9911796707
TMI Blog2025 (1) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... he WTM WTM - Whole Time Member, SEBI SEBI - Securities and Exchange Board of India under Section 11(1), 11(4) 11B (1) and (2) of the SEBI Act, 1992 SEBI Act, 1992 (Securities and Exchange Board of India Act, 1992) read with SEBI (PIT Regulations), 2015 SEBI (Prohibition of Insider Trading) Regulations, 2015. 2. Brief facts of the case are as under:- Mr. Dhiren Shah is engaged in the business of trading in shares and securities. He is a Director in various group companies, namely, M/s. Affluence Fincon Services Pvt. Ltd. (Appellant No. 1) and M/s. Affluence Shares and Stock Pvt. Ltd. (hereinafter referred to as 'ASSPL'), the latter is engaged in the business of providing share-broking services. Appellant No. 2 Mrs. Amee Dhiren Shah is wife of Mr. Dhiren Shah. Mr. Dhiren Shah is also the Karta of Dhiren Mahendrakumar Shah HUF (Appellant No. 3). Admittedly, Mr. Dhiren Shah generally takes investment decisions on behalf of the appellant Nos. 1 and 2. All three appellants, Mr. Dhiren Shah and ASSPL are referred to as "Dhiren Shah Group". 2.1 M/s. IAL M/s. IAL (Infibeam Avenues Ltd.) and M/s. IMGPL M/s. IMGPL (Infinium Motors (Gujarat) Pvt. Ltd.) are another set of companies promoted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of this, were: a) restrained from accessing securities market for 1 year; b) restrained from dealing in scrips of IAL for 2 years; c) levied penalty of Rs. 15 Lakhs (separately on each appellant); and d) directed to deposit the following amounts as disgorgement of unlawful profits made in IAL shares by way of insider trading: Appellant Amount (in Rs.) (i) Appellant No. 1: Rs. 2,00,46,131.20 (ii) Appellant No. 2: Rs. 24,50,030.65 (iii) Appellant No. 3: Rs. 35,96,924/-. The present Appeal challenges this final order dated April 27, 2021. 3. In passing the impugned order, the Ld. WTM has reached to the above findings based on the following observations : 3.1 On June 26, 2017, IAL made a corporate announcement with the Stock exchanges for holding a board meeting on July 13, 2017, with an agenda for 'issue of splitting of 1 equity share of the face value of Rs. 10/- per share into 10 equity shares of face value of Rs. 1/- per share'. The discussion for finalizing agenda items for the proposed Board meeting was held on June 24, 2017 but the decision was disclosed to stock exchange on June 26, 2017 due to stock exchange holidays. Considering that the information ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ASSPL, the same has been amended in the final order passed by the WTM]. (iii) The appellants did not deal in the shares of IAL in the pre-UPSI period. (iv) Considering appellant's trading pattern, it was held that the appellant's investment decisions were guided by access to the UPSI. It was alleged that appellant had significantly traded in IAL scrip from April 3, 2017 to June 22, 2017 during the UPSI period, which shows that they had access to UPSI. Table - 1 Trading of Dhiren Mahendrakumar Shah HUF, Amee Dhiren shah and Affluence Fincon Service (P) Ltd. (Dhiren Group) Trade date(s) Buy quantity Weighted Average Purchased Value (Rs.) Sell Quantity Weighted Average Sell Value (Rs.) Prior to UPSI Period (August 1,2016 to November 21,2016) No trades observed by Dhiren Mahendrakumar Shah HUF, Amee Dhiren Shah and Affluence Fincon Service (P) Ltd During UPSI Period (November 22,2016 to June 26, 2017) Dhiren Mahendrakumar Shah HUF 01-Jun-17 40,016 3,84,13,873.55 0 0 Amee Dhiren Shah 05-June-2017 50,000 4,99,94,976.45 0 0 19-June-2017 50,000 5,25,39,992.90 0 0 Affluence Fincom Service (P) Ltd 03-Apr-17 3,00,000 28,05,00,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... made on the basis of notional gains (as significant number of IAL shares acquired by the appellants have not been sold). 4.1 On the merits of the case, the Learned Senior Advocate for the appellants vehemently argued that the possibility of stock split was only an idea under discussion on November 22, 2016, when CFO made a presentation to the MD. The same was not discussed before the Board of directors nor was any decision taken in the matter. Therefore, no UPSI could be held to have existed on November 22, 2016. It was submitted that the appellants had furnished detailed chronology of events in relation to the said announcement for stock split. They have furnished the details of IAL meetings in the matter, through the rejoinder as under :- Table - 2 Chronology of Events Date Discussions (Phone/ meetings/ approvals etc.) Event Details Name, Designation of the person(s) associated with event Proof 22.11.2016 Meeting Initial introduction and understanding of stock split concept with advantages and disadvantages and with real life examples. Mr. Vishal Mehta -MD and Mr. Hiren Padhya - CFO Presentation by the CFO 20.03.2017 Meeting Review impact of Goods and Services Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t in SENSEX and NIFTY on June 27, 2017, it was argued that this is an untenable argument with unnecessary emphasis on movement of price in any scrip to be in line with the index, which are derivatives of all scrips traded. 4.4 Further, refuting the examples of post stock split price rise in other cases relied upon in the impugned order, i.e. HDFC bank, Eicher Motors, Britannia Industries, etc., it was argued that in such companies, the rise was after actual implementation of the stock split and not at the time of making the information available to public. It was argued that since IAL had closed its trading window from June 26, 2017 to July 15, 2017, it implies that there was no UPSI prior to June 26, 2017. 4.5 With regard to the alleged 'connection', the Learned Senior Advocate strongly argued that there is no co-relation between the Dhiren Shah group and Mehta group and there has been no allegation that appellants had any contact with any promoters/management of IAL. With regard to the reasoning given for existence of 'connection', that appellant No. 2 and her husband Mr Dhiren Shah were pre-IPO allottees of preferential shares of IAL in 2014, for which subscription was made th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ppellants as on date. 4.10 It was submitted that the appellants started trading in IAL only in April 2017, since in the last week of March 2017, the market prices had fallen by approximately 35% and, therefore, it was considered a good opportunity to buy additional shares of IAL and additional shares were brought in tranches to average the cost. With regard to the directions in the impugned order for disgorgement of notional profit and gains made by the appellants, it was argued that 2,77,020 shares were still held by the appellants, and hence the appellants had not made profits thereon. 4.11 It was also submitted that prior to UPSI was made public on June 27, 2017, the price of IAL had already reached/exceeded Rs. 1049.85 and shares had been bought by the appellants at higher prices on at least 3 days i.e. at Rs. 1051/- on June 19, 2017 and on June 22, 2017 and at Rs. 1056/- on June 21, 2017. In view of this, it was argued that the alleged UPSI was not price sensitive, and hence, the allegation of notional or illegal gain due to the trades being guided by in UPSI is baseless. Our attention was drawn to the judgment of this Tribunal in the case of Dhyana Finstock Ltd. vs. SEBI Dh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Mehta group) under Sec. 2(g)(ii) of the PIT Regulations; and held that their dealings in the scrip of IAL during the UPSI period (from 22.11.2016 till 27th June, 2017), were guided by their access to the UPSI. In the light of rival contentions, following points arise for our consideration. A. Whether the information of stock split could be inferred as UPSI in nature? If so, on which day UPSI commenced? B. Whether the appellants can be held as 'insiders' within the meaning of PIT regulations? Reg. - A. Whether the information of stock split could be inferred as UPSI in nature? 5.3 It is appellants' case that the information regarding the 'Stock split' cannot be called as Price Sensitive Information within the meaning of the PIT Regulations and that, as on November 22, 2016, no information came into existence, which may be termed as Unpublished Price Sensitive information qua IAL. 5.4 The term "unpublished price sensitive information" has been defined in Clause (n) of section 2 of the PIT Regulations as under :- (n) "unpublished price sensitive information" means any information, relating to a company or its securities, directly or indirectly, that is not generally avail ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... relevant for disclosure is the materiality and the ex-ante possibility of impacting prices of the securities, which may not come true ex-post due to several other factors affecting the company concerned or/and the securities market in general". Lastly, in appellant's own admission, the information regarding stock split was UPSI, which in their view, came into existence on June 26, 2017 and was hence disclosed on the same date. If it were not a price sensitive information, there was no need to close the trading window. On which day UPSI commenced ? The next question that falls for consideration is on which date UPSI period started? 5.7 According to the SEBI, UPSI came into existence on November 22, 2016, as was held by the Ld. WTM. It was submitted on behalf of the appellants that on November 22, 2016, there was a mere discussion of the concept of stock split between the MD and the CFO and that the discussion remained between the MD and the CFO until June 24, 2017, when the company made due disclosure regarding the proposed Board meeting to discuss the subject of the UPSI, as an agenda item. In this regard, the Ld. Senior Advocate submitted that in the SCN and the Impugned Orde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ure of a general briefing on the concept of stock split, without any specific reference to securities of IAL. Hence it cannot be held that the UPSI period started from November 22, 2016. Nevertheless, in subsequent 'one to one' meeting between the MD and CFO held March 20, 2017, the discussion specifically included 'analysis of budget for next fiscal, along with sensitivity analysis to many scenarios including but not limited to impact of demonetization, GST, share split, dividends, etc.'. Since this discussion was specifically with regard to the stock split for company IAL, it may be construed that the UPSI period started from March 20, 2017. Reg. B - Whether the appellants can be held as 'insiders' within the meaning of PIT regulations? 6. Having held that the UPSI period commenced from March 20, 2017, we need to decide whether the appellants may be termed as Insiders within the meaning of Section 2(g)(ii) of the PIT Regulations, and whether they had access to the UPSI while undertaking transactions in the scrip of IAL, as held by the Ld. WTM. 6.1 The SEBI PIT Regulations, 2015 define an "insider" as under: "(g) "insider" means any person who is: i) a connected person; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ellants that preferential allotment in IAL was made in 2014 and that IMGPL traded only in the scrip of IAL through ASSPL on October 19, 2017 and hence keeping in view the definition of 'connected person' as in Regulation 2(1) (d) of PIT Regulations, they cannot be held as 'connected person' with IAL. Under the said regulation, connected person" means, - "(i) any person who is or has during the six months prior to the concerned act been associated with a company, directly or indirectly, in any capacity including by reason of frequent communication with its officers or by being in any contractual, fiduciary or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship between himself and the company whether temporary or permanent, that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access...." Thus, Appellants' case is that they are not connected persons within the above definition, as the preferential allotment in IAL was made in 2014 (two years prior to start of UPSI period) and secondly, IMGPL's ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through reaching out to potential investors, directly or indirectly, since till the company remains unlisted, the benefit of the faceless digital platform of Stock exchange is not available to it. The assumption that in that process relationship is built among the investors, which may make them insiders is only an assumption and lacks credence. 6.7 The Second reasoning that IMGPL was a client of ASSPL- a share broking firm of Dhiren Shah group- also falls flat, as the only transaction ASSPL carried out for IMGPL in IAL shares was in October 2017, nearly four month after UPSI period was over. This fact was not rebutted by the respondent at any stage. Moreover, merely because ASSPL served as share broking agency for a related company of IAL does not ipso facto imply that appellants had access to UPSI relating to IAL in the absence of any cogent material on hand. In any case, a share broking entity is expected to serve in a fiduciary capacity. Moreover, why should a client be assumed to disclose to his share-broker, an information being UPSI of another group company, for which he might be held as an insider just because it has engaged such share brokers for trading in securities. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Srinivasa Raju vs. SEBI [ ( 2018 ) SCC Online SC 586 ], Hon'ble Apex Court held that,- "...... A reasonable expectation to be in the know of things can only be based on reasonable inferences drawn from fundamental facts." It was further held that merely because a person was related to the connected person cannot by itself be a foundational fact to draw an inference. 6.10 To substantiate that appellants had access to UPSI, learned WTM has relied on the following observations as circumstantial evidences suggesting that the trades in the IAL scrip by the appellants were guided by their access to UPSI: (a) The appellants did not make trades in IAL during the pre-UPSI period; and (b) Trades in IAL scrip in significant volume and value were made by the appellants during the UPSI period, while no trades in other scrips were made by them. (c) The IAL scrip price rose by 1.46% on BSE and by 1.25% on NSE with increase in volume, when UPSI was made public. The Ld. WTM has held that as a result, the appellants made unlawful gains, which he has computed by deducting the purchase price of IAL scrip for the appellants on different dates from Rs 1049.85, the price of the scrip on June, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of assurance is required to convict the accused." This principle applies to civil cases as well where the charge is to be established not beyond reasonable doubt but on the preponderance of probabilities. The measure of proof in civil or criminal cases is not an absolute standard and within each standard there are degrees of probability. In Hornal v. Neuberger Products Ltd. (1956) 3 All E.R.970 Hodson, L.J. observed as under: "Just as in civil cases the balance of probability may be more readily tilted in one case than in another, so in criminal cases proof beyond reasonable doubt may more readily be attained in some cases than in others." We are also tempted to refer to what Denning, L.J. observed in Bater v. Bater (1950) 2 All E.R. 458 wherein he was resolving the difference of opinion between two Lord Justices regarding the standard of proof required in a matrimonial case. This is what he said: "It is true that by our law there is a higher standard of proof in criminal cases than in civil cases, but this is subject to the qualification that there is no absolute standard in either case. In criminal cases the charge must be proved beyond reasonable doubt, but there may ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to more than 4500 clients. (b) It needs deeper analysis of the company, sector, macro-economic trends, etc. to make decision for equity investment. The scrip of IAL is not new for Dhiren Shah (and Ms. Amee Shah), and he made significant investment of Rs. 49.99 Crore in IAL, a company engaged in e-commerce, in its preferential issue way back in 2014, when the company was still unlisted. They are still holding this investment. Even the equity investment in IAL, 40,016 shares purchased by Appellant No. 3 and 2,46,000 shares purchased by Appellant No. 1 during the alleged UPSI period, continue to be held in the post-UPSI period. Hence, there is no reason not to assume that the impugned subscription in IAL scrip and its sale / holding decision were based on domain knowledge of Dhiren Shah. (c) It is observed that much before June 23, 2017, (when the date of Board meeting for considering the agenda contained in UPSI was announced), Appellant No. 3 had purchased 300,000 shares in IAL on June 3, 2017, which were sold on May 4, 2017 (1,00,000 shares) and on May 17, 2017 (2,00,000 shares), resulting in significant profit (average profit of 7.6%). By then, there was no information abo ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
