TaxTMI 
TaxTMI 
2008 (5) TMI 729
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....t Limited (for short the company). Sandhya Gandhi appellant no.2 is his wife and Amishi Gandhi (appellant no.3) is his sister. The shares of the company are listed, among others, on the National Stock Exchange of India Limited and the Bombay Stock Exchange Limited (hereinafter referred to as NSE and BSE respectively). Gandhi as the chief financial officer of the company is primarily responsible for the preparation of the accounts of the company including its balance sheets. As per the regulations framed by the Securities and Exchange Board of India (for short the Board) and in terms of the listing agreement executed between the company and the BSE where its securities are listed, the company is required to furnish its unaudited financial results on a quarterly basis in the prescribed proforma within one month from the end of the quarter to the stock exchange(s) and it is also required to make an announcement to the stock exchanges where the company is listed immediately within 15 minutes of the closure of the board meeting in which unaudited financial results are placed and also within 48 hours of the conclusion of the meeting in atleast one English daily newspaper circulating subs....
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...., Amishi Gandhi purchased 3500 shares of the company at an average rate of Rs. 321-329 at 1008 hrs. when the price had fallen. On October 14, 1999 Sandhya Gandhi purchased 200 shares of the company at an average price of Rs. 757760 and on October 18, 1999 a meeting of the board of directors was held to consider the quarterly results for the quarter ending September 1999. This meeting was held at 12 noon. On the same day at 1017 hrs., that is, before the start of the board meeting Sandhya Gandhi purchased another 1000 shares at 1017 hrs. 3. In view of the aforesaid trades executed by Gandhi and the other two appellants, the Board was prima facie of the view that the trades had been executed on the basis of unpublished price sensitive information and, therefore, the appellants had violated regulations 3 and 4 of the Securities and Exchange Board of India (Insider Trading) Regulations, 1992 (hereinafter called the regulations) read with section 15G of the Act. Adjudication proceedings were initiated under Chapter VIA of the Act and the adjudicating officer issued a notice dated October 17, 2005 calling upon the appellants to show cause why an enquiry should not be held against them....
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....eaded that during that quarter the company had also made a corporate announcement regarding the demerger of its pharmaceutical business which, according to the appellants, is not normally taken as a negative factor by the market and the investors. It was also pleaded that appellants no. 2 and 3 were not insiders within the meaning of the regulations and, therefore, the notice qua them deserved to be set aside on that ground. It was further pleaded that Gandhi himself had not executed any trades and could not be held liable for insider trading. 4. On a consideration of the reply filed by the appellants and having regard to the dates and timing of the trades executed by appellants no. 2 and 3 in the scrip of the company and in view of their close relationship with Gandhi, the adjudicating officer came to the conclusion that they were insiders within the meaning of the regulations. He further found that the trades were executed on the basis of the unpublished price sensitive information which was in possession of Gandhi as the chief financial officer and company secretary. By his order dated November 30, 2006 he held the appellants guilty of insider trading and imposed a penalty of....
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....cess by virtue of such connection to unpublished price sensitive information in respect of securities of the company. A person who has received such information or has had access to such information is also an insider. Unpublished price sensitive information has been defined in the regulations to mean any information which relates to any of the matters referred to in sub clauses (i) to (viii) of regulation 2(k) and is not generally known or published by the company for general information but which, if published or known, is likely to materially affect the price of the securities of the company in the market. In other words, any information which is not known but, if known, could either way affect the price of the scrip of the company would be unpublished price sensitive information. This includes, among others, financial results of the company, intended declaration of dividends - both interim and final, amalgamations, mergers and takeovers. 8. Let us now examine whether Gandhi traded on the basis of the information that was in his possession and not available to any other investor/trader. On a plain reading of regulation 3 it appears to us that the prohibition contained therein....