Insider trading penalty reduced where mitigating circumstances and modest gain made the original sanction disproportionate.

Penalty for violation of the insider trading code was reduced because it was found disproportionate to the nature of the default. The appellant admitted the contravention but relied on a modest gain, long service record, medical difficulties and a claimed communication gap with the broker. The Tribunal noted that while the penalty had been imposed with reference to the maximum framework and mitigating factors under the SEBI Act, the sanction still had to bear a reasonable relation to the violation. The monetary penalty was therefore reduced in light of the surrounding circumstances.

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Issues: Whether the penalty imposed for violation of the insider trading code was excessive and required reduction having regard to the nature of the default and the mitigating circumstances.

Analysis: The appellant admitted the contravention but contended that the penalty was harsh in view of the small gain made, his long service record, medical difficulties and the explanation that the trades occurred because of a communication gap with the broker. The penalty was imposed with reference to the maximum penalty framework under Section 15HB of the Securities and Exchange Board of India Act, 1992 and the factors under Section 15J of that Act, including repetitive default, but the Tribunal found that the penalty must still bear a reasonable relation to the circumstances of the violation. The admitted gain was modest and the surrounding facts justified a lower monetary sanction.

Conclusion: The penalty was held to be disproportionate and was reduced from Rs. 12 lakhs to Rs. 2 lakhs, in favour of the appellant.

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