SEBI Finds Insider Trading, Dismisses Charges against Shri Abhijit Rajan & CICPL

The Securities and Exchange Board of India (SEBI) found that the termination of Shareholder Agreements (SHAs) between the parties was price-sensitive information, impacting the company's operations significantly. Shri Abhijit Rajan, as the CMD of the company, was considered an 'insider' and executed trades while in possession of unpublished price-sensitive information (UPSI). While Shri Abhijit Rajan's trades were found to be influenced by the need to infuse funds into another entity, CICPL's trades were deemed unrelated to UPSI. As a result, the charges against CICPL and its Directors were not supported by evidence. SEBI disposed of the charges against Shri Abhijit Rajan and CICPL without further directions, with specific monetary transfers to SEBI and releases from Allahabad Bank.

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Issues Involved:
1. Whether the information regarding the termination of SHAs entered into between GIPL and Simplex was price-sensitive information.
2. Whether Shri Abhijit Rajan comes under the definition of ‘insider’ as per Regulation 2(e)(i) of the PIT Regulations, 1992.
3. Whether the trades executed by Shri Abhijit Rajan in the scrip of GIPL during the Investigation Period were done while in possession of UPSI and whether he avoided any potential loss.
4. Whether CICPL is a connected person to GIPL (through Shri Abhijit Rajan) in terms of Regulation 2(c)(ii) of the PIT Regulations, 1992, and whether it traded while in possession of UPSI and avoided any potential loss.

Detailed Analysis:

1. Whether the information regarding the termination of SHAs entered into between GIPL and Simplex was price-sensitive information:

The SCN alleged that the termination of SHAs was price-sensitive information. Shri Abhijit Rajan argued that the information was not price-sensitive and that GIPL did not regard it as such, as evidenced by not closing the trading window. However, SEBI found that the termination of SHAs resulted in significant changes in policies, plans, or operations of GIPL, impacting its order book value by 3.1% to 4.1%. Therefore, the information was deemed price-sensitive under Regulation 2(ha)(vii) of the PIT Regulations, 1992.

2. Whether Shri Abhijit Rajan comes under the definition of ‘insider’ as per Regulation 2(e)(i) of the PIT Regulations, 1992:

Shri Abhijit Rajan was the CMD of GIPL and attended the Board meeting on August 9, 2013, where the termination of SHAs was approved. As CMD, he had access to the UPSI. Therefore, he is considered an ‘insider’ under Regulation 2(e)(i) of the PIT Regulations, 1992.

3. Whether the trades executed by Shri Abhijit Rajan in the scrip of GIPL during the Investigation Period were done while in possession of UPSI and whether he avoided any potential loss:

Shri Abhijit Rajan sold approximately 144 lakh shares of GIPL on August 22, 2013, while in possession of UPSI. He argued that the sale was necessitated by the requirement to infuse funds into GIL as part of a CDR Scheme. SEBI found that the trades were executed while in possession of UPSI, but the sale was also necessitated by the need to meet the Promoter's contribution for the CDR Scheme. The sale avoided a loss of approximately Rs. 84 lakhs.

4. Whether CICPL is a connected person to GIPL (through Shri Abhijit Rajan) in terms of Regulation 2(c)(ii) of the PIT Regulations, 1992, and whether it traded while in possession of UPSI and avoided any potential loss:

CICPL sold approximately 28.57 lakh shares of GIPL on August 6, 2013, and later acquired properties from Shri Abhijit Rajan on August 28, 2013. CICPL argued that the sale was to clear a margin shortfall with IIFL Finance and was not based on UPSI. SEBI found that CICPL and its Directors substantiated their contention with adequate evidence, showing the sale was to clear the margin shortfall. Hence, the charges against CICPL and its Directors were not supported by material evidence.

Order:

1. The SCN dated March 29, 2016, against Shri Abhijit Rajan is disposed of without further directions. The restraint against him will not continue further.
2. Allahabad Bank shall transfer Rs. 1.09 Crores deposited by Shri Abhijit Rajan to SEBI.
3. The SCN dated March 29, 2016, against CICPL and its Directors is disposed of without any directions.
4. Allahabad Bank shall release Rs. 35.24 Lakhs deposited by CICPL and its Directors.

This Order shall come into force immediately and be served on all Recognized Stock Exchanges, Depositories, and Allahabad Bank for necessary compliance.

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