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TMI Blog2008 (5) TMI 729X X X X Extracts X X X X X X X X Extracts X X X X ..... r an explanation. We cannot accept this contention. The appellants were clearly informed in the show cause notice that they had sold 3600 shares on 21.1.1999 (before the board meeting) and 22.1.1999 (in the first half hour before the market could react to the news) on the basis of unpublished price sensitive information . In view of this specific allegation and considering the fact that the appellants are insiders there was a presumption against them and it was for them to have offered an explanation to rebut that presumption. The facts which prompted the appellants to trade in the scrip of the company while in possession of unpublished price sensitive information were only within their knowledge and it was for them to spell out those facts to rebut the presumption raised by regulation 3 against them. So much so, we asked the learned counsel for the appellants during the course of the hearing to tell us the reasons which prompted/motivated the appellants to trade in the scrip, being insiders. He was unable to offer any explanation. It is, thus, clear that the appellants have failed to discharge the onus of rebutting the presumption raised against them under regulation 3 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited financial results are placed and also within 48 hours of the conclusion of the meeting in atleast one English daily newspaper circulating substantially in the whole of India and in one newspaper in the regional language where its registered office is situate. A meeting of the board of directors of the company was held on January 21 1999 at 5 p.m. to consider the quarterly financial results for the quarter ending December 31, 1998. The financial results were adopted and approved in the said meeting and the requisite disclosures were made to the stock exchanges. The board of directors in this meeting also declared an interim dividend @ 35% and this was the first time that the company paid an interim dividend without waiting for the full year s financial results. It is common ground between the parties that Amishi Gandhi sold 600 shares of the company and Sandhya Gandhi sold 1500 shares of the company on January 21, 1999 at 1442 hrs. and 1237 hrs. respectively. It is also not in dispute that the quarterly results were disclosed to BSE on January 22, 1999 before the start of the trading hours. Amishi Gandhi and Sandhya Gandhi again sold 1000 shares and 500 shares of the company re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... VIA of the Act and the adjudicating officer issued a notice dated October 17, 2005 calling upon the appellants to show cause why an enquiry should not be held against them and why a penalty should not be imposed on them under section 15G of the Act. It was alleged that Gandhi was the company secretary and chief financial officer of the company and had access to the price sensitive information pertaining to the financial position of the company and that the other two appellants were his wife and sister and they were all insiders within the meaning of regulation 2(3) read with 2(c) of the regulations. The case set up by the adjudicating officer was that the results for the quarter ending December 1998 showed a negative performance of the company over the previous quarter and it was because of this reason that they sold 3600 shares on 21.1.1999 and 22.1.1999 before the board meeting and before the market could react to the financial results. It is alleged that the appellants traded in the scrip of the company before and after the meetings of the board of directors held to consider the financial results and traded on the basis of the price sensitive information which they had and which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Gandhi as the chief financial officer and company secretary. By his order dated November 30, 2006 he held the appellants guilty of insider trading and imposed a penalty of ₹ 5 lacs on each of them. Hence this appeal. 5. We have heard the learned counsel for the parties. At the outset we may mention that even though the stand taken by the appellants in their reply before the adjudicating officer was that appellants no. 2 and 3 were not insiders as they had no access to the unpublished price sensitive information which plea has not been accepted by the adjudicating officer, they conceded before us that they were insiders along with Gandhi. It was also conceded before us that Gandhi traded on their behalf and that he was in possession of price sensitive information. The main plank of the argument of Shri Somasekhar learned counsel for the appellants is that even though the appellants are insiders and were in possession of unpublished price sensitive information, they did not trade on the basis of that information. In view of the fair concession made by the learned counsel for the appellants, we are only called upon to decide whether the appellants traded on the basis of the u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... securities on the basis of any unpublished price sensitive information and not otherwise. The words on the basis of are significant and mean that the trades executed should be motivated by the information in possession of the insider. To put it differently, the information in possession of the insider should be the factor or circumstance that should induce him to trade in the scrip of the company. It is then that he will be said to have dealt with or traded on the basis of that information. We are of the considered opinion that if an insider trades or deals in securities of a listed company, it would be presumed that he traded on the basis of the unpublished price sensitive information in his possession unless he establishes to the contrary. Facts necessary to establish the contrary being especially within the knowledge of the insider, the burden of proving those facts is upon him. The presumption that arises is rebuttable and the onus would be on the insider to show that he did not trade on the basis of the unpublished price sensitive information and that he traded on some other basis. He shall have to furnish some reasonable or plausible explanation of the basis on which he ..... 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