Parthiv Dalal vs Sebi

For the reasons stated in the applications, the delay in filing

the appeals are condoned. All the misc. applications are

allowed.

2. Whether a "forwarded as received" WhatsApp message

circulated on a group regarding quarterly financial results of a

Company closely matching with the vital statistics , shortly

after the in-house finalization of the financial results by the

Company and some time before the publication/disclosure of

the same by the concerned Company, would amount to an

unpublished price sensitive information under the provisions

of Securities and Exchange Board of India (Prohibition of

Insider Trading) Regulations, 2015 (hereinafter referred to as

„PIT Regulations‟) is the question involved in all the present

eleven appeals.

The Adjudicating Officer - who happens to be the same -

(hereinafter referred to as AO) in all the proceedings before

him answered the question in the affirmative and imposed a 10

penalty of Rs. 1500000/, on the appellants herein in each of

the proceedings. Hence the appeals.

3. The details as found in the respective impugned orders

would show that in the month of November, 2017 certain

articles were published in newspapers wherein it was alleged

that the quarterly financial results of several companies were

in circulation in certain WhatsApp groups before its official

disclosure by the respective companies. In view of the same,

respondent Securities and Exchange Board of India

(hereinafter referred to as „SEBI‟) initiated investigation in the

same. It carried search and seizure operations of 26 entities of

a specific market chatter WhatsApp group. About 190 devices

and records were seized. Many WhatsApp messages were

retrieved with the help of experts and examined.

SEBI claims that in respect of around 12 companies earning

data and financial information got leaked in the WhatsApp

messages.

In the present group, we are dealing with the financial results

of six companies, namely, Bajaj Auto Ltd., Bata India Ltd.,

Ambuja Cements Ltd., Asian Paints Ltd., Wipro Ltd. and

Mindtree Ltd.

11

While appellant Shruti Vora and appellant Neeraj Agarwal

were joint noticees in the matter of financial results of Bajaj

Auto Ltd. (Appeal no.311 and 342 of 2020 respectively), in

the case of Bata India Ltd. appellant Shruti Vora (Appeal

no.310 of 2020) and appellant Aditya Gagar (Appeal no.283

of 2020) were independently investigated. In the case of

financial results of Ambuja Cements Ltd. appellant Shruti

Vora and appellant Neeraj Agarwal were joint noticees out of

which appeal no.313 of 2020 and 341 of 2020 respectively

have arisen. So far as the proceedings regarding financial

results of Asian Paints is concerned appellant Shruti Vora and

appellant Neeraj Agarwal were individual noticees in two

different proceedings out of which appeal no.312 of 2020 and

343 of 2020 respectively have arisen. In the financial results

of Wipro Ltd. appellant Shruti Vora and appellant Parthiv

Dalal were the joint noticees out of which appeal no.308 of

2020 and appeal no.344 of 2020 have arisen. Lastly, appellant

Shruti Vora was dealt with singularly by the respondent SEBI

in the financial results of Mindtree Ltd. out of which appeal

no.309 of 2020 had arisen.

12

The reading of the orders of the Adjudicating Officer/Officers

would show that numerous messages were retrieved from the

devices of the appellants. Quarterly financial results of the

above six companies for different period of time say

December, 2016, March, 2017 were finalized after about 15

days of closure of the quarter by the respective finance team,

tax team, auditors‟ team etc. All those were finalized around

15 days prior to respective disclosure of the same on the

platform of the stock exchange. However, within a day or two

of the finalization of the financial results, one liner WhatsApp

messages in the present group were circulated which closely

matched with the respective later on published financial

results.

For instance in appeal no.308 of 2020 the WhatsApp message

was "Wipro revenue 13700 PBIT 2323 PBT 2758". Actual

figure of the financial results published later on in details

disclosed the essence as revenue 13764 crores PBIT 2323.6

(„PBIT - Profit Before Interest and Tax‟) and PBT 2758.9

(„PBT - Profit Before Tax‟). Thus, the deviation between the

figures given in the WhatsApp message and actual result was

0.47% regarding revenue, 0.03% in the case of PBIT and 13

0.03% in the case of PBT. Similar pattern is observed

regarding the other WhatsApp messages regarding other

companies for different quarterly period.

4. The impugned orders would show that besides mining the

data from the devices of the appellants, SEBI had made

enquiry with the respective companies taking details about the

process of preparation of the financial results, the personnel

involved in the same and even about the ex-employees who

were concerned with similar exercise. In each of the case

however, no leakage of the information could be detected

despite thorough investigation.

The Adjudicating Officer in the impugned orders reasoned

that though the appellants were involved as employees or

otherwise in the securities market, their duties did not involve

sending any such messages to any of the clients and some of

the entities to whom the massages were forwarded were not

even clients. Further the proximity of the circulation of the

WhatsApp messages with publication of financial results,

striking resemblances between the figures circulated via

messages and actual results declared by the respective

companies, also weighed with the learned Adjudicating 14

Officer in each of the case to come to the conclusion that the

message was nothing but circulation of unpublished price

sensitive information in violation of PIT Regulations.

5. Each of the appellant raised similar defenses. They

submitted that the messages mined by the respondent SEBI

from the devices admittedly would show that none of the

appellants were the originator of the messages but they had

simply forwarded the messages as received from some other

sources. Due to the lapse of time the appellants were unable

to show as to from whom they have received the respective

message. Respondent SEBI was also unable to find the source

due to the constraints of end to end encryption policy of the

messenger etc. In the cases where the appellants were dealt

with jointly by the Respondent SEBI as detailed above, the

devices revealed the forwarding of messages between the two.

The appellants further contended that the practice of making

estimate ahead of the disclosure of the financial result is in

vogue in the market. In fact there is a big market for the same.

Concept of „Heard on Street‟ („HoS‟) is a common practice

within traders, market analyst, institutional investors etc.

Unsubstantiated information is widely shared. Even reputed 15

journals in USA like Wall Street Journal run twitter handle

exclusively for the circulation of HoS. It is shared by way of

articles and the same is also aired on the news channels or by

the news agency like CNBC, Reuters etc. Bloomberg. Besides

this, Research Analyst forecasts the financial results upon

collation of the publicly available data. Bloomberg, a

reputed platform in this respect regularly publishes the

estimates of various reputed research entities in this regard as

expected results. The data mined by the Respondent SEBI

from each of the devices also showed that besides the

messages in question numerous other messages regarding

financial results were circulated within the group which

widely differed from the results later on published by the

respective Companies. However only the closely matching

messages with the results were cherry picked for launching the

present proceedings. In the present cases the expected results

for Wipro etc were published on the platform of Bloomberg

and in the case of Wipro there is exact similarity between the

figures found in the WhatsApp messages and one of the

estimate published on the platform of Bloomberg. Even the

respective companies issue forward guidance regarding their 16

financial results ahead of the disclosure of the actual financial

results. It was submitted that in the case of Wipro the

guidance issued by the company exactly matched with the

estimate given in the WhatsApp message which later on

similarly matched with minor deviation with the disclosed

financial statement. On these defenses the appellants

submitted that the proceedings be dropped.

The learned Adjudicating Officer however did not agree with

the submissions. He concluded that each of the appellants had

violated the provisions of section 12 of the Securities and

Exchange Board of India Act, 1992 and regulation 3(1) of the

PIT Regulations, 2015 which run as under:

Section 12 A (d) of SEBI Act, 1992

No person shall directly or indirectly engage in insider trading.

Section 12 A (e) of SEBI Act

No person shall directly or indirectly 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 this Act or the rules or the regulations made thereunder.

Regulation 3 (1) of SEBI (PIT) Regulations, 2015 17

No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

6. In the result each of the appellant was penalized with an

amount of Rs.15 lakhs for each of the violation. Hence the

present appeals.

7. Heard Mr. Somasekhar Sundaresan, Advocate Mr. Pesi

Mody, Senior Advocate, Mr. Kunal Katariya, Mr. Sahebrao

Wamanrao Buktare, Mr. Deepak Dhane and Mr. Ramakant

Kini, Advocates and Mr. Ravi Vijay Ramaiya, Chartered

Accountant for the Appellants and Mr. Zal Andhyarujina,

Senior Advocate with Mr. Suraj Choudhary, Ms. Nidhi Singh,

Ms. Maithalli Parikh, Ms. Kinjal Bhatt and Mr. Hersh

Choudhary, Advocates for the Respondent.

8. The definition of unpublished price sensitive information

("UPSI") in the PIT Regulations, 2015 is as under:-

(n) "unpublished price sensitive information"

means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the 18

securities and shall, ordinarily including but not restricted to, information relating to the following:-

(i) financial results; (ii) dividends; (iii) change in capital structure;

(iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions;

(v) changes in key managerial personnel; and

(vi) material events in accordance with the listing agreement.

NOTE: It is intended that information relating to a company or securities, that is not generally available would be unpublished price sensitive information if it is likely to materially affect the price upon coming into the public domain. The types of matters that would ordinarily give rise to unpublished price sensitive information have been listed above to give illustrative guidance of unpublished price sensitive information.

9. The definition of "insider" in the PIT Regulations, 2015 is

as under:-

(g) "insider" means any person who is:

i) a connected person; or

ii) in possession of or having access to unpublished price sensitive information;

NOTE: Since "generally available information" is defined, it is intended that anyone in possession of or having access to unpublished price sensitive information should be considered an "insider" regardless of how one came in possession of or had access to such information. Various circumstances are provided for such a person to demonstrate 19

that he has not indulged in insider trading. Therefore, this definition is intended to bring within its reach any person who is in receipt of or has access to unpublished price sensitive information. The onus of showing that a certain person was in possession of or had access to unpublished price sensitive information at the time of trading would, therefore, be on the person leveling the charge after which the person who has traded when in possession of or having access to unpublished price sensitive information may demonstrate that he was not in such possession or that he has not traded or he could not access or that his trading when in possession of such information was squarely covered by the exonerating circumstances.

10. The Adjudicating Officer reasoned that as the message

was an information relating to financial result and as it closely

matched with the financial results published later on, the

message was an unpublished price sensitive information. The

AO explained that the source of the message could not be

traced due to severe technological constraints due to the end to

end encryption of the WhatsApp messages. Further no leakage

of information could be found from the concerned teams

related to the respective Companies. However, according to

the AO absence of proof of any leakage and the source of the

information would not stand to qualify the information as not

the unpublished price sensitive information. The AO was 20

wonderstruck by the similarity in the figures, by the fact that

these messages were received by the appellants after the

finalization of the financial results by the respective

companies and that those were forwarded by the appellants to

the person in the group out of them some of which were not

the entities to whom in due course of official work of the

concerned appellant were required to send the said messages.

It was further reasoned that the figures given in the WhatsApp

messages were not even stated in any approximate range of

values but were in definite amount. As regards the proximity

of the messages, the AO declared that "it is reasonably

possible" that the information was already in existence when

the messages came to the appellant. As regarding their

defences that gossips, experts‟ estimates, company‟s guidance

and Bloomberg etc. also regularly circulate such figures and

even the company‟s guidance estimation is exactly the same

as compared to the messages, the AO refused to give any

weight to the same. He has reasoned that in some of the cases

like Bloomberg there was a slight difference in the figure than

found in the messages, that it about 0.5%. As regards the

guidance, it was reasoned that those reports were much earlier 21

than the finalization of the financial results. Further some of

the estimates enumerated in Bloomberg of various research

agencies were widely differing than the actual figures was also

a cause for rejecting the reasons of the appellants.

11. Upon hearing both the sides, in our view the order cannot

be sustained and all the appeals deserves to be allowed for the

following reasons.

12. It is an admitted fact that despite great efforts by the

respondent SEBI to find out the source of information or to

find out leakage, if any, of the information from the side of

financial team, legal team or the audit team of the respective

companies, no information could be recovered. The impugned

order shows that time and again the learned AO has expressed

the inability in this regard.

13. It is to be noted that admittedly the respondent SEBI has

mined hundreds of similar messages from the devices of the

appellants. Out of those numerous messages only in the

present six cases the messages matched with the exact figure

of the financial results. It is not the case of the respondent

SEBI that the present impugned messages were coded

differently. On the other hand, it would show that within 22

minutes of receipt of the messages by the respective appellant

she/he forwarded it to several persons including one of the

group members who happens to be a journalist of Reuters.

14. As regards the estimates of the broker which subsequently

matched with the published result, the AO reasoned that it is

not the appellant‟s claim that the impugned message had

arisen from the market research like that of those brokerage

houses. However, the learned AO failed to appreciate that the

appellants were pleading that the WhatsApp messages might

have been originated from the brokerage houses, or from the

estimates found on the platform of Bloomberg which were

floated and were in the public domain. The learned AO also

failed to take into consideration that there were numerous

other messages of similar nature received and forwarded by

the appellant which did not at all match with the published

financial results. Appellant Shruti Vora in the case of Wipro

has specifically pointed out that along with the said message

similar massage regarding Axis Bank had also reached her

which she had also forwarded. The published results, in that

case however, were widely different. The learned AO did not

give any weightage to the same.

23

15. The above definitions of the „unpublished price sensitive

information‟ and „insider‟ would show that a generally

available information would not be an unpublished price

sensitive information.

16. The information can be branded as an unpublished price

sensitive information only when the person getting the

information had a knowledge that it was unpublished price

sensitive information. Though knowledge is a state of mind of

a person, the same can be proved on preponderance of

probabilities on attendant circumstances. In the present case,

there are no attendant circumstances at all except the

possibilities as enumerated by the learned AO. Proximity of

time, similarity between the information were the only two

factors that weighed with the learned AO to brand the

information as unpublished price sensitive information. In the

case of Samir Arora vs. SEBI (2004) SCC Online SAT 90

this Tribunal had rejected the arguments of SEBI that there is

no need for linkage between the potential source of the

unpublished price sensitive information and the person

allegedly in possession of the alleged unpublished price

sensitive information.

24

17. For the above reasons therefore in our view the reasoning

of the learned AO cannot be upheld.

18. The learned counsel for the appellant argued that merely

passing of the information without any trading in the scrips of

the concerned company, would not amount to violation of PIT

Regulations. They took us through the notes below the

relevant regulations which would indicate that trading having

possession of unpublished price sensitive information is

prohibited. However, since the Regulation 3 clearly prohibits

passing of unpublished price sensitive information otherwise

than for valid reasons . However, in the facts of the case, in

our view the respondents failed to prove any preponderance of

probabilities that the impugned messages were unpublished

price sensitive information, that the appellants knew that it

was unpublished price sensitive information and with the said

knowledge they or any of them had passed the said

information to other parties. In view of the same, the

following order.

All the appeals are hereby allowed without any order as to

costs. The impugned orders in all the appeals are hereby set

aside.

25

19. 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

RAJALA Digitally by signed

22.3.2021 KSHMI NAIR RAJALAKSHMI H

Date: 2021.03.24 RHN H NAIR 10:38:32 +05'30'