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2008 (5) TMI 729 - AT - SEBIOffence under SEBI ACT - Insider trading - Possession of unpublished price sensitive information - violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 - HELD THAT - In view of the interpretation of regulation 3 and on the admitted facts of this case, there would be a presumption that the appellants being insiders, traded on the basis of the unpublished price sensitive information in possession of Gandhi and the onus to rebut that presumption was on them. They have not only failed to rebut the presumption but have not even attempted to offer an explanation as to the basis which prompted them to trade. Faced with this situation, the learned counsel for the appellants contended that at no stage of the proceedings were they asked for an explanation as to the basis of their trade and, therefore, there was no occasion for them to offer an explanation. We cannot accept this contention. The appellants were clearly informed in the show cause notice that they had sold 3600 shares on 21.1.1999 (before the board meeting) and 22.1.1999 (in the first half hour before the market could react to the news) on the basis of unpublished price sensitive information . In view of this specific allegation and considering the fact that the appellants are insiders there was a presumption against them and it was for them to have offered an explanation to rebut that presumption. The facts which prompted the appellants to trade in the scrip of the company while in possession of unpublished price sensitive information were only within their knowledge and it was for them to spell out those facts to rebut the presumption raised by regulation 3 against them. So much so, we asked the learned counsel for the appellants during the course of the hearing to tell us the reasons which prompted/motivated the appellants to trade in the scrip, being insiders. He was unable to offer any explanation. It is, thus, clear that the appellants have failed to discharge the onus of rebutting the presumption raised against them under regulation 3 of the regulations. They must, therefore, fail. Therefore, it is not necessary to deal with the other contentions raised by the learned counsel for the appellants. We hold that the appellants were guilty of insider trading. The penalty levied on them is not on the higher side keeping in view the seriousness of the charge and, therefore, it does not call for any interference in appeal. The appeal is accordingly dismissed with no order as to costs.
Issues Involved:
1. Whether the appellants are guilty of insider trading. 2. The applicability of regulations 3 and 4 of the Securities and Exchange Board of India (Insider Trading) Regulations, 1992. 3. The presumption and burden of proof in cases of insider trading. 4. The adequacy of the penalty imposed. Issue-Wise Detailed Analysis: 1. Whether the appellants are guilty of insider trading: The primary issue in this appeal is whether the appellants engaged in insider trading as defined under Section 15T of the Securities and Exchange Board of India Act, 1992. The adjudicating officer found the appellants guilty and imposed a penalty of Rs. 5 lacs on each. The facts are undisputed: the trades by the appellants occurred before the disclosure of quarterly financial results and other significant corporate actions, such as the declaration of an interim dividend and the announcement of a demerger. 2. The applicability of regulations 3 and 4 of the Securities and Exchange Board of India (Insider Trading) Regulations, 1992: Regulation 3 prohibits insiders from dealing in securities based on unpublished price-sensitive information. Regulation 4 states that any insider who deals in securities in contravention of Regulation 3 is guilty of insider trading. The appellants were found to be insiders under Regulation 2(3) read with 2(c) due to their relationship with the company's Chief Financial Officer, who had access to price-sensitive information. The trades executed by the appellants were found to be based on unpublished price-sensitive information, violating these regulations. 3. The presumption and burden of proof in cases of insider trading: The tribunal emphasized that if an insider trades in securities, it is presumed they did so based on unpublished price-sensitive information unless proven otherwise. This presumption is rebuttable, and the burden of proof lies on the insider to provide a plausible explanation for their trades. The appellants failed to rebut this presumption. Despite being given the opportunity, they did not offer any explanation for their trades, neither during the proceedings nor in the hearing before the tribunal. Therefore, the presumption stood unrebutted, and the appellants were deemed to have traded based on the unpublished price-sensitive information. 4. The adequacy of the penalty imposed: The tribunal held that the penalty of Rs. 5 lacs imposed on each appellant was appropriate given the seriousness of the insider trading charge. The appellants' inability to provide any justification for their trades further justified the penalty. The tribunal found no reason to interfere with the penalty, considering it proportionate to the gravity of the offense. Conclusion: The tribunal concluded that the appellants were guilty of insider trading, affirming the adjudicating officer's decision. The penalty of Rs. 5 lacs on each appellant was deemed appropriate and was upheld. The appeal was dismissed with no order as to costs.
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