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2019 (10) TMI 109 - AT - SEBIInsider trading based on the unpublished price sensitive information ( UPSI ) - Violation of provisions of the PIT Regulations, 1992 read with section 12A of the SEBI Act - As contended that the work orders which the company had procured was in the ordinary course of business and, in any case, when the shares were purchased, the company had not bagged the contract and was only found to be the lowest price bidder (L1) and that being the lowest price bidder did not mean that the contract was issued in favour of the company nor being (L1) could be considered as a price sensitive information - HELD THAT - Having perused the letter dated September 15, 2010 given by SEBI and the reply dated September 24, 2010 given by the appellant we find that the information sought was the relationship of the appellant with the other entities. A perusal of the said letter would indicate that the information sought was as to what was the relationship of the appellant with other entities, namely, whether they were relatives or not. Information was supplied by the appellant in accordance with the provisions of the Companies Act, 1956. The letter of SEBI does not explicitly states that the appellant was required to furnish the information with regard to his professional or working relationship with the other entities. Even though the Appellant No. 1 may have professional or working relationship with the other entities, we are of the opinion that since there was no explicit clarity in the information sought the reply given by the appellant, being in accordance with the provisions of the Companies Act, 1956, was not misleading. SEBI ought to have been more professional and should have asked clear cut information which is explicit and is not vague. Consequently, we are of the opinion that the imposition of penalty in so far as providing misleading information cannot be sustained. Having perused the letter dated September 15, 2010 given by SEBI and the reply dated September 24, 2010 given by the appellant we find that the information sought was the relationship of the appellant with the other entities. A perusal of the said letter would indicate that the information sought was as to what was the relationship of the appellant with other entities, namely, whether they were relatives or not. Information was supplied by the appellant in accordance with the provisions of the Companies Act, 1956. The letter of SEBI does not explicitly states that the appellant was required to furnish the information with regard to his professional or working relationship with the other entities. Even though the Appellant No. 1 may have professional or working relationship with the other entities, we are of the opinion that since there was no explicit clarity in the information sought the reply given by the appellant, being in accordance with the provisions of the Companies Act, 1956, was not misleading. SEBI ought to have been more professional and should have asked clear cut information which is explicit and is not vague. Consequently, we are of the opinion that the imposition of penalty in so far as providing misleading information cannot be sustained. Admittedly, the appellants have been found to be connected persons under section 2(c) of the PIT Regulations and were also found to be deemed to be connected persons under section 2(h). The appellants were also found to be insiders under section 2(e) of the PIT Regulations and were found to have traded in the shares having knowledge of the price sensitive information. Consequently, all the appellants being connected persons have been held to be equally liable to pay the amount of penalty jointly and severally. We thus do not find any error in this regard. For the reasons stated aforesaid the appeal is partly allowed. The order of the AO imposing a penalty of ₹ 40,00,00,000/- (Rupees Forty Crore Only) under section 15G and section 15HA of the SEBI Act against the appellants for violation of Regulation 3 and 4 of the PIT Regulations read with section 12A(d) and (e) of the SEBI Act is affirmed. The imposition of penalty of ₹ 20 lakhs (Rupees Twenty Lakhs Only) under section 15A(a) of the SEBI Act for submitting misleading information to SEBI and penalty of ₹ 38 lakhs (Rupees Thirty Eight Lakhs Only) upon Appellant Nos. 1 and 2 for violation of Regulation 8A(1) and (2) of the Takeover Regulations, 1997 are quashed.
Issues Involved:
1. Insider Trading 2. Misleading Information to SEBI 3. Violation of Takeover Regulations Issue-wise Detailed Analysis: 1. Insider Trading: The appellants were penalized for insider trading violations under the SEBI Act and PIT Regulations. The investigation revealed that certain appellants purchased large quantities of shares based on unpublished price-sensitive information (UPSI) about the company securing significant contracts. The Adjudicating Officer (AO) found that the appellants were connected persons and insiders who traded on the basis of UPSI. The AO imposed a penalty of ?40 crore jointly and severally on the appellants. The Tribunal upheld this penalty, confirming that the company's status as the lowest bidder (L1) was price-sensitive information. The Tribunal concluded that the appellants, particularly Appellant No. 1, traded in the company's shares through a circuitous route, benefiting from the sale proceeds, and thus were guilty of insider trading. 2. Misleading Information to SEBI: The AO imposed a penalty of ?20 lakh each on certain appellants for providing misleading information about their relationships with other entities. The appellants contended that the information was supplied in accordance with the Companies Act, 1956. The Tribunal found that SEBI's request for information was not explicit and that the appellants' response, based on the Companies Act, was not misleading. Consequently, the Tribunal quashed the penalty for providing misleading information. 3. Violation of Takeover Regulations: The AO found that certain appellants violated Regulation 8A of the Takeover Regulations by not disclosing pledged shares. The Tribunal noted that Regulation 8A requires promoters or persons forming part of the promoter group to disclose pledged shares. Since Appellant Nos. 3 and 4 were not promoters or part of the promoter group, the Tribunal held that they were not liable for this violation. The Tribunal quashed the penalties imposed on Appellant Nos. 1 and 2 for non-disclosure under Regulation 8A, as the shares were not in their names. Separate Judgments: The Tribunal affirmed the ?40 crore penalty for insider trading but quashed the penalties for misleading information and violation of Takeover Regulations. The appellants were found to be connected persons and insiders who traded on UPSI, justifying the insider trading penalty. However, the penalties for misleading information and non-disclosure of pledged shares were deemed unsustainable due to lack of clear instructions from SEBI and the appellants not being part of the promoter group, respectively. Conclusion: The appeal was partly allowed. The Tribunal upheld the ?40 crore penalty for insider trading but quashed the ?20 lakh penalty for misleading information and the ?38 lakh penalty for violation of Takeover Regulations. Each party was ordered to bear its own costs.
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