Mr. G. Bala Reddy And Others vs Sebi

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051 ...Respondent

Mr. Darius J. Khambatta, Senior Advocate with Mr. Pesi Modi, Senior Advocate, Mr. Joby Mathew, Mr. Neville Lashkari, Mr. Nikhil Shah and Mr. Tushar Hathiramani, Advocates i/b Joby Mathew & Associates for the Appellants.

Mr. Gaurav Joshi, Senior Advocate with Mr. Saurabh Pakale, Mr. Anubhav Ghosh and Ms. Rashi Dalmia, Advocates i/b The Law Point for the Respondent.

CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M. T. Joshi, Judicial Member

Per: Justice Tarun Agarwala

1. Appellants being aggrieved by the order of the

Adjudicating Officer ("AO" for short) of the Securities and

Exchange Board of India ("SEBI" for short) dated October 15,

2015 have filed the present appeal wherein the following

penalties were imposed namely:-

"a) Shri G. Bala Reddy, G Velangini Mary, Mary

Ashwini and Sravanthi Yakkanti violated

Regulation 3 and 4 of the PIT Regulations,

1992 read with sections 12A(d) and 12A(e) of 3

the SEBI Act. Further, Sahasra Investments

Pvt. Ltd. and BRG Energy Ltd. violated

Regulation 3, 3A and 4 of the PIT Regulations,

1992 and sections 12A(d) and section 12A(e) of

the SEBI Act, 1992. In addition to the same,

Shri G Bala Reddy, G Velangini Mary, APRG,

Sravanthi, Mary Ashwini and BRG have

violated Regulations 3(c) and (d) of the

PFUTP Regulations read alongside section

12A(b) and (c) of the SEBI Act. For the

aforesaid violations, I impose a penalty of

` 40,00,00,000/- (Rupees Forty Crore Only)

under section 15G and 15HA of the SEBI Act,

1992 on the aforenamed noticees, to be paid

jointly and severally by them.

b) Further, Bala Reddy, Mary Ashwini and

Sravanthi Yakkanti submitted misleading

information to SEBI regarding their

relationship with certain entities, and for the

same I impose a penalty of ` 20,00,000/-

(Rupees Twenty Lakh Only) on Bala Reddy, 4

Mary Ashwini and Sravanthi Yakkanti each,

under section 15A(a) of the SEBI Act.

c) Shri G. Bala Reddy and G Velangini Mary also

violated Regulation 8A(1) and (2) of the

Takeover Regulations, 1997, Regulations,

which attracts penalty under section 15HB of

the SEBI Act. For the same, I impose a penalty

of ` 26,00,000/- (Rupees Twenty Six Lakh

Only) on Bala Reddy and ` 12,00,000/-

(Rupees Twelve Lakh Only) on G Velangini

Mary."

2. The facts leading to the filing of the appeal is, that on

March 18, 2009 ICSA (India) Limited (hereinafter referred to as

"the Company") made a corporate announcement at National

Stock Exchange of India Limited ("NSE") and BSE Limited

("BSE") to the effect that the company had secured work orders

for a total contract value of ` 464.17 crore from Bihar State

Electricity Board (hereinafter referred to as "BSEB"),

Maharashtra State Electricity Distribution Co. Ltd.

("Mahavitaran" and M.P. Poorva Kshetra Vidyut Vitaran Co.

Ltd. (hereinafter referred to as "MPPKVVCL"). Investigation 5

made by SEBI indicated that certain entities bought a large

number of shares in February 2009 a few days prior to the

announcement made by the company. It was found that

Sravanthi Yakkanti (hereinafter referred to as "Sravanthi"),

Appellant No. 4 and Mary Ashwini (hereinafter referred to as

"Mary") Appellant No. 3 had bought 3,93,683 shares at the rate

of ` 74.99 paisa per share and 11,92,000 shares at the rate of

` 75 per share respectively. Investigation further revealed that

all the appellants were somehow related in one way or the other

and indulged in insider trading based on the unpublished price

sensitive information ("UPSI"). Accordingly, a show cause

notice was issued to show cause as to why a penalty should not

be imposed for utilizing the UPSI under Regulation 2(ha) read

with Regulation 2(k) of SEBI (Prohibition of Insider Trading)

Regulations, 1992 ("PIT Regulations" for short). The show

cause notice further indicated that the appellants gave

misleading information with regard to the relationship between

the appellants. Further, some of the appellants did not declare

the shares pledged by them. In short, the show cause notice

stated:-

"i) You have funded the purchase of shares by

Sravanthi and Mary who are connected to you

and trade while in possession of price sensitive 6

information. Thus act of yours are alleged to

be violation of sections 12A(d) and 12A(e) of

the SEBI Act, 1992 read with Regulation 3 and

4 of the PIT Regulations, 1992. Further you

were the beneficiary of the funds received from

the sale proceeds of the shares acquired

through insider trading. Such act of you are

alleged to be in violation of sections 12(A)(b)

and 12A(c) of the SEBI Act read with

Regulation 3(c) and (d) of the SEBI

(Prohibition of Fraudulent and Unfair Trade

Practice relating to Securities Market)

Regulations, 2003 ("PFUTP Regulations" for

short).

ii) You gave misleading information with regard

to the relationship with the entities who traded

in the scrip and those who were the

beneficiaries of the funds received from the

sale proceeds of the shares acquired through

alleged insider trading.

7

iii) You have given misleading declaration with

regard to shares pledged by you and thus

violated Regulation 8A(1) and (2) of the SEBI

(Substantial Acquisition of Shares and

Takeovers), Regulations, 1997 ("Takeover

Regulations, 1997" for short)."

3. The appellants contested the show cause notice and

submitted their replies denying the allegations and contended

that they have not violated any provisions of the SEBI Act, the

Takeover Regulations, the PIT Regulations, etc. The AO after

considering the replies of the appellants and, after giving them

an opportunity of hearing found that the appellants were guilty

of insider trading, etc. and consequently, imposed a penalty

which is reflected in the preceding paragraphs.

4. We have heard Shri D. J. Khambatta alongwith Shri Pesi

Modi, learned senior counsels assisted by Shri Joby Mathew

advocate for the appellants and Shri Gaurav Joshi the learned

senior counsel assisted by Shri Saurabh Pakale advocate on

behalf of the respondent at length.

8

5. The basic point which has been urged before this Tribunal

is, that the appellants have not violated the provisions of the PIT

Regulations, 1992 read with section 12A of the SEBI Act. It

was contended that the work orders which the company had

procured was in the ordinary course of business and, in any

case, when the shares were purchased, the company had not

bagged the contract and was only found to be the lowest price

bidder (L1). It was thus contended, that being the lowest price

bidder did not mean that the contract was issued in favour of the

company nor being (L1) could be considered as a price sensitive

information.

6. In order to understand the import of the submissions it

would be necessary to give a few facts and the findings given by

the AO.

7. Appellant No. 1 is the Promoter, Chairman and Managing

Director of the company as well as the Promoter, Chairman and

Director of Appellant Nos. 5 and 6. Appellant No. 2 is a

Promoter of the company and wife of Appellant No. 1 and is

Promoter and Managing director in Appellant No. 6 and

Promoter and Director in Appellant No. 5. Appellant No. 3 is

the wife of Appellant No. 7. Appellant No. 4 is an employee of 9

the company, Appellant Nos. 5 and 6 are companies promoted

by Appellant No. 1 in which Appellant Nos. 1 & 2 are also

Directors. Appellant No. 7 is the husband of Appellant No. 3

and is also a cousin of Appellant No. 2.

8. The AO after considering the evidence have found that the

aforesaid appellants are connected persons and are a

homogeneous group. The AO further found that a non-resident

investor Jeff Fineberg had 16,00,000 shares of the company

which amounted to 3.42% of the paid up capital of the company

and had contacted Appellant No. 1 for sale of his shares.

Appellant No. 1 instead of buying the shares directly from this

non-resident investor purchased these shares through a

circuitous route. The Appellant No. 1 arranged for a bulk

purchase of 15,85,683 shares through Appellant Nos. 3 and 4.

Appellant No. 1 provided funds to Appellant Nos. 3 and 4 to

purchase the shares. The funds were given from Appellant Nos.

5 and 6 in which Appellant No. 1 is a Promoter and Director.

9. Appellant No. 3 after purchasing the shares pledged these

shares in favour of Cholamandalam DBS from whom the

Appellant No. 1 had availed corporate finance facility. By

pledging these shares, Appellant No. 3 stood as a guarantor to 10

the facility availed by Appellant No. 1. Similarly, shares

purchased by Appellant No. 4 were transferred to Appellant No.

7 who pledged these shares to IDBI Bank Ltd. but subsequently

transferred a large portion of the shares in off-market in favour

of Appellant No. 2. Appellant No. 3 also transferred the shares

to her husband Appellant No. 7 in off-market and later on

Appellant No. 7 sold it in the off-market. The proceeds

eventually came in the hands of Appellant Nos. 1 & 2.

10. The AO found that Appellant Nos. 3 and 4 traded in large

quantities of the shares of the company simply on the request of

Appellant No. 1. The AO further found that the Appellant Nos.

3 and 4 had bought the shares from the funds arranged by

Appellant No. 1 and, on the sale of the shares, the proceeds

were transferred by them to the entities connected to Appellant

No. 1. The AO found that Appellant No. 7 acted as a conduit

for routing the funds arising out of the sale of the shares of the

company and that Appellant Nos. 1 and 2 were the ultimate

beneficiaries of the sale proceeds.

11. The AO consequently found that the appellants are

connected persons as per section 2(c) of the PIT Regulations,

1992. It was further found that the appellants were insiders 11

within the meaning of 2(e) of the PIT Regulations, 1992. The

AO further found that the company's lowest price bid was a

price sensitive information as per Regulation 2(ha)(iv) of the

PIT Regulations, 1992 and was also a price sensitive

information as per Regulation 2(a) of the PIT Regulations,

1992. The AO found that the appellants have violated

Regulations 3 and 4 of the PIT Regulations, 1992 and section

12A(d), 12A(e) of the SEBI Act as well as Regulations 3(c) and

(d) of the PFUTP Regulations, 2003.

12. The aforesaid findings have not been disputed by the

leaned senior counsel appearing for the appellants. What was

contested is, that being the lowest bidder of a contract in the

usual course of business does not amount to a price sensitive

information and, in any case, the lowest price bid being in the

public domain cannot be an unpublished price sensitive

information under the PIT Regulations, 1992.

13. In order to examine this aspect we need to consider what

is "price sensitive information" and what is "unpublished" price

sensitive information. In this regard, Regulation 2(ha) defines

price sensitive information as:

12

"2(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) ...... (ii) ...... (iii) (iv) any major expansion plans or execution of new projects. (v) ...... (vi) ...... (vii) ......"

A perusal of the aforesaid definition indicates that any

information which relates directly or indirectly to a company

and which if published is likely to affect the price of the

securities then such information would be deemed to be a price

sensitive information. Further clause (iv) of the explanation to

Regulation 2(ha) of the PIT Regulations, 1992 provides that

execution of new projects would be deemed to be a price

sensitive information.

13

14. Regulations 2(k) defines "unpublished" as:

"2(k) "unpublished" means information which is not

published by the company or its agents and is

not specific in nature."

A perusal of the aforesaid definition clearly indicates that an

information which is not published by the company or its agents

is an unpublished price sensitive information.

15. In Shri E. Sudhir Reddy v/s SEBI in Appeal No. 138 of

2011 decided on 16.12.2011 this Tribunal held that tendering

process is a long drawn procedure involving various stages and

it would be difficult to lay down any parameter namely, at what

stage the information in a tendering process would become price

sensitive for the purpose of Insider Trading Regulations and that

such information would depend on the facts and circumstances

of each case.

16. In Gujarat NRE Mineral Resources Ltd. v/s SEBI in

Appeal No. 207 of 2010 decided on 18.11.2011 this Tribunal

held that a decision taken by a listed investment company to

dispose of a part of its investment was not a price sensitive

information in the facts and circumstances of that case. 14

17. In Anil Harish v/s SEBI in Appeal No. 217 of 2011

decided on 22.06.2012 this Tribunal held that a company which

is in the business of infrastructure projects, bags an order in the

normal course of its business, such information was not

necessarily a price sensitive information. The Tribunal further

held that whether the information is price sensitive or not and on

what date it became price sensitive would depend on the facts

and circumstances of the case.

18. In Piramal Enterprises Limited in Appeal No. 466 of

2016 decided on 15.05.2019 it was held by this Tribunal that in

the absence of any direct or clinching evidence a reasonable

benefit of doubt should be extended to the company instead of

mechanically imposing a penalty.

19. It was urged that L1 became known on various dates and,

such information came in the public domain. It was thus urged

that it was not an unpublished price sensitive information. In

our opinion, this contention is patently misconceived and cannot

be accepted. The definition of "unpublished" as defined under

Regulation 2(k) has a definite connotation under Insider Trading

Regulations and has to be construed strictly. Regulation 2(k)

defines "unpublished" to mean information which has not been 15

published by the company or its agent and is not specific in

nature. Admittedly, the bagging of the contract was announced

by the company only on the stock exchange platform on March

18, 2019. Prior to that the company had not published nor made

any corporate announcements of this information. The opening

of the bids by a third party does not amount to an information

being published by the company or its agent under Regulation

2(k). Thus, the contention that the opening of the bids in which

the company was found to be the lowest bidder came in the

public domain is incorrect and cannot be construed as being

published.

20. The Appellant No. 1 had specific information about the

company's bid being the lowest. Being L1, the company

through Appellant No. 1 was called for further negotiation. It

has come on record that in two out of three contracts, the Board

approved the L1 after negotiation around the time when the

shares were purchased. Thus, being L1 coupled with the fact

that the bids were approved by the Board was a price sensitive

information in so far as Appellant No. 1 is concerned in relation

to its shareholders and investors and it was thus incumbent upon

him not to deal in the scrips of the company and not to purchase

the shares of the company given by a non-resident investor. 16

The Appellant No. 1 admits that he purchased the shares

through a circuitous measure by funding the amount to

Appellant Nos. 3 and 4 from the Appellant Nos. 5 and 6 in

which he was a Promoter. The Appellant No. 1 eventually

benefitted from the sale of these shares. The Appellant No. 1

was thus an insider and it was incumbent upon him not to deal

in the scrip of the company so long as the information about the

contract remained unpublished. Thus, in the facts and

circumstances of this case, even though the contract was not

awarded nor the letter of intent was given at the time of

purchase of the shares, nonetheless, being L1, the same was a

price sensitive information in so far as the Appellant No. 1 was

concerned. Since the Appellant No. 1 traded in these scrips

through Appellant Nos. 3 and 4 he is guilty of insider trading.

Similarly, in the same fashion, the other appellants are also

guilty of insider trading.

21. The learned senior counsel submitted that a tenderer does

not have any right for award of a contract even where he is

found to be L1. In support of his submission, he has placed

reliance on the decision of the Supreme Court in Air India Ltd.

v/s Cochin International Airport Ltd. and Ors. (2000) 2 SCC

617, Food Corporation of India v/s M/s Kamdhenu Cattle 17

Feed Industries (1993) 1 SCC 71 and Trilochan Mishra, Etc.

v/s State of Orissa and Ors. (1971) 3 SCC 153.

22. There is no quarrel with the aforesaid proposition of law

but the same is not applicable in the instant case. An L1 may not

get the contract. The contract specifically says so. However, in

the instant case, we find that L1 became a price sensitive

information and therefore the Appellant No. 1 could not have

traded in the scrips of the company through a circuitous method.

23. The learned senior counsel contended that Appellant Nos.

3 and 4 are not promoters of the company nor were part of the

promoter group of the company and therefore the shares

pledged by them as collateral for the loans availed by them

could not have been disclosed under Regulation 8A of the

Takeover Regulations, 1997. It was contended that the

requirement of disclosure under Regulation 8A of the Takeover

Regulations, 1997 is on the promoter or the promoter group.

The learned senior counsel urged that in the light of the

aforesaid the imposition of penalty for non disclosure under

Regulation 8A was wholly illegal and without any authority of

law.

18

24. Regulation 8A(1) and (2) of the Takeover Regulations,

1997 provides as under:

"8A. Disclosure of pledged shares.

(1) A promoter or every person forming part of the promoter group of any company shall, within seven working days of commencement of Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) (Amendment) Regulations, 2009, disclose details of shares of that company pledged by him, if any, to that company.

(2) A promoter or every person forming part of the promoter group of any company shall, within 7 working days from the date of creation of pledge on shares of that company held by him, inform the details of such pledge of shares to that company."

Promoter and promoter group is defined under Regulation 2(h)

of the Takeover Regulations as under:

2.(h) promoter means--

(a) any person who is in control of the target company;

(b) any person named as promoter in any offer document of the target company or any shareholding pattern filed by the target 19

company with the stock exchanges pursuant to the Listing Agreement, whichever is later; and includes any person belonging to the promoter group as mentioned in

Explanation I: Provided that a director or officer of the target company or any other person shall not be a promoter, if he is acting as such merely in his professional capacity.

Explanation I.─ For the purpose of this clause, "promoter group" shall include:

(a) in case promoter is a body corporate-

(i) a subsidiary or holding company of that body corporate;

(ii) any company in which the promoter holds 10 % or more of the equity capital or which holds 10 % or more of the equity capital of the promoter;

(iii) any company in which a group of individuals or companies or combinations thereof who holds 20 % or more of the equity capital in that company also holds 20 % or more of the equity capital of the target company; and

(b) in case the promoter is an individual-

(i) the spouse of that person, or any parent, brother, sister or child of that person or of his spouse;

20

(ii) any company in which 10 % or more of the share capital is held by the promoter or an immediate relative of the promoter or a firm or HUF in which the promoter or any one or more of his immediate relative is a member;

(iii) any company in which a company specified in (i) above, holds 10 % or more, of the share capital; and Page 9 of 75

(iv) any HUF or firm in which the aggregate share of the promoter and his immediate relatives is equal to or more than 10 per cent of the total.

Explanation II-

Financial Institutions, Scheduled Banks, Foreign Institutional Investors (FIIs) and Mutual Funds shall not be deemed to be a promoter or promoter group merely by virtue of their shareholding:

Provided that the Financial Institutions, Scheduled Banks and Foreign Institutional Investors (FIIs) shall be treated as promoters or promoter group for the subsidiaries or companies promoted by them or mutual funds sponsored by them;]"

21

From a perusal of the definition of promoter and promoter

group it is apparently clear that Appellant Nos. 3 and 4 do not

fall in the category of promoter or promoter group. Regulation

8A specifically requires a promoter or every person forming

part of the promoter group of the company to disclose the

details of the pledging of their shares of the company. The

mandate under Regulation 8A for disclosure is upon the

promoter or every person forming part of the promoter group.

Since the Appellant Nos. 3 and 4 admittedly are not promoters

of the company nor are part of the promoter group, they cannot

be held liable for violation of Regulation 8A of the Takeover

Regulations.

25. However, in the instant case, Appellant Nos. 1 and 2 who

are admittedly promoters of the company have been held liable

for non-disclosure under Regulation 8A of the Takeover

Regulations on the ground that Appellant Nos. 3 & 4 had traded

on the instructions of Appellant No. 1 and that Appellant No. 1

had funded the said trades through his other companies coupled

with the fact that eventually the sale proceeds of these shares

were eventually received by Appellant No. 1. Be that as it may.

The fact remains that the shares which were purchased were not

in the name of Appellant Nos. 1 and 2. If the shares were 22

purchased in the name of Appellant Nos. 1 and 2 then it would

have become the responsibility of Appellant Nos. 1 and 2, as

promoters of the company, to make the necessary disclosures

under Regulation 8A. Since the shares were initially purchased

by Appellant Nos. 3 and 4 inspite of the instructions from

Appellant No. 1 and inspite of the funding of the purchase of

shares by Appellant No. 1, nonetheless, the requirement of law

is, that only a promoter or every person forming part of the

promoters group of the company is required to make necessary

disclosure under Regulation 8A. There cannot be any deemed

promoter or "related to the promoter". Since Appellant Nos. 3

and 4 were not promoters and were not part of the promoter

group the imposition of penalty under Regulation 8A upon the

Appellant Nos. 1 and 2 cannot be sustained.

26. Appellant No. 1 has been charged for providing misleading

information in respect of his relationship with the other entities,

namely, the appellants. The information provided by Appellant

No. 1 was that he does not have any relationship with Appellant

Nos. 3 and 4 and was not covered within the list of "relatives"

set out in Scheduled 1A of the Companies Act, 1956. The AO

found that Appellant No. 1 gave misleading information to SEBI

in respect of his connection with other entities and thereby 23

imposed a penalty for submitting misleading information to

SEBI under section 15A(a) of the SEBI Act.

27. In this regard, the learned senior counsel submitted that the

information sought by SEBI by letter dated September 15, 2010

was duly supplied by Appellant No. 1 vide its letter dated

September 24, 2010. The learned senior counsel asserted that

the relationship of Appellant No. 1 with the other entities as

depicted in the letter dated September 15, 2010 was given,

taking into consideration the provisions of "relatives" set out in

Scheduled 1A of the Companies Act, 1956. It was asserted that

no false or misleading information was supplied and that the

information supplied was in accordance with the Companies Act,

1956.

28. Having perused the letter dated September 15, 2010 given

by SEBI and the reply dated September 24, 2010 given by the

appellant we find that the information sought was the

relationship of the appellant with the other entities. A perusal of

the said letter would indicate that the information sought was as

to what was the relationship of the appellant with other entities,

namely, whether they were relatives or not. Information was

supplied by the appellant in accordance with the provisions of 24

the Companies Act, 1956. The letter of SEBI does not explicitly

states that the appellant was required to furnish the information

with regard to his professional or working relationship with the

other entities. Thus, even though the Appellant No. 1 may have

professional or working relationship with the other entities, we

are of the opinion that since there was no explicit clarity in the

information sought the reply given by the appellant, being in

accordance with the provisions of the Companies Act, 1956, was

not misleading. SEBI ought to have been more professional and

should have asked clear cut information which is explicit and is

not vague. Consequently, we are of the opinion that the

imposition of penalty in so far as providing misleading

information cannot be sustained.

29. A penalty of ` 40,00,00,000/- (Rupees Forty Crore Only)

has been imposed upon the appellants for insider trading

violating Regulations 3 and 4 of the PIT Regulations, 1992 read

with section 12A(d) and (e) of the SEBI Act, 1992. Further

direction is that the said penalty would be paid by the appellants

jointly and severally.

30. It was urged by the learned senior counsel that the quantum

of penalty is arbitrary in as much as there is no discussion by the 25

AO as to how this figure of ` 40,00,00,000/- (Rupees Forty

Crore Only) has been arrived at.

31. There is no doubt that the mechanics of imposition of

penalty of ` 40,00,00,000/- (Rupees Forty Crore Only) has not

been disclosed in the impugned order but we find that on this

ground the amount of penalty cannot be set aside for the

following reasons:

(i) The AO has found that Appellant No. 3 had made a

profit of ` 11,23,88,739/- and Appellant No. 7 made a

profit of ` 2,81,16,267/-. The total profit thus comes

to ` 14,05,05,006/-. Under section 15G and 15HA of

the SEBI Act, 1992 a penalty upto a maximum of

twenty five crore rupees or three times the amount of

profits whichever is higher can be imposed.

(ii) For facility, section 15G and 15HA as it stood at the

relevant point is extracted hereunder:

"15G Penalty for insider trading. -If any insider who,--

(i) either on his own behalf or on behalf of any other person, deals in securities of a body corporate listed on any stock exchange on the basis of 26

any unpublished price-sensitive information; or

(ii) communicates any unpublished price-

sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or

(iii) counsels, or procures for any other person to deal in any securities of any body corporate on the basis of unpublished price-sensitive information, shall be liable to a penalty [which shall not be less than ten lakh rupees but which may extend to twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher.]"

"15HA. Penalty for fraudulent and unfair trade practices:-

If any person indulges in fraudulent and unfair trade practices relating to securities, he shall be liable to a penalty [which shall not be less than five lakh rupees but which may extend to twenty- five crore rupees or three times the amount of profits made out of such practices, whichever is higher]."

27 (iii) In the instant case, the profits earned through insider

trading was ` 14,05,05,006/-. Three times the profit

amounts to ` 42,15,15,018 which is more than the

penalty awarded by the AO. Thus, we do not find

any error in the quantum of penalty imposed by the

AO.

32. It was urged that the direction to pay penalty jointly and

severally by the appellants is arbitrary. It was urged that if the

Appellant No. 7 had only made a profit of ` 2,81,16,267/- then

the penalty should be accordingly quantified to a maximum of

three times the profit instead of directing the said appellant to

pay the entire amount of penalty of ` 40,00,00,000/- (Rupees

Forty Crore Only).

33. The submission of the learned senior counsel appears to be

attractive in the first instance but on a closer scrutiny we find

that the contention cannot be accepted. Admittedly, the

appellants have been found to be connected persons under

section 2(c) of the PIT Regulations and were also found to be

deemed to be connected persons under section 2(h). The

appellants were also found to be insiders under section 2(e) of

the PIT Regulations and were found to have traded in the shares

having knowledge of the price sensitive information. 28

Consequently, all the appellants being connected persons have

been held to be equally liable to pay the amount of penalty

jointly and severally. We thus do not find any error in this

regard.

34. For the reasons stated aforesaid the appeal is partly

allowed. The order of the AO imposing a penalty of

` 40,00,00,000/- (Rupees Forty Crore Only) under section 15G

and section 15HA of the SEBI Act against the appellants for

violation of Regulation 3 and 4 of the PIT Regulations read with

section 12A(d) and (e) of the SEBI Act is affirmed. The

imposition of penalty of ` 20 lakhs (Rupees Twenty Lakhs Only)

under section 15A(a) of the SEBI Act for submitting misleading

information to SEBI and penalty of ` 38 lakhs (Rupees Thirty

Eight Lakhs Only) upon Appellant Nos. 1 and 2 for violation of

Regulation 8A(1) and (2) of the Takeover Regulations, 1997 are

quashed. In view of the partial success, parties shall bear their

own costs.

Sd/-

Justice Tarun Agarwala Presiding Officer Sd/-

Dr. C.K.G. Nair Member Sd/-

Justice M. T. Joshi Judicial Member 12.07.2019 Prepared & Compared By: PK