AI Drafter 
TaxTMI 
TaxTMI 
2019 (10) TMI 109
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....alties were imposed namely:- "a) Shri G. Bala Reddy, G Velangini Mary, Mary Ashwini and Sravanthi Yakkanti violated Regulation 3 and 4 of the PIT Regulations, 1992 read with sections 12A(d) and 12A(e) of the SEBI Act. Further, Sahasra Investments Pvt. Ltd. and BRG Energy Ltd. violated Regulation 3, 3A and 4 of the PIT Regulations, 1992 and sections 12A(d) and section 12A(e) of the SEBI Act, 1992. In addition to the same, Shri G Bala Reddy, G Velangini Mary, APRG, Sravanthi, Mary Ashwini and BRG have violated Regulations 3(c) and (d) of the PFUTP Regulations read alongside section 12A(b) and (c) of the SEBI Act. For the aforesaid violations, I impose a penalty of Rs. 40,00,00,000/- (Rupees Forty Crore Only) under section 15G and 15HA of the SEBI Act, 1992 on the aforenamed noticees, to be paid jointly and severally by them. b) Further, Bala Reddy, Mary Ashwini and Sravanthi Yakkanti submitted misleading information to SEBI regarding their relationship with certain entities, and for the same I impose a penalty of Rs. 20,00,000/- (Rupees Twenty Lakh Only) on Bala Reddy, Mary Ashwini and Sravanthi Yakkanti each, under section 15A(a) of the SEBI Act. c) Shri G....
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.... PIT Regulations, 1992. Further you were the beneficiary of the funds received from the sale proceeds of the shares acquired through insider trading. Such act of you are alleged to be in violation of sections 12(A)(b) and 12A(c) of the SEBI Act read with Regulation 3(c) and (d) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practice relating to Securities Market) Regulations, 2003 ("PFUTP Regulations" for short). ii) You gave misleading information with regard to the relationship with the entities who traded in the scrip and those who were the beneficiaries of the funds received from the sale proceeds of the shares acquired through alleged insider trading. iii) You have given misleading declaration with regard to shares pledged by you and thus violated Regulation 8A(1) and (2) of the SEBI (Substantial Acquisition of Shares and Takeovers), Regulations, 1997 ("Takeover Regulations, 1997" for short)." 3. The appellants contested the show cause notice and submitted their replies denying the allegations and contended that they have not violated any provisions of the SEBI Act, the Takeover Regulations, the PIT Regulations, etc. The AO after considering the r....
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....e Appellant No. 1 arranged for a bulk purchase of 15,85,683 shares through Appellant Nos. 3 and 4. Appellant No. 1 provided funds to Appellant Nos. 3 and 4 to purchase the shares. The funds were given from Appellant Nos. 5 and 6 in which Appellant No. 1 is a Promoter and Director. 9. Appellant No. 3 after purchasing the shares pledged these shares in favour of Cholamandalam DBS from whom the Appellant No. 1 had availed corporate finance facility. By pledging these shares, Appellant No. 3 stood as a guarantor to the facility availed by Appellant No. 1. Similarly, shares purchased by Appellant No. 4 were transferred to Appellant No. 7 who pledged these shares to IDBI Bank Ltd. but subsequently transferred a large portion of the shares in off-market in favour of Appellant No. 2. Appellant No. 3 also transferred the shares to her husband Appellant No. 7 in off-market and later on Appellant No. 7 sold it in the off-market. The proceeds eventually came in the hands of Appellant Nos. 1 & 2. 10. The AO found that Appellant Nos. 3 and 4 traded in large quantities of the shares of the company simply on the request of Appellant No. 1. The AO further found that the Appellant Nos. 3 and 4....
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....then such information would be deemed to be a price sensitive information. Further clause (iv) of the explanation to Regulation 2(ha) of the PIT Regulations, 1992 provides that execution of new projects would be deemed to be a price sensitive information. 14. Regulations 2(k) defines "unpublished" as: "2(k) "unpublished" means information which is not published by the company or its agents and is not specific in nature." A perusal of the aforesaid definition clearly indicates that an information which is not published by the company or its agents is an unpublished price sensitive information. 15. In Shri E. Sudhir Reddy v/s SEBI in Appeal No. 138 of 2011 decided on 16.12.2011 this Tribunal held that tendering process is a long drawn procedure involving various stages and it would be difficult to lay down any parameter namely, at what stage the information in a tendering process would become price sensitive for the purpose of Insider Trading Regulations and that such information would depend on the facts and circumstances of each case. 16. In Gujarat NRE Mineral Resources Ltd. v/s SEBI in Appeal No. 207 of 2010 decided on 18.11.2011 this Tribunal held that a dec....
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....t that the bids were approved by the Board was a price sensitive information in so far as Appellant No. 1 is concerned in relation to its shareholders and investors and it was thus incumbent upon him not to deal in the scrips of the company and not to purchase the shares of the company given by a non-resident investor. The Appellant No. 1 admits that he purchased the shares through a circuitous measure by funding the amount to Appellant Nos. 3 and 4 from the Appellant Nos. 5 and 6 in which he was a Promoter. The Appellant No. 1 eventually benefitted from the sale of these shares. The Appellant No. 1 was thus an insider and it was incumbent upon him not to deal in the scrip of the company so long as the information about the contract remained unpublished. Thus, in the facts and circumstances of this case, even though the contract was not awarded nor the letter of intent was given at the time of purchase of the shares, nonetheless, being L1, the same was a price sensitive information in so far as the Appellant No. 1 was concerned. Since the Appellant No. 1 traded in these scrips through Appellant Nos. 3 and 4 he is guilty of insider trading. Similarly, in the same fashion, the oth....
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.... 2.(h) promoter means- (a) any person who is in control of the target company; (b) any person named as promoter in any offer document of the target company or any shareholding pattern filed by the target company with the stock exchanges pursuant to the Listing Agreement, whichever is later; and includes any person belonging to the promoter group as mentioned in Explanation I: Provided that a director or officer of the target company or any other person shall not be a promoter, if he is acting as such merely in his professional capacity. Explanation I.─ For the purpose of this clause, "promoter group" shall include: (a) in case promoter is a body corporate- (i) a subsidiary or holding company of that body corporate; (ii) any company in which the promoter holds 10 % or more of the equity capital or which holds 10 % or more of the equity capital of the promoter; (iii) any company in which a group of individuals or companies or combinations thereof who holds 20 % or more of the equity capital in that company also holds 20 % or more of the equity capital of the target company; and (b) in case the promo....
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....d 2. If the shares were purchased in the name of Appellant Nos. 1 and 2 then it would have become the responsibility of Appellant Nos. 1 and 2, as promoters of the company, to make the necessary disclosures under Regulation 8A. Since the shares were initially purchased by Appellant Nos. 3 and 4 inspite of the instructions from Appellant No. 1 and inspite of the funding of the purchase of shares by Appellant No. 1, nonetheless, the requirement of law is, that only a promoter or every person forming part of the promoters group of the company is required to make necessary disclosure under Regulation 8A. There cannot be any deemed promoter or "related to the promoter". Since Appellant Nos. 3 and 4 were not promoters and were not part of the promoter group the imposition of penalty under Regulation 8A upon the Appellant Nos. 1 and 2 cannot be sustained. 26. Appellant No. 1 has been charged for providing misleading information in respect of his relationship with the other entities, namely, the appellants. The information provided by Appellant No. 1 was that he does not have any relationship with Appellant Nos. 3 and 4 and was not covered within the list of "relatives" set out in Sched....
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....(e) of the SEBI Act, 1992. Further direction is that the said penalty would be paid by the appellants jointly and severally. 30. It was urged by the learned senior counsel that the quantum of penalty is arbitrary in as much as there is no discussion by the AO as to how this figure of Rs. 40,00,00,000/- (Rupees Forty Crore Only) has been arrived at. 31. There is no doubt that the mechanics of imposition of penalty of Rs. 40,00,00,000/- (Rupees Forty Crore Only) has not been disclosed in the impugned order but we find that on this ground the amount of penalty cannot be set aside for the following reasons: (i) The AO has found that Appellant No. 3 had made a profit of Rs. 11,23,88,739/- and Appellant No. 7 made a profit of Rs. 2,81,16,267/-. The total profit thus comes to Rs. 14,05,05,006/-. Under section 15G and 15HA of the SEBI Act, 1992 a penalty upto a maximum of twenty five crore rupees or three times the amount of profits whichever is higher can be imposed. (ii) For facility, section 15G and 15HA as it stood at the relevant point is extracted hereunder: "15G Penalty for insider trading. -If any insider who,- (i) either on his own behalf ....