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TMI Blog2020 (9) TMI 1170X X X X Extracts X X X X X X X X Extracts X X X X ..... EBI (Prohibition of Insider Trading) Regulations, 2015 ("PIT Regulations"). 2. TJL is a Company registered under the Companies Act, 1956 and its shares are listed on BSE Limited ("BSE") and the National Stock Exchange of India Limited ("NSE"). Hon'ble National Company Law Tribunal vide Order No. MA 2630/2019 in CP(IB)1541(MB)/2017 dated July 30, 2019 approved the liquidation of company and has appointed a liquidator for the purpose. 3. The Directors of TJL during the investigation period were as under: (Source- Annual report of the Company for the FY 2017-18) Table-1 : Management of the Company Name of the Director PAN Category Date of Appointment Date of cessation Rajeev Vasant Sheth AAFPS7760Q Chairman and Managing Director 01/10/2015 - Sanjay Sethi ABBPS5094E CFO and Executive Director 20/06/2017 01/05/2018 Fern Mallis NA (Foreign National) Independent Director 20/09/2010 - Rajiv Jain ACYPJ1455E Independent Director 01/04/2014 23/02/2018 Alison Lazerwitz NA (foreign national) Independent Director 10/02/2017 13/08/2018 Priyanka Agarwal BVOPA8391Q Independent Director 29/11/2017 30/05/2018 Note -The company has gone under liquidation with ef ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 307.85 227.04 70.31 70.77 Other Income 1.42 2.21 2.14 1.42 Total Income 309.27 229.25 72.45 72.19 Profit/loss after tax -8.93 -6.62 -166.80 -201.18 8. It can be noted that the company had incurred loss of Rs. 166.80 crores during the quarter ended September 30, 2017 as compared to a net loss of Rs. 6.62 crores during the quarter ended June 30, 2017 i.e. an increase in the net loss by more than 25 times between the two consecutive quarters. Further, on a quarter to quarter basis between June 2017 and September 2017, the net sales of the company fell by 69% from Rs. 227.04 Crores to Rs. 70.31 Crores. The financials for the quarter ended September 30, 2017 were disclosed by the company on the stock exchanges post trading hours on November 29, 2017. 9. The price and volume data for the scrip, just before and after the announcement of the financial results by the company for the quarter ended September 30, 2017, is tabulated below: Table 5 Date & Time Announcement Market Price/ No. of Shares Traded Impact on Price/ Volume November 29, 2017 (Exchange Disseminated Time : 21:18 hrs on NSE) The company has informed Exchange about the unaudited financial results ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operation in its wholesale business vertical. A significant part of the inventory of this vertical is not earmarked against orders as on date and the company is trying to utilise the same in the international Retail business. In view of above and the slowdown in jewellery market, the Company has on the basis of an internal evaluation provided for write down of inventories and the Company has Provided for expected credit loss on trade receivables. The Company is in the process of actively following up with customers for the recovery. It expects to either realise the balance due or recover the material supplied". 14. It is therefore noted that significant increase in the loss recorded in Q2 FY2018 can be attributed to the recognition of the extraordinary item and slowdown in sales. 15. As per the statement of Rajeev Vasant Sheth before SEBI and his replies (letter dated February 14, 2020 submitted vide email dated February 14, 2020 and email dated February 20, 2020), he was looking after the general management, sales, product development, manufacturing technology and other related work in the company. It was stated that he was aware of the fall in revenue of the company during the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship between himself and the company whether temporary or permanent, that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access. (ii) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be deemed to be connected persons unless the contrary is established, - a. an immediate relative of connected persons specified in clause (i);" 23. As noted in para 18, Rajeev Vasant Sheth was reasonably expected to have access to the UPSI atleast from October 02, 2017. Divya Sheth and Aarti Sheth were employed as Vice-presidents in the company and they are also immediate relatives (daughters) of Rajeev Vasant Sheth. Further, it is also observed that the address of Aarti Sheth and Divya Sheth is same as that of Rajeev Vasant Sheth. 24. In view of the same, Aarti Sheth and Divya Sheth are logically and reasonably expected to be have access to UPSI through Rajeev Vasant Sheth. Table-6 : List of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (in Rs.) Sell Value (in Rs.) Rajeev Vasant Sheth 19-Dec-17 - - - 4,66,185 19.32 90,06,106.10 20-Dec-17 - - - 4,61,931 18.89 87,26,909.15 21-Dec-17 - - - 2,51,949 17.10 43,09,408.80 22-Dec-17 - - - 4,01,437 16.86 67,67,278.35 26-Dec-17 - - - 2,20,000 16.48 36,25,930.30 Total 18,01,502 3,24,35,632.70 Aarti Sheth and Divya Sheth NIL 26. It can be noted that Rajeev Vasant Sheth sold 30,93,498 shares (net sale) of TJL during October 09, 2017 to November 21, 2017 i.e. during the UPSI period. Rajeev Vasant Sheth did not trade in the scrip of TJL during July 01, 2017 to September 30, 2017. 27. Rajeev Vasant Sheth sold 1,36,720 shares and bought 1,12,000 shares on October 10, 2017 presumably to give an appearance of buying in addition to selling shares of TJL during the UPSI period. However, he had net sell position of 24,720 even on October 10, 2017. Further, the gross buy was only 3.49% of the gross sell during the UPSI period. 28. It is alleged that Rajeev Vasant Sheth was aware of the UPSI regarding the company's poor financial performance during quarter ended September 30, 2017, and he had entered into the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded = [No. of shares sold while in possession of UPSI (A) x Weighted average sale price (B)] - [No. of shares sold while in possession of UPSI (A) x Closing price on the day of UPSI becoming public or the closing price on the following trading day, depending upon the timing of notification of UPSI to Stock Exchange (C)] 34. Since the UPSI became public after the trading hours on November 29, 2017 on the stock exchanges, the closing prices of the scrip of TJL as on November 30, 2017 i.e. Rs. 20.20 on NSE and Rs. 20.25 on BSE have been considered for calculation of unlawful notional loss avoided. 35. Based on the methodology mentioned above, the overall unlawful notional loss avoided by Rajeev Vasant Sheth, Aarti Sheth and Divya Sheth is calculated as under: Table-9 : Computation of Unlawful Notional Loss avoided by Rajeev Vasant Sheth, Aarti Sheth and Divya Sheth Entity Name Exchange No. of shares sold (A) Wt. Avg. Sell Price (in Rs.) (B) = (D/A) Closing Price on 30/11/2017 (in Rs.) (C) Total Sell Value (in Rs.) (As per Trade log obtained from exchanges) (D) Value of Shares as on 30/11/2017 (in Rs.) (E = AxC) Unlawful Notional loss avoided (in Rs.) (F=D-E) Rajeev V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xchange Date of Transaction No. of shares sold Wt. Avg. Sell Price (in Rs.) Total sale trade value (in Rs.) No. of shares bought Wt. Avg. Buy Price (in Rs.) Total buy trade value (in Rs.) Profit/ (Loss) (in Rs.) NSE 10/10/2017 1,00,000 27.50 27,50,000.00 1,00,000 30.70 30,70,443.20 (3,20,443.20) BSE 10/10/2017 12,000 28.36 3,40,270.59 12,000 28.74 3,44,888.75 (4,618.16) TOTAL 1,12,000 30,90,270.59 1,12,000 34,15,331.95 (3,25,061.36) 41. In view of the above, the investigation alleges that Rajeev Vasant Sheth by executing contra trades within 6 months, has violated the provisions of the Code of Conduct for Prevention of Insider Trading formulated by the Company in pursuance of Sub-Regulation (1) and sub-Regulation (2) of Regulation 9 of the PIT Regulations. 42. The code of conduct for prevention of insider trading of TJL, also provided that "all Specified Persons, who intend to deal in the securities of the Company when the trading window is opened and if the value of the proposed trades is above 50,000 shares or up to Rs. 10 Lakhs (market value) or 1% of total shareholding, whichever is less, should pre-clear the trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd Divya Sheth. ORDER: 46. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of Section 19 read with Section 11(1), 11(4)(d) and 11B(1) of the SEBI Act read with Regulation 10 of the PIT Regulations, hereby issue the following directions: 47. I, hereby, impound from the below mentioned persons the alleged unlawful notional loss avoided, on account of trades carried out during the UPSI Period, as mentioned against their respective names in below table: Table-11 Name PAN Number Unlawful loss avoided (in Rs.) Rajeev Vasant Sheth AAFPS7760Q 1,26,59,481.50 Aarti Sheth AAGPS3762H 2,09,930.40 Divya Sheth AAHPS8431L 9,62,060.70 48. The persons mentioned in Table-11 above are also directed that above mentioned individual amount of unlawful loss avoided is to be credited to an interest bearing Escrow Account ["Escrow Account in Compliance with SEBI Order dated September 04, 2020 - A/c (in the name of the respective person)"] created specifically for the purpose in a Nationalized Bank. The Escrow Account(s) shall create a lien in favour of SEBI and the monies kept therein shall not be released without permission from SEBI. 49. Banks are direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Regulations 4(1) of the PIT Regulations: a) Directing them to disgorge an amount equivalent to the unlawful loss avoided on account of insider trading in the shares of TJL along with interest; b) Directing them to refrain from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period. 53. The persons mentioned under Table-11 are also called upon to show cause as to why appropriate directions for imposing penalty under section 11B(2) and 11(4A) read with Section15G and 15HB of the SEBI Act should not be issued against them for the alleged violations of the aforementioned provisions of SEBI Act and the PIT Regulations. 54. The persons mentioned under Table-11 may file their replies to SEBI within 30 days from the date of receipt of this Order. They may also indicate in their replies whether they wish to avail an opportunity of personal hearing in the matter. 55. This Order shall come into force with immediate effect and shall be in force till further Orders. 56. This Order is without prejudice to any other action that SEBI may initiate under the securities laws, as deemed appropriate, against the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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