2021 (10) TMI 1321 - AT - SEBI

Insider trading - violation of SEBI (Prohibition of Insider Trading) Regulations - Family arrangement - case of the appellants that family settlements means family estrangement - family arrangements within the family on two occasions there was no estrangement, as can be seen from the facts highlighted by Ld. WTM - appellants were restrained from accessing the securities market, in any manner, for a period of one year - allegations against the appellant Ms. Shivani Gupta and other appellants is that they being insider to two Unpublished Price Sensitive Informations ( UPSI‟ for short) regarding the buy-back of it‟s share by the Company and had traded in the shares while holding theses informations - WTM recorded a finding that the nature of relationship between the parties, their residence at the same address, financial transactions between them as well as the trading pattern of the concerned appellants during UPSI-I II show that all of them had traded when in possession of both the UPSI, meaning thereby that those UPSI were disseminated to the appellants by Late Padam Chand Gupta and Mr. Balram Garg - HELD THAT - The facts as highlighted by the Ld. WTM would show that though there was a family arrangements within the family on two occasions there was no estrangement, as can be seen from the facts highlighted by Ld. WTM - Additionally, in our view, the very fact that appellant Shivani had authorized her cousin brother-in-law i.e appellant Amit to trade on her behalf, would belie the case of the appellants that family settlements means family estrangement. It cannot be gainsaid that the appellants are residing at the same address and even appellant Mr. Balram Garg‟s address is the front side‟ of the premises. The trading pattern of the concerned appellants i.e. withholding of the selling of trade once buy-back talk started within the Company and then again selling spree the shares by them once the buy-back offer was made public till the rejection of the proposal by the State Bank of India was made known to the public, would clearly show that the concerned appellants were aware of both the UPSI. It is true that there is no direct evidence as to who had disseminated this insider information to the appellants Late Shri Padam Chand Gupta was the father of appellant Mr. Sachin Gupta and father-in-law of appellant Ms. Shivani Gupta and uncle of appellant Mr. Amit Garg. Similarly, appellant Mr. Balram Garg is the uncle of appellant Mr. Sachin Gupta and appellant Mr. Amit Garg. All of them were residing at the same address. Appellant Mr. Sachin Gupta had financial transactions with the Company of which appellant Mr. Balram Garg was Managing Director. Considering all the above facts, on preponderance probability it can very well be concluded that late Padam Chand as well appellant Mr. Balram disseminated both UPSI to the appellants in appeal. Taking into consideration all these facts, in our view, the appeals lack merit. Hence both the appeals are hereby dismissed.

Summary

Issues Involved:
1. Alleged violation of SEBI (Prohibition of Insider Trading) Regulations, 2015.
2. Determination of whether appellants were "insiders" under the SEBI Act.
3. Evaluation of trading patterns and financial transactions during UPSI periods.
4. Assessment of familial relationships and their impact on the dissemination of UPSI.
5. Legitimacy of the defenses raised by the appellants.

Issue-Wise Detailed Analysis:

1. Alleged Violation of SEBI (Prohibition of Insider Trading) Regulations, 2015:
The appellants were accused of violating SEBI's PIT Regulations by trading in the shares of PC Jeweller Limited while in possession of Unpublished Price Sensitive Information (UPSI) regarding the company's buy-back of shares. The SEBI order restrained the appellants from accessing the securities market for one year and from dealing in the securities of PC Jeweller Limited for two years. Additionally, they were directed to disgorge an amount to the Investor Protection and Education Fund (IPEF).

2. Determination of Whether Appellants Were "Insiders" Under the SEBI Act:
The appellants were found to be insiders based on their access to UPSI. The definition of "insider" under Regulation 2(g) of the PIT Regulations includes any person in possession of or having access to UPSI. The Ld. WTM concluded that the appellants were insiders due to their familial relationships, common residential address, and financial transactions, which indicated that they had access to UPSI.

3. Evaluation of Trading Patterns and Financial Transactions During UPSI Periods:
The investigation revealed that the appellants had traded in the shares of PC Jeweller Limited during UPSI-I and UPSI-II periods. The trading pattern showed that the appellants halted selling shares when the buy-back discussions started and resumed selling when the buy-back was announced, leading to significant gains. The Ld. WTM meticulously analyzed the trading data, concluding that the appellants traded while in possession of UPSI.

4. Assessment of Familial Relationships and Their Impact on the Dissemination of UPSI:
The familial relationships among the appellants, including their common residential address and financial transactions, were crucial in determining the dissemination of UPSI. The Ld. WTM noted that despite claims of estrangement due to family settlements in 2011 and 2015, the appellants continued to share a common address and had financial dealings with the company. This indicated that UPSI was likely disseminated among them.

5. Legitimacy of the Defenses Raised by the Appellants:
The appellants argued that they were not connected persons or insiders and that there was no evidence of UPSI dissemination. They also claimed estrangement due to family settlements. However, the Ld. WTM found these defenses unconvincing, noting that the appellants' trading patterns and financial transactions indicated access to UPSI. The Ld. WTM concluded that the appellants were insiders and had traded based on UPSI.

Conclusion:
The appeals were dismissed, and the SEBI order was upheld. The Ld. WTM's reasoning was found to be sound, based on the appellants' trading patterns, financial transactions, and familial relationships, which indicated access to UPSI. The appellants were restrained from accessing the securities market and dealing in the securities of PC Jeweller Limited, and were directed to disgorge the gains made from trading based on UPSI.