raigad Flat at Four Bungalows, 0.75 28.08.2013 28.08.2013 Andheri Mumbai Total 5.15

7. The respondent SEBI however did not accept any of

the defense and the impugned order came to be passed.

8. Before embarking upon the rival submission it is

necessary to advert to the relevant provisions.

"PIT Regulations, 1992

Regulation 2(c)(ii)

(c)"Connected person" means any person who- ...

(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between himself and the company whether temporary or permanent and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that company: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;

10 Regulation 3(i)

Prohibition on dealing, communicating or counselling on matters relating to insider trading.

3. 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on behalf of any other person, deal in securities of a company listed on any stock exchange when in possession of any unpublished price sensitive information;

(ii) communicate or counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price sensitive information shall not deal in securities:

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company shall deal in the securities of another company or associate of that other company while in possession of any unpublished price sensitive information.

Violation of provisions relating to insider trading.

4. Any insider who deals in securities in contravention of the provisions of regulation 3 or 3A shall be guilty of insider trading

SEBI ACT

Section 12A(d) & (e)

12A. No person shall directly or indirectly--

(d) engage in insider trading;

(e) deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of 11

this Act or the rules or the regulations made thereunder;

9. "Price sensitive information" has been defined in

regulation 2(ha) and 'unpublished' in clauses (e) and (k) of

regulation 2 of Securities and Exchange Board of India

(Prohibition of Insider Trading) Regulations, 1992. The said

provisions are reproduced hereunder for facility of

reference:

"2. In these regulations, unless the context otherwise requires:-

(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;

(iv) amalgamation, mergers or takeovers;

(v)disposal of the whole or substantial part of the undertaking; and

(vi) significant changes in policies, plans or operations of the company;

(i) ........................................

(j) ......................................................

(k) "unpublished" means information which is not published by the company or its agents and is not specific in nature. Explanation.- Speculative reports in 12

print or electronic media shall not be considered as published information;

(l) ...................................................................."

10. Heard Mr. Somasekhar Sundaresan, Advocate assisted

by Mr. Abishek Venkataraman, Mr. Pulkit Sukhramani and

Ms. Struti Rajan, Advocates for the Appellant and Mr.

Pradeep Sancheti, Senior Advocate assisted by Mr. Abhiraj

Arora and Mr. Vivek Shah, Advocates for the Respondent.

11. Mr. Somasekhar Sundaresan, learned counsel for the

appellant submits that considering the miniscule proportion

of the effect of termination of the agreement on the total

turnover of GIPL and even the fact that the Simplex had not

published the information at any point of time the respondent

SEBI ought to have concluded that the information was not

that much material which would affect the price of GIPL.

The information, in fact had not adversely affected the price

of the share on the date of disclosure of the information. He

further submits that an insider can be held guilty for insider

trading only when he trades, on the basis of the information

as provided by the provisions of Section 12A(d) and (c) of

the SEBI Act as reproduced supra. It was further submitted

that the Adjudicating Officer for the reasons best known to 13

him neglected the weighted average price of the shares as on

the date of the disclosure of the information and considered

the price as on 4th September, 2013 and, thus, calculated the

probable loss at Rs.33 lakh and odd. He further submitted

that the explanation given by the appellant would show that

due to the dire need of infusion of funds under the master

restructuring agreement, the appellant was constrained to sell

the shares. These submissions, according to him are,

supported by the fact and figures as detailed supra.

Therefore, Mr. Somashekhar argued, as the appellant had not

traded on the basis of the information the Adjudicating

Officer ought to have absolved the appellant.

In support of the above submissions Mr. Somasekhar

relied on the ratio of

1. This Tribunal's order dated 9.5.2008 in Appeal

no.50 of 2007 in Rajiv B. Gandhi & Ors. vs. Securities

and Exchange Board of India.

2. This Tribunal's order dated 18.11.2011 in Appeal

No.207 of 2010 in Gujarat NRE Mineral Resources Ltd.

vs. SEBI.

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3. This Tribunal's order dated 31.1.2012 in Appeal

No.209 of 2011 in Mrs. Chandrakala vs. The

Adjudicating Officer, SEBI.

In all these cases, on facts this Tribunal had held that

the appellants therein were able to show that they did not

trade on the basis of the information.

The learned counsel also placed reliance on the

following decisions:

a) Supreme Court of United States order dated March

7, 1998 Basic Incorporated vs. Max L. Levinson (1988)

SCC Online US 45.

b) United States Court of Appeals for the Ninth

Circuit order in the case of Miller v. Pezzani (1994)

U.S. App. LEXIS 25471.

In these cases, on facts it was held that the information

was not significant/material.

12. On the other hand, Mr. Pradeep Sancheti, learned senior

counsel submitted that it is an admitted fact that the appellant

was an insider being the Chairman and Managing Director of

GIPL when its board had passed a resolution authorizing

termination of the agreement. Holding the said information 15

with himself, the appellant had sold the shares and thereafter

the information was disclosed to the stock exchanges. He

drew attention of the Tribunal to the assessment made by the

Adjudicating Officer on the impact of termination of

agreement in the order book value of GIPL at 3.1% as

detailed in para 5.12 of the impugned order. He submits that

whether the price of shares actually decreased upon

disclosure is not material. The determination of price by a

market at a given day depends on number of facts,

information, the trend in the segment etc. In the

circumstances, supporting the reasons forwarded by the

Adjudicating Officer he wanted that appeal be dismissed.

13. Upon hearing both the sides in our opinion the appeal

deserves to be allowed for the following reasons:-

Reasons

1. In our view the information itself was not a price

sensitive information. The record would show that

GIPL had invested only Rs.4.9 crores in the Simplex

project in the said financial year. It represented only

0.05% of the GIPL's order book value at the end of

August, 013 and only 0.7% of its turnover for the said 16

financial year. Further due to the termination of the

agreement a large project worth Rs.1648 returned back

to GIPL while the smaller project of Rs.940 crore

remained with Simplex. In a way it could have been a

positive information to the shareholders. The

Adjudicating Officer however has calculated the

change in the order book value without assessing

whether the change was positive or negative.

Considering the minor proportion of the transaction to

the turnover of GIPL, in our view the information

cannot be termed as price sensitive information. The

Simplex had not even disclosed the said information to

the stock exchanges.

2. Further, even if it is assumed that the information

was is a price sensitive information, still the appellant

cannot be blamed of insider trading for the reasons that

he did not trade "on the basis of the information". The

appellant was able to show his dire need to infuse fund

in the entity under the master restructuring agreement to

implement a CDR package as detailed supra. He was

even required to sell his agricultural land and flat 17

details of which are already given hereinabove. In

these circumstances he sold the shares. In the case of

Rajiv B. Gandhi on fact this Tribunal held that the

appellants therein were able to rebut the presumption

that they traded on the basis of UPSI as they had a

necessity to sell the shares. Similar is the case of

Gujarat NRE Mineral Resources Ltd. and Mrs.

Chandrakala decided by this Tribunal.

3. The appellant had contended that respondent SEBI

had deliberately taken the closing price of September,

2013 when the price were around 30% lower than the

closing price as on September 3, 2013. By adding this

extra day SEBI had widened the gap between the

selling price and the price found on 4 th September,

2013. In fact the share closing price rose on September

3, 2013 i.e. on the date of disclosure of the information.

However, according to the appellant, respondent SEBI

only inorder to show that the appellant had avoided the

probable loss calculated the figures based on the last

traded price of September 4, 2013.

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4. It is already recorded that the information was

disclosed to the BSE and NSE on September 3, 2012 at

1.05 p.m. and 2.40 p.m. respectively i.e. much before

the closure of the market. There is no reason forwarded

in the impugned order as to why the last traded price of

September 3, 2013 is not taken into consideration by

respondent SEBI. For all these reasons in our view the

order cannot be sustained.

5. The appeal is hereby allowed. The impugned

order is hereby set aside. SEBI shall take steps for

refund of the amount already deposited by the appellant.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Justice M.T. Joshi Judicial Member

8.11.2019 Prepared and compared by RHN