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TMI Blog2025 (3) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... nsing deal, which allowed him frequent access to CEO and CFO during the year long deal period while these KMPs were also negotiating the Sandoz deal; and (b) handling trading accounts of the CMD and Joint CMD of the company, we hold that the preponderance of probabilities test was correctly applied by the learned WTM. The appellant nos. 1 is a 'connected person' in terms of Regulation 2(1)(g)(i) of the PIT Regulations by having access to UPSI, and the appellant No. 2 is a 'connected person' in terms of Regulation 2(1)(d)(i) of the PIT Regulations. Possession of Unpublished Price Sensitive Information (UPSI) - Whether the trading behavior of the appellant's shows that they were in possession of UPSI? - Considering the fact that there was a spike in the trading of Biocon within four days of the said UPSI period suggests that such trades were made based on the knowledge of the UPSI. No error in the finding recorded by the learned WTM that there was a strong 'preponderance of probability' that the trades executed by the appellants in Biocon during the UPSI period, were guided by UPSI on account of appellants being 'insiders'. We are also in agreement with the finding of the learned ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andoz on next- generation Bio-similars. Observing that certain persons had traded in the scrip of Biocon while in possession of UPSI (UPSI - Unpublished Price Sensitive Information) relating to the above, SEBI carried out investigation for violation of PIT Regulations, 2015 PIT Regulations - SEBI (Prohibition of Insider Trading) Regulations, 2015, during the period December 4, 2017 to January 18, 2018 ("Investigation Period"). iv. A common show cause notice dated August 3, 2020 was issued to both appellants. SEBI noted that the appellant No. 1 was in frequent communication with the officers of the company (including CEO and CFO). He was a director in Mazumdar Shaw Medical Foundation, a not- for-profit entity of the promoters of Biocon. Further, it was noted that the appellant No. 2 was providing brokering services to the CMD and joint CMD of the Biocon Ltd. v. Allegedly noticee No. 1 was providing consulting services to Biocon with regard to another deal of Biocon with CIMAB, a Cuban company, with regard to licensing of their product, a molecule namely, Itolizumab and its further sub-licensing to a US-based company M/s. Equilibrium Inc. during the period January 2017 to July 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... itted that even though the appellant was working in advisory capacity on CIMAB deal during January to July 2017, and continued till December 2017 for compliance with condition subsequent clauses, there is no evidence that he had access to the UPSI relating to the Biocon-Sandoz deal. He submitted that Biocon has a robust Code of processes and procedures for disclosure of UPSI and UPSI is shared with only concerned employees of the company and certain designated persons on 'need to know' basis upon signing of a confidentiality undertaking / non-disclosure agreement. Since the appellant was not considered as a designated person qua the Biocon-Sandoz deal, no such agreement was signed with him. On the other hand, in respect of CIMAB licensing deal on July 3, 2017, an advisory agreement was got signed between Biocon and the appellant No. 1, which had confidentiality covenants. In view of this, it was submitted that since the company did not treat him as a designated person with whom UPSI could have been shared, he cannot be treated as a 'connected person'. 4.1 Secondly, rebutting the allegation that working on the CIMAB licensing deal with CEO and CFO of the company, who were also deal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... no trading by the first appellant in Biocon scrips after August 16, 2017 till January 18, 2018 for five months in pre-UPSI phase and he had purchased 1,32,500 shares as on August 16, 2017. He pointed out that prior to buying 85,000 shares of Biocon during UPSI period, appellant No. 2 purchased only 14,500 shares till September 7, 2016. Similarly, the first appellant had executed only 4 trades of Biocon in 2016 aggregating to 20,500 shares. However, once he started advising Biocon on the Equilibrium / CIMAB project, he bought 1,32,500 shares till August 16, 2017. Shri Joshi urged that the trading pattern of both the appellant clearly shows that they had bought a total number of Biocon shares equivalent to 60.54% on just two days during the UPSI period. He submitted that the Sandoz contract was published on January 18, 2018 after the trading time. The purchase of shares by the appellants during the UPSI period is as follows: Trading during UPSI Period Appellant Date Gross Buy Quantity Gross Sell Quantity Kunal Ashok Kashyap 18-01-2018 4,000 0 Allegro Capital Pvt. Ltd. 15-01-2018 50,000 0 Allegro Capital Pvt. Ltd. 18-01-2018 35,000 0 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) case of drawing 'reasonable inferences on foundational facts'. He also drew our attention to the case of SEBI vs. Abhijit Rajan [2022 SCC Online 1241], which held that the test in such cases is that of 'preponderance of probabilities' by applying the process of inferential conclusion drawn on foundational facts. Further, reliance was also placed on decisions of this Tribunal in the case of Utsav Pathak vs. SEBI, Navin Kumar Tayal & Anr. vs. SEBI and Ameen Khwaja & Ors. vs. SEBI, V. K. Kaul vs. SEBI drawing the same ratio. 6. We have carefully considered the rival submissions and the evidence on record. Based on the same, we frame the following questions for deciding the appeal: A. Whether the noticees are 'insiders' in terms of Regulation 2(1)(g) of the PIT Regulations, being 'connected persons'? 6.1 Undoubtedly, the information in question pertaining to global collaboration of Biocon Ltd., a prominent Indian bio-pharmaceutical company with Sandoz, a division of Novartis, a multi-national pharma giant, had strong probability of materially affecting the price of the scrip when such information was to be made public. The evidence on record suggests that when this informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t established a joint venture company with CIMAB in 2004 and later in 2010 acquired the entire shareholding in the joint venture Biocon Biologicals Ltd. The Equilibrium deal had two related limbs i.e. (i) a licensing agreement with CIMAB (Cuba) for acquiring rights to carry out research / manufacturing of anti-CD6 monoclonal antibody molecule in its geography; and (ii) for sub-licensing the same to M/s. Equilibrium Inc. (USA) to allow the latter to use the license in its territory. Simultaneously, Biocon was negotiating another deal with Sandoz, (a division of Novartis), for research and manufacturing of certain Bio-similar pharmaceuticals in the respective geography in terms of their agreement. Appellant was an advisor for the first deal and not for the second. 6.4.1 We also note that the appellant was bound by a confidentiality agreement signed on July 3, 2017 with regard to CIMAB-Biocon deal and yet carried out significant transactions in Biocon scrip till August 16, 2017. With respect to CIMAB deal, admittedly, the work on the deal started in January 2017 and continued till completion of Conditions subsequent clause till December 2017, though the confidentiality agreement was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , appellant No. 1 was undoubtedly in frequent and regular communication with senior managerial persons of Biocon, who had direct knowledge of UPSI. Keeping in view this and considering the twin sensitive assignment being handled by the appellant No. 1 - (a) advising on CIMAB licensing deal, which allowed him frequent access to CEO and CFO during the year long deal period while these KMPs were also negotiating the Sandoz deal; and (b) handling trading accounts of the CMD and Joint CMD of the company, we hold that the preponderance of probabilities test was correctly applied by the learned WTM. 6.4.4 In the light of above discussion, we hold that the appellant nos. 1 is a 'connected person' in terms of Regulation 2(1)(g)(i) of the PIT Regulations by having access to UPSI, and the appellant No. 2 is a 'connected person' in terms of Regulation 2(1)(d)(i) of the PIT Regulations. B. Whether the trading behavior of the appellant's shows that they were in possession of UPSI ? 7. In terms of the PIT Regulations, if a person is held to be an 'insider', any trades made by him during the UPSI period are deemed to be on the basis of the knowledge of such UPSI. We note that the learned WTM h ..... X X X X Extracts X X X X X X X X Extracts X X X X
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