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2022 (9) TMI 1072 - SC - SEBI


Issues Involved:
1. Whether the information regarding the termination of the two shareholders agreements can be characterized as "price sensitive information" within the meaning of Section 2(ha) of the SEBI (Prohibition of Insider Trading) Regulations, 1992.
2. Whether the sale of equity shares by the respondent under compelling circumstances falls within the mischief of 'insider trading' as per Regulation 3(i) read with Regulation 4 of the Regulations.
3. Whether SEBI should have considered the last trade price of the day on which the information was disclosed instead of the trade price of the next day.

Issue-wise Detailed Analysis:

1. Price Sensitive Information:
The court examined whether the information about the termination of the two shareholders agreements was "price sensitive" under Regulation 2(ha) of the SEBI Regulations. The main part of Regulation 2(ha) defines "price sensitive information" as any information that, if published, is likely to materially affect the price of securities. The explanation under Regulation 2(ha) lists seven items deemed as price sensitive. The court noted that while items (i) to (vi) inherently impact the financial strength of a company, item (vii) ("significant changes in policies, plans or operations") is broader and requires examining whether the information is likely to materially affect the price of securities. The court found that the respondent, being an insider and possessing unpublished information about the termination of the agreements, was initially seen as guilty of insider trading. However, the court emphasized that the termination resulted in a positive advantage for the company, likely to increase the share price, and thus, the respondent's sale of shares did not aim to exploit the unpublished information for gain.

2. Insider Trading:
The court analyzed whether the respondent's sale of shares under compelling circumstances constituted insider trading. The court acknowledged that the respondent, as an insider, had access to unpublished price-sensitive information. However, it highlighted that the respondent sold the shares to honor a Corporate Debt Restructuring (CDR) package and avoid the parent company's bankruptcy. The court found that the sale was not motivated by a desire to gain from the unpublished information, as the respondent did not wait for the information to become public, which would have likely increased the share price. The court concluded that the respondent's actions were driven by necessity rather than an intent to engage in insider trading.

3. Trade Price Consideration:
Given the court's conclusions on the first two issues, it found no need to address whether SEBI should have considered the last trade price of the day the information was disclosed instead of the next day's trade price. The court's findings on the absence of insider trading rendered this issue moot.

Conclusion:
The court held that the information regarding the termination of the two contracts was price-sensitive but noted that the respondent's sale of shares was akin to a distress sale made before the information could positively impact the share price. The sale did not fall within the mischief of insider trading. Consequently, the court dismissed the appeal, affirming the Securities Appellate Tribunal's decision to set aside the SEBI order against the respondent.

 

 

 

 

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