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TMI Blog2017 (8) TMI 1495X X X X Extracts X X X X X X X X Extracts X X X X ..... verally with Mr. B. Ramalinga Raju and Mr. Rama Raju with interest at the rate of 12% per annum from 07.01.2009 till payment, is in accordance with law? Held that:- One month prior to the UPSI came into existence, the Board of RPIL had authorized investments in the shares of Indian Petrochemical Corporation Ltd. (“IPCL) and therefore, it cannot be said that the shares of IPCL were purchased when in possession of UPSI. In the present case, Chintalapati group sold the shares of Satyam during the period when UPSI was existing. Therefore, the decision of SEBI in case of RPIL has no relevance to the facts of present case. In the result, decision of the WTM that Chintalapati group were insiders under the PIT Regulations and that they had sold the shares of Satyam when in possession of UPSI in violation of PIT Regulations cannot be faulted. The Scheme of PIT Regulations of 1992 makes it evident that these dual requirements need to be satisfied before a person can be called an “insider” under the PIT Regulations of 1992. The conjunctive “And” is, therefore, significant and cannot be ignored. As far as the second category of “insider” is concerned (Regulation 2(e)(ii)), it clearly refers to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, Advocates i/b L. S. Shetty & Associates, Mr. Kevic Setalvad, Senior Advocate with Mr. Sumeet Patni, Mr. KRCV Seshachalam, Mr. A. Rama Rao, Ms. Sabeena Mahadik, Mr. Pankaj Uttaradhi and Mr. Sagar Hate, Advocates i/b Visesha Law Services for the Appellant. Mr. Fredun DeVitre, Senior Advocate with Dr. Mrs. Poornima Advani, Mr. Pulkit Sukhramani, Mr. Siddha Pamecha and Ms. Vidhi Jhawar, Advocates i/b The Law Point for the Respondent. Majority View J.P. Devadhar (Dr. C.K.G. Nair, Member-II Concurring) 1. Appellants in all these appeals are aggrieved by the common order passed by the Whole Time Member ("WTM" for short) of Securities and Exchange Board of India ("SEBI" for short) on September 10, 2015. By the said order, the WTM of SEBI has restrained the appellants from accessing the securities market and prohibited them from buying, selling or otherwise dealing in securities, directly or indirectly being associated with the securities market in any manner whatsoever for a period of 7 years. Further, the WTM of SEBI has directed the appellants to disgorge the unlawful gains made by each appellant as more particularly set out in para 65 of the impugned order jointly and severa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the appellants had violated SEBI Act and the PIT Regulations, whether the WTM of SEBI is justified in uniformly restraining the appellants from accessing the securities market for 7 years and whether, the quantum of unlawful gain directed to be disgorged by each appellant jointly and severally with Mr. B. Ramalinga Raju and Mr. Rama Raju with interest at the rate of 12% per annum from 07.01.2009 till payment, is in accordance with law. 5. Uncontroverted facts set out in the impugned order based on which the impugned directions have been issued against each appellant may be summarized as follows:- a) The relation/ connection of the appellants with the Chairman and Managing Director of Satyam is set out in para 7 of the impugned order as follows:- Sl. no. Name Relation/connection 1. Mr. B. Ramalinga Raju Chairman, Satyam Computers 2. Mr. B. Rama Raju Managing Director, Satyam Computers and brother of Mr. B Ramalinga Raju and Mr. B Suryanarayana Raju 3. Mr. B. Suryanarayana Raju Brother of Mr. B. Ramalinga Raju and Mr. B Rama Raju 4. Ms. B. Appalanarasamma Mother of Mr. B. Ramalinga Raju, Mr. B Rama Raju and Mr. B Suryanarayana Raju. 5. Ms. B. Jhansi Rani Wife ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aju & Mr. B. Rama Raju were, inter alia, directed to disgorge unlawful gain of ₹ 543.93 crore made on sale of Satyam shares (which included the sale of Satyam shares by the appellants) and disgorge unlawful gain of ₹ 1258.88 crore made by pledging the Satyam shares through SRSR Holdings Private Limited. g) Challenging the order passed by the WTM of SEBI dated July 15, 2014 Mr. B. Ramalinga Raju & Mr. B. Rama Raju filed appeals before this Tribunal. By order dated May 12, 2017, this Tribunal inter alia upheld the decision of SEBI that Mr. B. Ramalinga Raju & Mr. B. Rama Raju had violated the SEBI Act, PFUTP Regulations & PIT Regulations, 1992 and that they were instrumental in manipulating the books of Satyam during the period from 2001 to 2008. However, the direction given by the WTM of SEBI to Mr. B. Ramalinga Raju & Mr. B. Rama Raju to disgorge the unlawful gain of ₹ 543.93 crore on sale of Satyam shares and unlawful gain of ₹ 1258.88 crore on pledge of Satyam shares have been set aside and restored to the file of WTM of SEBI for passing fresh order on merits and in accordance with law. h) By the impugned order dated September 10, 2015, very same WTM o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Raju and Rama Raju. However, by the impugned order, very same WTM of SEBI has held that the unlawful gain of ₹ 543.93 crore made by the entities set out therein shall be disgorged by the respective entity jointly and severely with B. Ramalinga Raju & B. Rama Raju. j) Challenging the order passed by the WTM of SEBI on 10.09.2015 appellants have filed above appeals before this Tribunal. 6. Before dealing with the rival contentions, we deem it proper to quote relevant provisions (as they stood at the material time) contained in the PIT Regulations, 1992 and the Companies Act, 1956 which read thus:- "Definitions. 2. In these regulations, unless the context otherwise requires :- (a) … (b) … (c) "connected person" means any person who- (i) is a director, as defined in clause (13) of section 2 of the Companies Act, 1956 (1 of 1956), of a company, or is deemed to be a director of that company by virtue of sub-clause (10) of section 307 of that Act or (ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company [whether temporary or permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated in Schedule IA." "Section 307 (10) For the purposes of this section- (a) any person in accordance with whose directions or instructions the Board of directors of a company is accustomed to act, shall be deemed to be a director of the company; and (b) a director of a company shall be deemed to hold, or to have an interest or a right in or over, any shares or debentures, if a body corporate other than the company holds them or has that interest or right in or over them, and either- (i) that body corporate or its Board of directors is accustomed to act in accordance with his directions or instructions; or (ii) he is entitled to exercise or control the exercise of one-third or more of the total voting power exercisable at any general meeting of that body corporate." 7. In the light of aforesaid provisions contained in the PIT Regulations and the Companies Act, 1956, we may now consider the first question, namely, whether the WTM of SEBI is justified in holding that each appellant was an 'insider' under the PIT Regulations and that the appellants sold/ pledged the shares of Satyam when in possession of UPSI and thus violated SEBI Act and the PIT Regulations. Whether ea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d under the expression 'deemed to be connected person' defined under regulation 2(h)(i) of the PIT Regulations cannot be faulted. g) It is not in dispute that Ramalinga Raju and Rama Raju as Chairman and Managing Director of Satyam were 'connected person' under regulation 2(c) (i) of the PIT Regulations. Admittedly, Ramalinga Raju and Rama Raju individually held more than 10% interest in SRSR and therefore, as per regulation 2(h)(ix) of the PIT Regulations, SRSR was a deemed connected person. Although, the impugned order does not consider SRSR as a 'deemed to be connected person under regulation 2(h)(ix) of the PIT Regulations, aforesaid uncontroverted facts on record clearly reveal that SRSR was a 'deemed to be connected person' under regulation 2(h)(ix) of the PIT Regulations. h) It is now established that Ramalinga Raju and Rama Raju manipulated the books of Satyam during the period from 2001 to 2008. During that period Ramalinga Raju, Rama Raju and their wives transferred their shareholding in Satyam to SRSR and SRSR in turn pledged those shares for obtaining loan of ₹ 1258.88 crore to the group concerns and as the loan was not repaid the pledged shares have been sold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Ramalinga Raju, Rama Raju and their family members while in possession of UPSI. Moreover, before transferring the shares of Satyam, Ramalinga Raju and Rama Raju became Directors of SRSR and thereafter on transfer of shares, SRSR pledged those shares for obtaining loan to the entities owned by Ramalinga Raju and his family members. In these circumstances, decision of the WTM of SEBI that acquisition and pledge of Satyam shares by SRSR was a device adopted for off22 loading the shares of Satyam when in possession of UPSI and hence violative of regulation 3 of the PIT Regulations cannot be faulted. k) Argument advanced on behalf of SRSR that the 'Model Code of Conduct for Prevention of Insider Trading for listed Companies' does not refer to 'pledge' and therefore pledging the shares does not amount to dealing in securities is without any merit. Model Code is only a Model and is not illustrative of all the dealings covered under the expression 'dealing in securities'. Therefore, fact that the Model Code of Conduct does not specifically refer to 'pledge', cannot be a ground to hold that the expression 'dealing in securities' defined under regulation 2(d) of the PIT Regulations wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tive director until a suitable replacement was found. Accordingly, from August 2000, CSR continued as the non-executive director till 23.01.2003 when the Board of Satyam accepted his resignation. e) It is not in dispute that CSR sold 65,55,152 shares of Satyam between 22.02.2001 to 15.12.2008, CHPL sold 8,00,000 shares of Satyam between 04.01.2001 to 12.04.2001 and Anjiraju sold 2,50,000 shares of Satyam between 18.12.2002 to 15.12.2008 (after the death of Anjiraju on 03.12.2007 shares of Satyam held by Anjiraju were sold by CSR). f) In the impugned order it is held that as a Promoter and Director of Satyam CSR was reasonably expected to have access to the UPSI and therefore CSR was an 'insider' under the PIT Regulations. Apart from the above, CSR being a Co-brother of Ramalinga Raju, it is observed that CSR was reasonably expected to have access to the UPSI. Similarly, it is held that CHPL and Anjiraju being 'deemed to be connected person' with CSR, they were reasonably expected to have access to the UPSI. Since CSR and his related entities viz; CHPL and Anjiraju had sold shares of Satyam while in possession of UPSI, it is held that they made unlawful gains in violation of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the WTM of SEBI on the basis of other material on record is justified in holding that CSR/ Chintalapati group were insiders and that they had sold shares of Satyam when in possession of UPSI. c) Expression 'insider' is defined under regulation 2(e) of the PIT Regulations to mean any person who is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access to UPSI or a person who has actually received or has had access to such UPSI. Expression 'connected person' is defined under regulation 2(c) to mean (one) any person who is a Director or deemed Director under Section 2(13) and Section 307 (10) of the Companies Act, 1956 or (two) an officer/ an employee or any person who holds a position involving a professional or business relationship between himself and the company and who may be reasonably expected to have access to UPSI. It is relevant to note that the concept of 'reasonably expected to have access to UPSI' is not applied to Director/deemed Director, because, unlike other connected persons, Director/ deemed Director constitute part of the company's board and hence responsible for all the deeds/ acts of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions and Section 6 of the Companies Act, 1956. Thus, CSR. CHPL and Anjiraju as connected person/ deemed connected person were reasonably expected to have access to UPSI and hence CSR CHPL and Anjiraju were insiders under regulation 2(e) of the PIT Regulations. f) Under regulation 3 of the PIT Regulations an 'insider' is prohibited from dealing in securities of the company when in possession of UPSI. Question, therefore, to be considered herein is, whether there is any merit in the inference drawn by the WTM of SEBI that CSR/ Chintalapati group were reasonably expected to have access to UPSI. g) Admittedly, CSR had joined Satyam in the year 1993 as an Executive Director and his duties as an Executive Director of Satyam was 'Business Development, Diversification Plans and advise on new ventures'. It is not in dispute that during the years 1994-1996, CSR became the founding Chief Executive Officer of Dun & Bradstreet Satyam Software (currently known as Cognizant), a joint venture of Dun & Bradstreet & Satyam. On 11.04.1996 another joint venture company known as Satyam Enterprise Solutions Pvt. Ltd. ("SESPL" for convenience) was floated in which Satyam held 80% stake and the remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rded fictitious bank balances to the tune of ₹ 120.29 crore and ₹ 995.01 crore respectively, Chintalapati group resorted to selling shares of Satyam from time to time. As per the records, 71.05% shares of Satyam held by Chintalapati group were sold by October 2003 and the total profits made on sale of Satyam shares by CSR, CHPL and Anjiraju up to 2008 was ₹ 136.64 crore, ₹ 82.49 crore and ₹ 7.92 crore respectively. It is equally important to note that during the period from 2001 to 2008, like Ramalinga Raju & his family members even Chintalapati group indulged only in selling the shares of Satyam and not deemed it fit to acquire the shares of Satyam inspite of the fact that Satyam was depicted as a highly prosperous company during that period. It is also an undisputed fact that CSR and Ramalinga Raju were Co-brothers as their wives were two real sisters. Aforesaid facts on record give credence to the reasonable belief that Chintalapati group sold the shares of Satyam when in possession of UPSI that the books of Satyam have been manipulated by showing fictitious bank balances in the books of Satyam. k) Strong reliance was placed by counsel for Chintal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed that Chintalapati group violated PIT Regulations on account of their being promoters but also on account of CSR being a Director of Satyam and Co-brother of Ramalinga Raju. Therefore, even if Chintalapati group were not promoters of Satyam, it was open to the WTM of SEBI to hold that CSR as Director of Satyam and Co-brother of Ramalinga Raju was reasonably expected to have access to the UPSI and thus violate the PIT Regulations by selling the shares when in possession of UPSI. In such a case, it cannot be said that the impugned order travels beyond the show cause notice. As the impugned order does not travel beyond the show cause notice, the above two decisions of the Apex Court relied upon by the counsel for Chintalapati group would have no relevance to the facts of present case. n) Fact that a criminal complaint was filed against Chintalapati group on 05.08.2014 even before passing of the impugned order on 10.09.2015 cannot be a ground to hold that the WTM of SEBI had predetermined the issue against the appellants, because, Section 24 of the SEBI Act provides that without prejudice to any order that may be passed in the adjudication proceedings it would be open to SEBI to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere it is not expected that the information would be held as unpublished for a period more than six months. However, it is submitted that in the rarest of rare cases as the present one, where the unpublished price sensitive information continued for a period of about 8 years, a person who was once an insider and had access to the unpublished information cannot be permitted to trade and gain advantage of such information to the detriment of the common investor. In such a case, it is submitted that even if the person is not connected with the company for a period beyond six months but who was in the past connected with the company and who even after his disconnection dealt in securities of the company while in possession of UPSI may be held liable as an insider till the publication of the Price Sensitive Information. In support of the aforesaid submission reliance is placed on a decision of the Apex Court in the case of Ajay Kumar Agarwal v/s Union of India reported in (2010) 3 SCC 765. q) We see no merit in the above contentions. Although regulation 2(c) refers to a person who is presently a connected person, regulation 2(e) defines the expression 'insider' to mean a person who is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herefore, the decision of the Apex Court in case of Ajay Kumar Agarwal (supra) would not be applicable to the facts of present case. s) Argument that SEBI could not proceed against Anjiraju on account of his death on 03.12.2007 is without any merit. As noted in the impugned order, unlawful gains made on account of insider trading by Anjiraju and inherited by CSR as legal heir cannot be allowed to be retained by CSR as it would amount to unlawful enrichment. t) Strong reliance was placed by counsel for Chintalapati group on the order passed by the Adjudicating Officer ("AO" for short) on 08.03.2016 in case of Reliance Petro Investments Limited ("RPIL" for convenience). In our opinion, that decision is distinguishable on facts. Although that decision is not binding on this Tribunal, in that case, inter alia on appreciation of facts it is held that one month prior to the UPSI came into existence, the Board of RPIL had authorized investments in the shares of Indian Petrochemical Corporation Ltd. ("IPCL) and therefore, it cannot be said that the shares of IPCL were purchased when in possession of UPSI. In the present case, Chintalapati group sold the shares of Satyam during the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r passed against Jhansi Rani cannot be sustained. 15. Apart from the above, it is held in the impugned order that the UPSI existed between January 2001 to December 2008, however, the exact date on which manipulation of the books of Satyam commenced is not set out in the impugned order. From the order passed by the WTM of SEBI in case of Ramalinga Raju and other key managerial persons which is confirmed by this Tribunal on 12.05.2017, it is evident that SEBI investigated the books of Satyam for the period commencing from the last quarter of the financial year 2000-2001 i.e. the period from 01.01.2001 to 31.03.2001 and on investigation SEBI found that the books of Satyam were manipulated on the basis of monthly bank statements received from the office of Chairman Ramalinga Raju. Since the books of Satyam were manipulated on the basis of monthly bank statements, it is apparent that the manipulation could have commenced on the basis of monthly statement either in January 2001 or in February 2001 or in March 2001. In the absence of any specific date on which manipulation of the books of Satyam commenced, in our opinion, it would be just and proper to give benefit of doubt to Jhansi Ran ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raju) was a shareholder and/ or Director of 50 companies which were floated by Ramalinga Raju, Rama Raju and their family members. B. Rama Raju (Jr.) (Son of Ramalinga Raju) was the shareholder and/ or Director of 22 companies which were floated by Ramalinga Raju, Rama Raju and their family members. Similarly, B. Suryanarayana Raju (Brother of Ramalinga Raju) was a shareholder and/ or Director of 103 companies floated by Ramalinga Raju and his family members. Thus, all these appellants apart from being 'deemed to be connected person' had close business relationship with Ramalinga Raju and Rama Raju. b) During the period from 12.12.2003 to 15.12.2003 B. Appalanarasamma transferred her entire shareholding of 2,25,500 shares of Satyam in off-market to Elem Investments, Fincity Investments and Higrace Investments which were all owned by Ramalinga Raju, Rama Raju and their family members. According to SEBI the unlawful gain made by Appalanarasamma on sale of Satyam shares was to the tune of ₹ 8,00,43,125/- c) B. Teja Raju was the Vice Chairman, Director and Promoter of Maytas Infra Limited. During his tenure Maytas Infra Limited made off-market transfers of Satyam shares to F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... point of time deemed it fit to acquire the shares of Satyam which was the flag ship company of Raju family and was supposed to be financially a sound company. In these circumstances, inference drawn by the WTM of SEBI that the appellants being insiders have liquidated their shareholding in Satyam when in possession of UPSI cannot be faulted. g) In support of their argument that the WTM of SEBI has failed to establish that the appellants were in possession of UPSI, counsel for the appellants have relied upon various decisions of this Tribunal as also decisions of the Apex Court. In our opinion, all those decisions are distinguishable on facts. As held by the Apex Court in the case of SEBI v/s Kishore R. Ajmera reported in (2016) 6 SCC 368, in the absence of direct evidence, it is the duty of the courts to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges are founded and to reach what would appear to the court to be a reasonable conclusion there from. In the present case, the overwhelming circumstantial evidence clearly demonstrate that Ramalinga Raju and Rama Raju orchestrated the accounting fraud in Satyam and they along ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed therein are made by Ramalinga Raju and Rama Raju and in another order it is held that the said gains are the unlawful gains made by the appellants herein. In these circumstances, we deem it proper to set aside the impugned order, to the extent it imposes uniform restraint order and determines the quantum of unlawful gain (except in the case of B. Jhansi Rani) and restore the matters for fresh decision on merits and in accordance with law. 22. Before passing fresh order on remand, the WTM of SEBI shall give an opportunity of hearing to the appellants and consider their plea on merits, including the plea of SRSR that it had acquired the shares of Satyam for valuable consideration and that the loan obtained by pledging shares of Satyam have been substantially repaid. Similarly, while computing the unlawful gain the WTM of SEBI shall consider the cost of acquisition, if any, incurred by each appellant. Till the WTM of SEBI passes fresh order on merits on the above issues, the appellants shall not deal in securities or access the securities market in any manner whatsoever. 23. In the result we pass the following order:- a) In view of the explanation inserted to regulation 2(c) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated September 10, 2015 has been quashed in respect of all the nine entities before us and the matter has been remanded in respect of eight for fresh consideration by the Ld. WTM of SEBI, except Appeal No. 462/2015 (Ms. B. Jhansi Rani). With respect, I am not in a position to persuade myself to remand these matters at this belated stage and would like to give finality to a decade old matter. 26. There are nine appeals in this order, out of which the appellants in five appeals are relatives of Mr. B. Ramalinga Raju and B. Rama Raju, the main architects of the Satyam Scam, namely, Ms. B. Appalanarasamma, Mr. B. Teja Raju, Mr. B. Rama Raju (Jr.), Mr. B. Suryanarayana Raju and Ms. B. Jhansi Rani. Sixth one is SRSR Holdings Pvt. Ltd., which was a company owned by Mr. B. Ramalinga Raju and his wife, B. Nandini Raju; B. Rama Raju and his wife, B. Radha. Mr. B. Suryanarayana Raju, Mr. B. Ramalinga Raju and Mr. B. Rama Raju were the directors of the company. The third group consists of Mr. Chintalapati Srinivasa Raju, his late father Mr. Anjiraju Chintalapati and Chintalapati Holdings Pvt. Ltd., a company promoted by Mr. Chintalapati Srinivasa Raju. 27. Except the case of Ms. B. Jhansi Ra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mely Mr. B. Rama Raju (Jr.) and Mr. B. Teja Raju have categorically admitted that they did not incur any cost on acquisition of the shares which they sold while they were in possession of UPSI in question. In view of this clear and unambiguous admission, the Ld. WTM was right in directing the whole amount as illegal gain and, hence, remand of all these matters at a belated stage of almost a decade would not serve the ends of justice. Similarly, in the other three cases of Mr. B. Suryanarayana Raju, Ms. B. Appalanarasamma and SRSR Holdings Pvt. Ltd., these entities repeatedly failed to produce the cost of acquisition either before the WTM of SEBI or before this Tribunal for years together. Therefore, the WTM cannot be faulted with in directing the whole amount to be disgorged and banning the entities for seven years from accessing the capital markets in any manner. 30. While deciding these appeals, we cannot be unmindful of the fact that the whole dispute arose in the wake of Satyam Scam, which erupted on 07.01.2009 when Mr. B. Ramalinga Raju, the then Chairman of Satyam admitted of having indulged into grave acts of fabricating and fudging of accounts of Satyam, which led to an ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven reasonable opportunity of cross-examination of certain witnesses by SEBI and also the calculation of disgorgement was to be redone. 33. Other agencies, including CBI, have also prosecuted Mr. B. Ramalinga Raju, Mr. B. Rama Raju, Mr. B. Suryanarayana Raju, five officials and two auditors and held guilty and have sentenced them. It is, thus, apparent that present is a very serious matter which led to thousands of shareholders losing their hard earned money in the shares of Satyam on the very day the said email dated 07.01.2009 was shot by Mr. B. Ramalinga Raju, the then Chairman of Satyam. Showing any sympathy to such manipulators of the market would send a wrong signal to the investors, upright and scrupulous promoters of Satyam, and to the market as a whole. 34. It has been rightly held by the Hon'ble Supreme Court in the case of Zarif Ahmad Vs. Mohd. Farooq [2015 (13) SCC 673] that "it is not a healthy practice to remand a case to the trial court unless it is necessary to do so as it makes the parties to wait for the final decision of a case for the period which is avoidable. One in rare situations, should a case be remanded e.g. when the trial court has disposed of a suit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the matter of judicial adjudication of appeals. 37. In this connection it is pertinent to note that Hon'ble Supreme Court in the case of M. Nagabhushana v. State of Karnataka and others (2011) 3 SCC 408 has observed that "principle of finality of litigation is based on high principle of public policy. In the absence of such a principle great oppression might result under the colour and pretence of law inasmuch as there will be no end of litigation and a rich and malicious litigant will succeed in infinitely vexing his opponent by repetitive suits and actions. …………" 38. This Tribunal is also the first court of appeal against the SEBI order and appeal lies only to the Hon'ble Supreme Court on law point from the orders of this Tribunal on facts the finding of the Tribunal is final. Therefore, indiscriminate remand to the tune of about 25% appeals disposed of by this Tribunal in the last more than four years would set a bad precedent and litigants would lose faith in the institution itself inasmuch as they are compelled to undergo the vicious circle of retrial before the SEBI once again, that too without any fruitful result. SEBI is also flooded with hun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... access to unpublished price sensitive information in respect of securities of [a] company, or (ii) has received or has had access to such unpublished price sensitive information ; 2(h) "person is deemed to be a connected person", if such person- (i) is a company under the same management or group, or any subsidiary company thereof within the meaning of sub-section (1B) of section 370, or subsection (11) of section 372, of the Companies Act, 1956 (1 of 1956) or sub-clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act, 1969 (54 of 1969) as the case may be; or [(ii) is an intermediary as specified in section 12 of the Act, Investment company, Trustee Company, Asset Management Company or an employee or director thereof or an official of a stock exchange or of clearing house or corporation;] (iii) is a merchant banker, share transfer agent, registrar to an issue, debenture trustee, broker, portfolio manager, Investment Advisor, sub-broker, Investment Company or an employee thereof, or is member of the Board of Trustees of a mutual fund or a member of the Board of Directors of the Asset Management Company of a mutual fund or is an employee thereof who ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at nothing contained above shall be applicable to any communication required in the ordinary course of business [or profession or employment] or under any law.]" Section 12A of the SEBI Act, inserted on October 29, 2002 as Chapter VA Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control. "12A. No person shall directly or indirectly- (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attempt was made for the first time when provisions with respect to insider trading were first introduced into the Indian regulatory system in the Companies Act, 1956 as Sections 307 and 308, which mandated disclosures of shares held by the management and directors of a company. Subsequently, the Sachar Committee in 1979, the Patel Committee in 1986 and the Abid Hussain Committee in 1989 suggested the enactment of a legislation to control instances of insider trading. 43. The most relevant of these reports was one formulated by a High- Powered Committee, established by the Government of India in May 1984 headed by former Chairman of Unit Trust of India, Mr. G S Patel, to review the functioning of the Indian capital market as a whole. In its report published in 1986, the Committee made certain recommendations and observations regarding the suggested legislation on insider trading. The Committee correctly identified that the chief reason for the excessive and unbounded speculation in the market was insider trading. Insider trading, in turn, was a direct result of the lack of timely and prompt disclosure of information by companies. It was stated that in order to establish healthy ec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral amendments. Regulation 3(i) of the PIT Regulations, 1992 originally stated as follows: Prohibition on dealing, communicating or counselling on matters relating to insider trading. "3. No insider shall- (i) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange on the basis of any unpublished price sensitive information; or" 48. This Regulation was amended by the SEBI (Insider Trading) (Amendment) Regulations, 2002 ("2002 Amendment") which came into effect from 20.02.2002. After this amendment, the phrase "on the basis of" was substituted by "when in possession". After the amendment, the Regulation reads as follows: Prohibition on dealing, communicating or counselling on matters relating to insider trading. 3. No insider shall- (i) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange when in possession of any unpublished price sensitive information; or 49. In the light of the above, for the period prior to 20.02.2002, the prohibition under Regulation 3(i) would be attracted only if SEBI establishes that a. person was an insider; AND ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed. This requirement has been dispensed with since the 2002 Amendment. 55. Another significant issue regarding implication of the conjunctive "AND" in the definition of "Insider". In the Impugned Order, the WTM underlines the conjunctive "and" while discussing the definition of an "Insider" (para 30). This suggests that the dual requirement in Regulation 2(e) must be satisfied viz., first, that of being a connected person and second, existence of a reasonable expectation of access to UPSI. However, the WTM takes a contrary view in Para 32 of the Impugned Order by holding that a person becomes an insider merely by being a connected person. 56. Since this has a significant impact on how PIT Regulations are understood and interpreted in this case and other cases, this Tribunal deemed fit to hold a further hearing on 31.07.2017 and 02.08.2017 after the matter was reserved for judgment to hear counsel submissions on this issue. In the said hearing, Senior Counsel appearing for SEBI Mr. DeVitre fairly stated that a person can only be an insider if he a connected person or deemed connected person AND reasonably expected to have access to UPSI. This is also the SEBI's position in its wri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the 2002 Amendment and the impact of the 2002 Amendment. After analyzing the definition of UPSI, the WTM concludes that financial results constitute price sensitive information. The WTM at para 41 finds that the "periodical financial results" of Satyam and the difference between the actual financial results and the manipulated financial results constitutes "price sensitive information". This finding of the WTM is correct and in accordance with the PIT Regulations of 1992. The manipulation of financial statements which was suppressed from the entire world till 07-01-2009 certainly constitutes UPSI. Since the manipulated financial statements constitutes UPSI, the question is - when did UPSI come into existence? 62. The WTM asserts that the fabrication and the manipulation of financial statements came into existence from January, 2001. However SEBI has not produced any material to show that the discrepancies in the financial statements came into existence earlier than March 2001. When we questioned the Senior Counsel for SEBI, Shri DeVitre as to whether there was any material on record to show that the fabrication of financial statements happened prior to 31-03-2001, he fairly stat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rest (d) on request from any Department of the Central Government or a State Government. 65. After the 07.01.2009 letter of Ramalinga Raju, the Ministry of Corporate Affairs, Government of India ordered investigation into the affairs of Satyam under S.235 of the Companies Act, 1956 by its order dated 13.01.2009. 66. In the present matter, the SFIO analyzed the over-statement of accounts of Satyam, which is also investigated by SEBI. These agencies inferred that the Board of Satyam had been deceived by the manipulators involved. In addition to the SFIO Report, CBI Chargesheet and CBI Court finding, we also perused SEBI's Investigation Report which we summoned during the course of proceedings before this Tribunal. It is noted that SEBI itself acknowledges in its Investigation Report that it worked closely with SFIO. 67. After completing the investigation, the SFIO gave a detailed report on the various aspects of how the fraud occurred in Satyam. Specifically, they gave a finding on the incorrect filings on promoter holding to the stock exchanges, the inflation of the promoter list to camouflage the sale of shares by the actual promoters and the suppression of information about t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut SEBI has to take into account the findings of the said agencies, particularly when they have investigated the same subject matter and specifically recommended that its findings be brought to the attention of SEBI atleast for the sake of clarity and better understanding and to avoid contradictions. 73. Even though WTM refused to take cognizance of the SFIO Report, SEBI in its oral submissions placed extensive reliance on facts from the SFIO Report and the CBI Charge Sheet. It, therefore, appears that as and when it was convenient for SEBI, they relied upon the SFIO Report to support their arguments and when confronted with factual findings in the SFIO report which undermined the allegations made by SEBI, they took the position that SEBI investigation is independent of the other investigating agencies. This approach of SEBI cannot be countenanced and points to a double standard which must be prevented from becoming a regular practice. In light of the above, reliance can be placed on the SFIO Report. Relevance of the Judgment of Special Sessions Court 74. After 07.01.2009 letter of B. Ramalinga Raju, the former Chairman of Satyam Computer Services Limited ("Satyam"), the Central ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... makrishna, D. Venkatapathi Raju, Ch. Srisailam and V.S.P. Gupta) and Director of SRSR Advisory Services (B. Suryanarayana Raju) were arrayed as Accused in the Charge Sheets. After an extensive trial, the Court of the XXI Additional Chief Metropolitan Magistrate cum Special Sessions Court, Hyderabad (Special CBI Court) rendered an elaborate Judgment on 9.4.2015. 77. The CBI report and the subsequent Judgment of the Special CBI Court are relevant. The following findings in particular are relevant for the purposes of the present appeals : a. CBI prepares a list of actual promoters which has been furnished by the new management to CBI. b. Former Chairman and Managing Director suppressed information about the fabrication of financial statements from the Board of Directors. c. The former Statutory Auditors connived with the former management and suppressed information about the fabrication of the financial statements from the Audit Committee and the Board of Directors. d. Mr. Suryanarayana Raju (one of the Appellants) and others were convicted by the CBI Court, for trading in shares based on inside information. 78. From the record, it is evident that the Judgment of the Special ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeals, namely - Appeal Nos. 451/2015, 452/2015 and 453/2015. The dispute in this Appeal is in a narrow compass as to whether the Appellants are guilty of Insider Trading. For this purpose, as a prerequisite, one must consider whether this Appellant satisfies the criteria laid down under PIT Regulations of 1992 as to the Insider by twist. 82. Factually, unlike the other Appellants, CSR has adduced evidence before this Tribunal to show that he neither had access to UPSI nor was in possession of UPSI. This evidence was primarily reports of Government of India agencies (like CBI, SFIO and ED) and CBI court ruling. Ironically while WTM peremptorily refused to consider these reports, SEBI extensively relied on these same reports adduced by CSR against other Appellants before this Tribunal. CSR also presented evidence of the business requirements for the sale of shares. I therefore have to carefully consider all the evidences presented by CSR. 83. Legally also, this appeal requires us to carefully consider the provisions of PIT Regulations. Unlike, other appellants, this appellant CSR has sold his shareholding in Satyam over a period of nine years (from 28-12-1999 to 22-12- 2008). Dur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SEBI to demonstrate that the Appellant was reasonably expected to have access to UPSI (the manipulation of financial statements) by virtue of his connection as a non-executive director. 90. Although the Impugned Order refers to the 2002 Amendment to the PIT Regulations and it does notice the distinction between the definition of Insider prior and after the 2002 Amendment. But there is neither any consideration nor any finding in the Impugned Order that CSR was, in any manner, reasonably expected to have access to the UPSI by virtue of his connection as a Non-Executive Director. The WTM has rather chosen an easier path of referring to the principle of possibility/probability without paying any heed to the material/evidence brought by the Appellant in this regard. 91. Furthermore, the WTM at para 32 of Impugned Order holds that being a "directly connected person", CSR is an Insider. This bald finding/statement without any cogent reason supporting the same is contrary to the PIT Regulations. Further, it may be mentioned here that there is no concept of a "directly connected person" under the PIT Regulation of 1992. A person is either connected, or not connected, there is no categor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in possession of UPSI" after the 2002 Amendment) as far as the sale of shares by the Appellant prior to 20.02.2002 is concerned. 95. There is no finding recorded in the Impugned Order that the Appellant sold shares on the basis of UPSI. The majority opinion gives relief to Ms. Jhansi Rani on this count and the same yardstick has to be applied to the case of three CSR Group appeals also. 96. The appellant, CSR has adduced evidence in support of his assertion that there was no reasonable expectation of access to UPSI by virtue of his connection as a Non-Executive Director since the fabrication of financial statements was suppressed from the Board. Appellant also showed the SFIO Report and the CBI Court judgement which held that the former management and statutory auditors suppressed the actual position from the Board of Directors and Audit Committee. The SFIO Report at Para 4.6.39 found that the manipulation of financial statements was suppressed from the Board of Directors: "... As the sales figures were being manipulated as a result of conspiracy among the then Chairman Shri B. Ramalinga Raju of SCSL, then MD Shri B. Rama Raju, Shri S. Valdamani, the then CFO of SCSL and Shri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellant had reasonable expectation of access to UPSI during this period? 99. In the Impugned Order, the WTM held that the Appellant was reasonably expected to have access to UPSI based on three reasons - a. Appellant was a Promoter b. Appellant was a Relative of B. Ramalinga Raju c. Appellant did not buy shares during this period. 100. The WTM in para 44 held that the CSR was a periodically disclosed as a Promoter. The WTM has not disclosed the date of these filings in the Order, but only observed that "over a considerable period of time after January 2003, when Mr Chintalapati Srinivasa Raju had ceased to be a director of Satyam Computers, he was declared as a Promoter in the periodical disclosures filed by Satyam Computers in the stock exchanges". The timing is crucial since the CSR ceased to be a connected person from 23.07.2003. If the Appellant was disclosed as a Promoter after January 2003, that cannot be a basis for "reasonable expectation of access to UPSI". On this ground alone the finding is liable to be set aside. 101. Mr. Khambata, Learned Senior Counsel, submitted that the Appellant was never a Promoter. CSR has placed before us the Annual Reports of 2000- 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... extracted below: "… The Company (SCSL) thus made incorrect filings of promoter holding with stock exchanges during the period from 30.06.2001 to 31.03.2006. The company made incorrect filings in order to camouflage sale of shares by promoters group. Copies of shareholding pattern filed with BSE are placed at annexure (Annexure D-23). This is in violation of the requirement of clause 35 of the listing agreement with the stock exchanges. The persons who were in the knowledge of this incorrect filing have thus violated provisions of SC (R) Act and SEBI Act and are liable for prosecution according to the relevant Acts. This matter may therefore be brought to the notice of SEBI". Para 4.7.21-22. 104. Instead of taking action based on the correct promoter holdings, SEBI has, beyond my understanding, chosen to place reliance on the factually incorrect filings clearly held to be so by SFIO. Further, SEBI has done so without giving any reason as to why, if at all, the findings of SFIO can be faulted with. Moreover, one of the biggest indications of the fact that Appellant was not a promoter of Satyam is that his shares were not subject to a lock-in period at the time of merger of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... records from July, 1992 to 31.12.2008 (Ex.No. P-2945 - Promoter Shareholdings). As stated above, the name of the CSR is missing from the list. 108. This is consistent with the finding in the SFIO Report that the declining shareholding of the promoters prompted the fraudulent Byrraju brothers to inflate the promoter list by adding shareholders who were not promoters in any sense of the term. I therefore agree with Ld. Sr. Counsel Mr. Khambatta that the CSR was a victim of the fraud perpetrated by the former management. It is also ironical that SEBI having found that filings on financial statements prepared by Satyam under the control of B. Ramalinga Raju were fabricated now chooses to place reliance on the same fabricated promoter filings made by the former management which committed the fraudulent activities in the first place, merely because it wrongly bolsters SEBI's case against CSR. Further, even the promoter filings do not appear to be conclusive. In their Convenience Compilation, the Appellants have extracted the Annexure to the SFIO Report which contains the filings made by the former management under the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... step-mother). 3. Son (including step-son). 4. Son's wife. 5. Daughter (including step-daughter). 6. Father's father. 7. Father's mother. 8. Mother's mother. 9. Mother's father. 10. Son's son. 11. Son's son's wife. 12. Son's daughter. 13. Son's daughter's husband. 14. Daughter's husband. 15. Daughter's son. 16. Daughter's son's wife. 17. Daughter's daughter. 18. Daughter's daughter's husband. 19. Brother (including step-brothers). 20. Brother's wife. 21. Sister (including step-sister). 22. Sister's husband. 111. From a perusal of section 6 of Companies Act, 1956 read with Schedule IA, it becomes evident that the term co-brother is not used anywhere to depict a relative. In fact, even the wife's brother has not been considered as a relative as per Schedule IA. Therefore, to consider a wife's sister's husband, which is an even distant relation, as a relative, is not tenable on the Respondent's part. It is important to note that S.6 uses the phrase "if, and only, if". This means only those listed can be considered as a Relative. In the Impugned Order, the WTM at Para ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a period of time. The Appellant adduced evidence to show the utilization of sale proceeds for genuine business requirements 115. In my considered opinion, the failure to purchase shares is not by itself conclusive to show reasonable expectation of access to UPSI. On the contrary, the Appellant's trading pattern clearly demonstrates that trades were not undertaken while in possession of UPSI, and that shares were disposed of as and when the Appellant's independent business ventures required an inflow of capital. This is evident from the SFIO Report. A review of the SFIO Report and the CBI Judgment shows that 2005-06 was a crucial year. By this year all the actual Promoters disposed of their shareholding in Satyam because they were aware of the credit crunch faced by Satyam, which was not reflected in the published financial statements. The Appellant was only person who continued to retain a substantial shareholding in the Satyam. I find that this clearly points to the lack of possession of UPSI. The relevant extract of the SFIO Report is extracted below : ".. As the scrip price [was] dropped in June 2006, it appears that the company in order to boost the sentiment announced bonu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CSR negatives any suggestion of "information flow". 118. Moreover, CSR also highlights the fact that he did not have any professional or business relationship with B. Ramalinga Raju, B. Rama Raju or their family members unlike the other Appellants who were closely involved with the companies floated by B. Ramalinga Raju and others. Specifically, the Appellant highlights that a. he was neither a promoter or owner or director or shareholder of any of the 327 companies floated by B. Ramalinga Raju and others; b. he was not a promoter or owner or director or shareholder of any of the 3 investment companies of the Promoter Group of Satyam- i.e. - Elm, Fincity and Hi Grace; c. he was not promoter or owner or director or shareholder of SRSR, nor did he transfer any shares of Satyam to SRSR. 119. All these factors do not support the inference drawn by WTM that there was a close connection between the Appellant and B. Ramalinga Raju. This is also supported by the SFIO Report which found that the Appellant had no connection with any entities floated by B. Ramalinga Raju, unlike other Appellants. ".. During the course of investigation it was found out that the Promoters of SCSL and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fraud nor was he one of the perpetrators of the said fraud. Therefore, there was no accessibility to the fraud as the Appellant was never in possession of UPSI regarding the fabrication and falsification of the accounts. In such a scenario, it cannot be said that CSR was in possession of UPSI by any stretch of the imagination. 125. However, SEBI in its oral and written submissions raised several new arguments which were neither in the SCN or the Impugned Order to suggest that CSR's role and responsibilities as an Executive Director in Satyam upto 31.08.2000 continued even after he ceased to be an Executive Director and became a Non-Executive Director from 01.9.2000 to 23.01.2003. 126. The Majority opinion has relied on these submissions which are not present either in the Show Cause Notice or in the Impugned Order. Specifically the Majority opinion refers to CSR's association with Satyam's management from 1993 to August 2000. In my view these events have no relevance since they were outside the relevant period and even before UPSI came into existence on 31.03.2001. The WTM has rightly not considered these facts as they are irrelevant for a determination of violation of PIT Regula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Satyam during the year 2001 and 2002. Once again, I have scanned through the entire Show Cause Notice and WTM's Order to see if there was any such averment or finding, I find these circumstances were neither put to the Appellant in the Show Cause Notice nor is there a finding in the impugned order to this effect. Neither WTM in the Impugned Order nor SEBI in its submissions before this Tribunal has produced any material to show that the Appellant was involved in business development, diversification plans of Satyam during the year 2001 and 2002. On the contrary, the Appeal Memo and the List of Dates submitted by CSR during the hearing depict that he was involved in the said activities during 1992-1993 and not during 2001 or 2002. This was almost a decade before the UPSI came into existence. 131. The Majority opinion holds that "on account of close relationship with Ramalinga Raju, the Appellant was made as a Joint Venture Partner of various group companies floated by Ramalinga Raju and his family members. In fact on account of merger of one joint venture with Satyam, Chintalapati Srinivas Raju got 8,00,000 shares of Satyam which eventually became 76,50,000 shares on account of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... subsequently given by the officer making the order of what he meant, or of what was in his mind, or what he intended to do. Public orders made by public authorities are meant to have public effect and are intended to affect the actings and conduct of those to whom they are addressed and must be construed objectively with reference to the language used in the order itself." Orders are not like old wine becoming better as they grow older." 135. CSR cannot be condemned as an insider, once he has been held neither to be a promoter nor a relative on fact and law. Further, the Appellant has been absolved of all blame by SEBI itself with respect to the conspiracy, contrived primarily by the Byrraju brothers, while holding that the Appellant had nothing to do with the fabrication and manipulation of accounts of Satyam. Appeal No. 452/2015 (Chintalapati Holdings Pvt Ltd Vs. SEBI) 136. This Appeal can be disposed of on a short point. The Appellant here is in the same position as the Appellant in Appeal No. 462 of 2015 (Jhansi Rani). Consequently this Appeal can be disposed on the same grounds. 137. The Appellant sold 8 lakh shares from 04-01-2001 to 14-03-2001. After 31-03-2001, there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider Trading) (Second Amendment) Regulations, 29-11-2002. Since the Appellant sold securities even before this Amendment came into effect, this Regulation cannot be invoked. I respectfully differ from the view taken by the Majority opinion on the applicability of Reg. 2(h)(ix). 141. This Appeal is essentially consequent to the determination of the Appeal of CSR. Since I have held herein above that CSR himself was not an "insider" because SEBI has failed to establish reasonable access to UPSI. When CSR is not an Insider, this Appellant CHPL cannot be considered as a person deemed to be connected. In view of the above, the Appeal filed by CHPL is allowed and the Order of WTM is set aside. Appeal No.453/2015 (Late Anjiraju Chintalapati Vs. SEBI) 142. The Appellant was the father of CSR. The Appellant sold 2,50,000 shares on 04.08.2005. Appellant expired on 03.12.2007. The Impugned Order holds the Appellant to be a person deemed to be connected under Regulation 2(h)(viii), since he was a relative of a connected person (CSR) (Para 37). However, as discussed above, CSR ceased to be a connected person on 22.07.2003. Consequently, when the Appellant sold the shares on 04.08.2005, he c ..... X X X X Extracts X X X X X X X X Extracts X X X X
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