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TMI Blog2020 (7) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... d that there is ample evidence to draw a reasonable inference that the appellant had passed on the price sensitive information to the Tippees and, consequently, we are of the opinion that the order of the AO does not suffer from an error of law. X X X X Extracts X X X X X X X X Extracts X X X X ..... nd to the mother-in-law of his sister (Tippee-2) and to the brother-in-law i.e., the husband of sister (Tippee-3), and father-in-law of sister (Tippee-4). The show-cause notice further alleged that Tippee-1 and Tippee-2 traded in the shares of CRISIL and made a profit of ₹ 37,98,969/-. The trading pattern of the Tippees indicated that they had inside information since the Tippees only traded in the shares of CRISIL and did not trade in any other shares. It was alleged that the appellant was not only a 'connected person' but also an 'insider' under the PIT Regulations. 7. The appellant denied the allegations and pointed out that even though Tippee-1 was his sister, he did not maintain any close relationship and, that his sister and Tippees-1, 3 & 4 were independent persons and were professionals in their own right to trade in the securities market. The appellant further contended that there is no evidence in the investigation report to suggest that the appellant had passed on any information to the Tippees. 8. The AO after considering the material evidence on record and after giving an opportunity of hearing to the appellant, found that the appellant was a &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Tippees could not lead to a finding of guilt without considering the second part of Regulation 2(e)(i) of the PIT Regulations which defines an 'insider'. The learned counsel further submitted that SEBI in its investigation report investigated one Ajay Bhalla and his firm Kotak Premier Investment and found that they had traded far more than the Tippees in question and made a profit of more than ₹ 5 crores. The learned counsel submitted that whereas Ajay Bhalla, etc. has been let off, the appellant has been found guilty merely on the ground that he had close relationship with the Tippees. The learned counsel contended that merely having a close relationship with the Tippees by itself would not hold him to be guilty unless there was some further material to draw an inference from the foundational facts. In this regard, the learned counsel relied upon a decision of the Supreme Court in Chintalapati Srinivasa Raju v. SEBI (2018) 7 SCC 443. Reliance was also made of a decision passed by the Whole Time Member of SEBI in the matter of A.Vellayan & A R Murugappan dated 12-5-2016 in which the Whole Time Member held that the finding of guilt on the basis of family relatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat he was a connected person as per Regulation 2(c)(ii) of the PIT Regulations. The appellant has also not denied the fact that he was an insider as defined under Regulation 2(e) of the PIT Regulations. The appellant has also not denied the fact that he had close relationship with the Tippees and therefore, the Tippees were persons deemed to be connected as defined under Regulation 2(h)(viii) of the PIT Regulations. In the light of the aforesaid admitted position which has not been disputed, it is not relevant for us to dwell on these aspects. 14. The crux of the assertion is, that the appellant has been found guilty of imparting price sensitive information to the Tippees based only on proximity of his relationship with the Tippees. The contention is, that this by itself is not sufficient and no adverse inference could be drawn only on the basis of proximity of relationship between the Tipper and the Tippee. 15. In order to appreciate the aforesaid submissions, it would be appropriate to refer to Regulation 2(e)(i) of the PIT Regulations which defines 'insider' as under:- "2(e) "insider" means any person who, (i) is or was connected with the company or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m any foundational facts is patently erroneous. In this regard, we may note that it is a fundamental principle of law that proving of an allegation levelled against a person can be derived either from direct substantive evidence or can be inferred by a logical process of reasoning from the totality of attending facts and circumstances surrounding the allegations made and levelled. The Supreme Court in SEBI v. Kishore Ajmera (2016) 6 SCC 368 held that in the absence of direct evidence, the court cannot become helpless and that the court can take notice of immediate and proximate facts and circumstances surrounding the events and reach to a reasonable conclusion. The Supreme Court held that the test would always be as to what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion. 20. In this regard, the decision in Raj Ratnam's case is relevant wherein the relevance of circumstantial evidence relating to an insider has been culled out as under:- "...Moreover, several other Courts of Appeals have sustained insider trading convictions based on circumstantial evidence in considering such factors as "(1) access to information; (2) relati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mmediate and proximate facts and circumstances surrounding the events is reasonable and logical which any prudent man would arrive at such a conclusion. The Supreme Court in Kanhaiyalal Patel (supra) held that an inferential conclusion from proved and admitted facts would be permissible and legally justified so long as the same is reasonable. 23. In the light of the aforesaid, the decisions cited by the learned counsel for the appellant on the issue that a person cannot be held guilty only on the strength of proximity of relationship with the Tippee are distinguishable on facts and are not applicable in the instant case. We find from the record that there is ample evidence to draw a reasonable inference that the appellant had passed on the price sensitive information to the Tippees and, consequently, we are of the opinion that the order of the AO does not suffer from an error of law. 24. The appeal fails and is dismissed with no order as to costs. 25. The present matter was heard through video conference due to Covid-19 pandemic. At this stage it is not possible to sign a copy of this order nor a certified copy of this order could be issued by the Registry. In these circumstance ..... X X X X Extracts X X X X X X X X Extracts X X X X
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