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TMI Blog2023 (11) TMI 1285X X X X Extracts X X X X X X X X Extracts X X X X ..... a lender to extinguish a loan liability, while in possession of UPSI, this does involve an unlawful gain, akin to the insider having directly sold the shares in the market. As discussed earlier in this Order, the Hon ble Supreme Court had affirmed the finding of the Second SAT Order which described SRSR as a front entity used by the promoters/Raju brothers. SRSR was used for promoter entities to avail loans by pledging shares transferred to SRSR by the Raju family. By allowing the pledged shares to be sold by the lenders to extinguish the loan liability, effectively SRSR ensured unlawful gains for it and the promoters, akin to it selling the shares in the market directly. Acquisition of 2,78,64,000 SCSL shares by SRSR from the Raju Family were funded by Raju family themselves. Bank balance of the ICICI account in question reveals that SRSR had NIL funds as on the date of the acquisition of shares by SRSR. Sans the fund transferred to SRSR on the very same day by the Raju family, SRSR would not have been in a position to purchase the 2,78,64,000 SCSL shares from the very same Raju family. Therefore, effectively, SRSR had acquired the said shares without paying any consideration. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of Insider Trading) Regulations, 1992, hereby direct that the Noticees shall disgorge the unlawful gain made by them calculated in Table No. 19 of this Order, along with simple interest at the rate of 12% per annum from January 07, 2009 till the date of payment. - ANANTH NARAYAN G. WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA ORDER Under Sections 11, 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 Noticee. No. Name of the Noticees PAN 1 B Ramalinga Raju ACVPB8311J 2 B. Rama Raju ACEPB2813Q 3 B. Suryanarayana Raju ACEPB2811N 4 SRSR Holdings Pvt. Ltd. AAKCS0134N 5 Vadlamani Srinivas ABEPV4019P 6 G. Ramakrishna ACAPG1654L In the matter of Satyam Computers Services Limited (Noticee Nos.1 to 6 are here in after collectively referred to as Noticees ) I. BACKGROUND: 1. An investigation was carried out by SEBI into the affairs of Satyam Computer Services Ltd. (hereinafter referred to as SCSL / Satyam / Company ) after receipt of an email from Mr. B Ramalinga Raju, Ex-Chairman of SCSL, inter alia, admitting and confessing to the company s balance sheet having recorded non-existent bank balances and accrued interest, understated liabilities and overstat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cessing the securities market and further prohibit from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, (hereinafter referred to as Restraint ) for a period of 14 years for violation of provisions of Section 12A (a), (b), (c), (d) and (e) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as SEBI Act ); regulation 3(b), (c) and (d), regulation 4(1) and regulation 4(2)(a),(e),(f),(k) and (r) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations, 2003 (hereinafter referred to as PFUTP Regulations ); and regulations 3 and 4 of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as PIT Regulations ). The Noticee No. 1, 2, 5 6 were further directed to disgorge the wrongful gain made by them from their contraventions, as mentioned in below table, with simple interest @12% per annum from January 07, 2009 till the date of payment. Table No. 1 Name of Noticees Amount (INR) Mode of transaction B Ramalinga Raju and B Rama Raju 543.93 Crores Sale of shares 1,258.88 Crores Pledge of shares Vadlamani Srinivas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T (hereinafter referred to as First SAT Order ). Aggrieved by the Second SEBI Order, among others, Noticee No. 3 and Noticee No. 4 filed appeals before the Hon ble SAT and an order dated August 11, 2017 was passed by Hon ble SAT (hereinafter referred to as Second SAT Order ). 6. The First SAT order upheld the findings of First SEBI order but remanded the matter to SEBI for passing fresh orders on the issues of period of restraint and quantum of illegal gains on the grounds that (a) all the appellants cannot be uniformly restrained from accessing the securities market for 14 years without assigning any reasons; and (b) the quantum of illegal gain directed to be disgorged by each Noticees are mutually contradictory. The Second SAT Order upheld the findings of the Second SEBI order but set aside the directions in the Second SEBI Order and remanded the matter to SEBI for passing fresh orders on the issues of period of restraint and quantum of illegal gains on the grounds that (a) without considering the merits of each case, SEBI could not have imposed uniform restraint order against all the appellants; and (b) First SEBI order in case of Ramalinga Raju and Rama Ramu and Second SEBI ord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nwhile, the Hon ble Supreme Court vide its order dated May 14, 2018, heard and decided the appeals filed by entities against whom the Second SEBI Order was passed, on the merits of the case. The Hon ble Supreme Court agreed with the Second SAT Order (and inturn effectively with the conclusions of the Second SEBI Order) as far as the liability of SRSR and Suryanarayana Raju were concerned. In the case of Suryanarayana Raju, in addition to discussing the Second SAT Order the Hon ble Supreme Court cited the SFIO Report and the CBI Special Court judgment in connection with the Satyam scam and specifically referred, with agreement, to those portions that brought out the active involvement of Suryanarayana Raju. The Hon ble Supreme Court accordingly concluded with respect to Suryanarayana Raju stating as follows This appellant s case, therefore, stands apart from the other family members of B. Ramalinga Raju, in that the SFIO s report as well as the aforesaid judgment clearly and unmistakably point to his complicity, unlike that of the other family members, in the fraud committed from 2001 onwards. (emphasis supplied) Similarly, with respect to SRSR, the Hon ble Supreme Court inter alia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der with respect to disgorgement of illegal / unlawful gains made by them along with simple interest at the rate of 12% per annum from January 07, 2009 till the date of payment and to restrain them for a period of 14 years. Vide said fourth SEBI order, period of debarment to be undergone by each noticee and the amount of illegal gain made by each noticee to be disgorged, were quantified as under: Table No. 3 Name of Noticee Debarment period Illegal gain (INR) to be disgorged with simple interest of 12% p.a from January 07, 2009 till date of payment B Ramalinga Raju 14 years (w.e.f. July 15, 2014) 26,62,50,000 B Rama Raju 14 years (w.e.f. July 15, 2014) 29,54,35,195 B. Suryanarayana Raj 14 years (w.e.f. September 10,2015) 81,84,35,650 SRSR Holdings Pvt. Ltd 14 years (w.e.f. September 10,2015) 675,39,48,813 12. Since the Fourth SEBI Order was passed in partial modification of the Second SEBI Order, the net result was that while Ramalinga Raju and Rama Raju continued to jointly and severally liable for the illegal gains made by Suryanarayana Raju and SRSR Holdings Pvt. Ltd. as well, the gains computed individually were reduced owing to deductions for cost of acquisition of shares/ tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted by B. Ramalinga Raju and B. Rama Raju. B. Suryanarayana Raju and SRSR Holdings Pvt. Ltd. cannot be worse off on remand; (e) No reason has been given in arriving the magic figure of 14 years of restraint; and (f) the finding of the WTM on the issue of unlawful gain on pledge of shares is without any application of mind and without following the direction of the Tribunal. Accordingly, the matter was remanded to SEBI for passing fresh orders on the issues mentioned at paragraph 120 therein, which read as under: 120. For the reasons stated in the preceding paragraphs, the impugned orders dated October 16, 2018 and November 2, 2018 passed by the WTM are set aside. All the appeals are allowed. The matter is remitted to the WTM to pass a fresh order within four months after giving an opportunity of hearing to all the appellants on the following issues:- 1. The WTM will consider the intrinsic value while calculating the unlawful gain. 2. The unlawful gain, if any, will be calculated individually for all the appellants by the WTM. 3. The WTM will consider the issue on interest. 4. The WTM will reconsider the issue on period of restraint afresh for all the appellants. 5. The WTM will rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nga Raju July 18, 2023 and October 31, 2023 2 B. Rama Raju July 18, 2023 and October 31, 2023 3 B. Suryanarayana Raju July 18, 2023 and October 31, 2023 4 SRSR April 10, 2023, July 18, 2023, October 31, 2023 and November 01, 2023 5 Vadlamani Srinivas July 18, 2023 and October 31, 2023 6 G. Ramakrishna June 22, 2023 19. Opportunities of hearing was granted to all 6 Noticees. The date of hearings granted to Noticees post issuance of SSCN and details thereof are as under: Table No. 5 Noticees Date of hearing Remarks Noticee No. 1 to 6 September 12, 2023 Adjourned to 15.09.2023 on request of Noticee no. 1 to 5. Noticee No. 6 neither appeared for hearing nor requested for adjournment. Hearing concluded qua Noticee No. 6. Noticee No. 1 to 5 September 15, 2023 Adjourned to 29.09.2023 on request of Noticee No. 1 to 5. Noticee No. 1 to 5 September 29, 2023 Adjourned to 13.10.2023 due to declaration of holiday on 29.09.2023. Noticee No. 1 to 5 October 13, 2023 Partly heard and adjourned to 25.10.2023. Noticee No. 1 to 5 October 25, 2023 Hearing concluded in respect of Noticee No. 1 to 5. 20. During the course of hearings, for Noticee No. 1 3 the AR had submitted summarized note titled Note o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oticee No. 5 s AR to state that his written submissions may be considered as his oral submissions also and that any oral submissions made by any of the authorized representatives beneficial to him and not contrary to his written submissions, be considered as adopted by him. IV. REPLY- The replies, both written and oral are summarized below: 24. Noticee No. 1, 2 3 B Ramalinga Raju, B Rama Raju and B Suryanarayana Raju: The replies of B. Ramalinga Raju, B. Rama Raju and B. Suryanarayana Raju are similar. Therefore, their common replies are recorded under one head and their additional replies are recorded separate head. The common replies of of Noticee Nos. 1, 2 3 are summarized in brief as under: 24.1. The SSCN issued by SEBI is ex facie unsustainable in law and is beyond the scope of remand directed by 3rd SAT Order. 24.2. Intrinsic Value: 24.2.1. SEBI has not disclosed the relevance of NSE IT Index in calculating the intrinsic value of a share. The NSE IT Index, cannot form the legal basis for calculating the unlawful gain. It was not part of the original show cause notice. The methodology adopted by SEBI for arriving at the intrinsic value is faulty and ought not to be used, as th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that date was INR 103.43/-; six months average from then was INR 103.97/- ; nine months average from then was INR 103.06/-. Thus, the price of INR 103/- per share was the true intrinsic value of the share in 2009, as determined by the market. 24.2.8. As per SEBI's finding at para 52 of the first SEBI Order, the cumulative fictitious revenue upto Quarter 2 of 2009 i.e., for the entire alleged fraud period is INR 4782.75 Crores. On 06 January 2009, before the news of the scam broke out, the price of SCSL's share was INR 178.95/- per share. After the so-called scam became public, the intrinsic value fell to INR 103/- as analyzed earlier. Therefore, the intrinsic value of the share comes to 57.56% (103/178.95*100) which in other words means that the quantum of wrongful gain is 42.44%. 24.2.9. In 2009, when the cumulative fictitious revenues were INR 4,782.75 Crore, the wrongful gain is 42.44% of the sale consideration. However, it is to be noted that the cumulative fictitious revenues upto 31 March 2005 were only INR 522.66 Crores which amounts to 10.9% of the total falsification. The wrongful gain should be only 4.63% (10.9% of 42.44%) of the sale consideration in May, 2005. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omes payable only after computation of the disgorgement amount is made. The date on which the disgorgement amount is finally quantified, would represent the date of the cause of action, for payment of the disgorgement amount. It is only from this date that interest becomes leviable, and not from any prior date. There is no legal rationale for seeking to recover interest from the date of the email dated January 07, 2009 24.4.6. The interest rate of 12% per annum with effect from January 07, 2009 is arbitrary, excessive, and exorbitant. Further, the WTM has imposed lower interest rates in other proceedings in the past. There must be parity in therates of interest levied. There is no basis for the Ld. WTM to levy such a high rate of interest in the present case, that too without any reasons. 24.4.7. The rate of interest of 12% per annum ought to be reduced to 2% per annum considering the huge amounts involved and long passage of time of over 14 years since January 2009 and by applying the principle of parity 24.5. Period of Restraint: 24.5.1. The period of restraint already undergone (over 14 years) by Noticee No. 1 2 since the beginning of investigations shall be taken into considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... each share at 23.25%, by adopting the formula 58 / 249.5. In this connection, the following submissions are set out 25.5.1. Numerator of 58 The offer price of INR 58 per share is not a proper or valid factor to ascertain the intrinsic value. The said offer price merely represents an offer made during a distress sale. The offer was a commercial decision taken by Tech Mahindra to earn profit, and nothing more. The Noticee No. 1 has adopted INR 103 as the intrinsic value of each share on the basis of 3 month average, 6 month average and 9 month average from July 01, 2009. The said averages would represent the stabilisation and normalization of the share price over a period of time, post the negative news which caused the volatility in share price. 25.5.2. Denominator of 249.50 SEBI s approach insists on correlating the share price of Satyam with the NSE IT Index is an incorrect approach. The market index is a metric that measures market fluctuations based on market trends. Market trends are linked to factors such as speculation and expectation of investors, government policies, supply and demand, etc. These factors determine the market value of the share price, and not the intrinsic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on to the said falsification. Considering uniform intrinsic value for all Noticees irrespective of their date/year of sale of shares would be a faulty exercise. 26. Additional submission of B Suryanarayana Raju is summarized as under: 26.1. Considering the calculation of intrinsic value as mentioned at paras above, in the earlier years when inflation of revenues was lower, the intrinsic value would be higher, hence, there was no wrongful gain made by the Noticee No. 3. 26.2. Further, considering the methodology suggested by SAT i.e. taking the intrinsic value as INR 323.35/- as mentioned at para above, and Noticee No. 3 had sold all his shares in the years 2002 and 2003 when price of SCSL shares was between INR 260/- to 320/-, the total wrongful gain made by the Noticee No. 3 comes to approximately INR 1.39 Crores. 26.3. Trades Executed prior to 20-02-2002 PIT Regulations Amendment: 26.3.1. Prior to 20 February 2002, the test for being found guilty of insider trading under Regulation 3(i) of the PIT Regulations, was that of dealing in securities on the basis of UPSI as opposed to 'when in possession of' UPSI. There is no allegation in the SCN that the Noticee No. 3 dealt in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he entire loan amount of INR 1219.25 crores (received by pledging the shares) to SCSL to fund its operations. In this regard, Reliance placed on Hon ble Supreme Court of India in civil appeal no. 563 of 2020 in SEBI V/s Abhijit Ranjan and Hon'ble SAT Appeal No. 536 of 2021 in Rajeev Vasant Sheth others V /s SEBI. 27.1.8. Noticee No. 4 had to pledge the shares and infuse the proceeds into SCSL in order to facilitate its functioning. In case, the Noticee No. 4 had any intention of benefiting from the proceeds of pledge of shares, it would have sold the shares instead of pledging them. Alternatively, it would have not deposited the pledge proceeds with SCSL. In view of the above, the ratio laid down by the Hon'ble Supreme Court of India and Hon ble SAT (supra) would be applicable to the facts and circumstances of the case and accordingly and also after accounting for the said amount of INR 1230.40 Crores infused into SCSL, there is no unlawful gain made by the Noticee No. 4. 27.1.9. The act of 'pledging' doesn't fall within the ambit of 'dealing in securities' and hence the act of 'pledging' does not attract Regulation 3 of PIT Regulations. 27.1.10. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roceedings, SEBI cannot improve on its case. Strictly without prejudice to the said submission, SRSR must be given benefit of the cost of acquisition of the shares for calculating the disgorgement amount. 27.3.2. The finding of the Hon'ble SAT vide Order dated August 11, 2017 that SRSR was a front entity established by Noticee Nos. 1 and 2 for offloading their shares of SCSL, was only in the context of deciding whether SRSR was an insider within the meaning of Regulation 2(e) of the SEBI (PIT) Regulations. The Hon'ble Supreme Court affirmed was merely that SRSR was an insider . Nothing more can be read into this aspect, let alone using such a finding for computing unlawful gains. 27.3.3. It is a settled position of law, and as affirmed by the SAT Order dated February 02, 2023, that a Noticee cannot be worse-off upon remand. 27.3.4. By way of the above query, it would appear that SEBI is effectively seeking to lift the corporate veil of SRSR. It is impermissible. The corporate veil may be pierced only in rare and exceptional cases. Inter-alia, shareholding and control of a company is not enough to justify piercing the corporate veil. SRSR, a company, is a distinct and separa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o. 5 placed reliance on para 78 79 of Third SAT order. 28.3.2. The employee stock options at a strike price are in the nature of perquisite provided to an employee and the same shall be treated as part of the salary and cannot be subjected to the rigors of the Securities Laws. 28.3.3. Noticee has been allotted Stock options worth 3,60,000 shares on post bonus and post-split basis (36,000 stocks on presplit and pre-bonus basis) before the commencement of the alleged fraud period i.e., before 31-3- 2001 and the acceptance amount was paid on 24-12-1999 and 15-11- 2000. Therefore, these 3,60,000 shares are historic in nature and are allotted to the Noticee well before the alleged UPSI period and hence taking the original cost of acquisition without taking into consideration the market value of the shares would lead to a faulty calculation of unlawful gain. Thus, market value of shares as on the date of acceptance of the warrants should be taken into account. 28.3.4. As per the calculation submitted by the Noticee, the intrinsic value with regard to 3,60,000 shares comes to INR 13,98,40,000/- and an amount of INR 2,00,08,695 was to deducted towards cost of acquisition while calculating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and quantum of interest and period for which interest needs to be paid and therefore, SEBI has failed to put notice on this issue of interest which is in violation of principles of natural justice. In this regard, reliance is placed on decision of Hon ble Supreme Court in the matter of Reckitt Colman of India Limited vs Collector of Central Excise dated October 29, 1996 and Gorkha Security Serl'ices vs Govt. of NCT Of Delhi Ors dated August 04, 2014. Thus, the issue of interest was never raised by SEBI in the SCN and hence, a case for interest had never been canvassed by SEBI which Noticee No. 5 had never been required to meet. The Noticee No. 5 now cannot be asked to pay any interest on the disgorgement amount. 28.7.2. Without prejudice to the above, it is further submitted that the interest rate of 12% is arbitrary, excessive, and exorbitant. SEBI has charged an interest rate of 4% in the matter of Kirloskar Brothers case, 6% in the matter of NDTV and 6% in the matter of Gagan Rastogi. Therefore, the principle of parity should be applied to the case of the Noticee No. 5 and a lower rate of interest should be considered and request a simple interest of 2% per annum may be le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r 2007, the illegal gains is INR 1,05,26,264/- (calculation in tabular form is enclosed). 29.4. Trades Executed prior to 20-02-2002 PIT Regulations Amendment: 29.4.1. The shares sold by Noticee No. 6 before February 20, 2002 is 1,20,000 shares with sale value of INR 2,78,21,500/-. 29.4.2. To charge an Insider of Insider Trading violations, it has to be established that (a) prior to 20-02-2002 the insider has traded on the basis of UPSI; and (b) after 20-02-2002 the insider has traded while in possession of UPSI. 29.4.3. The case of SEBI is that the Noticee No. 6 has sold the shares of SCSL while in possession of UPSI . SEBI has failed to establish that all trades of Noticee No. 6 s (shares sold) that happened prior to 20-2-2002 (120000 shares having a value of Rs 278.21 Lakhs) was on the basis of UPSI. 29.4.4. No finding is recorded in the First SEBI order that the Noticee no. 6 had sold shares of SCSL on the basis of UPSI (in the case of all trades prior to 20-2-2002 Amendment), therefore, the amount of Rs 278.21 lakhs realized by the Noticee no 6 (by selling 1,20,000 shares) should be excluded while computing the disgorgement amount. 29.4.5. Noticee No. 6 placed reliance on SRSR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the cause they have to show and address. This inter alia would require SEBI to specify the quantum and manner of computation of unlawful gains proposed to be done vis-a-vis Noticee. The record of proceedings of hearing dated April 10, 2023 was sent to the AR of the Noticees and was acknowledged by them. Therefore, SSCN dated June 06, 2023 was necessitated due to the submissions made by Noticee Nos. 1 to 5, and in compliance with principles of natural justice they were given opportunities to show cause on the issues mentioned in Third SAT order. There is no deviation from or fresh adjudication of the points decided in the Third SAT Order. In view of the same, I do not find any merit in the submission of the Noticees that issuance of SSCN is beyond the scope of remand. 31. The Hon ble SAT vide the First SAT order has given its verdict on facts confirming the liability of the Noticee No. 1, Noticee No. 2, Noticee No. 5 and Noticee No. 6 herein for fraud in SCSL, as concluded by SEBI in the First SEBI order and proceeded to hold that they have traded during the relevant period while in possession of the Unpublished Price Sensitive Information (UPSI). Further, Hon ble SAT vide its Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... direction of the Hon ble SAT are reproduced below for reference: 68. . On the issue of disgorgement, we find that the requirement to disgorge ill-gotten gains is based on the principle that the person guilty ought not to be permitted to unjustly enrich himself by taking the offending action. In the case of a gain made by sale of securities, such gain would ordinarily be the amount realised by the sale of shares less the acquisition cost and statutory taxes to the person concerned. The computation based on net profits method adopted in the impugned orders is usually applied by SEBI in many cases while computing the disgorged amount but is not the only method adopted by SEBI. 71. In a given case, the net profit method may be appropriate; in a another case, the intrinsic value may be appropriate and yet in another case, market absorption method could be most suitable. ... 73. In the instant case, the WTM has adopted the net profit method, namely, the difference between the cost of acquisition of shares and the amount realised by sale less statutory taxes. 79. But where shares purchased were historic and includes bonus shares and these shares have grown in value over the years, in such ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... moter noticees did not provide details of the costs of acquisition unlike the details provided by the employee noticees (Srinivas, Ramakrishna and Gupta). Further, the following was observed with respect to the concept of intrinsic value in the order: The concept of intrinsic value of share is not circumscribed by a sharp definition in the world of finance and hence the term is employed flexibly depending upon the objectives on hand. Book value is considered as a reasonably close enough proxy for intrinsic value, although book value does not take into account the future growth potential. The market traded price of a share may not mirror the intrinsic value as the market price loads in investor expectations regarding future prospects. Given the nebulousness of the concept of intrinsic value, there is no one objective or uniform methodology of arriving at it. Leaving aside this practical difficulty of arriving at an objective number, the more important question that needs to be addressed is whether persons who are themselves instrumental in perpetrating a fraud, should be given benefit of the intrinsic value while computing the disgorgement amount. Any act done with a clear motive of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sation - if the free, fair, and liquid market does not give him or her the price that he or she expects based on a particular textbook valuation model. 38. What if the market is liquid and frequently traded, but not entirely free and fair? Consider an illustrative case of insider trading, where an insider in possession of some UPSI (assume one that is unfavourable to the prospects of the company), sells shares in a liquid market before such information becomes public. In this event, there is illegal information asymmetry, where unlike the insider seller, the buyer in the market is unaware of the impending negative UPSI, and is therefore paying a price higher than he/ she would have been willing to pay, had he/ she been aware of the UPSI. How would one determine the unlawful gain enjoyed (or loss averted) by the insider? Logically, it would be the difference between the sale proceeds enjoyed by the insider, and the lower value the insider would have received had the market been aware of the UPSI. The key question to ask, therefore, would be what is the price the insider would have obtained in the first place, had the market then been aware of the UPSI? 39. How should one go about an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces happen to move substantially over the next few days? Should that in turn impact the anchor intrinsic value of the share in question? The answer would wholly depend on the specific context of each case. As a logical approach, however, one would have to reasonably estimate as to how much of the continued move can be attributed to the UPSI becoming public. In certain situations of prolonged uncertainty, markets could take a long time to digest significant pieces of new information. 43. Let us now look at this specific case of insider trading in Satyam in some more detail, in order to arrive at a plausible methodology to arrive at the intrinsic value of the share. In the current case, it transpires that there was a prolonged period of time where a fair market in Satyam shares did not really exist. Between 2001 and late 2008/ early January 2009, by their own admission and as an established fact, an egregious fraud was perpetuated by the promoters and noticees that the public at large was unaware of. Public suspicion of something being seriously wrong in the affairs of the Satyam group only emerged towards the end of 2008. 44. To that extent, being aware of this crucial UPSI during t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Mahindra open offer price of INR 58 on April 22, 2009, the price of SCSL was INR 73.25 on July 1, 2009, a rise of 26%. What they fail to point out is that the broader IT index, which is a basket of major IT stocks, moved up from 2,495 to 3,527 during the same period, a rise of 41%. If anything, SCSL underperformed the broader IT segment; while a rising market tide lifted all boats during that time, the SCSL boat was lifted up less than the others. As I shall point out later, much of the price points that that the noticees have quoted, similarly attempt to portray what was essentially a systematic move across the market as an idiosyncratic SCSL move. 48. In the case under consideration, the nature of the admissions by the promoters in January 2009 were so shocking, so deleterious to the core reputation of a company that had otherwise built the image of being standard bearers of good governance, and so destructive of investor value and stakeholder trust in the company and the group, that every other company-specific news in the interregnum simply pale in terms of impact and relevance. The confession to the fraud was the one unsystematic factor that dominated the price of SCSL share ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct, 1956, the CLB, on January 9, 2009, suspended the then-existing Board of Directors and passed orders directing the GOI to nominate up to ten (10) directors on SCSL s Board. Further, as per the CLB order dated February 19, 2009, the Board of Directors of SCSL formulated a proposal to conduct an open and competitive bidding process. 53. On April 14, 2009, Venturbay Consultants Private Limited (Acquirer) (a subsidiary of Tech Mahindra Limited) along with Tech Mahindra Limited (PAC), won the bid to become the new owner of SCSL. The Acquirer bid INR 58 per share, higher than Larsen Tubro s bid of INR 45.90 per share, and Wilbur Ross s bid of INR 20 per share. This gave the Acquirer a controlling stake of 51% in the company. Under terms of the bid, the Acquirer had to mandatorily make an open offer to SCSL s existing shareholders for another 20%. Media reports at the time do not support the noticees contention that the Acquirer picked up the stake at a bargain or distressed price. If anything, it was noted that the Acquirer s price was significantly higher than the other bidders price, and also higher than the secondary market price for the stock. In fact, even after the Acquirer purc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... April 22, 2009. However the market price on 22.04.2009 (Rs. 46.9) was well below INR 58, and stayed below INR 58 till end of May 2009. 56. Given all of the above, what is the best candidate as the price anchor for determination of the intrinsic value of the share in this particular case of insider trading? Several candidates could be considered. The market close on January 7, 2009 (INR 40.3), the all-time low seen intraday on January 9, 2009 (around INR 6), the Tech Mahindra open offer price (INR 58) announced on April 22, 2009, the market closing price on April 22, 2009 (INR 46.9), or the average closing price between April 22, 2009 and May 29, 2009 (INR 47.7), all come to mind. 57. My over-arching consideration, however, is to arrive at a reasonable price at a point in time that best reflects the fair price of the stock for a significant number of shares, amidst the considerable uncertainty and chaos in a market still shell-shocked by the trust destruction following the explosive admissions by the promoters. From the price action and the news flow after January 7, 2009, it does appear that the markets remained shaken by the extent of the fraud confessed to by the promoters, and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the overall movements in the markets themselves are considered. As on December 16, 2008, the IT index was at 2,266. It rose to 2,495 as of April 22, 2009, higher by about 10.11% during the period. Ceteris paribus, to compute the intrinsic value of the SCSL share as of December 16, 2008, given that the anchor for the same was INR 58 as of April 22, 2009, one must reduce this INR 58 by this 10.11% to account for this overall change in market (on account of systematic factors) in the interim period. That makes the intrinsic value of the share, as of December 16, 2008, at INR 52.67, or 23.25% of the market price of INR 226.6 on December 16, 2008. 61. From the above, we posit that it is reasonable to estimate that the intrinsic value of the share on December 16, 2008, was 23.25% of the closing price of the day. Extrapolating from this, given that shares were directly or indirectly offloaded by the noticees at different points of time, we posit that the intrinsic value of the share at any point of time during the period of the UPSI was 23.25% of the share price accessed by the insider. Note that this approach acknowledges that notwithstanding the egregious breach of trust by the promot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... systematic factors during the intervening periods. In December 2000, stock prices in the IT industry were still inflated from the dot-com bubble, and the IT index averaged 3,350. A year later, in December 2001, as the dot- com bubble burst, the IT index averaged 1,842, down 45% from a year ago. Finally, even 8 years later in December 2008, the IT index averaged 2271, down 32.2% from the levels of December 2000. 65. In summary, I do not find merit in this contention of the Noticees given the facts and circumstances of this case. It appears that this disingenuous argument (given it ignores the 2006 bonus issue and ignores the sharp systematic movement in the markets over time) is rooted in an attempt to curry financial benefit to the noticees by hook or crook, since if this so-called cost of acquisition is adopted, the resultant illegal gain would be significantly reduced. Noticees have urged that this figure be adopted pointing to the observation made by Hon ble SAT in the Third SAT Order. I have perused the Third SAT order. The Hon ble SAT has not specified a particular price as the deductible cost of acquisition; the reference to INR 323.35 was merely to suggest the various possib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year Inflated Revenues (Rs. Cr) as per original SEBI order 15/7/2014 (cumulative) Inflated Revenues as a proporion of total inflation in revenuex of Rs. 4782.76 crores Inflation in shares prices in respective years (when the inflation in share prices is 42.44% after the total fraud came to light) Transaction date Sale value of SCSL shares in INR Unlawful gains in INR A B C [(B/4782.76)*100] D (C*42.44%) E F (E*D) 2008-09 4782.76 100% 42.44% 2001-02 NIL NIL NIL Nov-Dec 2002 32,01,00,000 0 2002-03 NIL NIL NIL Sep to Dec 2003 40,96,00,000 0 2003-04 213.21 4.46% 1.89% 11/19/2004 2,06,00,000 4,00,000 Less: Taxes paid (limited to unlawful gain amount) 4,00,000 Disgorgement amount 0 67. As noted earlier, the rationale behind the aforesaid contention appears to be rooted in what is more financially beneficial to the noticees. I do not find the proposal to be rational, reasonable or justifiable. 68. The argument that the open offer price proposed by Tech Mahindra was a fire sale price, is not tenable. The fire sale took place immediately after the shocking revelation by Ramalinga Raju on January 07, 2009. The panic selling led to the stock market price crumbling down to intraday low as INR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant point in time, the open offer price was determined by the acquirer after careful evaluation of the company s assets and liabilities (existing and potential). It is also relevant in this context to note that the market price on April 22, 2009 was INR 46.9, which was well below the open offer price of INR 58. It stayed below Rs 58 till June 1, 2009. Rama Raju s contention that the open offer price of INR 58 could be offered only because compliances were relaxed, does not further his contention. To supplement this with hard numbers, the average IT index for 3 months from April 22, 2009 was 3,265, or 30.9% higher than the IT index as on April 22, 2009. In contrast, the average price of SCSL from 3 months from April 22, 2009 was Rs 63.7, just 9.8% higher than the Acquirer s bid of Rs 58. Even with the relief of a new respectable management in place, the market still gave the Acquirer a relatively poor return compared to the overall IT index. Even three months into the acquisition, there was simply nothing in the market to suggest that the Acquirer had made a good bargain; if anything, the evidence suggests the contrary. 69. Let us now consider the contentions of Ramalinga Raju, Ram ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the affairs of Satyam in April 2009. In 2009, in the aftermath of one of the largest corporate scandal in India, regulators and government departments/ agencies stepped forward to ensure a smooth transition for the company and its shareholders with a view to ensure that confidence was revived in the integrity of the securities market. The fact that Tech Mahindra then bid for the preferential allotment and subsequently followed up with an acquisition of shares through an open offer, likely resulted in a renewed optimism in the prospects of the company. Media reports also suggested that some large shareholders could not participate in the open offer because of lock-in restrictions. In addition, despite the announcement of Rs 58 as the open offer price on April 22, 2009, the secondary market price of SCSL stayed below this level till June 1, 2009. The secondary market did eventually reach 73.25 as on July 1, 2009, or 26.3% higher than the Rs 58 offer price. However, between April 22, 2009 and July 1, 2009, the IT index itself moved up from 2,495 to 3,527; a 41.3% rise. If anything, there was a much larger systematic move underway in IT shares during that period, and SCSL was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in egregious fraud to dress up the financial results of the company, irrespective of the size of the fraud, they would have rushed to the exit door. 73. By urging that the scale of fraud was lesser in earlier years when the promoters sold their shares, these noticees appear to be seeking to reduce their culpability by pointing to the lesser gain they made. This is far from the truth. The large scale of the fraud in Satyam was built up from the early 2000s. It was not an overnight exercise. The promoters/ management played the central role in this build up. Further, much of the promoter holding was moved to SRSR Holdings Pvt Ltd for raising funds through pledge of shares and then offloaded later due to invocation of the security. In view of the above, I am unable to accept the contention that the intrinsic value was higher in earlier years of the fraud. 74. Noticee No. 6 G Ramakrishna, has adopted yet another method of computing illegal gain without specifically alluding to intrinsic value . According to him, the fair value computation and the amount of illegal gain should be based on the following formula 77.06%/Total fictitious sales during April 2003 to September 2008 multipli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to pay had they been aware of the egregious fraud perpetrated by the promoters. There can be no doubt of the core fact, therefore, that given the egregious and shocking nature and extent of the fraud, the noticees enjoyed substantial unlawful gain from every instance of offloading of Satyam shares by them during this period. Arguments presented by noticees to obfuscate this basic truth, or to claim that there was in fact little or no unlawful gain, are disingenuous, and brazen insults to public intelligence and common sense. 77. The approaches proposed by the noticees are clearly whimsical and a race to the bottom, that cannot be relied on for the purposes of computation of underlying value/ notional cost of acquisition as directed by the Hon ble SAT B. Issue of Joint and Several Liability: 78. As noted earlier in this Order, the Second SEBI Order directed that the liability for illegal gains made by associated entities/ relatives would be borne by Ramalinga Raju and Rama Raju as well, jointly and severally. The Third and Fourth SEBI Orders (passed pursuant to the remand of the First and Second SEBI Orders) only partially modified the directions inter alia by revisiting the quan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he plea of the appellants on the issue of interest, especially when it has been urged that SEBI has been imposing lower rate of interest in a large number of matters . (emphasis supplied) 81. Pursuant to the aforesaid, Noticees vide SSCN were advised to show cause as to why they should not be directed to pay simple interest at the rate of 12% per annum on the unlawful gains from January 07, 2009 till the date of payment in addition to the illegal/ unlawful gains proposed to be disgorged from them. 82. Noticees contented that: 82.1. The interest is payable only after computation of the disgorgement amount is made and the date on which the disgorgement amount is finally quantified, would represent the date of the cause of action for payment of the disgorgement amount not from any prior date. 82.2. Since the amount of disgorgement is yet to be computed, the question of levying interest at the rate of 12% per annum from January 7, 2009 till the date of payment does not arise at all. The interest rate of 12% per annum with effect from January 07, 2009 is arbitrary, excessive, and exorbitant. 82.3. SEBI has charged an interest rate of 4% in the matter of Kirloskar Brothers case, 6% in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e shares of SCSL while in possession of UPSI which is in violation of PIT Regulations. Therefore, I am of the view that interest is payable because the Noticees had received unlawful benefit (illegal gains), which the Noticees were not entitled to. 85. Rate of interest for the violation of Securities laws have generally been based on applicable statutory provisions, case laws or past precedents. For instance, In Deemed Public Issue cases, the interest on refund have, in most cases, been imposed at the rate of 15%. Under Section 73(2) of the Companies Act, 1956, if monies received from applicants to a public issue were not repaid within a period of 8 days after the company became liable to repay, the company and directors who were officers in default were mandated to repay the money with interest at such rate, not less than four per cent and not more than fifteen per cent, as may be prescribed. Further, in terms of rule 4D of the Companies (Central Governments) General Rules and Forms, 1956, the rates of interest, for the purposes of Section 73(2), was 15 per cent per annum. Hence, as per Section 73(2) read with Rule 4D, the applicable rate of interest on refund amount was 15% per a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the ill-gotten gains. 2 Navin Tayal and ors in the matter of Bank of Rajasthan August 02, 2021 PIT Regulations 12% From date of transaction/violation till date of order i.e. May 27, 2010 to December 31, 2015. The appellants made unlawful gains in 2010 and have earned interest on it, and therefore, the authority was justified in imposing interest on the disgorged amount from the date of the cause of action and not from the date of the order. 3 SMS Techsoft (India) Limited October 18, 2019 PFUTP Regulations 12% From the last date of investigation period i.e. November 05, 2013, till the date of payment 4 Dhyana Finstock Ltd June 10,2022 PFUTP Regulations 12% From the last date of investigation period i.e. July 27, 2015 till the date of payment 5 KLG Capital Services Limited July 29,2022 PIT Regulations 12% From the day after the UPSI was published i.e. February 29, 2008 till the date of order 6 Palred Technologies Limited June 15,2022 PIT Regulations 12% From the date of buy transaction till January 31,2016 (date of interim order) 7 Top Class Capital Markets Pvt. Ltd in the mater of Aurobindo Pharma Ltd March 08,2022 PIT Regulations 12% From the day after the UPSI was published i.e. M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ext, I find the observations of the Hon ble SAT in its order dated August 02, 2021 in the matter of Navin Kumar Tayal and Ors. Vs. SEBI to be instructive. The Hon ble SAT held that ..It was urged that the rate of interest awarded is excessive and arbitrary and further the interest could only be levied from the date of the order and not from the date of cause of action. This contention cannot be accepted. The appellants made unlawful gains in 2010 and have earned interest on it, and therefore, the authority was justified in imposing interest on the disgorged amount from the date of the cause of action and not from the date of the order . (emphasis supplied). This SAT order is also relevant in the context of the Noticees contention that interest can only be calculated after SEBI computes the amount of disgorgement, and that since the amount of disgorgement is yet to be computed the question of levying interest at the rate of 12% per annum from January 07, 2009 till the date of payment does not arise at all. In view of the aforementioned orders of the Hon ble Supreme Court and SAT., I do not find any merit in the contention of the Noticees that interest would be applicable form the da ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... SRSR Holdings Pvt. Ltd. are equal perpetrators is without any basis. 4. In our view, B. Suryanarayana Raju and SRSR Holdings Pvt. Ltd. cannot be worse off on remand. The increase in period of restraint over and above the earlier order of remand is wholly illegal and cannot be sustained 91. In this regard, vide SSCN- 91.1. Noticee Nos. 1 to 4 were advised to show cause as to why they should not be restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of 14 years. 91.2. Noticee No. 5 6 were advised to show cause as to why they should not be restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of 7 years. 92. With regard to the period of restraint, Noticees inter alia submitted as under: 92.1. Noticee No. 1 2 had already undergone the period of restraint (over 14 years) since the beginning of investigations and same sha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tigation and thereby had already served 14 year restraint period. The conclusion that Ramalinga Raju and Rama Raju had orchestrated the whole Satyam fraud, was upheld by the First SAT Order. However, taking into consideration the period of debarment already undergone, and considering that the Third SAT Order has directed that noticees cannot be worse of on remand, I find that these noticees are required to undergo remaining period of debarment as directed in the First and Fourth SEBI orders. 94.2. Suryanarayana Raju and SRSR Holdings Pvt. Ltd. - The Second SEBI Order had imposed a restraint of 7 years against these two noticees from the date of the order. Pursuant to remand by SAT, in partial modification of the Second SEBI Order, SEBI passed the Fourth SEBI Order whereby this period of restraint was increased to 14 years, taking into account the observations of the Hon ble Supreme Court in its order dated May 14, 2018. However, the Third SAT order dated February 02, 2023 has observed that these noticees cannot be worse off on remand and therefore remanded the matter to SEBI to reconsider the issue on period of restraint. I note that these noticees have already undergone/completed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he relevant extracts are reproduced below: h) Fact that the financial institutions while sanctioning loan to the 10 group entities took the market value of Satyam shares pledged by SRSR and the market value of Satyam shares was based on inflated/manipulated books of Satyam could not be a ground for the WTM to hold that the sanctioned loan of `1258.88 crore was the unlawful gain made by Ramalinga Raju and Rama Raju. Even if higher loan was sanctioned on the basis of inflated price of Satyam scrip, loan sanctioned with an obligation to repay could not by itself constitute gain under any provision of the securities laws. i) Apart from the above, facts on record reveal that out of the sanctioned loan of `1258.88 crore, the loan availed by the 10 group entities was `1219.25 crore and the loan repaid by the said 10 group entities on account of invocation of pledge and by other modes was to the extent of `1215.83 crore. Thus, the balance loan repayable was only to the extent of ` 3.43 crore. All these facts were available before the WTM. In such a case, decision of the WTM holding that the sanctioned loan of `1258.88 crore represents the illegal gain made by Ramalinga Raju and Rama Raju c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... application of mind and without following the direction of the Tribunal and, therefore, the said finding cannot be sustained. (emphasis supplied) 100. The above observations provide context to the Hon ble SAT s direction in para 120 to reconsider the issue on pledge of shares . The above observations indicate that the following issues need to be addressed in this Order in the context of pledge of shares by SRSR 100.1. Can a loan sanctioned by financial institutions to promoter group entities amount to unlawful gain by SRSR, Ramalinga Raju and Rama Raju? 100.2. When an insider allows the sale of pledged shares by a lender to extinguish a loan liability, while in possession of UPSI, does this involve an unlawful gain? 100.3. Whether the valuable consideration paid by SRSR for acquisition of Satyam shares is required to be deducted from the gain, if any, made by SRSR to compute illegal gain? 101. Taking into consideration the Fourth SEBI Order (wherein the liability of SRSR was crystallised after taking into account Hon ble SAT s observations in the Second SAT Order) the SSCN has asked why the amount raised by way of pledge of Satyam shares held by SRSR which was eventually invoked an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nctioned on the basis of inflated price of Satyam scrip loan sanctioned with an obligation to repay could not by itself constitute gain under any provision of the securities laws. Therefore, what is now in question is whether loans extinguished through sale of pledged shares could be regarded as involving any unlawful gain. 105. The First SAT Order stated that facts on record reveal that out of the sanctioned loan of INR 1258.88 crore, the loan availed by the 10 group entities was INR 1219.25 crore and the loan repaid by the said 10 group entities on account of invocation of pledge and by other modes was to the extent of INR 1215.83 crore. Based on the material available on record, the Fourth SEBI Order had noted that the repayment of the amount of INR 1215.83 crore was by way of sale of Satyam shares (INR 675,39,48,813) as well as through other sources (INR 540,43,82,089). I have considered the observations made in the First and Second SAT orders as well as the Fourth SEBI Order. 106. Loans come with a repayment obligation, and are a financial liability of the borrower. Any collateral is pledged as a security, to be forfeited by the borrower/ pledger in the event of a default on t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 0 billion rupees was arranged to Satyam (not reflected in the books of Satyam) to keep the operations going by resorting to pledging all the promoter shares and raising funds from known sources by giving all kinds of assurances (Statement enclosed, only to the members of the board). Significant dividend payments, acquisitions, capital expenditure to provide for growth did not help matters. Every attempt was made to keep the wheel moving and to ensure prompt payment of salaries to the associates. The last straw was the selling of most of the pledged share by the lenders on account of margin triggers. (emphasis supplied) 107. While the confession email and the submissions of the noticees have attempted to justify the pledge of shares explaining the bonafide purpose for which loans were taken, the indisputable fact is that loans were raised against the collateral of overvalued Satyam shares. Crucially, rather than repay the loan directly or to up the collateral margin as they were obligated to, the promoters defaulted on the loans, and instead allowed the loans to be extinguished by sale of overvalued Satyam shares by the lenders in the market, when the UPSI was still not public. Sans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eir wives cannot mean that SRSR should be deprived of the benefit/deduction of acquisition costs. In this regard, I am drawn back to the conclusions of the Second SAT order upheld by the Hon ble Supreme Court in its 2018 order (discussed above), wherein SRSR was described as a front entity and that the shares were transferred to it by the Raju brothers merely to enable its eventual offloading in the market so that the benefit of artificially inflated shares would accrue to the promoters. The shares simply moved from individual promoters to a body corporate promoter which was nothing but an alter ego of the promoters. Again, this is supported by the aforementioned confession email of Ramalinga Raju. However, the Noticees have repeatedly in their submissions before me contended that shares were acquired by SRSR for valuable consideration at a higher price. Therefore, in addition to the existing material on record, I called for bank account details in this regard. I was informed that the bank account associated with settlement of the bulk deal claimed by SRSR pertained to ICICI Bank. 110. Upon perusal of the said bank account details the following transactions are observed to have tak ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge, the liability to repay the loans was also extinguished. The contention that shares were acquired by SRSR from the Raju family (which as observed in the Second SAT order were the promoters of Satyam) for valuable consideration appears to be an attempt to lend artificial legitimacy to the transactions. The so-called acquisition of shares can only be viewed as movement of shares from the left pocket to right pocket of the main perpetrators of the scam- Ramalinga Raju and Rama Raju. Allowing the deduction of this bogus cost i.e. the cost of acquisition, on the strength of the aforementioned round tripping of funds would end up in grossly injuring the confidence of investors in the integrity of the securities market. In view of the same, I do not find any reason to deduct the claimed cost of acquisition of Satyam shares amounting to INR 2,266 crore from the unlawful gain made by SRSR. I also do not agree with the contention that since the cost of acquisition is more than the loans obtained, there is no basis for issuing a disgorgement order against SRSR. Nonetheless, intrinsic value of the Satyam shares may be considered for deduction from the illegal gains made by SRSR, as has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Raju, Rama Raju and their wives to SRSR a company owned by Ramalinga Raju, Rama Raju and their family members while in possession of UPSI. Moreover, before transferring the shares of Satyam, Ramalinga Raju and Rama Raju became Directors of SRSR and thereafter on transfer of shares, SRSR pledged those shares for obtaining loan to the entities owned by Ramalinga Raju and his family members. In these circumstances, decision of the WTM of SEBI that acquisition and pledge of Satyam shares by SRSR was a device adopted for off loading the shares of Satyam when in possession of UPSI and hence violative of regulation 3 of the PIT Regulations cannot be faulted . From the second SAT order, I note that expression dealing in securities is wide enough to cover all types of dealing in securities including the act of pledging the securities by an insider when in possession of UPSI. Hence, I do not find any merit in the said submission of Noticee No. 4. 115. In any case, I do not find these arguments to be relevant at this stage of the proceedings. As earlier discussed, the merits of the case i.e. whether SRSR was an insider or not and whether it had violated PIT Regulations by way of pledging Sat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the amendment of regulation 3 on 20.02.2002. On the date on which Jhansi Rani sold the shares of Satyam, the prohibition under regulation 3 was that no insider shall trade in the shares of the company on the basis of UPSI. The words on the basis was substituted by the words when in possession with effect from 20.02.2002. Thus, sales effected by Jhansi Rani could be said to be violative of regulation 3, only by establishing that she had sold the shares of Satyam not only when in possession of UPSI but also on the basis of UPSI. As there is no finding recorded in the impugned order that Jhansi Rani sold shares of Satyam on the basis of UPSI, impugned order passed against Jhansi Rani cannot be sustained Relying on the finding of Hon ble SAT and considering the fact that there is no finding in First SEBI order and Second SEBI order that the Noticees have dealt in / sold / transfer SCSL shares on the basis of UPSI, I am of the view that any sale consideration arising out of shares sold by the Noticees prior to February 20, 2002 shall not be considered for computation of unlawful gains liable to be disgorged. 119. The details of SCSL shares sold by Noticee No. 3, 5 6 on or prior to Fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , I note that sale consideration mentioned in the below table arises out of SCSL shares sold by the Noticee No. 3, 5 6 prior to February 20, 2002 and the same shall be deducted while computing unlawful gains liable to be disgorged from respective Noticee. Table No. 14 Noticee No. No. of shares sold / transfer Sale value in INR 3 2,95,500 12,43,02,825 5 3,90,500 6,72,05,065 6 1,20,000 2,78,21,500 121. Noticee No. 2 (Rama Raju) submitted that there is calculation error in the consideration for 6,00,000 shares sold by him. The sale value of 6,00,000 shares at INR 444.66/- per share comes to INR 26,67,50,000/-. However, SEBI has considered the total sale amount of 6,00,000 SCSL shares as INR 29,54,35,195/-. The said error occurred on account of addition of quantum of shares sold by Mr. Rama Raju Jr., to the aforesaid amount. In this regard, from the document available on record, I find that while in possession of UPSI, B Rama Raju on May 30, 2005 had sold 6,00,000 shares at INR 443.75/- per share for a consideration of INR 26,62,50,000/- instead of INR 29,54,35,195/- as mentioned in SSCN. 122. After considering the intrinsic value, details of taxes paid, shares sold prior to February 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares of the Noticee because these shares are not at all considered for calculation of unlawful gains. 125. Noticee no. 5 submitted that there is a clerical error in calculating the sale value of shares sold on December 11, 2008. According to him, SEBI had considered the closing price of December 11, 2007 instead of closing price of December 11, 2008. In this regard, from the available data, I note that the closing price of SCSL share on December 11, 2008 was Rs 224.45 instead of Rs 442.65 (INR 442.65 is the closing price on December 11, 2007). Therefore, the sale value of 5,142 SCSL shares taken in calculating unlawful gains in First SEBI was in excess INR 11,21,984/- (442.65 224.45 = 218.20 * 5142). Hence, I find that INR 11,21,984/- must be deducted from total sale value as mentioned in First SEBI Order, while calculating unlawful gains liable to be disgorged. 126. After considering the cost of cost of acquisition, details of taxes paid, shares sold prior to February 20, 2002 and removal of clerical error, if any, the unlawful gains (in INR) made by Noticee no. 5 6 which is liable to be disgorged is as under: Table No.17 Calculation of Unlawful gains of Noticee No. 5 - V Sriniva ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made (INR) 1 B Ramalinga Raju 20,43,46,875 2 B Rama Raju 20,43,46,875 3 B Suryanrayana Raju 51,44,41,030 4 SRSR Holding Private Limited 518,36,55,714 5 V Srinivas 9,58,26,672 6 G Ramkrishna 3,83,65,354 Total 624,09,82,520 ORDER 128. In view of the above, I, in exercise of the powers conferred upon me under section 11, 11(4) and 11B of the SEBI Act read with section 19 of the SEBI Act, 1992, and regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003, and regulation 11 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, for the reasons elaborated in paras 93 and 94 of this Order, hereby restrain the following noticees from accessing the securities market and further prohibit them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, for the period specified below: Table No. 20 Name of Noticee PAN Period of restraint B Ramalinga Raju ACVPB8311J Till July 14, 2028 B. Rama Raju ACEPB2813Q Till July 14, 2028 Also, for the reasons elaborated in paras 93 and 94 of this Order, no direc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l charges along with order details: 131. As directed by the Hon'ble Supreme Court in C.A.Nos.11298/2017, 8242/2017 10215/2017, 9493/2017 and 9524/2017 this Order shall come into effect from such date as the Hon'ble Supreme Court directs. Also, the Noticees shall continue to abide by the directions of the Hon ble Supreme Court, referred to in para 7 of this Order. 132. A copy of this order shall be served upon all 6 Noticees. A copy of this order shall also be forwarded to concerned Registrar of Companies, Stock Exchanges, Registrar and Transfer Agents and Depositories for their information and necessary action. Encl: Annexure Extract of SSCN on Calculation of Unlawful gains in the matter of Satyam Computer Services Ltd. ANNEXURE EXTRACT OF SSCN ON CALCULATION OF UNLAWFUL GAINS IN THE MATTER OF SATYAM COMPITER SERVICES LIMITED 1. Pursuant to the confession of fraud in Satyam Computers Services Limited (SCSL)) by Mr. B. Ramlinga Raju (then Chairman of SCSL) on January 07, 2009, the Government of India ( GOI ) filed Company Petition 1 of 2009 with Company Law Board ( CLB ). 2. Pursuant to the proceedings instituted by GOI with the CLB under Sections 388B, 397 and 398 read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t on 7/1/2009, but negative news started percolating in December 2008) 5.4. Correlation between IT Index and Satyam between 22.04.2009 and 31.12.2010 = 20.8% (Tech Mahindra takeover announced on 22/4/23) essentially, correlation remained damaged even after Tech Mahindra takeover. IT index grew by over 200% during this period, while Satyam (Mahindra) only grew by 14%. 5.5. Rs. 58 was the intrinsic price on 22/4/2009 the day the Tech Mahindra deal was announced. Note that market price (at 46.9) was well below 58, and stayed below 58 till end-May 2008. 5.6. Had there been no fraud, and assuming correlation between IT Index and the (headline) SCSL price (referenced to 16.12.2008) may have been 249.5 on 22.04.2009. By this way, percentage of the intrinsic value vis- -vis market value on 22.04.2009 is 23.25% (58/249.5). The Calculation of Rs. 249.5 as on 22.04.2009 is as under: 5.6.1. On December 16, 2008, the day till which no negative news about SCSL was in public domain, the IT Index value was 2,266 and the price of SCSL share was Rs. 226.6. The negative news about SCSL started percolating from December 17, 2008. 5.6.2. On April 22, 2009, the day when Tech Mahindra made a Public annou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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