2019 (11) TMI 1598 - AT - SEBI

Insider trading - Use of Price sensitive information - determination of price by a market at a given day - HELD THAT - In our view the information itself was not a price sensitive information. The record would show that GIPL had invested only ₹ 4.9 crores in the Simplex project in the said financial year. It represented only 0.05% of the GIPL's order book value at the end of August, 013 and only 0.7% of its turnover for the said financial year. Further due to the termination of the agreement a large project worth ₹ 1648 returned back to GIPL while the smaller project of ₹ 940 crore remained with Simplex. In a way it could have been a positive information to the shareholders. Adjudicating Officer however has calculated the change in the order book value without assessing whether the change was positive or negative. Considering the minor proportion of the transaction to the turnover of GIPL, in our view the information cannot be termed as price sensitive information. The Simplex had not even disclosed the said information to the stock exchanges. Even if it is assumed that the information was is a price sensitive information, still the appellant cannot be blamed of insider trading for the reasons that he did not trade on the basis of the information . The appellant was able to show his dire need to infuse fund in the entity under the master restructuring agreement to implement a CDR package as detailed supra. He was even required to sell his agricultural land and flat details of which are already given hereinabove. In these circumstances he sold the shares. In the case of Rajiv B. Gandhi 2008 (5) TMI 729 - SECURITIES APPELLATE TRIBUNAL, MUMBAI on fact this Tribunal held that the appellants therein were able to rebut the presumption that they traded on the basis of UPSI as they had a necessity to sell the shares. Appellant had contended that respondent SEBI had deliberately taken the closing price of September, 2013 when the price were around 30% lower than the closing price as on September 3, 2013. By adding this extra day SEBI had widened the gap between the selling price and the price found on 4 th September, 2013. In fact the share closing price rose on September 3, 2013 i.e. on the date of disclosure of the information. However, according to the appellant, respondent SEBI only inorder to show that the appellant had avoided the probable loss calculated the figures based on the last traded price of September 4, 2013. As recorded that the information was disclosed to the BSE and NSE on September 3, 2012 at 1.05 p.m. and 2.40 p.m. respectively i.e. much before the closure of the market. There is no reason forwarded in the impugned order as to why the last traded price of September 3, 2013 is not taken into consideration by respondent SEBI. For all these reasons in our view the order cannot be sustained. Appeal is hereby allowed. The impugned order is hereby set aside. SEBI shall take steps for refund of the amount already deposited by the appellant.

Summary

Issues Involved:
1. Whether the termination of the agreement between GIPL and Simplex constituted unpublished price-sensitive information (UPSI).
2. Whether the appellant engaged in insider trading by selling shares based on the UPSI.
3. Whether SEBI's calculation of the probable loss avoided by the appellant was accurate and justified.

Issue-wise Detailed Analysis:

1. Whether the termination of the agreement between GIPL and Simplex constituted unpublished price-sensitive information (UPSI):

The appellant, then Chairman and Managing Director of GIPL, sold 1,43,81,246 shares of GIPL on 22nd August 2013. SEBI conducted an investigation and found that the appellant had unpublished information regarding the termination of two shareholder agreements between GIPL and Simplex. This information was disclosed to the stock exchanges on 3rd September 2013. SEBI concluded that the termination of the agreement was UPSI, existing from July 2013 to September 2013. However, the appellant argued that the information was not material enough to impact the price of GIPL's securities. The appellant pointed out that the termination allowed GIPL to acquire exclusive control over a larger project worth ?1648 crores while exiting a smaller project worth ?940 crores, which was a minor proportion of GIPL's order book value. The Tribunal agreed with the appellant, noting that the termination could have been perceived as positive information. The information represented only 0.05% of GIPL's order book value and 0.7% of its turnover, making it insignificant to be deemed price-sensitive.

2. Whether the appellant engaged in insider trading by selling shares based on the UPSI:

SEBI held the appellant guilty of insider trading under Section 19 read with Sections 11 and 11B of the SEBI Act and the PIT Regulations. The appellant contended that he did not trade based on the information but due to a dire need to infuse funds under a corporate debt restructuring agreement. He provided evidence of selling properties and raising funds to meet financial obligations. The Tribunal found merit in the appellant's explanation, noting that the appellant had a necessity to sell shares for fund infusion, similar to precedents where appellants successfully rebutted the presumption of trading based on UPSI. The Tribunal concluded that the appellant did not engage in insider trading as he did not trade "on the basis of the information."

3. Whether SEBI's calculation of the probable loss avoided by the appellant was accurate and justified:

SEBI calculated the probable loss avoided by the appellant as ?83,32,934.50, based on the difference between the weighted average price of the shares on the date of sale (?7.14) and the price on September 4, 2013 (?6.56). The appellant argued that SEBI should have considered the weighted average closing price on September 3, 2013, the date of the disclosure, which showed a small increase of ?0.10 paise. The Tribunal found that SEBI had no reason to ignore the closing price on September 3, 2013, and artificially widened the gap by considering the price on September 4, 2013. The Tribunal held that SEBI's calculation was flawed and not justified.

Conclusion:

The Tribunal allowed the appeal, setting aside the impugned order. It concluded that the information was not price-sensitive, the appellant did not engage in insider trading, and SEBI's calculation of probable loss was unjustified. SEBI was directed to refund the amount deposited by the appellant.