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2022 (5) TMI 1314 - AT - SEBIInsider trading - Selling the shares during the UPSI period - violating Regulation 4(1) of the PIT Regulations - HELD THAT - Explanation demonstrated the circumstances for selling the shares of the company during the UPSI period in order to avoid the company from down-graded to a nonperforming asset. In our view, such explanation given by the appellants which has not been considered by the WTM is sufficient to prove his innocence of trading while in possession of the UPSI. Such explanation will come within the purview of the proviso to Regulation 4(1) of the PIT Regulations and consequently, the appellants cannot be charged for violating Regulation 4(1) of the PIT Regulations. A finding has been given that the appellants were aware of the losses incurred by the company and, therefore, they have sold off their shares in order to avoid further losses. In this regard, we find that the financial results were declared on November 29, 2017 on that date the closing price of the scrip of the company was Rs 21.60 per share. The declaration of the financial results on November 29, 2017 did not have a great impact in the price of the scrip on November 30, 2017. We find that the closing price of the scrip of the company on November 30, 2017 was Rs. 20.20 on NSE and Rs. 20.25 on BSE. Thus, there was hardly any price difference in the price of the scrip between 29th and 30th November 2017 and, therefore, it is incorrect to contend that the sale of the shares was made by the appellants for the purpose of avoiding further losses. We are also find that the sale amount of the shares was not retained by the appellants for their personal use or gain. But the said money was infused in the company for its working capital. We are satisfied that the appellants have successfully discharged their burden under Regulation 4(1) of the PIT Regulations. We find that in the given circumstances, the appellants cannot be charged for insider trading - For the reasons stated aforesaid, the impugned order cannot be sustained and is quashed. The appeal is allowed.
Issues Involved:
1. Allegations of insider trading by the appellants. 2. Determination of whether the financial results constituted Unpublished Price Sensitive Information (UPSI). 3. Justification for the appellants' trades during the UPSI period. 4. Compliance with SEBI regulations and the Model Code of Conduct. 5. Evaluation of the appellants' explanation for selling shares. 6. Relevance of previous tribunal decisions to the current case. Issue-wise Detailed Analysis: 1. Allegations of Insider Trading: The appellants were accused of indulging in insider trading in the shares of Tara Jewels Ltd., resulting in their debarment from accessing the securities market and a directive to deposit Rs. 1,38,31,472.60/- towards the alleged loss avoided, along with interest and penalties. The appellants included the chairman and managing director of the company and his daughters, who were also promoters. 2. Determination of UPSI: The financial results for the quarter ended September 2017 showed a significant increase in net loss, which was disclosed to the stock exchanges on September 29, 2017. The tribunal found that the managing director, being in a supervisory role, was privy to this UPSI from October 2, 2017, until its disclosure on November 29, 2017. The tribunal concluded that the financial results constituted UPSI as they materially affected the price of the securities. 3. Justification for Trades During UPSI Period: The appellants contended that the urgency to sell shares arose due to imminent loan repayments and the need to infuse funds into the company to avoid it being downgraded to a non-performing asset. They argued that the sales were made to repay loans and bring in working capital, and the proceeds were promptly invested into the company. 4. Compliance with SEBI Regulations and Model Code of Conduct: The tribunal noted that the appellants had not obtained pre-clearance for the trades executed during the investigation period, violating the Model Code of Conduct and Regulation 9 of the PIT Regulations. However, the tribunal emphasized that the appellants' explanation for selling shares during the UPSI period was crucial in determining their innocence. 5. Evaluation of Appellants' Explanation: The tribunal found that the appellants' explanation for selling the shares, which included the financial difficulties faced by the company and the need to avoid downgrading to a non-performing asset, was sufficient to prove their innocence. The tribunal highlighted that the appellants had infused the entire sale proceeds into the company for working capital, which demonstrated their bona fide intention. 6. Relevance of Previous Tribunal Decisions: The tribunal referred to previous decisions, such as Abhijit Rajan vs. SEBI, where the appellant was exonerated due to a demonstrated need to infuse funds. The tribunal found that similar circumstances applied in the current case, as the appellants had shown their necessity to sell shares and infuse funds into the company. Conclusion: The tribunal concluded that the appellants successfully discharged their burden under Regulation 4(1) of the PIT Regulations, proving their innocence in trading while in possession of UPSI. The impugned order was quashed, and the appeal was allowed with no order as to costs. The tribunal directed that any amount deposited by the appellants be refunded with accrued interest within a week.
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