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TMI Blog2012 (10) TMI 1221X X X X Extracts X X X X X X X X Extracts X X X X ..... is the Executive Chairman of the Jaiprakash Associates Ltd. (the company). Appellant in Appeal no. 59 of 2012 Mrs. Urvashi Gaur is wife of Mr. Manoj Gaur and appellant in Appeal no. 60 of 2012 Mr. Sameer Gaur is the brother of Mr. Manoj Gaur. By virtue of their being wife and brother respectively of Mr. Manoj Gaur they are persons deemed to be connected to the appellant in terms of regulation 2(h) of the Regulations. 3. The Board carried out investigations into the trading in the scrip of the company during the period September 29, 2008 to October 27, 2008 and came to a prima-facie conclusion that Mr. Manoj Gaur, Executive Chairman of the company was in possession of Unpublished Price Sensitive Information (UPSI) relating to financial results of the company for the quarter ending September 30, 2008 which was passed on by him to Mrs. Urvashi Gaur and Mr. Sameer Gaur and both of them traded on the basis of UPSI, thereby violating the provisions of the Regulations. The case of the Board is that the company received the trial balances for the quarter ending September 30, 2008 from various units in the first week of October 2008. Thereafter, the company made announcement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... violation of principles of natural justice and vitiates the order. Learned senior counsel further submitted that the entire foundation of the case, as set out in the show cause notice, is that consolidated trial balances of the financial results of the company for the quarter ending September 2008 were available on October 12, 2008 which were approved by the Board on October 21, 2008. Therefore, the period from October 12, 2008 to October 21, 2008 was considered to be the period when UPSI was in existence. According to learned senior counsel, the appellant has comprehensively replied to it contending that the quarterly results were not known till October 17, 2008 when the consolidated and finalized results were placed before the audit committee. According to him, without dealing with this submission of the appellant, the adjudicating officer has drawn a presumption that since the trading window was closed by the company on October 11, 2008, it proves that UPSI was in existence from that date. It was submitted by the learned senior counsel that it is not open to the respondent Board to abandon the entire foundation of the charge in the show cause notice and make out a totally new c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2008 from the company to the ICICI Bank (principal lender of the company) seeking no objection for a dividend upto 15 per cent to allege that the financial results were known to the appellant even as on October 14, 2008. According to learned senior counsel, it makes it clear that the Board s case is built on shifting sands . It can never be assumed that the routine letter dated October 14, 2008 sent to the Bank was based on the knowledge of the final results for the quarter ending September, 2008 despite the fact that other evidence to the contrary was made available to the Board. According to learned senior counsel, the Board has totally ignored the evidence on record that quarterly financial results were available only on October 17, 2008 as is evident from the letter dated February 15, 2010 and May 31, 2010, the affidavit of the Director Finance and the letter of the auditors. Assuming that the trial balances were available on October 11, 2008, the same, in any case, cannot become UPSI because trial balances are to be consolidated in the finance departments of the company and it is only when final accounts are prepared and approved by the audit committee that the financial resu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng window of the company was closed and Mr. Manoj Gaur was in possession of UPSI and hence the provisions of the Regulations were violated. It was further argued by learned senior counsel for the Board that merely because the financial results were crystalized on October 17, 2008 for placing it before audit committee it does not mean that the appellant could not have ascertained the performance of the company from the information available in the trial balances of the company which were available to him on October 11, 2008. He further submitted that regulation 3 of the Regulations prohibit an insider from dealing in securities of a company when in possession of any unpublished price sensitive information or to communicate any unpublished price sensitive information to any person. Pursuant to regulation 12 of the insider trading Regulations, all listed companies are required to frame a code of conduct as near to the model code of conduct as possible without diluting the provisions of model code of conduct prescribed under the Regulations. The company had framed a code of conduct prescribing closure of the trading window and such closing of the trading window is for the purpose of re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e company. It was, therefore, submitted that the order passed by the adjudicating officer does not call for any interference. 9. Before dealing with the rival submissions let us have a look at the relevant provisions of the regulations. 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 subclause (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 and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that company: (d) .. (e) insider means any person who, (i) is or was connected with the company or is deemed to have been conn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ially affect the price of securities of company. Explanation.-The following shall be deemed to be price sensitive information :- (i) periodical financial results of the company; (ii) intended declaration of dividends (both interim and final); (iii) issue of securities or buy-back of securities; (iv) any major expansion plans or execution of new projects. (v) amalgamation, mergers or takeovers; (vi) disposal of the whole or substantial part of the undertaking; and (vii) significant changes in policies, plans or operations of the company; (k) unpublished means information which is not published by the company or its agents and is not specific in nature. Explanation.-Speculative reports in print or electronic media shall not be considered as published information. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntancy firms, law firms, analysts, consultants, etc., assisting or advising listed companies, shall frame a code of internal procedures and conduct as near thereto the Model Code specified in Schedule I of these Regulations without diluting it in any manner and ensure compliance of the same. (2) The entities mentioned in sub-regulation (1), shall abide by the code of Corporate Disclosure Practices as specified in Schedule II of these Regulations. (3) All entities mentioned in sub-regulation (1), shall adopt appropriate mechanisms and procedures to enforce the codes specified under sub-regulations (1) and (2). (4) Action taken by the entities mentioned in sub-regulation (1) against any person for violation of the code under sub-regulation (3) shall not preclude the Board from initiating proceedings for violation of these Regulations. 10. Para 3.2 of the Model code of conduct as prescribed in Schedule I to the regulations is also relevant for our purpose and the same is reproduced hereunder for ease of reference:- 3.2 Trading window 3.2.1 The company shall specify a trading period, to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. All employees of Accounts and Secretarial Departments of the Grade N6 and above. e. All connected persons and persons deemed to be connected as defined in the Regulations. UNPUBLISHED PRICE SENSITIVE INFORMATION: 8. Unpublished Price Sensitive Information means any information which is material and unpublished i.e. generally not known or published by the Company for general information but, which if published or known, is likely to materially affect the price of securities of the Company in the stock market. This will include, but shall not be limited to, financial results, intended declaration of dividends, issue of securities, any major expansion plans or execution of new projects, amalgamation, mergers and take-overs, disposal of the whole or substantially the whole of the undertaking, such other information as may affect the earnings of the Company, any changes in policies, plans or operations of the Company, etc. PRESERVATION OF UNPUBLISHED PRICE SENSITIVE INFORMATION : 9. The Directors and Designated Employees shall maintain confidentiality of all Unpublished Price Sensitive Information . ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned senior counsel for the appellant that the charge of insider trading is one of the most serious charges in relation to the securities market and having regard to the gravity of this wrong doing higher must be the preponderance of probabilities in establishing the same. This is what the Tribunal has observed in the said order. The charge of insider trading is one of the most serious charges in relation to the securities market and having regard to the gravity of this wrong doing, higher must be the preponderance of probabilities in establishing the same. In Mousam Singha Roy v. State of West Bengal (2003) 12 SCC 377, the learned judges of the Supreme Court in the context of the administration of criminal justice observed that, It is also a settled principle of criminal jurisprudence that the more serious the offence, the stricter the degree of proof, since a higher degree of assurance is required to convict the accused. This principle applies to civil cases as well where the charge is to be established not beyond reasonable doubt but on the preponderance of probabilities. The measure of proof in civil or criminal cases is not an absolute standard and within eac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l meeting. However, persons in the company or otherwise concerned with the affairs of the company are in possession of such information before it is actually made public. The directors of the company or for that matter even professionals like Chartered Accountants and Advocates advising the company on its business related activities are privy to the performance of the company and come in possession of information which is not in public domain. Knowledge of such unpublished price sensitive information in the hands of persons connected to the company puts them in an advantageous position over the ordinary shareholders and the general public. Such information can be used to make gains by buying shares anticipating rise in the price of the scrip or it can also be used to protect themselves against losses by selling the shares before the price falls. Such trading by the insider is not based on level playing field and is detrimental to the interest of the ordinary shareholders of the company and general public. It is with a view to curb such practices that section 12A of the Sebi Act makes provisions for prohibiting insider trading and the Board also framed the Insider Trading Regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the closure of the trading window is not only confined to the period during the existence of UPSI but it can also be closed on other occasions. However, if we read these provisions with the definition of price sensitive information as given in regulation 2(ha) of the Regulations, it will make it abundantly clear that as and when periodical financial results of the company are under consideration, the information relating to periodical financial results of the company is invariably price sensitive and trading window will be closed till such information is made public. When the Board sought information from the company with regard to the financial results for the quarter ending September 30, 2008 the company was evasive in its reply and, therefore, Board had no option but to arrive at its own conclusion with regard to date of existence of UPSI on the basis of material made available by the company. It was for the company to inform the Board about the date from which, according to the company, the UPSI came into existence. If the company fails to provide the desired information or furnish information, which according to Board is not correct, the Board may draw its own conclusion o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issues viz. financial results for the quarter , dividends and rights issue were in public domain and could not be considered as UPSI. We are unable to accept this argument. As stated above, the definition of price sensitive information as provided in regulation 2(ha) of the Regulations is wide enough to include information relating to periodical financial results. What has been disclosed to the stock exchange is that these issues will be considered in the board meeting to be held on October 21, 2008. What has not been disclosed are the financial results or the amount of dividend or details of the rights issue. If we accept this argument of the learned senior counsel for the appellant that the moment a notice is sent to the stock exchange with regard to consideration of certain issues without details thereof, the same cannot be considered to be UPSI, it will be narrowing down the scope of the regulations defeating the very purpose of framing the regulations to prohibit insider trading while in possession of UPSI. When the company receives trial balances which are to be collated and ultimately examined by the internal committees, only those persons who are dealing with the issue are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... March 23, 2012, she was holding 59,045 shares of the company. She is the wife of Mr. Manoj Gaur, the Executive Chairman of the company. If Mr. Manoj Gaur had passed on UPSI to Mrs. Urvashi Gaur and she traded on the basis of that UPSI she would not have traded in 1000 shares only. We cannot lose sight of the fact that the company is a widely held listed company with a paid up capital divided into 212,64,33,182 equity shares out of which promoter group holds 44.44 per cent. It is a large infrastructure company engaged in highways, cement, power and education sector and the Executive Chairman of such company would not like to risk the reputation of himself and the company for 1000 shares. Similarly, Mr. Sameer Gaur is also a regular trader of shares of the company. Before trading on October 13,14 and 16, 2008 he was holding 1,10,250 shares of the company. The first sale of 1400 shares was made by him only on May 8, 2009. Till date, he is holding 62,882 shares. Looking at the trading pattern, the number of shares purchased and going by their status, it seems highly improbable that trading was done by them on the basis of UPSI. On the other hand, it is more probable that they traded i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aur on October 13, 14 and 16, 2008 was based on UPSI. 19. It may be noted that the trading has not been done by Mr. Manoj Gaur who is not supposed to trade during the closure of trading window. The trading is done by his wife and brother. No doubt, being deemed to be connected persons to Mr. Manoj Gaur, they were insiders. But no evidence has been brought on record, direct or circumstantial, to show that they were in possession of UPSI about the financial results of the company for the quarter ending September 30, 2008. As we have observed earlier, having regard to the gravity of charge of insider trading, higher degree of preponderance of probabilities is needed to bring home the charge. The adjudicating officer has not brought any material on record to show that they were in possession of UPSI. 20. We may now take note of some other arguments which were advanced on behalf of the appellants. It was alleged that the principles of natural justice were violated on the ground that copy of investigation report was not provided to the appellants which has resulted in denial of fair hearing to them. It was also alleged that entirely a new case has been made ou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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