2021 (8) TMI 1299 - AT - SEBI

Insider trading - charge of violation of Regulations 3 and 4 of the PFUTP Regulations - contravention of Section 12A(d) of the SEBI Act - conspiracy in the commissioning of the offence of insider trading - As urged by the appellant Rohit Gupta that the WTM has miserably failed to establish the charge of trading against the appellant and has been found guilty only on the basis of preponderance of probability - Contention of the appellants is that adequate opportunity was not provided - HELD THAT - We find that pursuant to the show cause notice dated July 31, 2018 which was duly served on all the notices, the appellants were required to appear on September 3, 2019 and file a reply which they failed to do so. By a letter dated December 9, 2018 some of the noticees, namely, Navin Tayal and Jyotika Tayal intimated that their authorized signatory would appear on their behalf but failed to appear on next date i.e. September 3, 2019. On September 3, 2019, the AO fixed the hearing date for September 17, 2019. All the noticees requested for an adjournment on September 17, 2019 and prayed that they may be provided an opportunity to inspect the documents. AO, in the interest of justice, adjourned the matter for November 18, 2019. Prior to that date, noticee No. 1 on November 4, 2019 and on November 5, 2019, the appellants Navin Tayal, Jyotika Tayal and Azam Shaikh, on November 14, 2019 Advik and on November 15, 2019 Kulwinder Nayyar vide the letters requested the AO for inspection of documents. The matter was accordingly adjourned on November 18, 2019 and vide notice dated December 27, 2019, all the noticees were given an opportunity to inspect the documents on January 30, 2020. By the said notice, all the noticees were intimated that the hearing would be fixed on February 17, 2020. The record indicates that no one appeared to inspect the documents on January 30, 2020 in spite of the receipt of the notice nor appeared on the date fixed for hearing i.e. February 17, 2020 and accordingly the AO proceeded ex-parte and passed the impugned order. The contention that the notice dated December 12, 2019 was received by the appellants on January 28, 2020 was vehemently denied by the respondent. The respondent contended that the said notice was received by the appellants on January 17, 2020 and proof of delivery of service has been annexed to the reply. It was contended that the letter of the appellants dated February 11, 2020 seeking further time to inspect the documents and for adjournment and for reschedulement of the hearing was never received and the appellants were put to strict proof. In rejoinder, the appellants admitted that the notice dated December 27, 2019 was received on January 17, 2020 but was not placed before the appellants and, therefore, could not appear for inspection of documents. It was also stated that on account of personal exigency, the appellants could not attend the date fixed for hearing. No proof have been filed by the appellants with regard to the service of letter dated February 11, 2020. It is apparently clear that the appellants were duly served with the notice. Adequate opportunity was provided to inspect the documents and appear on the date fixed for hearing. The appellants chose not to inspect the documents nor appeared personally nor appeared through their authorized representative on the date fixed for hearing. Consequently, we are of the opinion that the principles of natural justice was fully complied with. The appellants deliberately chose not to participate in the proceedings and, therefore, we do not find any fault in the proceedings adopted by the AO. The order of the AO does not suffer from any error of law. All the appeals filed against the order of the WTM and against the order of the AO are dismissed with no order as to costs.

Summary

Issues Involved:
1. Restraint from securities market and disgorgement order by SEBI.
2. Allegations of insider trading in the scrip of Bank of Rajasthan.
3. Connection and role of the appellants in the insider trading.
4. Validity of the evidence and the standard of proof required.
5. Calculation of disgorgement amount.
6. Imposition of interest on the disgorged amount.
7. Delay in initiating proceedings.
8. Joint and several liability for disgorgement.
9. Adequacy of opportunity and principles of natural justice in the proceedings.

Detailed Analysis:

1. Restraint from Securities Market and Disgorgement Order by SEBI:
The appellants were restrained from buying, selling, or dealing in the securities market for five years and directed to disgorge ?95,77,614/- along with 12% interest from May 27, 2010, onwards, jointly and severally. Another set of appellants faced a penalty of ?3 crore to be paid jointly and severally.

2. Allegations of Insider Trading in the Scrip of Bank of Rajasthan:
SEBI investigated insider trading in the scrip of Bank of Rajasthan during May 7-18, 2010, related to merger talks with ICICI Bank. The information about the merger was deemed price-sensitive under the PIT Regulations. It was alleged that the appellants traded based on this unpublished price-sensitive information (UPSI).

3. Connection and Role of the Appellants in the Insider Trading:
Rohit Gupta was accused of purchasing shares based on insider information and was funded by Advik Textiles. The Tayal family, involved in the merger discussions, was alleged to have shared UPSI with Rohit Gupta. The WTM concluded that Rohit Gupta was an insider due to his proximity to the Tayal family and his unusual trading activity during the UPSI period.

4. Validity of the Evidence and the Standard of Proof Required:
The contention that insider trading charges require a higher degree of proof was addressed. The tribunal emphasized that in civil cases, the preponderance of probabilities suffices. The WTM's findings were based on substantial evidence and logical inferences from the proximity and relationships among the parties involved.

5. Calculation of Disgorgement Amount:
The appellants argued that disgorgement should be based on the price of shares when UPSI was made public, not when sold. However, the tribunal upheld the WTM's method of calculating unlawful gains as the difference between the purchase and sale prices, aligning with the principle that disgorgement prevents unjust enrichment from illegal conduct.

6. Imposition of Interest on the Disgorged Amount:
The tribunal rejected the contention that interest should be charged only from the date of the order. Since the appellants made unlawful gains in 2010, interest from the date of the cause of action was justified. The rate of 12% p.a. was deemed appropriate given the lack of evidence to suggest otherwise.

7. Delay in Initiating Proceedings:
The appellants argued that the seven-year delay in issuing the show cause notice was inordinate. The tribunal found the delay justified, given the extensive investigation involving multiple parties and the sequence of events. The proceedings were initiated promptly after the investigation report, and no prejudice was shown to the appellants.

8. Joint and Several Liability for Disgorgement:
The tribunal upheld the joint and several liability for disgorgement, citing the interconnected roles and conspiracy among the appellants. The principle of joint and several liability was supported by precedents where parties involved in a common illegal act were held collectively responsible for disgorgement.

9. Adequacy of Opportunity and Principles of Natural Justice in the Proceedings:
The appellants claimed they were not given adequate opportunity to inspect documents and respond. The tribunal found that adequate opportunities were provided, but the appellants chose not to participate. The AO's ex-parte order was justified, and the principles of natural justice were upheld.

Conclusion:
All appeals against the orders of the WTM and AO were dismissed. The tribunal found no errors in the proceedings, calculations, or the imposition of penalties and interest. The interconnected roles and evidence supported the findings of insider trading and the subsequent penalties.