2023 (2) TMI 1307 - AT - SEBI

Securities Appellate Tribunal remands SEBI insider trading case for fresh consideration on delay and trading motivation issues

The Securities Appellate Tribunal Mumbai remanded a SEBI insider trading case involving violations of SEBI Act and PIT Regulations back to the Whole Time ... Violation of SEBI Act and PIT Regulations - wrongful gain by making insider trading in the shares of ‘NDTV’ - show cause notice was issued after a period of 4-5 years - allegations are that the appellant Sanjay Dutt being advisor / team member of the NDTV group having complete responsibility and accountability for the Corporate Finance and Strategic Planning Function of NDTV during the relevant period had reasonable access to all the Price Sensitive Information (hereinafter referred to as ‘PSI’), etc. of the company - HELD THAT:- This Tribunal has in number of cases while dealing with this issue had concluded that to penalize an entity for insider trading, it is necessary to find that the trading should be motivated by the PSI in possession of the said entity. In the case of Abhijit Rajan vs. SEBI, [2019 (11) TMI 1598 - SECURITIES APPELLATE TRIBUNAL MUMBAI] this Tribunal has dealt with the said issue and the Hon’ble Supreme Court in the same case of Abhijit Rajan [2022 (9) TMI 1072 - SUPREME COURT] had also confirmed the said decision. The principle is based on a logic that there must be some relation between the trading and the motivation to encash the PSI. The learned WTM however refused to go into this issue. Since we have no benefit of consideration of issue of delay and the consideration on the issue as to whether the trade was carried by appellant SREPL on the basis of PSI 1, 2, 3 and 4, it would be necessary to remand the matter to the learned WTM to decide all the issues afresh as regards the SREPL, appellant TCPPL and appellant Sanjay Dutt. Issues Involved:1. Violation of SEBI Act and PIT Regulations.2. Allegations of wrongful gain through insider trading.3. Delay in initiating proceedings.4. Determination of Price Sensitive Information (PSI).5. Motivation behind trades.Summary:1. Violation of SEBI Act and PIT Regulations:The learned Whole Time Member (WTM) of SEBI found the appellant Sanjay Dutt in violation of Section 12A(d), (e) of the SEBI Act, 1992 read with Regulations 3(ii) and 4 of the PIT Regulations, 1992 and Regulation 12 of the PIT Regulations, 2015. Other appellants were also found in violation of Regulations 3(i) and 4 of the PIT Regulations, 1992 and Regulation 12 of the PIT Regulations, 2015.2. Allegations of wrongful gain through insider trading:The WTM concluded that all appellants, except Sanjay Dutt, made a wrongful gain of Rs. 2.2 crore by insider trading in NDTV shares. They were directed to disgorge the amount with interest and were restrained from accessing the securities market for two years. The appellants denied the allegations and raised the issue of delay.3. Delay in initiating proceedings:The appellants argued that there was an inordinate delay in issuing the show cause notice, which was issued 10-12 years after the alleged transactions. The WTM reasoned that SEBI needed time to investigate after receiving complaints from NDTV, and no period of limitation is provided.4. Determination of Price Sensitive Information (PSI):The WTM identified six PSIs related to NDTV. However, the Tribunal found that PSI-6, which involved the board's decision to evaluate options for reorganization, did not qualify as PSI since no definite decision was made. Consequently, trades by Prenita Dutt and QSPL during PSI-6 could not be considered insider trading.5. Motivation behind trades:The appellants contended that their trades were not motivated by any PSI and were conducted in the ordinary course of business. The WTM held that trading while in possession of PSI constitutes insider trading regardless of motivation. However, the Tribunal emphasized that to penalize for insider trading, it must be shown that the trading was motivated by PSI.Order:The impugned order was quashed and set aside. Appeals by Quantum Securities Pvt. Ltd., Prenita Dutt, and SAL Real Estate Pvt. Ltd. (regarding PSI-6) were allowed. Other matters were remanded back to the WTM to decide all issues afresh, including the issue of delay, with a personal hearing to be provided to the appellants. The WTM was directed to decide the matter within four months. No order as to costs.