2022 (5) TMI 760 - AT - SEBI

Insider trading - information relating to the financial results was an Unpublished Price Sensitive Information ( UPSI ) - confirmatory order confirming the ex-parte ad-interim order whereby the appellant was restrained from buying or selling any securities, either directly or indirectly, till further orders - appellant was a Senior Corporate Counsel of Infosys and, being an officer/employee of Infosys, was reasonably expected to have access to the UPSI and, on a preponderance of probability basis, the appellant was in possession of UPSI and thus, was an insider under Regulation 2(1)(g) of the PIT Regulations - HELD THAT - As in the absence of any direct or indirect evidence coming forth at this stage and the fact that the investigation is still continuing which may take time for issuance of a show cause notice, we are of the opinion that the continuation of the interim order against the appellant is unjustified especially when the appellant has not traded in the scrip nor there is any finding that he is a party to the unlawful gain. Admittedly, the appellant has not traded in the scrip. The two partnership companies have traded in the scrip in which admittedly the appellant is not a partner. Direction to deposit the unlawful gain have already been issued against the two partnership companies. The interest of the securities market is thus safeguarded. The investigation has not yet concluded and, therefore, it would take some time for issuance of a show cause notice. Final orders will come much later. Considering the aforesaid when only prima facie observations are being made which the appellant has sufficiently explained and discharged his burden we are of the opinion that at this stage debarring a person from accessing the securities market is not justified in the facts of the case. We further observe that the investigating party will not be influenced by any observation made by us in the present order which are tentative in nature and will not be utilised to the advantage of either party. The confirmatory order as well as the interim order in so far as it relates to the appellants cannot be sustained and are quashed. The appeals are allowed. In the circumstances of the case parties shall bear their own costs.

Issues Involved:
1. Validity of the confirmatory order dated 15th September 2021.
2. Determination of the appellant as an insider under Regulation 2(1)(g) of the PIT Regulations.
3. Access to Unpublished Price Sensitive Information (UPSI) by the appellant.
4. Burden of proof regarding possession and communication of UPSI.
5. Justification for continuation of the interim order against the appellant.

Issue-wise Detailed Analysis:

1. Validity of the Confirmatory Order:
The appeal challenged the confirmatory order dated 15th September 2021, which upheld the ex-parte ad-interim order restraining the appellant from trading in securities. The Tribunal found that the continuation of the interim order was unjustified, as there was no direct or indirect evidence proving the appellant's access to or communication of UPSI. The confirmatory order was quashed, and the appeals were allowed.

2. Determination of the Appellant as an Insider:
The Tribunal examined whether the appellant was an insider under Regulation 2(1)(g) of the PIT Regulations, which defines an insider as a connected person or someone in possession of UPSI. The Whole Time Member (WTM) initially concluded that the appellant was an insider due to his senior position in the company, which supposedly gave him access to UPSI. However, the Tribunal found that mere employment in a senior position does not automatically imply possession of UPSI.

3. Access to Unpublished Price Sensitive Information (UPSI):
The WTM's decision was based on the assumption that the appellant, due to his role, had access to UPSI. However, the Tribunal noted that the structured digital database (SD database) mandated under Regulation 3(5) of the PIT Regulations did not list the appellant or the designated person Mr. Venkata Subramaniam as having access to UPSI. Furthermore, the Tribunal found that the telephonic conversations between the appellant and Mr. Venkata were related to official matters and not UPSI, thereby discharging the initial burden of proof on the appellant.

4. Burden of Proof Regarding Possession and Communication of UPSI:
The Tribunal emphasized that the burden of proof lies with the prosecution (SEBI) to establish that the appellant had access to UPSI or was an insider. The WTM had wrongly placed the burden on the appellant to prove that he did not pass on UPSI to Mr. Amit Bhutra. The Tribunal found that the appellant had successfully discharged his burden by providing evidence that his communications were unrelated to UPSI.

5. Justification for Continuation of the Interim Order:
The Tribunal concluded that the continuation of the interim order was not justified based on prima facie suspicion or preponderance of probability. The appellant had not traded in the scrip, and there was no evidence of him being a party to any unlawful gain. The Tribunal held that debarring the appellant from accessing the securities market was unwarranted, especially when the investigation was still ongoing and no show cause notice had been issued.

Conclusion:
The confirmatory order and the interim order were quashed, and the appeals were allowed. The Tribunal directed that the investigation should continue without being influenced by the observations made in the present order, which were tentative in nature. The parties were directed to bear their own costs, and the order was digitally signed for implementation.

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