2025 (11) TMI 535 - AT - SEBI

Appellant ordered to deposit 50% of Rs.14,39,36,026.47 with SEBI; may liquidate shares to comply while contesting UPSI timing dispute

Arun Khurana Versus Securities and Exchange Board of India, Mumbai

SAT, Mumbai directed the appellant to deposit 50% of Rs.14,39,36,026.47 with SEBI as condition for interim relief. The tribunal noted the appellant's ... Commencement of Unpublished Price Sensitive Information (UPSI) - proforma to the RBI detailing the impact between IGAAP and IndAS accounting standard - Validity of the directions issued by the SEBI vide the impugned interim order calling up the appellant to deposit a sum - Whether the UPSI had commenced on March 4, 2025 or on December 4, 2023, the date on which the MD & CEO sent an email to the other officers of the Bank - HELD THAT:- Appellant submitted that the ex-parte order has confused totally different issues to hold that the UPSI came into existence on December 4, 2023 - Appellant’s trades had occurred during December 8, 2023 and June 25, 2024. Admittedly, the appellant has been discontinued from the service of the bank and is presently under suspension. The appellant has been called upon to furnish a full inventory of all the assets, both movable and immovable assets, investments, etc. The direction is to impound the amount by way of an ex-parte interim order. The appellant undertakes to file his reply and participate in the proceedings before the SEBI. In our opinion, ends of justice would be met by directing the appellant to deposit 50% of Rs. 14,39,36,026.47 with the SEBI. The appellant shall be at liberty to liquidate his shares and to comply with the condition to deposit 50% of the amount, as a condition for the interim order. ISSUES PRESENTED AND CONSIDERED 1. Whether the period of Unpublished Price Sensitive Information (UPSI) commenced on December 4, 2023 (date of an email from the MD & CEO) or on March 4, 2025 (date attributed to an internal review committee), in relation to alleged insider trades. 2. Whether trades executed between December 8, 2023 and June 25, 2024 by a senior officer who later became Whole Time Director fall within the UPSI period and thereby attract interim enforcement measures under the regulatory regime governing insider trading. 3. Whether an ex parte interim direction requiring a deposit/impoundment of funds (Rs. 14.39 crore) as a provisional measure by the market regulator is justified, and if so, whether it should be stayed, reduced or modified pending final adjudication. 4. Whether the appellant should be permitted to liquidate holdings to comply with any interim deposit direction. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Commencement date of UPSI (Dec 4, 2023 v. Mar 4, 2025) Legal framework: UPSI is assessed by reference to when information becomes specific, non-public and reasonably expected to materially affect price; internal communications and regulatory master circulars may give rise to UPSI if they convey actionable, price-sensitive content. The regulator may treat communications from senior management as constituting the emergence of UPSI if they reveal material developments within the entity. Precedent Treatment: No specific precedents are cited or relied upon in the record. The Tribunal does not adopt or overrule prior authorities; the question is determined on the facts and documentary record before it. Interpretation and reasoning: The material shows two competing temporal markers - an earlier internal communication (email dated December 4, 2023) by senior management and later internal review activity culminating in meetings in March-April 2025 and public announcement thereafter. The Tribunal recognizes that the record establishes these events but finds the factual question of when UPSI crystallized (whether at the time of the December 4, 2023 email or only after the internal review and board consideration in 2025) is contested and requires adjudication on the merits by the regulator in ongoing proceedings. Ratio vs. Obiter: The Tribunal does not make a conclusive legal finding on the commencement date of UPSI; the determination is left open for final adjudication. This treatment is obiter with respect to the ultimate merits, but dispositive insofar as the Tribunal declines to accept the regulator's instantaneous characterization for final purposes at this interim stage. Conclusions: The question of when UPSI commenced is undecided; both contentions are preserved for the regulator's adjudication. The Tribunal refrains from resolving the factual/legal issue at the interlocutory stage. Issue 2 - Applicability of insider-trading consequences to trades between Dec 8, 2023 and Jun 25, 2024 Legal framework: Trades by designated persons during periods of UPSI are susceptible to regulatory action under insider-trading rules; remedial interim measures can be sought where prima facie material suggests misuse of UPSI. The burden at an interim stage is to balance prima facie case and equities, not to decide final culpability. Precedent Treatment: No precedents are applied in the order; the Tribunal treats the regulatory allegations as raising triable issues requiring a merits determination. Interpretation and reasoning: It is undisputed that the trades occurred in the stated period and that the trades comprised ESOP-derived holdings of the officer. The Tribunal notes the regulator's position that the master circular and subsequent senior-management communications fall within the asserted UPSI window and thus bring the trades within supervisory concern. Conversely, the appellant asserts that meaningful UPSI only arose in March-April 2025 after an internal review and board consideration. Given the factual contest and documentary evidence presented, the Tribunal does not resolve whether the trades legally fall within UPSI for final liability, but treats the regulator's view as raising sufficient prima facie concern to warrant provisional measures while preserving all contentions. Ratio vs. Obiter: The Tribunal does not determine as ratio that the trades violated insider-trading prohibitions; rather, it treats the matter as triable and appropriately subject to interim regulatory action. That stance is operative for the interlocutory relief granted and is not a final adjudication on liability. Conclusions: Whether the trades attract insider-trading consequences remains open; the Tribunal acknowledges the regulator's prima facie case but leaves substantive findings to the adjudicatory process. Issue 3 - Justification and modification of ex parte interim deposit/impoundment of Rs.14.39 crore Legal framework: Regulatory authorities possess power to issue interim directions, including attachment/impoundment or call for deposits, to preserve assets and protect the public interest pending adjudication. The exercise of such powers on an ex parte basis must be balanced against individual rights and the requirement of proportionality; appellate intervention can modify provisional orders where equities so require. Precedent Treatment: The order does not discuss or invoke specific authorities; the Tribunal exercises its supervisory jurisdiction to calibrate interim measures in light of proportionality and the appellant's undertaking to cooperate and participate in proceedings. Interpretation and reasoning: The Tribunal accepts that the regulator issued an ex parte interim order calling for the deposit. Recognizing the contested factual matrix on UPSI and the appellant's undertaking to participate and furnish information, the Tribunal concludes that a full impoundment is disproportionate at this interlocutory stage. Balancing the need to preserve regulatory interests against the appellant's rights, the Tribunal reduces the interim monetary requirement by directing a 50% deposit of the impugned sum as a condition for maintaining the interim order. The Tribunal frames this as an ends-of-justice measure allowing the regulator's interim safeguards while mitigating hardship. Ratio vs. Obiter: The direction to deposit 50% of the claimed amount constitutes the operative ratio of the interlocutory decision; it is a binding interim modification of the ex parte order. The broader question of the appropriateness of the regulator's original full impoundment is left undecided as obiter to be addressed at final adjudication. Conclusions: The ex parte interim direction is modified - the appellant is directed to deposit 50% of Rs.14,39,36,026.47 with the regulator. The Tribunal frames this as a provisional, proportional measure pending final determination; all contentions remain open. Issue 4 - Permission to liquidate shares to comply with interim deposit Legal framework: Where interim monetary security is ordered, courts or tribunals can permit conversion of securities into cash to meet the deposit condition, subject to safeguarding enforcement objectives and ensuring traceability of proceeds. Precedent Treatment: No specific precedent is cited; the Tribunal exercises equitable discretion consistent with preserving the efficacy of the interim measure. Interpretation and reasoning: The appellant requested liberty to liquidate shares to raise the deposit. Given the interim nature of the deposit and the appellant's undertaking to file replies and participate, the Tribunal permits liquidation as a means of complying with the deposit requirement, subject to the payment being made to the regulator in accordance with the order. Ratio vs. Obiter: The grant of liberty to liquidate shares to meet the interim deposit is part of the operative interim relief (ratio) modifying the ex parte order; it is not a final determination on traceability or the propriety of particular sales. Conclusions: The appellant is permitted to liquidate shares to comply with the 50% deposit direction; such liquidation is a condition attached to the modified interim order. Additional procedural and remedial observations 1. The Tribunal expressly keeps all contentions of both sides open and refrains from making any final determinations on liability, the substance of UPSI, or other merits issues; those matters are to be adjudicated by the regulatory process. 2. The Tribunal disposed of the appeal by modifying the interim order without imposing costs and by dismissing interlocutory applications as unnecessary in light of the disposition.