AI Drafter 
TaxTMI 
TaxTMI 
2020 (9) TMI 1170
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....the provisions of the SEBI Act, 1992 ( "SEBI Act") read with the SEBI (Prohibition of Insider Trading) Regulations, 2015 ("PIT Regulations"). 2. TJL is a Company registered under the Companies Act, 1956 and its shares are listed on BSE Limited ("BSE") and the National Stock Exchange of India Limited ("NSE"). Hon'ble National Company Law Tribunal vide Order No. MA 2630/2019 in CP(IB)1541(MB)/2017 dated July 30, 2019 approved the liquidation of company and has appointed a liquidator for the purpose. 3. The Directors of TJL during the investigation period were as under: (Source- Annual report of the Company for the FY 2017-18) Table-1 : Management of the Company Name of the Director PAN Category Date of Appointment Date of cessation Rajeev Vasant Sheth AAFPS7760Q Chairman and Managing Director 01/10/2015 - Sanjay Sethi ABBPS5094E CFO and Executive Director 20/06/2017 01/05/2018 Fern Mallis NA (Foreign National) Independent Director 20/09/2010 - Rajiv Jain ACYPJ1455E Independent Director 01/04/2014 23/02/2018 Alison Lazerwitz NA (foreign national) Independent Director 10/02/2017 13/08/....
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....he Company. 7. The financial results of the company for quarters prior to and during the investigation period is as under: (Source: BSE Website) Table-4 : Financial Results of TJL (Amount in Rs. Crore) Description Quarter Ended Mar. 2017 Jun. 2017 Sep. 2017 Dec. 2017 Net sales 307.85 227.04 70.31 70.77 Other Income 1.42 2.21 2.14 1.42 Total Income 309.27 229.25 72.45 72.19 Profit/loss after tax -8.93 -6.62 -166.80 -201.18 8. It can be noted that the company had incurred loss of Rs. 166.80 crores during the quarter ended September 30, 2017 as compared to a net loss of Rs. 6.62 crores during the quarter ended June 30, 2017 i.e. an increase in the net loss by more than 25 times between the two consecutive quarters. Further, on a quarter to quarter basis between June 2017 and September 2017, the net sales of the company fell by 69% from Rs. 227.04 Crores to Rs. 70.31 Crores. The financials for the quarter ended September 30, 2017 were disclosed by the company on the stock exchanges post trading hours on November 29, 2017. 9. The price and volume data for the scrip, just before and after the ....
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....of Rs. 124.48 Crores was written down during Q2 FY2018. The exceptional item included writing down of inventories to their net realisable value as estimated by the management, and loss allowances on trade receivables based on the expected credit loss model of the company. The exceptional item was explained in the company's Annual Report for the financial year ended March 31, 2018 as, "the company during the year ceased to continue operation in its wholesale business vertical. A significant part of the inventory of this vertical is not earmarked against orders as on date and the company is trying to utilise the same in the international Retail business. In view of above and the slowdown in jewellery market, the Company has on the basis of an internal evaluation provided for write down of inventories and the Company has Provided for expected credit loss on trade receivables. The Company is in the process of actively following up with customers for the recovery. It expects to either realise the balance due or recover the material supplied". 14. It is therefore noted that significant increase in the loss recorded in Q2 FY2018 can be attributed to the recognition of the extraordinary....
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.... (i) a connected person; or (ii) in possession of or having access to unpublished price sensitive information;" 22. In terms of Regulation 2 (1) (d) of the PIT Regulations, "connected person" means: "(i) any person who is or has during the six months prior to the concerned act been associated with a company, directly or indirectly, in any capacity including by reason of frequent communication with its officers or by being in any contractual, fiduciary or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship between himself and the company whether temporary or permanent, that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access. (ii) Without prejudice to the generality of the foregoing, the persons falling within the following categories shall be deemed to be connected persons unless the contrary is established, - a. an immediate relative of connected persons specified in clause (i);" 23. As noted in para 18, Rajeev Vasant Sheth was reasonably e....
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.... 25,01,894.50 07-Nov-2017 - - - 1,270 22.51 28,593.95 14-Nov-2017 - - - 98,371 23.46 23,08,242.40 15-Nov-2017 - - - 2,21,000 24.25 53,59,502.70 20-Nov-2017 - - - 6,11,888 22.08 1,35,13,043.65 21-Nov-2017 - - - 6,27,884 21.36 1,34,11,336.90 Total 1,12,000 - 34,15,331.95 32,05,498 - 7,82,96,064.25 Aarti Sheth 17-Nov-2017 - - - 35,000 22.07 7,72,300.00 20-Nov-2017 - - - 79,440 22.03 17,50,215.40 Total 1,14,440 - 25,22,515.40 Divya Sheth 09-Oct-2017 - - - 1,14,440 28.61 32,73,748.70 Post UPSI Period (30/11/2017 to 31/03/2018) Date Buy Qty. Wt. Avg. Buy Price (in Rs.) Buy Value (in Rs.) Sell Qty. Wt. Avg. Sell Price (in Rs.) Sell Value (in Rs.) Rajeev Vasant Sheth 19-Dec-17 - - - 4,66,185 19.32 90,06,106.10 20-Dec-17 - - - 4,61,931 18.89 87,26,909.15 21-Dec-17 - - - 2,51,949 17.10 43,09,408.80 22-Dec-17 - - - 4,01,437 16.86 67,67,278.35 26-D....
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....96,500 (96,500) NSE 17,940 (17,940) Total 1,14,440 (1,14,440) Divya Sheth (PAN - AAHPS8431L) NSE - 1,14,440 (1,14,440) 32. In view of the above, I note that it is prima facie established that Rajeev Vasant Sheth, Aarti Sheth and Divya Sheth being insiders have violated Section 12A (d) and (e) of the SEBI Act and Regulation 4(1) of the PIT Regulations by trading in the shares of TJL while in possession of UPSI, thereby indulging in insider trading. Unlawful notional loss avoided by insiders: 33. As mentioned earlier, the investigation observed that the quarterly financial results of TJL for the quarter ended September 30, 2017 were disclosed to the stock exchanges after the trading hours on November 29, 2017. Thus, Rajeev Vasant Sheth, Aarti Sheth and Divya Sheth, having traded while in possession of UPSI during the UPSI period have unlawfully avoided loss. In this regard, the unlawful notional loss avoided has been computed as per the below mentioned methodology: Unlawful loss avoided = [No. of shares sold while in possession of UPSI (A) x Weighted average sale price (B)] - [No. of shares sold while in pos....
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....sted or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations." 38. As noted in prior paragraphs, it is alleged that Rajeev Vasant Sheth communicated/ provided/ allowed access of the UPSI to his daughters Aarti Sheth and Divya Sheth who traded in the shares of TJL while in possession of the UPSI. Thus, Rajeev Vasant Sheth is alleged to have violated Regulation 3(1) of the PIT Regulations. Code of Conduct Violations 39. As per the code of conduct for prevention of insider trading followed by TJL, "all Specified Persons who buy or sell any number of shares of the Company shall not enter into an opposite transaction i.e. sell or buy any number of shares during the next six months following the prior transaction". 40. The investigation observed that Rajeev Vasant Sheth, who was a specified person, had sold 1,36,720 shares and purchased 1,12,000 shares of TJL on October 10, 2017 i.e. purchase and sale made on the same day. The details of the contra trade of 1,12,000 shares by Rajeev Vasant Sheth is as under: Table-10 : Details of Contra....
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....shareholders of the Company. I also note that the said promoters had virtually offloaded their entire unencumbered holding in the Company during this period. Given that the facts clearly make out a prima facie case of insider trading by the promoters of the Company, I am of the considered view that the Non-interference by the Regulator at this stage would result in irreparable injury to interests of the securities market and the investors. Section 11(4) of the SEBI Act casts an obligation on the Board, in appropriate cases, to impound and retain the proceeds of securities in respect of such transactions either pending investigation nor upon completion of such investigation. The facts in this case compels me to take urgent steps to impound and retain the proceeds of the notional loss avoided allegedly by the aforementioned insiders by invoking the powers under Section 11(4)(d) of the SEBI Act. Considering the facts and circumstances of the case, the balance of convenience lies in favour of SEBI. 45. Accordingly, as an interim measure, an Ad-Interim Ex-Parte Order for impounding such alleged unlawful notional loss avoided under Section 11(1) read with 11(4)(d) and 11B(1) of the SE....
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....of proof by the persons mentioned under Table-11 that the individual amount of unlawful loss avoided has been deposited in the Escrow Account, SEBI shall communicate to the Banks and Depositories to defreeze their respective accounts. 51. The persons mentioned under Table-11 are further directed to provide a full inventory of all their assets whether movable or immovable, or any interest or investment or charge in any of such assets, including property, details of all their bank accounts, demat accounts, holdings of shares/securities if held in physical form and mutual fund investments and details of companies in which they hold substantial or controlling interest immediately but not later than 7 working days of this Order. 52. The observations/findings contained in this Order are made on the basis of the Investigation conducted by SEBI in the matter. The findings in this order may be treated as allegations against the respective persons mentioned in Table-11 above for the purpose of show cause against them. Accordingly, the persons mentioned under Table-11 above are advised to show cause as to why suitable directions, including the following, should not be issued/imposed aga....