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TMI Blog2021 (5) TMI 1020X X X X Extracts X X X X X X X X Extracts X X X X ..... any. In terms of Regulation 2(1)(n)(iii) of the PIT Regulations, 2015, information pertaining to change in capital structure of a company is per se treated as UPSI. Thus, in the present case, information pertaining to the decision taken by the board of directors of the Company in its meeting held on May 10, 2018 regarding buy-back of the shares of the Company was a price sensitive information and before its disclosure to the stock exchanges on May 10, 2018 was UPSI-I, as alleged in the SCN. I note that ppreliminary discussion among MD, ED, COO and CFO in relation to the proposal for buyback of fully paid-up equity shares of the Company took place on April 25, 2018. Therefore, I find that UPSI-I came into existence on April 25, 2018. The said information remained UPSI-I till its disclosure to stock exchanges on May 10, 2018. In view of this, I find that the period from April 25 to May 10, 2018 is the period of UPSI-I, as alleged in the SCNs. Regarding UPSI-II in terms of the disclosure made by the Company on May 10, 2018, the general public was made aware that the Company was going to buy-back upto 1,21,14,285 fully paid-up equity shares of the Company of 10/- each at a price of 350 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from all the attendant facts and circumstances, I find that Noticee no. 4 was a wholly owned and controlled company of Noticee no. 3 and his family and Noticee no. 3 used Noticee no. 4 as a front entity for trading in the securities of PC Jeweller. The trading pattern and timing of trades of Noticee no. 4, the overarching influence and control of Noticee no. 3 over the affairs of Noticee no. 4, the proximity of Noticee no. 3 to the promoters (Prem Chand Gupta and Noticee no. 5), it is clear that trading by Noticee no. 4 in the futures contracts of PC Jeweller was due to the possession of UPSI-II. Thus, I find that Noticee no. 4 had possession of UPSI-II through Noticee no. 3 and thus, Noticee no. 4 was an insider in terms of Regulatio 2(1)(g)(ii) of PIT Regulations, 2015. We note that Noticee no. 5 was the MD of PC Jeweller. Thus, Noticee no. 5 is a connected person within the meaning of Regulation 2(1)(d)(i) of PIT Regulations, 2015. Therefore, Noticee no. 5 is an insider of PC Jeweller in terms of Reg. 2(1)(g)(i) PIT Regulations, 2015. The chronology of events which has been provided in the SCNs and also reproduced in the pre-paras of this order indicates that Noticee no. 5 was p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs, as a result of violations committed by Noticee no. 1 to 5 with respect to UPSI-I and UPSI-II. I note that there is no material available on record to indicate that the violations committed by Noticee no. 1 to 5 are repetitive in nature. In exercise of the powers conferred upon me under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of SEBI Act, 1992 read with Section 19 of the SEBI Act, 1992 and SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, hereby direct as under: (i) Noticee no. 1, 2, 3, 4 and 5 are restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities (including units of mutual funds), directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of one (1) year, from the date of this order; (ii) Noticee no. 1, 2, 3, 4 and 5 are restrained from buying, selling or dealing in the securities of PC Jeweller Ltd., directly or indirectly, in any manner whatsoever, for a period of two (2) years, from the date of this order; (iii) The Noticee no. 1, 2 and 3 are directed to disgorge, jointly and severally, a sum of 6,17,60,184.13/- whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... insider trading by certain entities in the scrip of PC Jeweller Limited (hereinafter referred as "the Company" / "PC Jeweller") for the period from April 2, 2018 to July 31, 2018 (hereinafter referred to as "Investigation Period"). 2. The following directions were issued against the Noticees vide the Impounding Order dated December 17, 2019: "…………………………. 29. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of Section 19 read with Sections 11(1), 11(4)(d) and Section 11B of the SEBI Act read with Regulation 10 of the Insider Trading Regulations, 2015, hereby issue the following directions: A. A sum of ₹ 6,17,60,184.13 shall be impounded jointly and severally, from Shivani Gupta, Sachin Gupta and Amit Garg, being the notional loss avoided on account of trades carried out in the trading accounts of Shivani Gupta, and B. A sum of ₹ 2,13,23,161.64 shall be impounded jointly and severally, from Quick Developers Pvt. Limited and Amit Garg, being the notional loss avoided/gains made on account of trades carried out in the trading account of Quick Developers Pvt. Limit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... total gains made/loss avoided on account of insider trading in the scrip of PC Jeweller along with interest; 2 Direction to restrain them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period. 34. Similarly, in light of the alleged violations of the provisions of Section 12A(e) of the SEBI Act and Regulation 3(1) of the Insider Trading Regulations, 2015 by Balram Garg, this Order shall be treated as a Notice under Sections 11(1), 11(4) and 11B(1) of the SEBI Act calling upon him to show cause as to why direction shall not be passed against him to restrain him from accessing the securities market and prohibiting him from buying, selling or otherwise dealing in securities for an appropriate period. ………………………………………………………………………………. 35. As stated at paragraph 17, Padam Chand Gupta had passed away on January 28, 2019. Having regard to the same, no proceedings are initiated against him for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsequent withdrawal is price sensitive information: Table-III: Price movement data Date of Announcement on NSE/BSE Announcement Price Movement in the scrip of PC Jeweller (prior to and after announcement) Impact on Price 10/05/2018 @ 20:29:03 hours (BSE) 11/05/2018 @ 08.33 hours (NSE) Board Meeting on 10.5.2018 approves buyback of equity shares and appointment of IDBI and Corporate Professionals Capital Pvt Ltd as Merchant Bankers. May 10, 2018 O H L C NSE 216.00 222.00 194.65 208.95 BSE 216.00 222.00 195.10 209.00 May 11, 2018 O H L C NSE 229.80 250.70 196.40 200.85 BSE 229.90 247.00 197.50 201.15 After the announcement, the scrip hit the upper circuit of 10%. 13/07/2018 @ 19:33 hours (NSE) 19:28:44 hours (BSE) Board approves withdrawal of buyback offer and the same was informed to Exchanges. July 13, 2018 O H L C NSE 121.90 126.35 118.00 119.90 BSE 121.95 126.30 118.10 119.95 July 16, 2018 O H L C NSE 107.95 107.95 83.95 89.20 BSE 108.00 108.00 86.10 88.90 After the announcement, the scrip hit the lower circuit of 20%. c) The SCNs observed that both the aforementioned announcements w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Independent Director, ED & COO and CFO held to discuss further course of action. No minutes drawn. 10/07/2018 11. CFO meeting with SBI official requesting to reconsider the Bank's refusal to accord consent for the buy back again, refused by the Banker communicated vide their letter dated 12.7.2018 addressed to MD. ED & COO and CFO decided to convene the Board Meeting. No minutes drawn. Notice for convening Board Meeting on 13.7.2018 sent by email. 12/07/2018 12. Board approves withdrawal of buyback offer and the same was informed to Exchanges. Company informed Exchanges about the withdrawal of buyback which was disseminated by BSE and NSE on the same day at 19:28:44 and 19:33 respectively. 13/07/2018 From the aforesaid chronology of events, the SCNs has considered the information pertaining to preliminary discussion in respect of the proposal for buyback of equity shares of the Company which came into existence on April 25, 2018 and became public on May 10, 2018, as "UPSI-I". Accordingly, period from April 25, 2018 to May 10, 2018 has been taken as period of UPSI-I. Further, the information pertaining to withdrawal of the proposed buyback of equity shares of the Company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connected to the Company and was reasonably expected to have access to UPSI-I and UPSI-II and therefore, is a 'connected person' and is an 'insider' in terms of Regulation 2(1)(d)(i) and 2(1)(g) of PIT Regulations, 2015, respectively. h) Noticee No.5 is the MD of PC Jeweller. He and Padam Chand Gupta are brothers and also the Promoters of PC Jeweller. Investigation observed from the reply of PC Jeweller's CFO dated June 17, 2019 and from letter of SBI dated 7th and 12th July, 2018, addressed to MD of the Company, that Noticee No.5 was involved in every stage of buyback proposal till its withdrawal. Investigation also noted from the Minutes of the Board Meeting (chaired by Noticee No.5) held on May 10, 2018 that Board approved the constitution of a Buyback Committee comprising of Noticee No.5, ED & COO and two other Independent Directors of PC Jeweller for implementation of buyback. The SCNs, therefore, concluded that being part of Promoter group and the Management of PC Jeweller and privy to the discussion/information regarding approval for buyback of shares of PC Jeweller and its withdrawal, Noticee No.5 had access to UPSI-I & II and therefore, is a 'connected person' and consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ege that Noticee no. 3 is an insider in terms of 2(1)(g)(i) r/w. Reg, 2(1)(d)(i) of PIT Regulations, 2015. Additionally, from the analysis of trading pattern of Noticee no. 1 and 4, the SCN's concluded that Noticee No.3 (trading through the account of Noticee no. 1 and 4) had possession of UPSI-I and UPSI-II and hence, an 'insider' in terms of Regulation 2(1)(g)(ii) of PIT Regulations, 2015. l) Noticee No.4 authorised Noticee No.3 to trade on its behalf in respect of its trading account with Karvy. Noticee No.3 held 50% shareholding in Noticee No.4 and was also its Director for the period August 8, 2015-April 3, 2018. Prior to the aforesaid period, Noticee No.4 had Noticee No.1 and Noticee No.2 as its Directors and shareholders. Further, fund transfers were observed between Noticee No.4 and Noticee No.3, which were utilised for trading in the scrip of PC Jeweller. From the nature of relationship that existed between Noticee No.4 and Noticee No.3, Noticee No.2 and Noticee No.1, it would reasonably appear to allow it (through its past directors Noticee no. 3, Noticee no. 2 and Noticee no. 1, respectively) access to UPSI-I and UPSI-II, the SCNs allege that Noticee no. 4 is an inside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0,000 - 300.75 7,00,000 - 2,105.23 17-Apr-18 - 6,00,000 - 305.20 6,00,000 - 1,831.20 19-Apr-18 - 1,40,505 - 297.64 1,40,505 - 418.20 20-Apr-18 - 1,50,000 - 295.69 1,50,000 - 443.53 23-Apr-18 - 6,33,855 - 296.71 6,33,855 - 1,880.72 24-Apr-18 - 25,238 - 290.00 25,238 - 73.19 No trades observed during UPSI Period-I(April 25, 2018 to May 10, 2018) and Post-UPSI Period-I (May 11, 2018 to May 31, 2018) UPSI-II : Pre-UPSI Period-II (June 22, 2018 to July 06, 2018) 06-Jul-18 - 1,00,000 - 130.51 1,00,000 - 130.48 100% UPSI Period-II (July 07, 2018 to July 13, 2018) 09-Jul-18 5,000 1,05,000 131.74 131.64 1,00,000 6.59 138.22 100% 10-Jul-18 - 55,000 - 132.50 55,000 - 72.87 11-Jul-18 - 3,45,000 - 129.01 3,45,000 - 445.08 Date Buy Volume Sell Volume Avg. Buy Price (Rs.) Avg. Sell Price (Rs.) Net Volume Buy Value (Rs. in lacs) Sell Value (Rs. in lacs) % activity in this scrip compared to all other scrips traded by entity 12-Jul-18 - 2,00,000 - 124.66 2,00,000 - 249.32 13-Jul-18 - 8,00,000 - 120.82 8,00,000 - 966.52 No ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he UPSI period-II and post-UPSI Period-II, Noticee No.4 traded in the scrip through Karvy (orders were placed by Noticee No.3, who held 50% shareholding in Noticee No.4 and was authorised by Noticee No.4 to place orders on its behalf). q) Summary of trading by Noticee No.3 through the trading account of Noticee No.4 in the scrip of PC Jeweller during the Investigation Period is tabulated below: Table-IX: Trading in the account of Noticee No.4 by Noticee No.3 Date Buy Volume/ B/F Long Qty Sell Volume/ Qty Avg. Buy Price (Rs.) Avg. Sell Price (Rs.) Net Volume Buy Value (Rs. in lacs) Sell Value (Rs. in lacs) % activity in this scrip compared to all other scrips traded by entity UPSI-I : Pre-UPSI-I (April 02, 2018 to April 24, 2018) Cash Segment 18-Apr-18 1,00,000 1,00,000 304.79 292.58 0.00 304.79 292.58 40% No trades observed during UPSI Period-I(April 25, 2018 to May 10, 2018) Post-UPSI-I (May 11, 2018 to May 31, 2018) Derivatives (Futures) 29-May-18 1,50,000 - 171.65 1,50,000 257.48 - 63% 31-May-18 - 1,50,000 - 168.71 1,50,000 - 253.06 31-May-18 1,50,000 - 169.58 1,50,000 254.36 - UPSI-II : UPSI Period-II (July 07, 2018 to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .00 - 1,33,05,000.00 (I = F - G) Total Profit earned 2,22,87,000.00 v) Further based on the analysis of the bank account of Noticee No.4 maintained with HDFC Bank (A/c No. 50200022965595) during the period June 1, 2018 to July 31, 2018, investigation observed that there was a receipt of ₹ 1 Crore from Noticee No.3 on June 1, 2018 and on the same day, out of a total credit balance of ₹ 2,18,76,567.84 available in the account, payment of ₹ 2 Crore was made to Karvy. Further, there was a credit of ₹ 3 Crore in the form of pay-out from Karvy on 20th and 25th of July 2018 out of which ₹ 2 Crore was remitted to Noticee No.3 on July 31, 2018 (post-UPSI-II period). Further, vide an e-mail dated June 12, 2019, HDFC Bank had informed SEBI that Noticee No.3 and his wife, Nisha Garg, were the authorised signatories to the bank account even after they ceased to be Directors of Noticee No.4 w.e.f. April 3, 2018). Investigation, therefore, observed from the nature of transactions between the bank accounts of Noticee No.3 and Noticee No.4 and the fund utilisation thereof, that Noticee No.3 used the account of Noticee No.4 to trade in the scrip's futures segment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Padam Chand Gupta and Noticee No.5, that Noticee No.4 and Noticee No.3 were in the knowledge of events taking place in PC Jeweller with regard to the buyback proposal and its withdrawal and therefore, concluded that trades were executed in the account of Noticee No.4 during UPSI Period-II while in possession of UPSI-II so as to earn profit/avoid loss arising from price fall on account of announcement of withdrawal of buyback proposal. Therefore, the SCNs allege that Noticee No.3 and Noticee No.4 are in violation of Section 12A(d) and (e) of SEBI Act, 1992 and Regulation 4(1) read with Regulation 4(2) of PIT Regulations, 2015. aa) The SCNs allege that the notional/unlawful loss avoided by Noticee No.1, Noticee No.2 and Noticee No.3 by trading in the accounts of Noticee No.1 was approximately ₹ 527.43 lakh whereas Noticee No.4 whose trades were executed by Noticee No.3 had avoided notional loss/made gains of approximately, ₹ 222.87 lakh. bb) By the Impounding Order, Noticee no. 1 to 4 were called upon to show cause as to why appropriate directions under Sections 11(1), 11(4) and 11B(1) of SEBI Act, 1992, should not be passed against them, as proposed hereunder: I. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chand Garg and Noticee no. 5. On July 1, 2011, the aforesaid 3 families entered into Family Arrangement dated July 1, 2011. As per the said Family Arrangement, the Padam Chand Gupta Family and Balram Garg Family were to hold substantial shareholding and the Amar Chand Garg Family were not to have any substantial interest in the Company. Therefore, the shareholding of the Amar Chand Garg Family reduced to 0.70% in the Company. Thereafter, on April 10, 2015, the Padam Chand Gupta Family entered into a Family Arrangement pursuant to an oral understanding between the parties on March 4, 2015. The said Family Arrangement recorded that Noticee no. 2 will resign as president, Gold Manufacturing of the Company and that he has, in fact, resigned from the said post on March 31, 2015, alongwith his wife Noticee no. 1, who also resigned from the post of Sr. Assistant Manager, Karol Baugh Store of the Company on the same date. The said Family Arrangement further recorded that: I. Late Shri Padam Chand Gupta and his wife Smt. Krishna Devi will transfer at least 1.6 Crore shares of the Company to Noticee no. 2 and his family members. II. Noticee no. 2 and his legal heirs will not have any r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ult a connected person in taking decisions in relation to trading in securities. None of these fundamental ingredients have been met by SEBI. While Noticee no. 2, being the son of Late Sri Padam Chand Gupta and Noticee no. 1, being spouse of Late Sri Padam Chand Gupta's son would qualify as relatives, the presumption that they are 'immediate relatives' would arise only when they are shown to be either financially dependent or that they consulted the connected person to taking decisions relating to trading in securities. Owing to the family arrangement and separation, referred to above, even the wrong presumption that they were 'deemed connected persons' stands rebutted. iii. As far as Sri. Amit Garg is concerned, he is not an "immediate relative" of the Late Sri Padam Chand Gupta. He is the Late Shri Padam Chand Gupta's nephew by virtue of being Late Shri Padam Chand Gupta's brother's son. As far as Shri Balram Garg is concerned, none of the Noticee no. 1, 2 and 3, are "immediate relatives" of Sri Balram Garg. iv. The mere fact that a person is a relative of a "connected person" cannot by itself be ground to visit such person with a charge of insider trading. This has been cl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eg. 2(1)(g) or connected persons as defined under Reg. 2(1)(d) of PIT Regulations, 2015 and have not been found to be as such in the interim order or the SCN. In view of the above, Noticee no. 4 is not a connected person or an insider qua the Company and did not have either UPSI-I and UPSI-II in its possession. Hence, there was no prohibition on Noticee no. 4 from trading in the shares of the Company or in other securities based on the shares of the Company. vii. Regulation 4(1) of PIT Regulations, 2015, prohibits an insider from trading in securities when in possession of UPSI. In this regard it is pertinent to note that: I. It is not established by SEBI that Noticee no. 1, 2 and 3, were in possession of UPSI relating to the Company during the relevant period. II. The preponderance of probability of the UPSI being communicated to Noticee no. 1, 2 and 3 is rebutted by the following facts and circumstances: a. The estrangement between Noticee no. 1 and Late Sri. Padam Chand Gupta and the Family Arrangement dated April 10, 2015. b. The fact that Noticee no. 1, 2 and 3, did not hold any position in the Company, whereby they could have access to UPSI. c. Noticee no. 1 was r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n residential address are wrong as all of them are residents of separate houses built on a large tract of land and do not share a common dwelling house. * It was imperative on SEBI to place on record relevant material to prove that the Noticees 1 to 4 were "dependent financially" on Noticee No. 5 or "consults" Noticee No. 5 "in taking decisions relating to trading in securities". It is humbly submitted that the facts are completely to the contrary. The said Noticees are completely financially independent of Noticee No. 5 and have nothing to do with each other in any decision making process relating to securities or even otherwise. Presumption is a rule of evidence which cannot be drawn unless & until foundational facts are proved. * Moreover, as far as Noticee No. 4 company is concerned admittedly the same is neither holding company or associate company or subsidiary company of PC Jeweller nor Noticee no. 5 has been director of Noticee No. 4 company. Therefore, Noticee no. 4 cannot be a connected person vis-a-vis Noticee no. 5. ii. No material to otherwise prove transfer of information between Noticees: The charge against Noticee no. 5 is of communicating "unpublished price ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (1) of PIT Regulations, 2015 and Sections 12A(d) and (e) of SEBI Act, 1992, and Noticee no. 5 has been alleged to have communicated UPSI-I and UPSI-II to Noticee no. 1 to 4, in violation of the provisions of Regulation 3(1) of PIT Regulations, 2015 and Section 12A(e) of SEBI Act, 1992. 9. Before dealing with the violations alleged with respect to alleged UPSI-I and UPSI-II, it would be appropriate to refer to the provisions of SEBI Act, 1992 and PIT Regulations, 2015, which are relevant for determining the said violations. The relevant extract of these provisions is as under: Relevant extract of the provisions of SEBI Act, 1992: "Functions of Board. 11. (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for- (a)……. (b)…… . (g) prohibiting insider trading in securities; ………………………&hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n employee, of a public financial institution as defined in section 2 (72) of the Companies Act, 2013; or (h). an official or an employee of a self-regulatory organization recognised or authorized by the Board; or (i). a banker of the company; or (j). a concern, firm, trust, Hindu undivided family, company or association of persons where in a director of a company or his immediate relative or banker of the company, has more than ten per cent. of the holding or interest; NOTE: It is intended that a connected person is one who has a connection with the company that is expected to put him in possession of unpublished price sensitive information. Immediate relatives and other categories of persons specified above are also presumed to be connected persons but such a presumption is a deeming legal fiction and is rebuttable. This definition is also intended to bring into its ambit persons who may not seemingly occupy any position in a company but are in regular touch with the company and its officers and are involved in the know of the company's operations. It is intended to bring within its ambit those who would have access to or could access unpublished price sensitive informati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tended to lead to organisations developing practices based on need-to-know principles for treatment of information in their possession. 2) No person shall procure from or cause the communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. NOTE: This provision is intended to impose a prohibition on unlawfully procuring possession of unpublished price sensitive information. Inducement and procurement of unpublished price sensitive information not in furtherance of one's legitimate duties and discharge of obligations would be illegal under this provision. …………………. Trading when in possession of unpublished price sensitive information. 4.(1) No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information: …………………………. (2) In the case of connected persons the onus of establishing, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015. Once a person is found to be in violation of PIT Regulations, 2015, it leads to violation of Section 12A(d) and (e), also. Regulation 4(1) of PIT Regulations, 2015 provides that no insider shall trade in the securities of a company when in possession of unpublished price sensitive information. Further, Regulation 4(2) provides that if the "insider", as envisaged under Regulation 4(1), is a connected person then the onus of establishing that he was not in possession of UPSI, shall be on such connected persons and in other cases, the onus would be on the SEBI. The Note appended to Regulation 4(1) clarifies that when a person trades in securities when in possession of UPSI, his trades would be presumed to have been motivated by the knowledge and awareness of such UPSI in his possession. Proviso to Regulation 4(1) provides that despite presence of all the ingredients of Regulation 4(1) of PIT Regulation, 2015, the insider may prove his innocence by demonstrating the circumstances including those which are mentioned in the said proviso. The Note to Regulation 4(1) states that once it is established that an insider traded when in possession of UPSI, it would be open to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellip;………………………………………… (n) "unpublished price sensitive information" means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following: - (i) financial results; (ii) dividends; (iii) change in capital structure; (iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions; (v) changes in key managerial personnel; and (vi) material events in accordance with the listing agreement. NOTE: It is intended that information relating to a company or securities, that is not generally available would be unpublished price sensitive information if it is likely to materially affect the price upon coming into the public domain. The types of matters that would ordinarily give rise to unpublished price sensitive information have been listed above to give illustrative g ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly communicated the refusal to grant the NOC for the porposed buy-back of shares by PC Jeweller. The said refusal was communicated to the MD (i.e. Noticee no. 5) of the Company by IDBI Capital Markets and Securities Ltd., the lead banker of the Company, by its letter dated July 07, 2018. I find that information pertaining to withdrawal of buy-back is an information which in the perception of reasonable investors, who were till then aware of the information that the Company was going to buy-back its shares as informed by the Company on May 10, 2018, was likely to materially affect the price of securities of the Company. This is because of the reason that by virtue of disclosure of buy-back made by the Company on May 10, 2018, its shares were being traded by factoring into account the impact of impending buy-back on the earning per share (EPS), leveraging of the Company, reduction in cost of capital, etc. and when the information about withdrawal of the buy-back by the Company came in public domain, it was likely to materially affect the price of the shares of the Company. Thus, said information was an unpublished price sensitive information as per the main part of the definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave identified Noticee no. 1 to 4, as 'insiders' under both the clauses of Regulation 2(1)(g) i.e. in terms of Regulation 2(1)(g)(i), being connected person; and Regulation 2(1)(g)(ii) being in possession of or having access to UPSI, of PIT Regulations, 2015. I note that for Noticee no. 5 the SCN has identified him as the 'connected person' in terms of Reg. 2(1)(d)(i) and hence, classified him as an 'insider' in terms of Reg. 2(1)(g)(i) of PIT Regulations, 2015. I note that while Noticee no. 1 to 4 have disputed their identification as 'insiders' under both the clauses, Noticee no. 5 has not disputed his identification as an 'insider' under Reg. 2(1)(g)(i).. 16. According to Noticee no. 1 to 4, they have wrongly been identified by the SCNs as a 'connected person' and consequently, wrongly classified as an 'insider' in terms of Regulation 2(1)(g)(i) of PIT Regulations, 2015. It is the case of the said Noticees that in order to identify a person as 'connected person' in terms of Regulation 2(1)(d)(i) of PIT Regulations, 2015, SEBI ought to have shown any of the following: a. The persons in question were office bearers of the Company; or b. Such persons though not office bearers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gation of Noticees no. 1 to 4 being connected person under Regulation 2(1)(d)(i), seems to have been proceeded on the basis of inference drawn that Noticee no. 1 to 3 being relatives of Late Shri Padam Chand Gupta who was promoter and chairman of the P C Jewellers and Noticee no. 5 who was the MD of P C Jewellers, would be having frequent communication with Late Shri Gupta and Noticee no. 5. However, here I note that as per Regulation 2(1)(d)(i), association by virtue of frequent communication with the officer of the company must be arising in the discharge of his/her duty towards the company. The SCNs does not allege that there was any communication between Noticee no. 5 and Noticee no. 1 to 4, arising out discharge of any duty owed by Noticee no. 1, 2, 3 or 4 to the Company. However, if there is evidence to suggest that an officer of a company had communication with another person regarding UPSI then such another person becomes "insider" by virtue of having possession of UPSI as a result of the communication by the officer of the company, thereby making such another person "insider" under Regulation 2(1)(g)(ii). In this regard, I further note that under Regulation 2(1)(d)(ii), ce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pany; that allows the said Noticees, directly or indirectly, access to unpublished price sensitive information. In view of the above, I find that Noticee no. 1, 2, 3 and 4 cannot be treated as 'connected persons' in terms of Reg. 2(1)(d)(i) of PIT Regulations, 2015. 18. The SCNs also alleges that Noticee no. 1 to 4 were insider under Regulation 2(1)(g)(ii) of the PIT Regulations, 2015. I note that Reg. 2(1)(g)(ii) identifies persons, who have access to UPSI or are in the possession of UPSI, as 'insiders'. The SCNs have on the basis of the findings of the investigation, which in turn on the basis of KYC documents of the trading account of Noticee no. 1 and 4, analysis of trading pattern of Noticee no. 1 and 4 before, during and after the UPSI Period-II, concentration of the trades of Noticee no. 1 and 4, concluded that Noticee no. 1, 2, 3 and 4 had possession of UPSI-I and UPSI-II because of their relationship with Noticee no. 5 and Late Shri Padam Chand Gupta and thus, classified them as 'insiders' in terms of Reg. 2(1)(g)(ii) of PIT Regulations, 2015. 19. I note that Late Shri Padam Chand Gupta had died on January 28, 2019, before the issue of the SCNs in the present matter and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ontentions raised by the Noticee no. 5 based on the family settlements/arrangements made in the years 2011 and 2015, I note that the purported Family Settlement between the three brothers cum promoters of PC Jeweller in 2011 and the purported Family Arrangement between Late Shri Padam Chand Gupta and his son in 2015, may at best be regarded as internal division of their business/property interests but such settlements/arrangements do not ipso facto imply severing of all natural and social relationships amongst the parties to these settlement/arrangements who are otherwise close relatives. On the basis of the deed of Family Arrangement dated July 1, 2011, Noticees have claimed that there was a family arrangement in 2011 by virtue of which Amar Chand Garg's share in the Company was to be reduced and Noticee no. 5 and Padam Chand Gupta were to hold substantial stake in PC Jeweller, but that does not necessarily imply or even remotely indicate that all the relation of Noticee no. 3 (who is the son of Amar Chand Garg and paternal nephew of Noticee no. 5) and Noticee no. 5, is absolutely 'estranged' and that they are in no talking terms at all. Similarly, the purported separation of Noti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticee no. 1, 2 and 3 had possession of UPSI-I and UPSI-II while trading in the scrip of PC Jeweller during the Investigation Period. Here, I note that in order to prove a particular fact, an evidence can either be direct or circumstantial. In this regard, it may be relevant to refer to the observations made by the Hon'ble Supreme Court in SEBI Vs. Kishore R Ajmera and Others MANU/SC/0212/2016, which has been cited with approval by the Hon'ble Supreme Court in the matter of Chintalapati Srinivasa Raju v. SEBI, (2018) 7 SCC 443 (@ Para 26), as under: "26. It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eller only, during pre-UPSI Periods (I & II) and during the UPSI Period-II. ii) Shares were traded from Noticee no. 1's trading accounts from April 02, 2018 i.e. the day from which off market transfer of shares from Padam Chand Gupta's account to her demat account (NSDL) started and continued till April 24, 2018. I note that preliminary discussion on the proposal of buyback of shares at ₹ 350/- per share started on April 25, 2018, as per CFO's reply dated June 17, 2019. Therefore, it is not a mere co-incidence that Noticee no. 1 put a halt on its selling spree exactly on the same day when the preliminary discussion on buyback proposal started at the management level at PC Jeweller. From the trading pattern of Noticee no. 1, it is observed that while Noticee no. 1 was on a selling spree since the past three weeks, however, as soon as she came in possession of UPSI-I that PC Jeweller was proposing to come out with a buyback offer, she halted her selling spree only to be able to tender the shares in the buyback offer at a higher price. iii) Average price of shares traded by Noticee no.1 during the Pre UPSI Period-I was ₹ 303.82 per share. iv) By no co-incidence, no t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cee no. 3 and his wife were directors of Noticee no. 4 till April 3, 2018 i.e. much prior to UPSi Period-II. iii) The directors of Noticee no. 4 during the UPSI Period-II i.e. Mr. Mukesh Sharma and Mrs. Monika Sharma were not insiders under Reg. 2(1)(g) or connected persons as defined under Reg. 2(1)(d) of PIT Regulations, 2015 and have not been found to be as such in the interim order or the SCN. 27. I note that none of the above, gives a correct and fair picture of the control and influence exercised by Noticee no. 3 on the affairs and operations of Noticee no. 4. I note that Noticee no. 4, at the relevant time was a company wholly owned by Noticee no. 3 and his wife (each of them held 50 % shareholding). Noticee no. 3 and his wife were directors of Noticee no. 4 till April 3, 2018. Further, an analysis of the HDFC Bank A/c. of Noticee no. 4, reveals the following: i) There was a receipt of ₹ 1 Crore from Noticee no.3 on June 1, 2018 and on the same day, out of a total credit balance of ₹ 2,18,76,567.84 available in the account, payment of ₹ 2 Crore was made into the trading account held with Karvy. Further, there was a credit of ₹ 3 Crore in the form ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 30. In view of the observations made at paras 27 to 29, viz. the trading pattern and timing of trades of Noticee no. 4, the overarching influence and control of Noticee no. 3 over the affairs of Noticee no. 4, the proximity of Noticee no. 3 to the promoters (Prem Chand Gupta and Noticee no. 5), it is clear that trading by Noticee no. 4 in the futures contracts of PC Jeweller was due to the possession of UPSI-II. Thus, I find that Noticee no. 4 had possession of UPSI-II through Noticee no. 3 and thus, Noticee no. 4 was an 'insider' in terms of Regulatio 2(1)(g)(ii) of PIT Regulations, 2015. 31. I note that Noticee no. 5 was the MD of PC Jeweller. Thus, Noticee no. 5 is a connected person within the meaning of Regulation 2(1)(d)(i) of PIT Regulations, 2015. Therefore, Noticee no. 5 is an insider of PC Jeweller in terms of Reg. 2(1)(g)(i) PIT Regulations, 2015. The chronology of events which has been provided in the SCNs and also reproduced in the pre-paras of this order indicates that Noticee no. 5 was part of all the key discussions and was aware of the developments pertaining to buy-back offer, refusal of NOC from SBI and its subsequent withdrawal of buy-back offer. I also note ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hen he is in possession of or having access to, UPSI. Possession of UPSI, in respect of persons who are termed insider by virtue of Regulation 2(1)(g)(ii) is not required to be proved separately while determining the violation of Regulation 4(1) because a person becomes 'insider' under Regulation 2(1)(g)(ii) when it is proved that he was in possession of UPSI or having access to UPSI. 34. I note that, in the instant case, Noticee no. 1 to 4 have been alleged to be insiders in terms of Regulation 2(1)(g)(i), being connected person, and 2(1)(g)(ii), being in possession of or having access to UPSI. However, as observed in para 25, Noticee no. 1, 2 and 3, were in possession of UPSI-I and UPSI-II, and, as observed in para 30, Noticee no. 4 was in possession of UPSI-II. Thus, I note that Noticee no. 1 to 4 are 'insiders' in terms of Reg. 2(1)(g)(ii) of PIT Regulations, 2015. I note that Noticee no. 1, 2, 3 while conducting trades in the scrip of PC Jeweller through the trading account of Noticee no. 1 during UPSI Period-II and Noticee no. 3 while conducting trades through the trading accounts of Noticee no. 4, during UPSI Period-II, were found to be in possession of UPSI-II. I also find ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4, had executed trades in the scrip of PC Jeweller during UPSI Period-II when in possession of UPSI-II in order to avoid loss and make gains on account of the fall in price of the scrip due to the announcement for withdrawal of the buyback. In this regard, the loss avoided/ unlawful gains made were computed and presented in the impounding order as under: TABLE XII - NOTIONAL LOSS AVOIDED BY NOTCEE NO. 1, 2 AND 3 PARTICULARS NO. OF SHARES SOLD WHILE IN POSSESSION OF UPSI-II 15,00,000 X WEIGHTED AVERAGE SALE PRICE ₹ 124.36 SUBTOTAL (I) ₹ 18,65,43,255.05 (-) LESS NO. OF SHARES SOLD WHILE IN POSSESSION OF UPSI-II 15,00,000 X (MULTIPLY) CLOSING PRICE ON THE FOLLOWING TRADING DAY AFTER UPSI-II BECAME PUBLIC ₹ 89.20 SUBTOTAL (II) ₹ 13,38,00,000.00 LOSS AVOIDED (APPROX.) [(I)-(II)] ₹ 5,27,43,255.05 TABLE XIII - NOTIONAL LOSS AVOIDED BY NOTICEE NO. 4 PARTICULARS NO. OF FUTURES SOLD WHILE IN POSSESSION OF UPSI-II 2,25,000 X WEIGHTED AVERAGE SALE PRICE ₹ 128.92 SUBTOTAL (I) ₹ 2,90,07,000.00 (-) LESS NO. OF FUTURES SOLD WHILE IN POSSESSION OF UPSI-II 2,25,000 X (MULTIPLY) CLOSING PRICE ON THE ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ading in the scrip of PC Jeweller while being in possession of UPSI-II amounted to ₹ 6,17,60,184.13 and ₹ 2,13,23,161.64, respectively. I note that aforesaid amount has been impounded by SEBI by virtue of the Impounding Order. I also note that said Noticees i.e. Noticee no. 1, 2, 3 and 4 have not disputed the method used or the formula adopted for arriving at the aforesaid amount. I also note that none of the said Noticees have disputed the value of the alleged unlawful gain made or loss avoided by them alongwith calculation of interest that has been shown in the interim order. 39. In view of the violation of the provisions of the PIT Regulations, 2015 and SEBI Act, 1992 by the Noticees, as noted above, I find that the Noticees are liable for issuance of appropriate directions for debarment from accessing the securities market and dealing in securities. Further, I find that directions under Section 11B(1) of the SEBI Act, 1992 be issued against Noticee no. 1, 2 and 3 to disgorge an amount of ₹ 6,17,60,184.13/-, jointly and severally, and against Noticee 3 and 4 to disgorge an amount of ₹ 2,13,23,161.64/-, jointly and severally. 40. I note that violations c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4A) of section 11 and section 15-I, the Board may, by an order, for reasons to be recorded in writing, levy penalty under sections 15A, 15B, 15C, 15D, 15E, 15EA, 15EB, 15F, 15G, 15H, 15HA and 15HB after holding an inquiry in the prescribed manner." 41. I note that in terms of Section 15J of the SEBI Act, 1992, while determining the quantum of penalty under Section 15J of SEBI Act, 1992, Board is required to have due regard to the following factors, namely: - (i) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (ii) the amount of loss caused to an investor or group of investors as a result of the default; (iii) the repetitive nature of the default. 42. In the instant case, I find that for the unlawful gains made and unlawful loss avoided by Noticee no.1 and 4, for their impugned trades during UPSI Period-II appropriate directions of disgorgement of unlawful gains made/loss avoided along with penal interest are being issued. I note that material available on record does not bring out any loss caused to any specific investor or a group of investors, as a result of violations committed by Noticee no. 1 to 5 with re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iculties in online payment of penalties, the said Noticees may contact the support at [email protected]. The demand draft or the details/ confirmation of e-payment should be sent to "The Division Chief, IVD-ID7, Securities and Exchange Board of India, SEBI Bhavan II, Plot no. C-7, "G" Block, Bandra Kurla Complex, Bandra (E), Mumbai -400 051" and also to e-mail id:- [email protected] in the format as given in table below: Case Name Name of Payee Date of Payment Amount Paid Transaction No. Payment is made for: (like penalties/ disgorgement/ recovery/ settlement amount/ legal charges along with order details) 44. The restraints/ prohibition imposed in paras 43(i) and (ii), on the respective Noticees, shall run, concurrently. The obligation of the Noticees restrained/ prohibited by this Order, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, are allowed to be discharged irrespective of the restraint/ prohibition imposed by this Order. Further, all open positions, if any, of the Noticees, restrained/ prohibited in the present Order, in the F & O segme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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