Mr. Karuturi Subrahmany Chowdary & Ors. vs Sebi

4. Mr. P. Durga Prasad C O Ambicas Abhinav Heights, 2623, 1 T1, Revenue Ward No. 5, Santhinagar, Kakinada, Andhra Pradesh - 533003. ..... Appellants

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. Kunal Katariya, Advocate with Mr. Anil Shah, Ms. Mamta Chaoji , Advocates i/b Juris Matrix Partners LLP for the Appellants. 2

Mr. Pradeep Sancheti, Senior Advocate with Mr. Manish Chhangani, Ms. Samreen Fatima, Mr. Sumit Yadav, Advocates i/b The Law Point for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer Ms. Meera Swarup, Technical Member

Per : Justice Tarun Agarwala, Presiding Officer (Oral)

1. There is a delay in the filing of the appeal. For the reasons

stated in the application, the delay in the filing of the appeal is

condoned. Misc. Application is allowed.

2. The appellants have filed the present appeal challenging the

order dated December 29, 2022 passed by the Adjudicating Officer

(hereinafter referred to as 'AO') of Securities and Exchange Board of

India (hereinafter referred to as 'SEBI') imposing penalties under

Section 15G and Section 15HB of the Securities and Exchange Board

of India Act, 1992 (hereinafter referred to as 'SEBI Act') for insider

trading.

3. The facts leading to the filing of the present appeal is, that the

appellants are connected to Apex Frozen Foods Ltd. in different

capacities. The appellant nos. 1 is a promoter and whole time

director of the company, the appellant nos. 2 is the promoter of the 3

company, appellant nos. 3 is the key managerial person and

designated person and appellant nos. 4 is the accounts manager in the

company.

4. SEBI conducted an investigation in the scrip of Apex Frozen

Foods Ltd. to ascertain whether entities have traded in the scrip of

the company while in possession of UPSI thereby violating the

provisions of the SEBI Act and Securities and Exchange Board of

India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter

referred to as 'PIT Regulations, 1992) and Securities and Exchange

Board of India (Prohibition of Insider Trading) Regulations, 2015

(hereinafter referred to as 'PIT Regulations, 2015). During

investigation, it was found that the company made a profit of

Rs. 2204.32 lakh in the quarter ended September 2017 and in the

quarter ended December 2017, the company made a profit of

Rs. 1883.79 lakh.

5. The investigation led to an observation that the promoters /

directors / key managerial person by virtue of their position in the

company had information with respect to the positive outcome of the

financial results before the end of the quarter and were, thus, privy to

the unpublished price sensitive information (hereinafter referred to as

'UPSI') and while in possession of price sensitive information, the

appellants had traded in the shares of the company and made 4

unlawful gains. The AO came to the conclusion that the appellants

were insiders as defined under the PIT Regulations and they traded in

the scrip of the company while in possession of the UPSI thereby

violating Section 12A(d) and (e) of the SEBI Act read with

Regulation 4(1) and 4(2) of the PIT Regulations, 2015. The AO

came to the conclusion that the appellants were in possession of

UPSI and were insiders and had traded while in possession of UPSI

during the UPSI period and consequently imposed the penalties

under Section 15G and 15HB of the SEBI Act.

6. We have heard Mr. Kunal Katariya, the learned counsel with

Mr. Anil Shah, Ms. Mamta Chaoji, the learned counsel for the

appellants and Mr. Pradeep Sancheti, the learned senior counsel with

Mr. Manish Chhangani, Ms. Samreen Fatima, Mr. Sumit Yadav, the

learned counsel for the respondent.

7. At the outset, the learned counsel for the appellants fairly

conceded that the appellants are insiders given the evidence which

has come on record. The appellants had traded in the scrip of the

company while in possession of UPSI. The only contention raised

was that as per the evidence, the AO has himself calculated that the

appellant nos. 1 made unlawful gain of Rs. 1,00,000/-, appellant nos.

2 made unlawful gain of Rs. 2,69,146/-, appellant nos. 3 made

unlawful gain of Rs. 8,57,076/- and appellant nos. 4 made unlawful 5

gain of Rs. 1,11,148/-. It was contended that in view of the aforesaid

unlawful gains calculated by the AO, the imposition of penalty

imposed under Section 15G of the SEBI Act was harsh and excessive

and, therefore, the quantum of penalty should be reduced.

8. Having heard the learned counsel for the parties, we find that

the AO was justified in imposing the penalty as depicted in the

impugned order. In this regard, Section 15G of the SEBI Act states

as follows :-

"15G. 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 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]."

9. A perusal of the aforesaid indicates that the penalty for insider

trading is a minimum of Rs. 10 lakh which will extend to Rs. 25 6

crore or three times the amount of profits made out of the insider

trading whichever is higher. In the instant case, the AO has imposed

a penalty of Rs. 10 lakh each on appellant nos. 1, 2 and 4 and

Rs. 17,14,000/- on appellant nos. 3. The quantum of penalty was in

consonance with the provisions of Section 15G of the SEBI Act. The

AO has rightly quantified the penalty in which, we do not find any

manifest error.

10. In view of the aforesaid, the appeal fails and is dismissed

with no order as to costs.

11. 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. Certified copy of this order is

also available from the Registry on payment of usual charges.

Justice Tarun Agarwala Presiding Officer

Ms. Meera Swarup Digitally signed by Technical Member 24.04.2023 PRAMILA PRAMILA TANAJI MISAL TANAJI MISAL Date: 2023.04.25 PTM 11:10:42 +05'30'