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2023 (11) TMI 1285 - Board - SEBIInsider trading - unlawful gain as in dealing in securities on the basis of unpublished price sensitive information - Pledge of shares - Noticees were found to have dealt in / sold / transferred SCSL shares held by them while in possession of UPSI, thereby violating the provisions of Section 12A(d) and (e) of SEBI Act and Regulation 3(i) of PIT Regulations. HELD THAT - Promoter group loan liabilities extinguished through sale of Satyam shares by the lenders, involved unlawful gains made by SRSR along with Ramalinga Raju and Rama Raju, akin to them having directly conducted such sales of SCSL shares in the market. While the trigger to sell the shares may have been pulled by the lenders, they were not stopped from doing so by SRSR and the Raju brothers, who should have instead arranged for alternate funds to extinguish the loan obligations or increase loan collateral. When an insider allows the sale of pledged shares by a lender to extinguish a loan liability, while in possession of UPSI, this does involve an unlawful gain, akin to the insider having directly sold the shares in the market. As discussed earlier in this Order, the Hon ble Supreme Court had affirmed the finding of the Second SAT Order which described SRSR as a front entity used by the promoters/Raju brothers. SRSR was used for promoter entities to avail loans by pledging shares transferred to SRSR by the Raju family. By allowing the pledged shares to be sold by the lenders to extinguish the loan liability, effectively SRSR ensured unlawful gains for it and the promoters, akin to it selling the shares in the market directly. Acquisition of 2,78,64,000 SCSL shares by SRSR from the Raju Family were funded by Raju family themselves. Bank balance of the ICICI account in question reveals that SRSR had NIL funds as on the date of the acquisition of shares by SRSR. Sans the fund transferred to SRSR on the very same day by the Raju family, SRSR would not have been in a position to purchase the 2,78,64,000 SCSL shares from the very same Raju family. Therefore, effectively, SRSR had acquired the said shares without paying any consideration. The pledging of SCSL shares by SRSR and selling of the said pledged shares in the market on account of invocation of pledge by financial institutions (due to margin shortfall) amounted to an indirect sale of SCSL shares by SRSR on behalf of the Raju brothers. Further, due to invocation of pledge, the liability to repay the loans was also extinguished. The contention that shares were acquired by SRSR from the Raju family (which as observed in the Second SAT order were the promoters of Satyam) for valuable consideration appears to be an attempt to lend artificial legitimacy to the transactions. The so-called acquisition of shares can only be viewed as movement of shares from the left pocket to right pocket of the main perpetrators of the scam- Ramalinga Raju and Rama Raju. Allowing the deduction of this bogus cost i.e. the cost of acquisition, on the strength of the aforementioned round tripping of funds would end up in grossly injuring the confidence of investors in the integrity of the securities market. In view of the same, we do not find any reason to deduct the claimed cost of acquisition of Satyam shares amounting to INR 2,266 crore from the unlawful gain made by SRSR. Also do not agree with the contention that since the cost of acquisition is more than the loans obtained, there is no basis for issuing a disgorgement order against SRSR. Thus, in exercise of the powers conferred under section 11, 11(4) and 11B of the SEBI Act read with section 19 of the SEBI Act, 1992, and regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003, and regulation 11 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, for the reasons elaborated in paras 93 and 94 of this Order, hereby restrain the following noticees from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner. Also in exercise of the powers conferred upon me under section 11, 11(4) and 11B of the SEBI Act read with section 19 of the SEBI Act, 1992, and regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003, and regulation 11 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, hereby direct that the Noticees shall disgorge the unlawful gain made by them calculated in Table No. 19 of this Order, along with simple interest at the rate of 12% per annum from January 07, 2009 till the date of payment.
Issues Involved:
1. Intrinsic value calculation 2. Joint and several liability 3. Interest on unlawful gains 4. Period of restraint 5. Pledge of shares Detailed Analysis: 1. Intrinsic Value Calculation: The Hon'ble SAT directed SEBI to consider the intrinsic value of Satyam shares while calculating unlawful gains. The intrinsic value was determined to be 23.25% of the market price as of December 16, 2008. This was derived from the Tech Mahindra open offer price of INR 58 per share on April 22, 2009, adjusted for the IT index's movement. The intrinsic value was calculated to be INR 52.67 per share as of December 16, 2008. The Noticees' arguments for different intrinsic values were deemed disingenuous and not accepted. 2. Joint and Several Liability: The Third SAT Order explicitly directed that the unlawful gain should be calculated individually for each Noticee. Consequently, Ramalinga Raju and Rama Raju cannot be held jointly and severally liable for the unlawful gains made by Suryanarayana Raju or SRSR Holdings Pvt. Ltd. 3. Interest on Unlawful Gains: The Hon'ble SAT directed SEBI to reconsider the issue of interest. SEBI imposed simple interest at the rate of 12% per annum from January 7, 2009, till the date of payment. This rate was found to be consistent with past precedents and not excessive. The Noticees' arguments for a lower interest rate were not accepted. 4. Period of Restraint: The Hon'ble SAT directed SEBI to reconsider the period of restraint. Ramalinga Raju and Rama Raju were restrained for 14 years from July 15, 2014. Suryanarayana Raju and SRSR Holdings Pvt. Ltd. had already served their 7-year restraint period. V. Srinivas and G. Ramakrishna had also completed their 7-year restraint period. No further restraint was imposed on Suryanarayana Raju, SRSR Holdings Pvt. Ltd., V. Srinivas, and G. Ramakrishna. However, the restraint on Ramalinga Raju and Rama Raju continues till July 14, 2028, subject to the Hon'ble Supreme Court's directions. 5. Pledge of Shares: The Hon'ble SAT directed SEBI to reconsider the issue of pledge of shares. SEBI found that the loans extinguished through the sale of pledged shares involved unlawful gains. The shares were pledged by SRSR, a front entity of the Raju brothers, and sold by lenders before the UPSI became public. The cost of acquisition claimed by SRSR was not deducted from the unlawful gains as it was found to be a round-tripping of funds. Unlawful Gains to be Disgorged: The recalculated unlawful gains, after considering the intrinsic value, exclusion of shares sold prior to February 20, 2002, and removal of clerical errors, are as follows: - B Ramalinga Raju: INR 20,43,46,875 - B Rama Raju: INR 20,43,46,875 - B Suryanarayana Raju: INR 51,44,41,030 - SRSR Holdings Pvt. Ltd.: INR 518,36,55,714 - V Srinivas: INR 9,58,26,672 - G Ramakrishna: INR 3,83,65,354 Order: 1. Ramalinga Raju and Rama Raju are restrained from accessing the securities market till July 14, 2028. 2. No further restraint on Suryanarayana Raju, SRSR Holdings Pvt. Ltd., V. Srinivas, and G. Ramakrishna. 3. The Noticees shall disgorge the unlawful gains along with simple interest at the rate of 12% per annum from January 7, 2009, till the date of payment. 4. The order shall come into effect from the date directed by the Hon'ble Supreme Court. 5. The Noticees shall pay the disgorged amount within 45 days from the date of the order becoming effective.
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