9911796707
TMI Blog2012 (10) TMI 1229X X X X Extracts X X X X X X X X Extracts X X X X ..... 12, was a non-executive independent director of Ranbaxy Laboratories Limited (Ranbaxy) for the period from January 1, 2007 to December 18, 2008. Ranbaxy is the parent company of Solrex Pharmaceuticals Limited (Solrex). Ranbaxy is also the holding company of Rexcel Pharmaceutical Limited (Rexcel) and Solus Pharmaceutical Limited (Solus) which are 100 per cent subsidiaries of Ranbaxy. Solrex is the partnership firm between Rexcel and Solus. Therefore, Solrex is a company directly under the control of Ranbaxy. 3. Certain alerts were generated at the National Stock Exchange Limited and the Bombay Stock Exchange Limited during the period from March 17, 2008 to April 9, 2008 on the basis of which the Board took up joint investigation in the dealings of the scrip of Orchid Chemicals and Pharmaceuticals Ltd. (the target company). Solrex made large investments in the scrip of the target company from March 31, 2008 onward. It was noted that Mrs. Bala Kaul, appellant in Appeal no. 56 of 2012, wife of Mr. V. K. Kaul, appellant in Appeal no. 55 of 2012 had traded in the scrip of the target company ahead of large investments made by Solrex in the scrip of the target company. The funds for the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any on behalf of his wife Mrs. Bala Kaul, on 27th and 28th March 2008, ahead of trading in the scrip of the target company by Solrex. It was, therefore, alleged that the appellant, being a connected person of Ranbaxy under Regulation 2(c)(i) of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (for short the regulations), was an insider and traded on behalf of his wife in the scrip of the target company based on UPSI in his possession and, thus, violated Section 12A(d) and (e) of the Act. 4. Show cause notice dated April 8, 2011 was issued to the appellants asking them to furnish their reply to the charges. The appellants denied the charges whereafter a personal hearing was also granted. After considering the material available on record and the personal hearing, the adjudicating officer of the Board held the appellants guilty of the charges and imposed penalty as stated above. Hence this appeal. 5. We have heard Mr. Janak Dwarkadas, senior advocate on behalf of the appellant and Mr. Darius Khambatta, Advocate General on behalf of the Board. It was argued by Mr. Janak Dwarkadas that the adjudicating officer of the Board has erred in hol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aul was not associated with the decision about purchase of shares of the target company and that he was not informed about such decision. In support, he relied on decisions reported in Bariam Chemicals Ltd. vs. Company Law Board [AIR (1967) SC 295]; S. Harcharan Singh vs. S. Sajjan Singh [AIR (1985) SC 236]; In Re Jaypee Cement Ltd. (2004) 122 Comp. Case 854, Sterlite Industries Ltd. vs. SEBI (2001) 34 SCL 485 (SAT); Dilip Pendse vs. SEBI (Order dated 19/11/2009). It was further submitted that in any case, there was no UPSI and the decision to buy the shares of the target company was taken on the basis of information already in public domain. Mrs. Bala Kaul is a regular trader. The price of the scrip of the target company was falling due to large quantities of shares being sold by foreign entity and also by pledgee of the shares. However, the fundamentals of the company were strong and, therefore, Mrs. Bala Kaul took advantage of the falling price and bought the shares. It was, therefore, argued that order passed by the adjudicating officer in both the appeals needs to be set aside. 6. Mr. Darius Khambata, learned Advocate General, appearing on behalf of the respondent Board argue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Act. A construction which would defeat or is likely to defeat the purpose of the Act has to be ignored. He drew our attention to Section 106 of the Evidence Act to say that the information with regard to UPSI was specially in the knowledge of the appellant and burden of proof was on them. Since the appellants had failed to discharge their duties, the Board was fully justified in arriving at its own conclusion based on evidence available on record. The very fact that Mr. V. K. Kaul purchased shares of the target company on 27th and 28th March, 2008 i.e. immediately after decision of Solrex to buy shares of the target company and then disposing them of within a short span itself is a strong evidence that the trading was based on insider information. Therefore, no fault can be found with the conclusions arrived at by the adjudicating officer. 7. With a view to appreciate the rival contentions, it is necessary to refer to the relevant provisions of the regulations which have a bearing on the allegation against the appellant and these provisions are reproduced hereunder for facility of reference:- "2(c) "connected person" means any person who- (i) is a director, as define ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any of the aforementioned persons; (vii) is a banker of the company. (viii) relatives of the connected person; or (ix) is a concern, firm, trust, Hindu undivided family, company or association of persons wherein any of the connected persons mentioned in sub-clause (i) of clause (c), of this regulation or any of the persons mentioned in sub-clause (vi), (vii) or (viii) of this clause have more than 10 per cent of the holding or interest; (ha) "price sensitive information" means any information which relates directly or indirectly to a company and which if published is likely to materially 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 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to such unpublished price sensitive information. It needs to be appreciated that the clause makes a distinction between 'the company' and 'a company'. When it refers to 'the company, the references is to the company whose Board of Directors is taking a decision and when it refers to 'a company', the reference is to a company to which the decision pertains. This has been explained even by the adjudicating officer by way of an illustration in para 30 of his order dated January 4, 2012, in the case of Mr. V. K. Kaul as under:- "30. To illustrate, if noticee's submission is accepted then a situation will arise wherein a Director of the company X cannot be held guilty of insider trading if he trades in the scrip of company Y based on the UPSI, that company X is going to make a strategic investment / placing a huge purchase order for plant and machineries in company Y. Such a scenario will defeat the purpose of PIT Regulations." We are, therefore, of the view that the term price sensitive information used in regulation 2(ha) is wide enough to include information relating directly or indirectly to 'a company'. The Solrex had decided to purchase shares of the target company. Here, Solre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... said that they did not provide information regarding purchase of shares of the target company by Solrex. As direct evidence in the form of statements of connected persons is available on record, the Board cannot draw any conclusion against the appellant on the basis of the circumstantial evidence. Learned senior counsel for the appellant then argued that the Board had chosen to arrive at its findings on surmises and conjectures in the face of contrary direct evidence supporting the innocence of the appellant that the calls between Mr. Malvinder Singh, Mr. Umesh Sethi and Mr. V. K. Kaul would necessarily have been for the purpose of sharing UPSI. Learned senior counsel relied on few judgments including judgment in the case of Padola Veera Reddy vs. State of Andhra Pradesh [AIR (1990) SC 79] and Sterlite Industries vs. SEBI [(2001) 34 SCL 485 (SAT)] to contend that to sustain a conviction based on circumstantial evidence, the evidence must be complete and incapable of leading to any other explanation. He reiterated that evidence merely probablising and endeavouring to prove the fact on the basis of preponderance of probability is not sufficient to establish serious charges like insid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f criminal justice and observing that these principles apply to civil cases as well where the charge is to be established not beyond reasonable doubt but on the preponderance of the probabilities. The measure of proof in civil or criminal cases is not an absolute standard and within each standard, there are degrees and probabilities and in this context reference was also made to what Denning, L.J. observed in Bater v. Bater (1950) 2 All E.R. 458 and we reproduced the same for ease of reference :- "It is true that by our law there is a higher standard of proof in criminal cases than in civil cases, but this is subject to the qualification that there is no absolute standard in either case. In criminal cases the charge must be proved beyond reasonable doubt, but there may be degrees of proof within that standard. Many great judges have said that, in proportion as the crime is enormous, so ought the proof to be clear. So also in civil cases. The case may be proved by a preponderance of probability, but there may be degrees of probability within that standard. The degree depends on the subject-matter. A civil court, when considering a charge of fraud, will naturally require a higher d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t only the broker of Mrs. Bala Kaul but also the broker of Rexcel, Solus and Solrex for purchase of shares of the target company. It is also interesting to note that the same quantity of shares was sold on April 10, 2008. It is, therefore, reasonably expected that Mr. V. K. Kaul had access to the UPSI by virtue of his directorship in Ranbaxy, his attendance in the meetings of the audit committee as well as compensation committee of Ranbaxy and frequent telephone calls to Mr. Malvinder Singh and Mr. Umesh Sethi during the relevant period. It is also interesting to note that in his letter dated February 25, 2011 addressed to the Board during the course of investigation, Mr. V. K. Kaul has stated that he had no contact with these persons in the month of February, March and April, 2008. However, the details of telephonic calls make it clear that this statement is not correct. It is, therefore, reasonable to infer that Mr. V. K. Kaul has suppressed the material fact. 16. It is highly improbable to believe the statement of Mrs. Bala Kaul that she bought shares of the target company because of its intrinsic value and strong fundamentals. If that was so, it is not clear, what made her sel ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
