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TMI Blog2022 (5) TMI 1314X X X X Extracts X X X X X X X X Extracts X X X X ..... he declaration of the financial results on November 29, 2017 did not have a great impact in the price of the scrip on November 30, 2017. We find that the closing price of the scrip of the company on November 30, 2017 was Rs. 20.20 on NSE and Rs. 20.25 on BSE. Thus, there was hardly any price difference in the price of the scrip between 29th and 30th November 2017 and, therefore, it is incorrect to contend that the sale of the shares was made by the appellants for the purpose of avoiding further losses. We are also find that the sale amount of the shares was not retained by the appellants for their personal use or gain. But the said money was infused in the company for its working capital. We are satisfied that the appellants have successfully discharged their burden under Regulation 4(1) of the PIT Regulations. We find that in the given circumstances, the appellants cannot be charged for insider trading - For the reasons stated aforesaid, the impugned order cannot be sustained and is quashed. The appeal is allowed. - Appeal No. 536 of 2021 - - - Dated:- 19-4-2022 - JUSTICE TARUN AGARWALA, PRESIDING OFFICER AND MS. MEERA SWARUP, TECHNICAL MEMBER Mr. Somasekhar Sundar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Obligations and Disclosure Requirements) Regulations, 2015 (hereinafter referred to as LODR Regulations ). 3. It was contended that the urgency to sell the shares arose as in October 2017 the repayment of the loan taken from Comfort Fincap Ltd. (hereinafter referred to as Comfort Fincap ) became imminent and, therefore, the appellants sold their unencumbered shares to payoff Comfort Fincap and unpledged three times the shares held by them. Upon repayment of the loan, the shares were unpledged which were again sold by the appellants the proceeds of which were infused in the company as a working capital. Through the sales, the appellants received Rs. 11,29,72,156/- and transferred more than the said amount to the company, namely, Rs. 11,67,75,000/-. 4. After two years of making disclosures, Securities and Exchange Board of India (hereinafter referred to as SEBI ) started investigation in December 2019 and, based on the initial investigation, passed an ex-parte order dated September 4, 2020 impounding the alleged unlawful notional loss avoided by the appellants on account of the trades carried out during the Unpublished Price Sensitive Information (hereinafter referred to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pellants had sold the shares of the company in order to avoid future losses knowing fully well that the company was incurring losses and that the shares were sold in order to avoid future losses thereby violated Section 12A(d) and (e) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act ) read with Regulation 4(1) of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (hereinafter referred to as PIT Regulations ). The WTM also concluded that the appellant nos. 1 had communicated the UPSI to his daughters, appellant nos. 2 and 3 who had also violated Regulation 3(1) of the PIT Regulations. The WTM concluded that the appellant nos. 1, 2 and 3 have avoided the notional loss of Rs. 1,26,59,481.50, Rs.2,09,930.40 and Rs. 9,62,060.70 respectively. The WTM further found that the appellants had not obtained preclearance for the trades executed by them during the investigation period and, consequently, violated the Model Code of Conduct and Regulation 9 of the PIT Regulations. 6. We have heard Mr. Somasekhar Sundaresan, the learned counsel with Mr. Mihir Mekal, the learned counsel for the appellants and M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the PIT Regulations prohibits any insider from trading in securities while in possession of UPSI. The proviso further provides the insider may prove his innocence by demonstrating the circumstances for trading in securities while in possession of UPSI. For facility, Regulation 4 of the PIT Regulations is extracted hereunder :- 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. [ Explanation . - When a person who has traded in securities has been in possession of unpublished price sensitive information, his trades would be presumed to have been motivated by the knowledge and awareness of such information in his possession.] Provided that the insider may prove his innocence by demonstrating the circumstances including the following :- (i) the transaction is an off-market inter se transfer between [insiders] who were in possession of the same unpublished price sensitive information without being in breach of regulation 3 and both parties had made a conscious and informed trade decision: [Provided that such unpublished price sensitive information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation. He traded when in possession of unpublished price sensitive information is what would need to be demonstrated at the outset to bring a charge. Once this is established, it would be open to the insider to prove his innocence by demonstrating the circumstances mentioned in the proviso, failing which he would have violated the prohibition. (2) In the case of connected person the onus of establishing, that they were not in possession of unpublished price sensitive information, shall be on such connected persons and in other cases, the onus would be on the Board. (3) The Board may specify such standards and requirements, from time to time, as it may deem necessary for the purpose of these regulations. 12. A perusal of the aforesaid Regulation indicates that no insider shall trade in securities when in possession of UPSI and a person who has traded in the securities while in possession of UPSI his trades would be presumed to have been motivated by the knowledge and awareness of the price sensitive information which was in his possession. The proviso however gives a window to the insider to prove his innocence by demonstrating the circumstances under which he has tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gain sold in order to bring the working capital into the company. 14. We find that this explanation demonstrated the circumstances for selling the shares of the company during the UPSI period in order to avoid the company from down-graded to a nonperforming asset. In our view, such explanation given by the appellants which has not been considered by the WTM is sufficient to prove his innocence of trading while in possession of the UPSI. Such explanation will come within the purview of the proviso to Regulation 4(1) of the PIT Regulations and consequently, the appellants cannot be charged for violating Regulation 4(1) of the PIT Regulations. 15. We also find that the WTM has committed a manifest error in distinguishing the decision of this Tribunal in Abhijit Rajan vs. SEBI Appeal No. 232 of 2016 decided on November 8, 2019 . In that appeal, the charge was that the said appellant had sold the shares during the UPSI period. The said appellant was charged for selling the shares during the UPSI period and had avoided the probable loss. This Tribunal held that the said appellant cannot be blamed as an insider trading as he was able to show his dire need to infuse fund in the en ..... X X X X Extracts X X X X X X X X Extracts X X X X
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