TaxTMI 
TaxTMI 
2021 (5) TMI 1020
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..... The SCNs came to be issued against the Noticees as SEBI had conducted an investigation into the allegations of insider trading by certain entities in the scrip of PC Jeweller Limited (hereinafter referred as "the Company" / "PC Jeweller") for the period from April 2, 2018 to July 31, 2018 (hereinafter referred to as "Investigation Period"). 2. The following directions were issued against the Noticees vide the Impounding Order dated December 17, 2019: "............................... 29. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of Section 19 read with Sections 11(1), 11(4)(d) and Section 11B of the SEBI Act read with Regulation 10 of the Insider Trading Regulations, 2015, hereby issue the following directions: A. A sum of Rs. 6,17,60,184.13 shall be impounded jointly and severally, from Shivani Gupta, Sachin Gupta and Amit Garg, being the notional loss avoided on account of trades carried out in the trading accounts of Shivani Gupta, and B. A sum of Rs. 2,13,23,161.64 shall be impounded jointly and severally, from Quick Developers Pvt. Limited and Amit Garg, being the notional loss avoided/gains made on account of trades carried ou....
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....: 1 Direction to disgorge an amount equivalent to the total gains made/loss avoided on account of insider trading in the scrip of PC Jeweller along with interest; 2 Direction to restrain them from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period. 34. Similarly, in light of the alleged violations of the provisions of Section 12A(e) of the SEBI Act and Regulation 3(1) of the Insider Trading Regulations, 2015 by Balram Garg, this Order shall be treated as a Notice under Sections 11(1), 11(4) and 11B(1) of the SEBI Act calling upon him to show cause as to why direction shall not be passed against him to restrain him from accessing the securities market and prohibiting him from buying, selling or otherwise dealing in securities for an appropriate period. ........................................................................................... 35. As stated at paragraph 17, Padam Chand Gupta had passed away on January 28, 2019. Having regard to the same, no proceedings are initiated against him for the alleged violations of the provisions of Sections 12A(e) of the SEBI Act and Regulation 3(1....
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..... May 10, 2018 O H L C NSE 216.00 222.00 194.65 208.95 BSE 216.00 222.00 195.10 209.00 May 11, 2018 O H L C NSE 229.80 250.70 196.40 200.85 BSE 229.90 247.00 197.50 201.15 After the announcement, the scrip hit the upper circuit of 10%. 13/07/2018 @ 19:33 hours (NSE) 19:28:44 hours (BSE) Board approves withdrawal of buyback offer and the same was informed to Exchanges. July 13, 2018 O H L C NSE 121.90 126.35 118.00 119.90 BSE 121.95 126.30 118.10 119.95 July 16, 2018 O H L C NSE 107.95 107.95 83.95 89.20 BSE 108.00 108.00 86.10 88.90 After the announcement, the scrip hit the lower circuit of 20%. c) The SCNs observed that both the aforementioned announcements which related to change in the Company's capital structure were Unpublished Price Sensitive Information ('UPSI') in terms of Regulation 2(n) of PIT Regulations, 2015. d) As per the SCNs, following is the chronology of events relating to the announcements regarding buyback of shares and withdrawal of the same, by PC Jeweller : Table-IV-Chronology of events Sl. No. Details of event....
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.... Meeting. No minutes drawn. Notice for convening Board Meeting on 13.7.2018 sent by email. 12/07/2018 12. Board approves withdrawal of buyback offer and the same was informed to Exchanges. Company informed Exchanges about the withdrawal of buyback which was disseminated by BSE and NSE on the same day at 19:28:44 and 19:33 respectively. 13/07/2018 From the aforesaid chronology of events, the SCNs has considered the information pertaining to preliminary discussion in respect of the proposal for buyback of equity shares of the Company which came into existence on April 25, 2018 and became public on May 10, 2018, as "UPSI-I". Accordingly, period from April 25, 2018 to May 10, 2018 has been taken as period of UPSI-I. Further, the information pertaining to withdrawal of the proposed buyback of equity shares of the Company which came into existence on July 7, 2018 and became public on July 13, 2018, is considered as "UPSI-II". Accordingly, period from July 07, 2018 to July 13, 2018 has been taken as period of UPSI-II. e) As per investigation, following is the price-volume analysis showing price-variation in the scrip during the Investigation Period: Table-VI : Price-volume ....
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....stigation observed from the reply of PC Jeweller's CFO dated June 17, 2019 and from letter of SBI dated 7th and 12th July, 2018, addressed to MD of the Company, that Noticee No.5 was involved in every stage of buyback proposal till its withdrawal. Investigation also noted from the Minutes of the Board Meeting (chaired by Noticee No.5) held on May 10, 2018 that Board approved the constitution of a Buyback Committee comprising of Noticee No.5, ED & COO and two other Independent Directors of PC Jeweller for implementation of buyback. The SCNs, therefore, concluded that being part of Promoter group and the Management of PC Jeweller and privy to the discussion/information regarding approval for buyback of shares of PC Jeweller and its withdrawal, Noticee No.5 had access to UPSI-I & II and therefore, is a 'connected person' and considered 'insider' in terms of Regulation 2(1)(d)(i) and 2(1)(g) of PIT Regulations, 2015, respectively. i) Noticee No.1 is the wife of Noticee No.2 and the daughter-in-law of Padam Chand Gupta. Noticee No.1 is also the sister-in-law of Noticee No.3. Padam Chand Gupta gifted 1.03 Crore shares to Noticee No.1 through off-market transfers during the period April....
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....(g)(ii) of PIT Regulations, 2015. l) Noticee No.4 authorised Noticee No.3 to trade on its behalf in respect of its trading account with Karvy. Noticee No.3 held 50% shareholding in Noticee No.4 and was also its Director for the period August 8, 2015-April 3, 2018. Prior to the aforesaid period, Noticee No.4 had Noticee No.1 and Noticee No.2 as its Directors and shareholders. Further, fund transfers were observed between Noticee No.4 and Noticee No.3, which were utilised for trading in the scrip of PC Jeweller. From the nature of relationship that existed between Noticee No.4 and Noticee No.3, Noticee No.2 and Noticee No.1, it would reasonably appear to allow it (through its past directors Noticee no. 3, Noticee no. 2 and Noticee no. 1, respectively) access to UPSI-I and UPSI-II, the SCNs allege that Noticee no. 4 is an insider in terms of 2(1)(g)(i) r/w. Reg, 2(1)(d)(i) of PIT Regulations, 2015. Additionally, from the analysis of trading pattern of Noticee no. 4, the SCN's concluded that Noticee No. 4 (trading through its representative Noticee no. 3) had possession of UPSI-I and UPSI-II and hence, an 'insider' in terms of Regulation 2(1)(g)(ii) of PIT Regulations, 2015. m) Not....
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....880.72 24-Apr-18 - 25,238 - 290.00 25,238 - 73.19 No trades observed during UPSI Period-I(April 25, 2018 to May 10, 2018) and Post-UPSI Period-I (May 11, 2018 to May 31, 2018) UPSI-II : Pre-UPSI Period-II (June 22, 2018 to July 06, 2018) 06-Jul-18 - 1,00,000 - 130.51 1,00,000 - 130.48 100% UPSI Period-II (July 07, 2018 to July 13, 2018) 09-Jul-18 5,000 1,05,000 131.74 131.64 1,00,000 6.59 138.22 100% 10-Jul-18 - 55,000 - 132.50 55,000 - 72.87 11-Jul-18 - 3,45,000 - 129.01 3,45,000 - 445.08 Date Buy Volume Sell Volume Avg. Buy Price (Rs.) Avg. Sell Price (Rs.) Net Volume Buy Value (Rs. in lacs) Sell Value (Rs. in lacs) % activity in this scrip compared to all other scrips traded by entity 12-Jul-18 - 2,00,000 - 124.66 2,00,000 - 249.32 13-Jul-18 - 8,00,000 - 120.82 8,00,000 - 966.52 No trades observed during Post-UPSI Period-II (July 16, 2018 to July 31, 2018) Table-VIII: (b) Account-wise trading in the account of Noticee No.1 during UPSI Period-II Person who placed orders/ Relationship with client No. of shares bought No. of shares ....
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....ding by Noticee No.3 through the trading account of Noticee No.4 in the scrip of PC Jeweller during the Investigation Period is tabulated below: Table-IX: Trading in the account of Noticee No.4 by Noticee No.3 Date Buy Volume/ B/F Long Qty Sell Volume/ Qty Avg. Buy Price (Rs.) Avg. Sell Price (Rs.) Net Volume Buy Value (Rs. in lacs) Sell Value (Rs. in lacs) % activity in this scrip compared to all other scrips traded by entity UPSI-I : Pre-UPSI-I (April 02, 2018 to April 24, 2018) Cash Segment 18-Apr-18 1,00,000 1,00,000 304.79 292.58 0.00 304.79 292.58 40% No trades observed during UPSI Period-I(April 25, 2018 to May 10, 2018) Post-UPSI-I (May 11, 2018 to May 31, 2018) Derivatives (Futures) 29-May-18 1,50,000 - 171.65 1,50,000 257.48 - 63% 31-May-18 - 1,50,000 - 168.71 1,50,000 - 253.06 31-May-18 1,50,000 - 169.58 1,50,000 254.36 - UPSI-II : UPSI Period-II (July 07, 2018 to July 13, 2018) Derivative (Futures) 11-Jul-18 - 2,25,000 - 128.92 2,25,000 - 290.07 100% 13-Jul-18 - 3,00,000 - 119.76 3,00,000 - 359.28 Post-UPSI Period-II (July 16, 2018 to J....
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....,22,87,000.00 v) Further based on the analysis of the bank account of Noticee No.4 maintained with HDFC Bank (A/c No. 50200022965595) during the period June 1, 2018 to July 31, 2018, investigation observed that there was a receipt of Rs. 1 Crore from Noticee No.3 on June 1, 2018 and on the same day, out of a total credit balance of Rs. 2,18,76,567.84 available in the account, payment of Rs. 2 Crore was made to Karvy. Further, there was a credit of Rs. 3 Crore in the form of pay-out from Karvy on 20th and 25th of July 2018 out of which Rs. 2 Crore was remitted to Noticee No.3 on July 31, 2018 (post-UPSI-II period). Further, vide an e-mail dated June 12, 2019, HDFC Bank had informed SEBI that Noticee No.3 and his wife, Nisha Garg, were the authorised signatories to the bank account even after they ceased to be Directors of Noticee No.4 w.e.f. April 3, 2018). Investigation, therefore, observed from the nature of transactions between the bank accounts of Noticee No.3 and Noticee No.4 and the fund utilisation thereof, that Noticee No.3 used the account of Noticee No.4 to trade in the scrip's futures segment during pre-UPSI Period-II, UPSI Period-II and post UPSI Period-II while in pos....
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....ta and Noticee No.5, that Noticee No.4 and Noticee No.3 were in the knowledge of events taking place in PC Jeweller with regard to the buyback proposal and its withdrawal and therefore, concluded that trades were executed in the account of Noticee No.4 during UPSI Period-II while in possession of UPSI-II so as to earn profit/avoid loss arising from price fall on account of announcement of withdrawal of buyback proposal. Therefore, the SCNs allege that Noticee No.3 and Noticee No.4 are in violation of Section 12A(d) and (e) of SEBI Act, 1992 and Regulation 4(1) read with Regulation 4(2) of PIT Regulations, 2015. aa) The SCNs allege that the notional/unlawful loss avoided by Noticee No.1, Noticee No.2 and Noticee No.3 by trading in the accounts of Noticee No.1 was approximately Rs. 527.43 lakh whereas Noticee No.4 whose trades were executed by Noticee No.3 had avoided notional loss/made gains of approximately, Rs. 222.87 lakh. bb) By the Impounding Order, Noticee no. 1 to 4 were called upon to show cause as to why appropriate directions under Sections 11(1), 11(4) and 11B(1) of SEBI Act, 1992, should not be passed against them, as proposed hereunder: I. Direction to disgorge a....
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....no. 5. On July 1, 2011, the aforesaid 3 families entered into Family Arrangement dated July 1, 2011. As per the said Family Arrangement, the Padam Chand Gupta Family and Balram Garg Family were to hold substantial shareholding and the Amar Chand Garg Family were not to have any substantial interest in the Company. Therefore, the shareholding of the Amar Chand Garg Family reduced to 0.70% in the Company. Thereafter, on April 10, 2015, the Padam Chand Gupta Family entered into a Family Arrangement pursuant to an oral understanding between the parties on March 4, 2015. The said Family Arrangement recorded that Noticee no. 2 will resign as president, Gold Manufacturing of the Company and that he has, in fact, resigned from the said post on March 31, 2015, alongwith his wife Noticee no. 1, who also resigned from the post of Sr. Assistant Manager, Karol Baugh Store of the Company on the same date. The said Family Arrangement further recorded that: I. Late Shri Padam Chand Gupta and his wife Smt. Krishna Devi will transfer at least 1.6 Crore shares of the Company to Noticee no. 2 and his family members. II. Noticee no. 2 and his legal heirs will not have any right whatsoever in the ....
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....in taking decisions in relation to trading in securities. None of these fundamental ingredients have been met by SEBI. While Noticee no. 2, being the son of Late Sri Padam Chand Gupta and Noticee no. 1, being spouse of Late Sri Padam Chand Gupta's son would qualify as relatives, the presumption that they are 'immediate relatives' would arise only when they are shown to be either financially dependent or that they consulted the connected person to taking decisions relating to trading in securities. Owing to the family arrangement and separation, referred to above, even the wrong presumption that they were 'deemed connected persons' stands rebutted. iii. As far as Sri. Amit Garg is concerned, he is not an "immediate relative" of the Late Sri Padam Chand Gupta. He is the Late Shri Padam Chand Gupta's nephew by virtue of being Late Shri Padam Chand Gupta's brother's son. As far as Shri Balram Garg is concerned, none of the Noticee no. 1, 2 and 3, are "immediate relatives" of Sri Balram Garg. iv. The mere fact that a person is a relative of a "connected person" cannot by itself be ground to visit such person with a charge of insider trading. This has been clearly laid down by the ....
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....d persons as defined under Reg. 2(1)(d) of PIT Regulations, 2015 and have not been found to be as such in the interim order or the SCN. In view of the above, Noticee no. 4 is not a connected person or an insider qua the Company and did not have either UPSI-I and UPSI-II in its possession. Hence, there was no prohibition on Noticee no. 4 from trading in the shares of the Company or in other securities based on the shares of the Company. vii. Regulation 4(1) of PIT Regulations, 2015, prohibits an insider from trading in securities when in possession of UPSI. In this regard it is pertinent to note that: I. It is not established by SEBI that Noticee no. 1, 2 and 3, were in possession of UPSI relating to the Company during the relevant period. II. The preponderance of probability of the UPSI being communicated to Noticee no. 1, 2 and 3 is rebutted by the following facts and circumstances: a. The estrangement between Noticee no. 1 and Late Sri. Padam Chand Gupta and the Family Arrangement dated April 10, 2015. b. The fact that Noticee no. 1, 2 and 3, did not hold any position in the Company, whereby they could have access to UPSI. c. Noticee no. 1 was regularly selling shares....
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....re wrong as all of them are residents of separate houses built on a large tract of land and do not share a common dwelling house. * It was imperative on SEBI to place on record relevant material to prove that the Noticees 1 to 4 were "dependent financially" on Noticee No. 5 or "consults" Noticee No. 5 "in taking decisions relating to trading in securities". It is humbly submitted that the facts are completely to the contrary. The said Noticees are completely financially independent of Noticee No. 5 and have nothing to do with each other in any decision making process relating to securities or even otherwise. Presumption is a rule of evidence which cannot be drawn unless & until foundational facts are proved. * Moreover, as far as Noticee No. 4 company is concerned admittedly the same is neither holding company or associate company or subsidiary company of PC Jeweller nor Noticee no. 5 has been director of Noticee No. 4 company. Therefore, Noticee no. 4 cannot be a connected person vis-a-vis Noticee no. 5. ii. No material to otherwise prove transfer of information between Noticees: The charge against Noticee no. 5 is of communicating "unpublished price sensitive information"....
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.... 2015 and Sections 12A(d) and (e) of SEBI Act, 1992, and Noticee no. 5 has been alleged to have communicated UPSI-I and UPSI-II to Noticee no. 1 to 4, in violation of the provisions of Regulation 3(1) of PIT Regulations, 2015 and Section 12A(e) of SEBI Act, 1992. 9. Before dealing with the violations alleged with respect to alleged UPSI-I and UPSI-II, it would be appropriate to refer to the provisions of SEBI Act, 1992 and PIT Regulations, 2015, which are relevant for determining the said violations. The relevant extract of these provisions is as under: Relevant extract of the provisions of SEBI Act, 1992: "Functions of Board. 11. (1) Subject to the provisions of this Act, it shall be the duty of the Board to protect the interests of investors in securities and to promote the development of, and to regulate the securities market, by such measures as it thinks fit. (2) Without prejudice to the generality of the foregoing provisions, the measures referred to therein may provide for- (a)....... (b)...... . (g) prohibiting insider trading in securities; ................................... Prohibition of manipulative and deceptive devices, insider trading and substantia....
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.... recognised or authorized by the Board; or (i). a banker of the company; or (j). a concern, firm, trust, Hindu undivided family, company or association of persons where in a director of a company or his immediate relative or banker of the company, has more than ten per cent. of the holding or interest; NOTE: It is intended that a connected person is one who has a connection with the company that is expected to put him in possession of unpublished price sensitive information. Immediate relatives and other categories of persons specified above are also presumed to be connected persons but such a presumption is a deeming legal fiction and is rebuttable. This definition is also intended to bring into its ambit persons who may not seemingly occupy any position in a company but are in regular touch with the company and its officers and are involved in the know of the company's operations. It is intended to bring within its ambit those who would have access to or could access unpublished price sensitive information about any company or class of companies by virtue of any connection that would put them in possession of unpublished price sensitive information. (f) "immediate relativ....
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....communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. NOTE: This provision is intended to impose a prohibition on unlawfully procuring possession of unpublished price sensitive information. Inducement and procurement of unpublished price sensitive information not in furtherance of one's legitimate duties and discharge of obligations would be illegal under this provision. ...................... Trading when in possession of unpublished price sensitive information. 4.(1) No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information: ............................... (2) In the case of connected persons the onus of establishing, that they were not in possession of unpublished price sensitive information, shall be on such connected persons and in other cases, the onus would be on the Board. ........................... NOTE: When a person who has traded in securities has been in possession....
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....gulation 4(2) provides that if the "insider", as envisaged under Regulation 4(1), is a connected person then the onus of establishing that he was not in possession of UPSI, shall be on such connected persons and in other cases, the onus would be on the SEBI. The Note appended to Regulation 4(1) clarifies that when a person trades in securities when in possession of UPSI, his trades would be presumed to have been motivated by the knowledge and awareness of such UPSI in his possession. Proviso to Regulation 4(1) provides that despite presence of all the ingredients of Regulation 4(1) of PIT Regulation, 2015, the insider may prove his innocence by demonstrating the circumstances including those which are mentioned in the said proviso. The Note to Regulation 4(1) states that once it is established that an insider traded when in possession of UPSI, it would be open to the insider to prove his innocence by demonstrating the circumstances mentioned in the proviso, failing which he would have violated the prohibition. 11. In the present case, Noticee No.1 to 4 are alleged to have violated Section 12A(d) and (e) of the SEBI Act, 1992 and Regulations 4(1) read with 4(2) of the PIT Regulati....
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....(i) financial results; (ii) dividends; (iii) change in capital structure; (iv) mergers, de-mergers, acquisitions, delistings, disposals and expansion of business and such other transactions; (v) changes in key managerial personnel; and (vi) material events in accordance with the listing agreement. NOTE: It is intended that information relating to a company or securities, that is not generally available would be unpublished price sensitive information if it is likely to materially affect the price upon coming into the public domain. The types of matters that would ordinarily give rise to unpublished price sensitive information have been listed above to give illustrative guidance of unpublished price sensitive information. 13. I note that in the present case, the SCNs identifies two unpublished price sensitive information, i.e. UPSI-I and UPSI-II. Regarding UPSI-I, I note that the Company on May 10, 2018 informed the stock exchanges that its board of directors, in the meeting held on May 10, 2018 inter alia approved buyback of upto 1,21,14,285 fully paid-up equity shares of Rs. 10/- each at a price of Rs. 350/- per equity share. The said information was disseminated by BSE....
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....med by the Company on May 10, 2018, was likely to materially affect the price of securities of the Company. This is because of the reason that by virtue of disclosure of buy-back made by the Company on May 10, 2018, its shares were being traded by factoring into account the impact of impending buy-back on the earning per share (EPS), leveraging of the Company, reduction in cost of capital, etc. and when the information about withdrawal of the buy-back by the Company came in public domain, it was likely to materially affect the price of the shares of the Company. Thus, said information was an unpublished price sensitive information as per the main part of the definition of UPSI as provided under Regulation 2(1)(n) of PIT Regulations, 2015 which provides that any information pertaining to a company or its securities which is not generally available and which on becoming generally available is likely to materially affect the price of its securities, is unpublished price sensitive information. The understanding also stands fortified with the note appended to Regulation 2(1)(n) of the PIT Regulations, 2015. Without prejudice to the foregoing findings, I note that in terms of the disclos....
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....ntification as 'insiders' under both the clauses, Noticee no. 5 has not disputed his identification as an 'insider' under Reg. 2(1)(g)(i).. 16. According to Noticee no. 1 to 4, they have wrongly been identified by the SCNs as a 'connected person' and consequently, wrongly classified as an 'insider' in terms of Regulation 2(1)(g)(i) of PIT Regulations, 2015. It is the case of the said Noticees that in order to identify a person as 'connected person' in terms of Regulation 2(1)(d)(i) of PIT Regulations, 2015, SEBI ought to have shown any of the following: a. The persons in question were office bearers of the Company; or b. Such persons though not office bearers in the Company, had frequent communication with office bearers in the Company; or c. Such persons were in a contractual or professional relationship with the Company without being office bearers; and d. By virtue of any of the above, such persons had access to UPSI or such position reasonably afforded them such access. 17. Regarding the identification of Noticee no. 1, 2, 3 and 4, as insiders under Regulation 2(1)(g)(i) being connected person within the meaning of Regulation 2(1)(d), by the SCNs, I note that in terms....
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....any must be arising in the discharge of his/her duty towards the company. The SCNs does not allege that there was any communication between Noticee no. 5 and Noticee no. 1 to 4, arising out discharge of any duty owed by Noticee no. 1, 2, 3 or 4 to the Company. However, if there is evidence to suggest that an officer of a company had communication with another person regarding UPSI then such another person becomes "insider" by virtue of having possession of UPSI as a result of the communication by the officer of the company, thereby making such another person "insider" under Regulation 2(1)(g)(ii). In this regard, I further note that under Regulation 2(1)(d)(ii), certain categories of persons have been enlisted which are presumed to be connected person. One of the categories mentioned under Regulation 2(1)(d)(ii)(a) is "immediate relatives" of the connected person. However, in terms of Regulation 2(1)(f), "immediate relative" means a spouse of a person, and includes parent, sibling, and child of such person or of the spouse, any of whom is either dependent financially on such person, or consults such person in taking decisions relating to trading in securities. Thus, as per the defi....
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....n the basis of the findings of the investigation, which in turn on the basis of KYC documents of the trading account of Noticee no. 1 and 4, analysis of trading pattern of Noticee no. 1 and 4 before, during and after the UPSI Period-II, concentration of the trades of Noticee no. 1 and 4, concluded that Noticee no. 1, 2, 3 and 4 had possession of UPSI-I and UPSI-II because of their relationship with Noticee no. 5 and Late Shri Padam Chand Gupta and thus, classified them as 'insiders' in terms of Reg. 2(1)(g)(ii) of PIT Regulations, 2015. 19. I note that Late Shri Padam Chand Gupta had died on January 28, 2019, before the issue of the SCNs in the present matter and therefore, the SCNs have not been issued to him. I note that Noticee no. 5 has contested the charge of communication of UPSI-I and UPSI-II to Noticee no. 1 to 4, on the following grounds: * Family settlement between Mr. Amar Chand Garg with the joint family comprising of the three brothers in the year 2011 resulted in the family being separated in two branches. Pursuant to the settlement dated July 1, 2011, Noticee No. 5 & Mr. Padam Chand Gupta were to hold a substantial shareholding in PC Jeweller and Mr. Amar Garg and....
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.... to these settlement/arrangements who are otherwise close relatives. On the basis of the deed of Family Arrangement dated July 1, 2011, Noticees have claimed that there was a family arrangement in 2011 by virtue of which Amar Chand Garg's share in the Company was to be reduced and Noticee no. 5 and Padam Chand Gupta were to hold substantial stake in PC Jeweller, but that does not necessarily imply or even remotely indicate that all the relation of Noticee no. 3 (who is the son of Amar Chand Garg and paternal nephew of Noticee no. 5) and Noticee no. 5, is absolutely 'estranged' and that they are in no talking terms at all. Similarly, the purported separation of Noticee no. 1 and 2 from the family of Late Shri Padam Chand Gupta also does not imply that Noticee no. 5 has an 'estranged' relationship with Noticee no. 1 and 2. The fact that family arrangement/ settlement did not result into complete estrangement amongst Late Shri Padam Chand Gupta, Noticee no. 1, 2, 3 and 5, is also demonstrated by inter alia the following facts: (i) The Annual Report of PC Jeweller for the FY 2015-16, 2016-17 and 2017-18, shows that Noticee no. 2 continued to have business transactions with the Compan....
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....), as under: "26. It is a fundamental principle of law that proof of an allegation levelled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and levelled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion." 23. Coming to the circumstantial evidence, I note that following is the details of the trade executed by Noticee no. 1 in the scrip of PC Jeweller during Investigation Period: UPSI-I : Date Buy Volume Sell Volume Avg. Buy Price (Rs.) Avg. Sell Price (Rs.) Net Volume Buy Value (Rs. in lacs) Sell Value (Rs. in lacs) % activ....
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..... 1 put a halt on its selling spree exactly on the same day when the preliminary discussion on buyback proposal started at the management level at PC Jeweller. From the trading pattern of Noticee no. 1, it is observed that while Noticee no. 1 was on a selling spree since the past three weeks, however, as soon as she came in possession of UPSI-I that PC Jeweller was proposing to come out with a buyback offer, she halted her selling spree only to be able to tender the shares in the buyback offer at a higher price. iii) Average price of shares traded by Noticee no.1 during the Pre UPSI Period-I was Rs. 303.82 per share. iv) By no co-incidence, no trades were observed in the trading accounts of Noticee no., 1 during the period from April 25, 2018 to July 5, 2018, apparently indicating that Noticee no. 1 was waiting to tender her shares in the buyback offer. v) Sell Trades were executed in the scrip from trading accounts of Noticee no. 1 again from July 06, 2018 onwards. It is pertinent to note here that SBI officially communicated their refusal to grant NOC to the buyback offer of PC Jeweller on July 07, 2018. However, the informal communication about such refusal from SBI before....
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....and operations of Noticee no. 4. I note that Noticee no. 4, at the relevant time was a company wholly owned by Noticee no. 3 and his wife (each of them held 50 % shareholding). Noticee no. 3 and his wife were directors of Noticee no. 4 till April 3, 2018. Further, an analysis of the HDFC Bank A/c. of Noticee no. 4, reveals the following: i) There was a receipt of Rs. 1 Crore from Noticee no.3 on June 1, 2018 and on the same day, out of a total credit balance of Rs. 2,18,76,567.84 available in the account, payment of Rs. 2 Crore was made into the trading account held with Karvy. Further, there was a credit of Rs. 3 Crore in the form of pay-out from Karvy on 20th and 25th of July 2018 out of which Rs. 2 Crore was remitted to Noticee No.3 on July 31, 2018 (post - UPSI Period-II). ii) Noticee No. 3 and his wife, Nisha Garg, were the authorised signatories to the bank account even after they ceased to be Directors of Noticee no. 4 w.e.f. April 3, 2018. 28. From the nature of transactions between the bank accounts of Noticee No. 3 and Noticee No. 4 and the fund utilisation thereof, coupled with the fact that Noticee no. 3 had placed the orders for the trades of Noticee no. 4 (throug....
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....i) of PIT Regulations, 2015. 31. I note that Noticee no. 5 was the MD of PC Jeweller. Thus, Noticee no. 5 is a connected person within the meaning of Regulation 2(1)(d)(i) of PIT Regulations, 2015. Therefore, Noticee no. 5 is an insider of PC Jeweller in terms of Reg. 2(1)(g)(i) PIT Regulations, 2015. The chronology of events which has been provided in the SCNs and also reproduced in the pre-paras of this order indicates that Noticee no. 5 was part of all the key discussions and was aware of the developments pertaining to buy-back offer, refusal of NOC from SBI and its subsequent withdrawal of buy-back offer. I also note that Noticee no. 5 has not disputed the findings of the SCNs with respect to the Chronology of Events and thereby, him having possession of UPSI-I as well as UPSI-II. Therefore, I find that Noticee no. 5 is an 'insider' in terms of Regulations 2(1)(g)(i) being connected person and Regulation 2(1)(g)(ii) being in possession of UPSI-I and UPSI-II, of PIT Regulations, 2015. C. Whether Noticee no. 1 to 4 has traded in the securities of P C Jeweller when in possession UPSI- I and II and Noticee no. 5 communicated UPSI - I and II to Noticee no. 1 to 4, as alleged in th....
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....ion of or having access to UPSI. However, as observed in para 25, Noticee no. 1, 2 and 3, were in possession of UPSI-I and UPSI-II, and, as observed in para 30, Noticee no. 4 was in possession of UPSI-II. Thus, I note that Noticee no. 1 to 4 are 'insiders' in terms of Reg. 2(1)(g)(ii) of PIT Regulations, 2015. I note that Noticee no. 1, 2, 3 while conducting trades in the scrip of PC Jeweller through the trading account of Noticee no. 1 during UPSI Period-II and Noticee no. 3 while conducting trades through the trading accounts of Noticee no. 4, during UPSI Period-II, were found to be in possession of UPSI-II. I also find that Noticee no. 3 and his wife are 100% beneficial owner of Noticee no. 4, Noticee no. 3 was authorised to execute trades on behalf of Noticee no. 4 and Noticee no. 3 was in possession of UPSI-II while executing the trades in the futures of the Company on behalf of Noticee no. 4. Thus, from the facts and circumstances of the case, I find that Noticee no. 1, 2, 3 and 4 traded in the securities of the Company when in possession UPSI-II and thus, have violated provision of Regulation 4(1) of PIT Regulations, 2015. Consequently, I find that Noticee no. 1 to 4 have al....
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....65,43,255.05 (-) LESS NO. OF SHARES SOLD WHILE IN POSSESSION OF UPSI-II 15,00,000 X (MULTIPLY) CLOSING PRICE ON THE FOLLOWING TRADING DAY AFTER UPSI-II BECAME PUBLIC Rs. 89.20 SUBTOTAL (II) Rs. 13,38,00,000.00 LOSS AVOIDED (APPROX.) [(I)-(II)] Rs. 5,27,43,255.05 TABLE XIII - NOTIONAL LOSS AVOIDED BY NOTICEE NO. 4 PARTICULARS NO. OF FUTURES SOLD WHILE IN POSSESSION OF UPSI-II 2,25,000 X WEIGHTED AVERAGE SALE PRICE Rs. 128.92 SUBTOTAL (I) Rs. 2,90,07,000.00 (-) LESS NO. OF FUTURES SOLD WHILE IN POSSESSION OF UPSI-II 2,25,000 X (MULTIPLY) CLOSING PRICE ON THE FOLLOWING TRADING DAY AFTER UPSI-II BECAME PUBLIC Rs. 89.00 SUBTOTAL (II) Rs. 2,00,25,000.00 LOSS AVOIDED (APPROX.) [(I)-(II) = (X)] Rs. 89,82,000.00 TABLE XIV - NOTIONAL GAINS MADE BY NOTICEE NO. 4 PARTICULARS NO. OF FUTURES SOLD WHILE IN POSSESSION OF UPSI-II 3,00,000 X WEIGHTED AVERAGE SALE PRICE Rs. 119.76 SUBTOTAL (I) Rs. 3,59,28,000.....
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.... formula adopted for arriving at the aforesaid amount. I also note that none of the said Noticees have disputed the value of the alleged unlawful gain made or loss avoided by them alongwith calculation of interest that has been shown in the interim order. 39. In view of the violation of the provisions of the PIT Regulations, 2015 and SEBI Act, 1992 by the Noticees, as noted above, I find that the Noticees are liable for issuance of appropriate directions for debarment from accessing the securities market and dealing in securities. Further, I find that directions under Section 11B(1) of the SEBI Act, 1992 be issued against Noticee no. 1, 2 and 3 to disgorge an amount of Rs. 6,17,60,184.13/-, jointly and severally, and against Noticee 3 and 4 to disgorge an amount of Rs. 2,13,23,161.64/-, jointly and severally. 40. I note that violations committed by the Noticees also renders them liable for imposition of penalty under Section 15G readwith Section 11B(2) of SEBI Act, 1992, which provide as under: SEBI Act, 1992: "Penalty for insider trading. 15G. If any insider who,- (i) either on his own behalf or on behalf of any other person, deals in securities of a body corporate liste....
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....alty under Section 15J of SEBI Act, 1992, Board is required to have due regard to the following factors, namely: - (i) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (ii) the amount of loss caused to an investor or group of investors as a result of the default; (iii) the repetitive nature of the default. 42. In the instant case, I find that for the unlawful gains made and unlawful loss avoided by Noticee no.1 and 4, for their impugned trades during UPSI Period-II appropriate directions of disgorgement of unlawful gains made/loss avoided along with penal interest are being issued. I note that material available on record does not bring out any loss caused to any specific investor or a group of investors, as a result of violations committed by Noticee no. 1 to 5 with respect to UPSI-I and UPSI-II. I note that there is no material available on record to indicate that the violations committed by Noticee no. 1 to 5 are repetitive in nature. Directions: 43. In view of the above, I, in exercise of the powers conferred upon me under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of SEBI Act, 1992 read with Section....