2022 (5) TMI 1313 - AT - SEBI

Insider trading - as noted suspected entities had traded in the mentioned scrip on the basis of unpublished price sensitive information ( UPSI for short) in contravention to the provisions of SEBI Act, 1992 and SEBI (Prohibition of Insider Trading) Regulations, 2015 ( PIT Regulations - Whether appellants were not privy to any inside information and were therefore not in possession of UPSI? - HELD THAT - There is no doubt that information of sale of ILPL was in the public domain since July 15, 2016 but this information which came into the public domain was not treated to be an UPSI by the WTM on the ground that the resolution passed by IVL on July 15, 2017 was only a raw information and there was no crystallized offer through an identified purchaser or ascertained consideration amount for the purpose of crystallizing the UPSI. If the information of sale of ILPL by IVL on July 15, 2016 was not a UPSI and was in the public domain then the purchase of shares by the appellants between July 15, 2016 to March 1, 2017 could not be made the basis of UPSI. We, thus, conclude that since there was no UPSI during this period the trades executed by the appellants were not violative of Regulation 4(1). The EGM of IIL was held on March 1, 2017 on which date it authorized the Board of Directors to give a loan upto Rs. 600 crores or could acquire upto Rs. 600 crores. Thus, this information of acquisition, if any, came into existence on March 1, 2017. Thus, UPSI period can start from March 1, 2017 onwards till March 14, 2017. The appellants alleged that they were never in possession of UPSI. In this regard the resolution of IVL on July 15, 2016 to sell ILPL can be the starting point of UPSI. The WTM has however disregarded this date as not a UPSI. We also find that this information came in the public domain and therefore the decision to sell ILPL was not a price sensitive information nor was it an UPSI. WTM has strongly relied on the fact that the appellant Pia Johnson was a member of the managing committee appointed by the Board of Directors of IVL who were authorized to authorize IDSL to sale its stake in ILPL. Based on this fact, the WTM concluded that the appellant Pia Johnson had inside information and was in possession of UPSI. This fact that the appellant was a member of the managing committee can create a suspicion that the appellant could be in possession of UPSI but in our opinion the appellants were successful in proving that they had no UPSI. It has come on record that no meeting of this managing committee was ever held and therefore there was no occasion to discuss the sale of ILPL. Further, we find that there is no finding that the resolution of IIL on March 1, 2017 or notice dated January 25, 2017 or resolution of Board of Directors of IREL on February 3, 2017 was known to the appellants. The appellants had nothing to do with IREL or IIL and therefore there can be no presumption that the appellants had information that IIL was in the process of purchasing ILPL. We also find that during the investigation the statement of the two CEOs of IVL and IREL were recorded and both the CEOs clearly stated that the information regarding sale of ILPL was not made known to others and that the appellants had no knowledge of the deal. These statements has not been considered by the WTM coupled with the fact that Mr. Gurbans Singh in his statement categorically made statement that he only came to know only in March 2017 that ILPL was up for sale. Thus the trades made by Mehul Johnson in March 2017 cannot be said to be made when in possession of UPSI. We are satisfied that the appellants were not in possession of UPSI when they purchased the shares of IVL during the alleged UPSI period as per the show cause notice. In our view, the appellants have successfully discharged the burden under the proviso to Regulation 4 of the PIT Regulation. Considering the aforesaid, the impugned order cannot be sustained and are quashed. The appeals are allowed with no order as to costs.

Summary

Issues Involved:
1. Whether the appellants were in possession of unpublished price sensitive information (UPSI) when they traded in the securities of IVL.
2. Determination of the UPSI period.
3. Whether the appellants violated Regulation 4(1) of the SEBI (Prohibition of Insider Trading) Regulations, 2015.

Issue-wise Detailed Analysis:

1. Whether the appellants were in possession of unpublished price sensitive information (UPSI) when they traded in the securities of IVL:

The appellants were charged with trading while in possession of UPSI. Regulation 4(1) of the PIT Regulations prohibits insiders from trading in securities when in possession of UPSI. The appellants admitted to being insiders and trading during the alleged UPSI period but disputed the UPSI period and being in possession of UPSI.

The WTM concluded that the UPSI regarding the sale of ILPL by IDSL for more than Rs. 600 crores came into existence on January 24, 2017, and became generally available on March 15, 2017. However, the tribunal found this conclusion to be illegal and against the material evidence on record. The tribunal noted that the discussions on January 24, 2017, were related to a loan request, not a sale, and the intention to purchase ILPL by IIL came into existence only on March 1, 2017, when the EGM of IIL resolved to invest surplus funds by way of purchase of a company.

The tribunal also highlighted that the information regarding the sale of ILPL was already in the public domain since July 15, 2016, and was not treated as UPSI by the WTM. Thus, the trades executed by the appellants between July 15, 2016, to March 1, 2017, could not be based on UPSI, and the appellants were not in possession of UPSI during the alleged UPSI period.

2. Determination of the UPSI period:

The WTM determined the UPSI period to be from January 24, 2017, to March 14, 2017. However, the tribunal found that the UPSI regarding the purchase of ILPL by IIL came into existence for the first time on March 1, 2017, when the shareholders of IIL resolved to invest surplus funds by way of purchase of a company. Therefore, the UPSI period could only start from March 1, 2017, onwards till March 14, 2017.

The tribunal also noted that the information regarding the sale of ILPL was already in the public domain since July 15, 2016, and was not treated as UPSI by the WTM. Therefore, the decision to sell ILPL was not a price-sensitive information nor was it an UPSI.

3. Whether the appellants violated Regulation 4(1) of the SEBI (Prohibition of Insider Trading) Regulations, 2015:

The tribunal found that the appellants were not in possession of UPSI when they purchased the shares of IVL during the alleged UPSI period. The appellants successfully discharged the burden under the proviso to Regulation 4 of the PIT Regulations. The tribunal noted that the appellants were not privy to any inside information and were therefore not in possession of UPSI.

The tribunal also highlighted that the WTM's reliance on the fact that appellant Pia Johnson was a member of the managing committee was insufficient to conclude that she had inside information. The tribunal found that no meeting of the managing committee was ever held, and there was no finding that the resolution of IIL on March 1, 2017, or notice dated January 25, 2017, or resolution of the Board of Directors of IREL on February 3, 2017, was known to the appellants.

The tribunal also considered the statements of the two CEOs of IVL and IREL, which indicated that the information regarding the sale of ILPL was not made known to others, and the appellants had no knowledge of the deal.

Conclusion:

The tribunal concluded that the appellants were not in possession of UPSI when they traded in the securities of IVL during the alleged UPSI period. The impugned orders were quashed, and the appeals were allowed with no order as to costs.