2023 (10) TMI 1258 - AT - SEBI

Tribunal Confirms SEBI Order: Vice Chairman Penalized Rs. 10 Lakhs for Insider Trading During UPSI Period

Jagdish Chandra Sharma Versus Securities and Exchange Board of India

The Tribunal upheld the order of the Adjudicating Officer of SEBI, concluding that the appellant, a Vice Chairman and Managing Director, engaged in ... Insider trading in the scrip of the Company - corporate announcement regarding an update on the real estate operation of the Company - penalty of Rs. 10 lakhs u/s15G(i) of the SEBI Act imposed - allegation levelled against the appellant [Vice Chairman and Managing Director of the Company and also a Member of the Audit Committee] was that the Company made corporate announcement regarding an update on the real estate operation of the Company for third quarter on the Bombay Stock Exchange and the National Stock Exchange of India Limited - corporate announcement revealed that the Company during its second quarter had achieved a new sales volume which was up by 5.6% as compared to the preceding quarter - appellant as urged that the real estate operational data was not a price sensitive information - HELD THAT:- Corporate announcement regarding update on the real estate operation of the Company was a price sensitive information. UPSI has been defined under Regulation 2(1)(n) which means any information that is not generally available and which upon becoming generally available is likely the materially affect the price of the securities. In the instant case, the real estate operational update were part of the financial results for the quarter ended 30.09.2017. It was a price sensitive information and upon announcement it had a material impact in as much as the price of the scrip increased. Appellant was in possession of this price sensitive information and had traded in the scrip during the period in question. In our opinion, obtaining necessary pre clearance and making requisite disclosures were not enough to show that his trades were not motivated by UPSI. Regulation 4 of the PIT Regulations prohibits any insider from trading in securities while in possession of UPSI. The proviso to Regulation 4 of the PIT Regulations gives a window to the insider to prove his innocence by demonstrating the circumstances under which he has traded. In the instant case, the appellant is an insider and, therefore, it was upon him to prove that the trades were not motivated by UPSI. We find that no plausible explanation has been given in this regard. Appellant had traded in the scrip of the Company while in possession of UPSI and had violated Section 12A(d) and (e) of the SEBI Act, 1992 and Regulation 4(1) of the PIT Regulations. No error in the impugned order. Appeal fails. Issues Involved:The judgment involves questioning the veracity and legality of an order passed by the Adjudicating Officer of the Securities and Exchange Board of India imposing a penalty for insider trading in the scrip of a company known as Sobha Limited.Detailed Summary:Issue 1: Alleged Insider TradingThe appellant, a Vice Chairman and Managing Director of the Company, was alleged to have engaged in insider trading by purchasing shares during an Unpublished Price Sensitive Information (UPSI) period. The Adjudicating Officer found that the appellant, being an insider as per the SEBI regulations, traded based on UPSI, leading to the imposition of a penalty of Rs. 10 lakhs under Section 15G(i) of the SEBI Act.Issue 2: Defense and ContentionThe appellant admitted to being an insider but contended that he had taken pre-clearance and made necessary disclosures, thus not violating the SEBI Act or the PIT Regulations. It was argued that the real estate operational data was not price-sensitive information, and therefore, the trades executed were not based on UPSI.Issue 3: Judicial AnalysisThe Tribunal noted that the appellant, as Vice Chairman and Managing Director, was aware of the sales volume information before the public announcement, making him privy to price-sensitive information. The real estate operational update was deemed price-sensitive, impacting the scrip's price upon announcement. Despite taking pre-clearance, the appellant failed to prove that his trades were not motivated by UPSI, leading to a violation of Regulation 4 of the PIT Regulations.Conclusion:The Tribunal upheld the Adjudicating Officer's order, concluding that the appellant traded while in possession of UPSI, violating the SEBI Act and PIT Regulations. The appeal was dismissed, with no order as to costs, emphasizing the importance of insiders proving their innocence when trading in securities based on sensitive information.