Anil Mittal vs Sebi

4. It is the contention of the learned counsel

Shri Ravichandra Hegde, appearing on behalf of the appellant

that there was no UPSI on the date of the sale made by the

appellant; the UPSI came into existence only on June 15, 2017

when the Trust sought pre-clearance for sale; as a matter of

abundant caution the appellant had also taken pre-clearance

from the Compliance Officer for his sale of 10,000 shares; the

appellant needed money for meeting his tax obligations as is

evident from the records and the Trust itself holds that there was

no UPSI in question.

5. The learned counsel also relied on a number of

judgements to substantiate his contention. These judgements

include: Arun Jain in the matter of Polaris Software Lab

Limited [Order dated WTM/GM/EFD/109/2017-18], Rajiv

Gandhi Vs. SEBI [Order dated May 9, 2008 in Appeal No. 50

of 2007], Chandrakala Vs. SEBI [Order dated January 31,

2012 in Appeal No. 209 of 2011], Rakesh Agarwal Vs.

Securities and Exchange Board of India

[MANU/SB/0208/2003], In Re: Polaris Software Lab Limited

and Ors. [MANU/SB/0141/2018], Dilip Pendse Vs. SEBI

[Order dated November 19, 2009 in Appeal No. 80 of 2009],

Utsav Pathak [AO Order dated August 30, 2019], Samir C 4

Arora Vs. SEBI [Order dated October 15, 2004] and Udayant

Malhoutra [WTM Order dated December 18, 2020].

6. The learned Senior Counsel Shri Shiraz Rustomjee,

appearing on behalf of the respondent SEBI on the other hand,

contended that being the CFO of IBREL the appellant was a

„designated person‟ who could not have sought pre-clearances

for trading in the securities of the company during any UPSI

period. In the instant case, he not only sought pre-clearances

but sought it by making false declarations that he was not privy

to any UPSI when he had attended the meeting of the

Committee on June 08, 2017 and was privy to the decision

therein, authorising the Trust to sell its holding of 8.88% shares

in IBREL and to remit the proceeds to IBREL. The appellant‟s

claim that the said direction was not an actual decision and he

was not privy to the decision taken by the Trust itself regarding

the timing etc. of the sales has no meaning because actual

disclosure by IBREL regarding the said sale transactions on

June 22, 2017 resulted in an almost 10% decline in the price of

IBREL shares. Therefore, it was a UPSI from June 08, 2017 till

June 22, 2017 and the appellant sold the shares on June 12,

2017 when the UPSI was squarely in existence. Therefore, the

appellant was an "insider", was privy to the UPSI and sold the 5

shares during UPSI period when as an insider he could not have

traded in the shares during that period. However, considering

that the profit made by the appellant is limited only the

minimum amount of penalty of Rs. 10 Lakhs has been imposed.

7. The learned senior counsel also relied on the following

judgements to emphasis his contentions: Shri B. Rama

Ramalinga Raju vs. SEBI (Appeal No. 286 of 2014 decided on

12.05.2017), Shruti Vora vs. SEBI (A. L. No. 28 of 2020

decided on 12.02.2020 and Anant R. Sathe vs. SEBI (Appeal

No. 150 of 2020 decided on 17.07.2020).

8. Having heard the rival contentions of the parties and

having perused the documents on record we are of the

considered view that the appeal lacks merit on various grounds

and therefore is liable to be dismissed. We do not find any merit

in the contention of the appellant that no UPSI existed at the

time of sale of 10,000 shares on 12 June by the appellant and

UPSI came into existence only on June 15, 2017 when the Trust

sought pre-clearance which he was not aware of because the

Trust was created only for the benefit of IBREL and the

Restructuring Committee could direct the Trust to sell its entire

shareholding in IBREL and to remit the proceeds to IBREL. 6

These facts clearly show that the Trust was under obligation to

operate under the directions given by a competent authority set

up by IBREL and, therefore, though a separate legal entity it

was not free to take decisions relating to its holding of IBREL

shares. The appellant‟s contention that being a part of the

Committee meeting which authorised the transaction of the

shares held by the Trust itself was not a UPSI does not have any

merit as the Trust was holding 8.88% shares of IBREL and any

decision relating to its divestment would materially impact the

price of IBREL shares. Though, not relevant, ex post facto,

when the sale was disclosed on June 22, 2017 actual price fell

substantially. Therefore, we do not find any error in the finding

by the AO that UPSI came into existence on June 08, 2017.

Further the appellant as a designated employee could not have

transacted in the shares of IBREL when UPSI was in existence.

9. We also do not find any merit in the contention of the

appellant that he sold the shares not on the basis of UPSI but for

meeting his tax obligations. Here, it is an admitted position that

on May 19, 2017 the appellant sought pre-clearance for the sale

of his entire shareholding of 15,000 shares of IBREL but for his

own reasons he sold only 5,000 shares till June 12, 2017 when

he disposed of the remaining 10,000 shares. Further, it is a 7

widely known and admitted position that tax obligations had to

be met on or before July 31 of that year and there was sufficient

time available to the appellant. It is also on record that the tax

obligation was not to the tune of the full amount of the sale

proceeds plus Rs. 25 lakhs he admittedly borrowed for the

purpose of paying tax. Therefore, the requirement of funds as

the reasons submitted by the appellant, in the facts of this case

does not have any merit.

10. The judgments relied on by the appellant are

distinguishable on facts. The appellant is the CFO of the

company, was privy to the decision to dispose of the shares held

by the Trust whose beneficial owner is IBREL. Despite having

this information the appellant sought pre-clearance giving

wrong information and sold the shares when UPSI was in

existence. The appellant was privy to the UPSI as defined under

Regulations 2(1)(n) of the PIT Regulations, 2015. Similarly,

Regulation 4(1) states that "no insider shall trade in securities

that are listed or proposed to be listed on a stock exchange when

in possession of unpublished price sensitive information".

Though a caveat is given for compelling circumstances the

appellant‟s submission does not fall under such exemptions.

The penalty of Rs. 10 Lakhs imposed is minimum provided 8

under the regulations which is neither harsh nor

disproportionate.

11. Given the above reasons, we do not find any merit in the

appeal and is dismissed with no orders on costs.

12. The present matter was heard through video conference

due to Covid-19 pandemic. At this stage it is not possible to sign

a copy of this order nor a certified copy of this order could be

issued by the Registry. In these circumstances, this order will be

digitally signed by the Private Secretary on behalf of the bench

and all concerned parties are directed to act on the digitally

signed copy of this order. Parties will act on production of a

digitally signed copy sent by fax and/or email.

Justice Tarun Agarwala Presiding Officer

Dr. C.K.G. Nair Member

Justice M. T. Joshi Judicial Member 10.03.2021 RAJALA Digitally by signed

PK KSHMI NAIR RAJALAKSHMI H

Date: 2021.03.11 H NAIR 16:29:08 +05'30'