Poonam Garg vs Sebi

Date of Decision: 22.03.2018

Appeal No. 53 of 2018

Poonam Garg H. No. 32, Sector- 15, Sonepat- 131 001 (Haryana) ...Appellant

Versus

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

Ms. Rinku Valanju, Advocate with Ms. Hiral Shah, Advocate for the Appellant.

Mr. Vishal Kanade, Advocate with Mr. Chirag Bhavsar, Advocate i/b MDP & Partners for the Respondent.

CORAM: Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per: Justice J.P. Devadhar (Oral)

1.

Appellant is aggrieved by the order passed by the Adjudicating

Officer ("AO" for short) of the Securities and Exchange Board of India

("SEBI" for short) on 27.11.2017. By the said order penalty of ` 15 lac

is imposed on the appellant under Section 15 G of the Securities and

Exchange Board of India Act, 1992 ("SEBI Act") for violating regulation

3(i) and (4) of the SEBI (Prohibition of Insider Trading) Regulations,

1992 ("PIT Regulations" for short) read with Section 12A (d) and (e) of

the SEBI Act.

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2. Appellant is the Promoter and Non-Executive Director of Mudit

Finlease Limited ("Company" for convenience). Husband of the

appellant Mr. Pavel Garg is Promoter/Managing Director/ Compliance

Officer of the company.

3. Relevant facts admitted by the company in its letter dated

30.01.2015 are as follows:-

a) On 01.02.2012 accountant of the company finalized

the financial result for the quarter ended December

2011.

b) On 02.02.2012 the company issued notice of Board

Meeting for considering the financial results for the

quarter ended December 2011.

c) On 13.02.2012 statutory Auditors completed the

limited review of the financial results and presented

the same for further review by the Audit Committee

and for consideration of the Board of Directors.

d) On the same day i.e. on 13.02.2012 the financial

results were reviewed by the Audit Committee and the

same were taken on record by the Board of Directors

at their meeting.

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e) On the same day i.e. on 13.02.2012 the Board

including the appellant met at 10:30 a.m. and

approved the financial results.

f) On 21.02.2012 official public announcement was

made to the Stock Exchange in relation to the

financial results for the quarter ended December 2011.

4. It is not in dispute that finalizing the financial results is a price

sensitive information and till that information is made known to the

public, it continues to be Unpublished Price Sensitive Information

("UPSI").

5. In the present case, the AO has recorded a finding that on

02.02.2012 when the Managing Director (husband of the appellant)

issued a notice convening the Board Meeting for considering the

financial results, Price Sensitive Information ("PSI") under the PIT

Regulations came into existence and that information continued to be

UPSI till it was informed to the Stock Exchange on 21.02.2012.

6. Admittedly, the appellant had sold 15000 shares, 14,900 shares and

12,600 shares of the company on 07.02.2012, 08.02.2012 & 15.02.2012

respectively. By the impugned order the AO has held that Mr. Pavel

Garg (Promoter/ Managing Director/ Compliance Officer of the

company) and the appellant (wife of Mr. Pavel Garg) being 'insider'

under the PIT Regulations, sale of the shares of the company by them

during the UPSI was in violation of the PIT Regulations and SEBI Act. 4

7. Mr. Pavel Gag, (husband of the appellant) had also filed appeal

against the impugned order. However, that appeal is withdrawn by

Mr. Pavel Garg today i.e. on 22.03.2012.

8. Ms. Valanju, learned counsel appearing on behalf of the appellant

did not dispute that the appellant was an 'insider' under the PIT

Regulations, however, submitted that the impugned order cannot be

sustained for the following reasons:-

a) Notice dated 02.02.2012 convening the Board

Meeting on 13.02.2012 was neither served on the

appellant nor the same was available in the public

domain. Thus, the appellant being a Non-Executive

Director of the company was not aware of the

finalization of account on 01.02.2012 and issuance of

the alleged notice dated 02.02.2012. Appellant came

to know about the UPSI on 13.02.2012 when the

appellant was orally informed about the Board

Meeting fixed at 10:30 A.M. on 13.02.2012 for

considering the PSI viz., approving the quarterly

financial results.

b) Regulation 41 (III), (b) of the Listing Agreement

provides that the notice convening the Board Meeting

Scheduled for considering the financial results must

be published in at least one English daily newspaper

and one daily newspaper in the language of the 5

region. In the present case, the company had not

published the notice convening the Board Meeting on

13.02.2012 and therefore, appellant could not be said

to be in possession of UPSI till 13.02.2012.

Consequently, sales effected by the appellant on

07.02.2012 and 08.02.2012 cannot be said to be sales

effected when in possession of UPSI.

c) As per Clause 41 (VI) of the Listing Agreement and

as per Clause 7 in the Second Schedule to the PIT

Regulations, the company on 15.02.2012 had

published the quarterly results. Therefore, sales

effected by the appellant on 15.02.2012 could not be

said to be when in possession of UPSI.

d) Under Clause 41 (I) (f) of the Listing Agreement the

financial results are required to be submitted to the

Stock Exchange within 15 minutes of conclusion of

Board Meeting in which the financial results are

approved. Similarly, as per Clause 3.2.4 of Schedule

1, Part A of PIT Regulations the trading window shall

be opened 24 hours after the declaration of financial

results. Appellant was not aware that the financial

results approved on 13.02.2012 were not intimated to

the Stock Exchange. Therefore, the appellant was

justified in considering that on 14.02.2012 i.e. 24

hours after the financial results were approved, the 6

UPSI came to an end. Consequently, sales effected on

15.02.2012 cannot be said to be in violation of PIT

Regulations.

e) Appellant was not involved in the finalization of the

financial results for the quarter ended December 2011.

Therefore, the appellant cannot be said to be in

possession of UPSI relating to finalization of financial

results. Consequently, the appellant cannot be said to

have violated the PIT Regulations.

9. We see no merit in the above contentions.

10. Under regulation 2(e) (i) of the PIT Regulations, an 'insider' is

inter alia a person who is or was connected with the company and who is

reasonably expected to have access to UPSI in respect of the securities of

the company. In the present case, very fact that the appellant is a

Promoter/Non- Executive Director of the company and her husband is

also a Promoter/ Managing Director/ Compliance Officer of the company

is sufficient to hold that the appellant is an 'insider' and was privy/

reasonably privy to the PSI which came in to existence on 02.12.2012.

Section 3 of the PIT Regulations prohibits an insider to deal in the

securities of the company when in possession of UPSI. Therefore, in the

facts of present case, decision of the AO that the appellant by selling the

shares of the company when in possession of UPSI has violated the PIT

Regulations cannot be faulted.

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11. Counsel for the appellant has enumerated various violations

committed by the company in relation to serving/ publishing the notice

convening the Board Meeting for considering the financial results and

also violation relating to closing of trading window during UPSI.

Admittedly, the appellant is the Promoter/ Non-Executive Director of the

company and her husband is the Promoter/ Managing Director/

Compliance Officer of the company. In such a case, it is not open to the

appellant to feign ignorance about the PSI and take shelter under the

violations committed by her husband as Promoter/ Managing Director/

Compliance Officer of the company. Therefore, in the facts of present

case, decision of the AO that the appellant sold the shares of the company

when in possession of UPSI in violation of the PIT Regulations cannot be

faulted.

12. Penalty imposable for such violations under Section 15G of SEBI

Act is up to ` 25 crore. However, in the facts of present case, after

considering all mitigating factors, the AO has imposed penalty of ` 15

lac which cannot be said to be excessive or unreasonable.

13. In the result, we see no merit in the appeal.

14. Accordingly, the appeal is dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member 22.03.2018 Prepared & Compared By: PK