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TMI Blog2007 (11) TMI 685X X X X Extracts X X X X X X X X Extracts X X X X ..... s and they have made investments in several Indian securities. 2. ACAML was incorporated in the year 1994 and the Fund launched the first of its 13 schemes in 1995. As the asset manager, ACAML exclusively managed all the schemes of the Fund. During the initial years of its operations from 1995 to 1998, one Shri Samir Arora (Arora) was employed by ACAML as its Chief Investment Officer and was based in Mumbai. As Chief Investment Officer, Arora was rendering investment management services in respect of the Fund's equity schemes and the equity portion of its balanced schemes. In August 1998 Arora was relocated to Singapore and became an employee of a subsidiary of ACM therefrom where he resigned in August 2003. ACM claims that as per its global practice, its employees are employed by the relevant subsidiary in the country in which they are located. It is further claimed that they continue to act as officers/directors of its subsidiaries around the world for which they have been allocated responsibilities. In view of the aforesaid, Arora was not on the rolls of ACAML with effect from 1998 but continued to act as its Chief Investment Officer till August 2003. 3. Some time in J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1995 (for short 'FUTP Regulations'). (iii) Arora was guilty of violating the provisions of Regulation 3 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (for short 'Insider Trading Regulations'). We are not concerned in this appeal with charge (i) levelled against Arora. The gravamen of charge (ii) against him was that being entrusted with equity funds of ACM, its sub-accounts and those of the Fund, he compromised the interests of Indian unit holders for benefiting the parent company ACM. This, according to the Board, he did by (a) first, depressing the value of stocks of some specified companies namely BTL, HTMT, Mastek and UPL by massive selling of the holdings of the Fund in these companies and (b) subsequently purchasing the same at depressed prices on behalf of the sub-accounts through ACM thereby benefiting these international entities at the cost of the Fund, thus, harming the interests of Indian unit holders. In regard to charge (Hi), it was found that Arora made a statement in an interview which was published in Business Standard on 5-5-2003 praising the stock of DGL in view of its impending merger with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FUTP Regulations for which a monetary penalty is provided under Section 15HA of the Act. In reply to the show-cause notices the appellants filed their detailed replies controverting the findings recorded by the investigating officer, a copy of which had been enclosed with the notices. It was categorically denied by the appellants that Arora had indulged in manipulative transactions in various scrips referred to earlier or that he benefited the appellants or the sub-accounts of ACM at the cost of Indian unit holders of the Fund. They also denied that Arora had indulged in insider trading or that he was in possession of any unpublished price sensitive information when he took the decision to sell the DGL holding of the Fund from 8 to 12-5-2003. On a consideration of the replies filed by the appellants and on the basis of the material on the record and after affording an opportunity of personal hearing to the appellants, the adjudicating officer came to the conclusion that Arora had violated Regulations 4(a) to 4(d) and 5 of FUTP Regulations as he was entrusted with the equity funds of ACM, its sub-accounts and also those of the Fund and he compromised the interests of the Indian unit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly affecting the prices of securities or indulging in acts calculated to create a false or misleading appearance of trading or any non-genuine transactions not intended to effect transfer of beneficial ownership. The evidence cited in support of the charge does not even attempt to bring out any of these ingredients. In respect of the transactions cited in support of this charge there is nothing artificial or non-genuine or intended or calculated to create a false or misleading appearance of trading and there was transfer of beneficial ownership in re'spect of every single transaction. Similarly, in respect of the appellant's statement alleged to be in violation of Regulation 5, there is nothing that can be treated as misleading in any material particular. Since Regulation 5 forbids only statements misleading in any material particular, there is therefore no substance in this charge. (iii) In respect of the third charge of insider trading we have come to the conclusion that even the price sensitive information which the appellant is alleged to have some how accessed did not turn out to be correct information because the merger was not announced on 12-5-2003. Information w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing officer which have been reproduced in the earlier part of the order, it is clear that the appellants are being made liable for the various acts of omission and commission of Arora. Reference therein has been made to Regulation 25(3) of the MF Regulations which provides that the asset management company shall be responsible for the acts of omission and commission by its employees or the persons whose services have been procured by the asset management company. It is not in dispute that at the relevant time Arora was acting as the Chief Investment Officer of ACAML. If the appellants as the masters of Arora are to be held vicariously liable for his acts, it has first to be established that the servant (Arora) was liable. In cases where a master is sough t to be made vicariously liable for the acts of his servants, the first question that needs to be answered is whether the servant is liable. If not, the master can never be held liable. In other words, the master's liability can arise only when the servant is liable. In the case before us Arora has already been absolved of the charges levelled against him and has been honourably exonerated. In this view of the matter, the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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