Balram Garg vs Securities and Exchange Board of India

SEBI (Prevention of Insider Trading Regulations), 2015 – Regulation 2(1)(g) and 3 – Securities and Exchange Board of India Act, 1992 – ss.11(2)(g), 11(4), 12A(c), 15G and 15Z – Insider Trading – On receipt of Unpublished Price Sensitive Information (UPSI) – Circumstantial evidence (trading pattern and timing of trading) – Relevance of – Respondent/SEBI alleging that P.C. Gupta and his brother ‘B’, who were respectively the Chairman and Managing Director of PCJ, a public limited company, were inter alia “insider” under Regulation 2(1)(g) and that appellants in C.A. No.7590/2021, traded on basis of UPSI received by them on account of their alleged proximity to P.C. Gupta and ‘B’ in view of close family relationship – Whether appellants in C.A. No.7590 of 2021, could be held to be “insiders” in terms of regulation 2(1)(g)(ii) on basis of circumstantial evidence (trading pattern and timing of trading) – Held: Regulation 3, which deals with communication of UPSI, does not create a deeming fiction in law – Hence, it is only through producing cogent materials (letters, emails, witnesses etc.) that communication of UPSI could be proved and not by deeming the communication to have happened owing to the alleged proximity between the parties – In the present case, the foundational facts were not proved which could raise the alleged presumption – Trading pattern of appellants in C.A. No.7590 of 2021 cannot be the circumstantial evidence to prove the communication of UPSI to them by appellant ‘B’ – There was no correlation between the UPSI and the sale of shares undertaken by the appellants in C.A. No.7590 of 2021 – Decisions of selling the shares and the timings thereof were purely a personal and commercial decision undertaken by them and nothing more can be read into those decisions – In absence of any material available on record to show frequent communication between the parties, there could not have been a presumption of communication of UPSI by appellant ‘B’ – SAT erred in holding the appellants in C.A. No.7590 of 2021 to be “insiders” in terms of regulation 2(1)(g)(ii) on basis of their trading pattern and their timing of trading (circumstantial evidence).

Shares and Securities – Securities Appellate Tribunal (SAT) – On facts, SAT was exercising jurisdiction of a First Appellate Court and was bound to independently assess the evidence and material on record, which it evidently failed to do – The SAT order was a mere repetition of facts stated by WTM and suffered from nonapplication of mind – Appeal – First Appellate Court – Jurisdiction. Allowing the appeals, the Court

HELD: The entire case of the Respondents was premised on two important propositions, that firstly, there existed a close relationship between the appellants; and secondly, that based on the circumstantial evidence (trading pattern and timing of trading), it could be reasonably concluded that the appellants in C.A.No.7590 of 2021 were “insiders” in terms of Regulation 2(1)(g)(ii) of the SEBI (Prevention of Insider Trading Regulations), 2015. However, the WTM and SAT wrongly rejected the claim of estrangement of the Appellants in C.A.No.7590 of 2021, without appreciating the facts and evidence as was produced before them. The records and facts adequately establish that the there was a breakdown of ties between the parties, both at personal and professional level and that the said estrangement happened much prior to the two UPSI. Secondly, the SAT erred in holding the appellants in C.A. No.7590 of 2021 to be “insiders” in terms of regulation 2(1)(g)(ii) of the Regulations on the basis of their trading pattern and their timing of trading (circumstantial evidence). There is no correlation between the UPSI and the sale of shares undertaken by the appellants in C.A. No.7590 of 2021. Moreover, in the absence of any material available on record to show frequent communication between the parties, there could not have been a presumption of communication of UPSI by the appellant ‘B’. The trading pattern of the appellants in C.A. No.7590 of 2021 cannot be the circumstantial evidence to prove the communication of UPSI by the appellant ‘B’ to the other appellants in C.A. No.7590 of 2021. There is no material on record for the WTM and the SAT to arrive at the finding that both late P.C. Gupta and the appellant ‘B’ communicated the UPSI to the other appellants in C.A. No.7590 of 2021. The said appellants in C.A. No.7590 of 2021 were not “immediate relatives” and were completely financially independent of the appellant ‘B’ and had nothing to do with the him in any decision making process relating to securities or even otherwise. The submission of the respondent regarding the same residential address of the appellants also falls flat as admittedly the parties were residing in separate buildings on a large tract of land. Lastly, the SAT order suffers from non-application of mind and the same is a mere repetition of facts stated by the WTM. The Appellate Tribunal was exercising jurisdiction of a First Appellate Court and was bound to independently assess the evidenced and material on record, which it evidently failed to do. [Para 48][924-A-H]

SEBI v. Kishore R. Ajmera (2016) 6 SCC 368 : [2016]

1 SCR 1118 and Dushyant N. Dalal v. SEBI (2017) 9 SCC 660 : [2017] 11 SCR 448 – distinguished.

H.K.N. Swami v. Irshad Basith (2005) 10 SCC 243; UPSRTC v. Mamta (2016) 4 SCC 172 : [2016]

2 SCR 71; Hanumant v. State of Madhya Pradesh AIR 1952 Supreme Court 343 : [1952] SCR 1091;

Chintalapati Srinivasa Raju v. Securities and Exchange Board of India (2018) 7 SCC 443 : [2018] 5 SCR 785; Seema Silk & Sarees v. Directorate of Enforcement (2008) 5 SCC 580 : [2008] 8 SCR 201; Tarlochan Dev Sharma v. State of Punjab (2001) 6 SCC 260 : [2001]

3 SCR 1146 and Hindustan Lever Ltd. vs. Director General (Investigation and Registration) (2001) 2 SCC

474 : [2001] 1 SCR 318 – referred to.

United States of America v. Raj Rajaratnam and Danielle Chiesi 09 Cr 1184 (RJH) – referred to.