2016 (7) TMI 1660 - Board - SEBI

Insider trading - Insider trading - trade in script on the basis of unpublished price sensitive information ( UPSI ) - Abhijit Rajan sold approximately 144 Lakh shares held by him in GIPL (representing 70.56% of his shareholding in that company - Shri Abhijit Rajan was restrained from buying, selling or dealing in securities and accessing the securities markets, either directly or indirectly, in any manner whatsoever, till further directions vide the Interim Order - HELD THAT - In the instant proceedings, CICPL and its Directors, have been able to substantiate their contention with adequate evidence that the sale of GIPL shares were executed to clear the margin shortfall. As stated earlier, the letter (addressed to CICPL by IIFL Finance), clearly stated that the net margin shortfall was approximately ₹2.55 Crores and accordingly, CICPL was required to arrange for the aforesaid funds by August 7, 2013. Hence the action of selling the shares appear to be pursuant to the demand made by IIFL Finance. The property transactions entered into between CICPL and Shri Abhijit Rajan were registered within the permissible statutory limit permitted by law. While it is possible that discussions in respect of the property transactions entered into between CICPL and Shri Abhijit Rajan may have been happening a few months prior to the impugned trades, no material evidence has been placed before me in the instant proceedings in support of such negotiations actually taking place prior to the execution of said trades. In the aforementioned context, the allegations against CICPL and its Directors as contained in the SCN, are not supported by any material evidence. On the other hand, CICPL and its Directors have substantiated their contention regarding the need for urgent sale of GIPL shares with the support of documentary evidence. No alternative but to find that the charges against CICPL and its Directors i.e. Shri Kiran Indru Hingorani and Shri Indru B. Hingorani, as alleged in the SCN, have not been made out on the basis of the material available on record. For the aforementioned reasons, we are constrained to give the benefit of doubt to CICPL and its Directors i.e. Shri Kiran Indru Hingorani and Shri Indru B. Hingorani. Quantification of unlawful gains or avoidance of loss by Shri Abhijit Rajan - Shri Abhijit Rajan has already undergone a restraint from July 17, 2014 till date i.e. a period of almost 2 years. It is noted that SEBI has already initiated Adjudication Proceedings inter alia against Shri Abhijit Rajan in respect of the same violations alleged in the instant proceedings. This being the factual position, I am of the view that no further restraint is required to be imposed on Shri Abhijit Rajan on account of the reasons detailed in the preceding paragraphs. However, it is made clear that the Adjudicating Officer shall independently verify the facts and arrive at findings including quantum of penalty, if any, without being influenced by the observations recorded in this Order. ORDER i. The SCN dated March 29, 2016, issued against Shri Abhijit Rajan, is disposed of without any further directions. On and from the date of operation of this Order, the directions issued vide the Interim Order dated July 17, 2014 read with the Confirmatory Order dated March 23, 2015, will not continue further against Shri Abhijit Rajan. ii. In view of the findings against Shri Abhijit Rajan in the instant proceedings in respect of the violations alleged in the SCN, he becomes liable for disgorging the amount of unlawful gains. Accordingly, Allahabad Bank, wherein the amount of ₹1.09 Crores was deposited by Shri Abhijit Rajan in an account SEBI Escrow A/c Abhijit Rajan (A/c No. 50330382173) , shall transfer the said amount within a period of 10 days to SEBI. iii. The SCN dated March 29, 2016, issued against CICPL and its Directors i.e. Shri Kiran Indru Hingorani and Shri Indru B. Hingorani, is disposed of without any directions. iv. Allahabad Bank shall release the amount of ₹35.24 Lakhs, which was deposited by CICPL and its Directors i.e. Shri Kiran Indru Hingorani and Shri Indru B. Hingorani, in an account SEBI Escrow A/c Consolidated Infrastructure Co. Pvt. Ltd. (A/c No. 50330378961) , in view of the findings against the said entities in the instant proceedings. This Order shall come into force with immediate effect.

Summary

Issues Involved:
1. Whether the information regarding the termination of SHAs entered into between GIPL and Simplex was price-sensitive information.
2. Whether Shri Abhijit Rajan comes under the definition of ‘insider’ as per Regulation 2(e)(i) of the PIT Regulations, 1992.
3. Whether the trades executed by Shri Abhijit Rajan in the scrip of GIPL during the Investigation Period were done while in possession of UPSI and whether he avoided any potential loss.
4. Whether CICPL is a connected person to GIPL (through Shri Abhijit Rajan) in terms of Regulation 2(c)(ii) of the PIT Regulations, 1992, and whether it traded while in possession of UPSI and avoided any potential loss.

Detailed Analysis:

1. Whether the information regarding the termination of SHAs entered into between GIPL and Simplex was price-sensitive information:

The SCN alleged that the termination of SHAs was price-sensitive information. Shri Abhijit Rajan argued that the information was not price-sensitive and that GIPL did not regard it as such, as evidenced by not closing the trading window. However, SEBI found that the termination of SHAs resulted in significant changes in policies, plans, or operations of GIPL, impacting its order book value by 3.1% to 4.1%. Therefore, the information was deemed price-sensitive under Regulation 2(ha)(vii) of the PIT Regulations, 1992.

2. Whether Shri Abhijit Rajan comes under the definition of ‘insider’ as per Regulation 2(e)(i) of the PIT Regulations, 1992:

Shri Abhijit Rajan was the CMD of GIPL and attended the Board meeting on August 9, 2013, where the termination of SHAs was approved. As CMD, he had access to the UPSI. Therefore, he is considered an ‘insider’ under Regulation 2(e)(i) of the PIT Regulations, 1992.

3. Whether the trades executed by Shri Abhijit Rajan in the scrip of GIPL during the Investigation Period were done while in possession of UPSI and whether he avoided any potential loss:

Shri Abhijit Rajan sold approximately 144 lakh shares of GIPL on August 22, 2013, while in possession of UPSI. He argued that the sale was necessitated by the requirement to infuse funds into GIL as part of a CDR Scheme. SEBI found that the trades were executed while in possession of UPSI, but the sale was also necessitated by the need to meet the Promoter's contribution for the CDR Scheme. The sale avoided a loss of approximately ?84 lakhs.

4. Whether CICPL is a connected person to GIPL (through Shri Abhijit Rajan) in terms of Regulation 2(c)(ii) of the PIT Regulations, 1992, and whether it traded while in possession of UPSI and avoided any potential loss:

CICPL sold approximately 28.57 lakh shares of GIPL on August 6, 2013, and later acquired properties from Shri Abhijit Rajan on August 28, 2013. CICPL argued that the sale was to clear a margin shortfall with IIFL Finance and was not based on UPSI. SEBI found that CICPL and its Directors substantiated their contention with adequate evidence, showing the sale was to clear the margin shortfall. Hence, the charges against CICPL and its Directors were not supported by material evidence.

Order:

1. The SCN dated March 29, 2016, against Shri Abhijit Rajan is disposed of without further directions. The restraint against him will not continue further.
2. Allahabad Bank shall transfer ?1.09 Crores deposited by Shri Abhijit Rajan to SEBI.
3. The SCN dated March 29, 2016, against CICPL and its Directors is disposed of without any directions.
4. Allahabad Bank shall release ?35.24 Lakhs deposited by CICPL and its Directors.

This Order shall come into force immediately and be served on all Recognized Stock Exchanges, Depositories, and Allahabad Bank for necessary compliance.