TaxTMI 
TaxTMI 
2021 (5) TMI 1020
X X X X Extracts X X X X
X X X X Extracts X X X X
....r collectively referred to as "the SCNs". 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, bein....
X X X X Extracts X X X X
X X X X Extracts X X X X
....to show cause as to why certain directions shall not be passed against them, as proposed hereunder: 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 pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....(BSE) 11/05/2018 @ 08.33 hours (NSE) Board Meeting on 10.5.2018 approves buyback of equity shares and appointment of IDBI and Corporate Professionals Capital Pvt Ltd as Merchant Bankers. 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 st....
X X X X Extracts X X X X
X X X X Extracts X X X X
....p; 07/07/2018 10. Meeting of Independent Director, ED & COO and CFO held to discuss further course of action. No minutes drawn. 10/07/2018 11. CFO meeting with SBI official requesting to reconsider the Bank's refusal to accord consent for the buy back again, refused by the Banker communicated vide their letter dated 12.7.2018 addressed to MD. ED & COO and CFO decided to convene the Board 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....l-18 31-Jul-18 (July 14 & July 15, 2018 trading holidays) f) Based on the information received from PC Jeweller, stock exchanges, stock brokers, banks and depositories as well as from Noticee No.1 and Noticee No.4 and based on the analysis of trading of entities during the Investigation Period, the SCNs alleges the following: g) Padam Chand Gupta being the Chairman of PC Jeweller is connected to the Company and was reasonably expected to have access to UPSI-I and UPSI-II and therefore, is a 'connected person' and is an 'insider' in terms of Regulation 2(1)(d)(i) and 2(1)(g) of PIT Regulations, 2015, respectively. h) Noticee No.5 is the MD of PC Jeweller. He and Padam Chand Gupta are brothers and also the Promoters of PC Jeweller. Investigation 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 compr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ter-in-law (Noticee No.1), to trade on her behalf in respect of her trading account maintained with stock broker Karvy Stock Broking Limited ('Karvy'). Noticee No.2 and Noticee No.3 are paternal cousins. From the nature of relationship that existed between Noticee No.3 and Noticee No.2, Noticee No.1, Padam Chand Gupta and Noticee No.5, it would reasonably appear that Noticee no. 3 would have access to UPSI-I and UPSI-II, the SCNs allege that Noticee no. 3 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. 1 and 4, the SCN's concluded that Noticee No.3 (trading through the account of Noticee no. 1 and 4) had possession of UPSI-I and UPSI-II and hence, an 'insider' in terms of Regulation 2(1)(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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....00 - 298.73 1,00,000 - 298.73 05-Apr-18 - 5,50,000 - 299.35 5,50,000 - 1,646.42 06-Apr-18 - 7,00,000 - 297.90 7,00,000 - 2,085.31 09-Apr-18 - 3,50,000 - 298.18 3,50,000 - 1,043.65 10-Apr-18 - 9,00,000 - 308.07 9,00,000 - 2,772.65 11-Apr-18 - 5,50,000 - 309.36 5,50,000 - 1,701.46 12-Apr-18 - 9,00,000 - 306.80 9,00,000 - 2,761.20 13-Apr-18 - 1,81,362 - 303.39 1,81,362 - 550.23 16-Apr-18 - 7,00,000 - 300.75 7,00,000 - 2,105.23 17-Apr-18 - 6,00,000 - 305.20 6,00,000 - 1,831.20 19-Apr-18 - 1,40,505 - 297.64 1,40,505 - 418.20 20-Apr-18 - 1,50,000 - 295.69 1,50,000 - 443.53 23-Apr-18 - 6,33,855 - 296.71 6,33,855 - 1,880.72 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-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2018) till July 13, 2018, the day on which the PC Jeweller's Board approved the withdrawal of buyback proposal and the Company informed the same to stock exchanges on the same day after market hours. Noticee No.1 through her three trading accounts (orders placed by Noticee No.1, Noticee No.2 and Noticee No.3) had traded a net sell quantity of 15,00,000 shares in the scrip of PC Jeweller during the UPSI Period-II thereby avoiding a notional loss of Rs. 527.43 lakh as given below: Entity Name No. of shares sold(Net) in NSE Wt. Avg. Sell Price in NSE (in Rs.) Closing Price on 16/07/18 (in Rs.) Total Sell Value (in Rs.) (As per Tradelog) Value of Shares as on 16/07/18 Unlawful Loss avoided (in Rs.) (A) (B) = (D/A) (C) (D = A x B) (E = A x C) (F = D - E) Shivani Gupta 15,00,000 124.36 89.20 18,65,43,255.05 13,38,00,000.00 5,27,43,255.05 p) Investigation also observed that during the UPSI period-II and post-UPSI Period-II, Noticee No.4 traded in the scrip through Karvy (orders were placed by Noticee No.3, who held 50% shareholding in Noticee No.4 and was authorised by Noticee No.4 to place orders on its behalf). ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the aforementioned transaction with a fresh short position of 3 Lakh futures of PC Jeweller on July 13, 2018 (date on which the PC Jeweller's Board approved the withdrawal of buyback and which was informed to exchanges and disseminated by the exchanges after market hours at 19:28:44 hours on the same day) in the derivatives-futures segment of the scrip. t) Investigation also observed that during the post-UPSI Period-II, Noticee No.4 squared-off the short position by taking a long position of 3 Lakh futures in the derivatives-Futures segment of the scrip and earned a square-off difference of Rs. 133.04 lakh. u) The overall loss avoided/gains made by Noticee No.4 is as follows: Sl. No. Entity Name No. of Futures Buy(Net) in NSE No. of Futures Sell(Net) in NSE Wt. Avg. Futures Buy Price in NSE (in Rs.) Wt. Avg. Sell Futures Price in NSE (in Rs.) Closing Futures Price on 16/07/18 (in Rs.) Total Buy Value (in Rs.) Total Sell Value (in Rs.) Value of Futures as on 16/07/18 (in Rs.) Unlawful Loss avoided / Profit earned (in Rs.) (A) (B) (C) (D) E (F = A x C) (G = B x D) (H = B x E) (I) 1 Quick Develo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t Padam Chand Gupta, Noticees No.1 to 3 and 5 share common residential address and hold trading and demat account with Karvy. x) In view of the above, the SCNs allege that Padam Chand Gupta and Noticee No.5 have communicated UPSI-I & II to Noticee No.1, Noticee No.2, Noticee No.3 and Noticee No.4 in violation of Section 12A(e) of SEBI Act, 1992 and Regulation 3(1) of PIT Regulations, 2015. However, owing to the death of Shri Padam Chand Gupta on January 28, 2019, no action has been proposed by the SCNs against him. y) Investigation observed from the trading pattern and timing of trades, executed by Noticee no. 1, 2 and 3 (through the trading account of Noticee no. 1) coupled with the proximity that Noticee no. 1, 2 and 3, had to Late Shri Padam Chand Gupta and Noticee no. 5, that Noticee No.1, Noticee No.2 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 in the accounts of Noticee No.1 during UPSI Period-II were executed while in possession of UPSI-II so as to avoid loss arising from price fall on account of announcement of withdrawal of buyback p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....use as to why appropriate penalty should not be imposed upon them under Sections 11B(2) read with 15G of SEBI Act, 1992 for the alleged violations, mentioned above. 5. The Noticees undertook inspection of documents on February 8, 2020.The Noticee no. 1 to 4 filed their combined reply dated March 5, 2020 to the impounding order and also a combined reply dated August 20, 2020 to the SCN and the Impounding Order. The Noticee no. 5 has filed his reply dated February 23, 2020 to the Impounding Order and reply dated August 7, 2020 to the SCN. All the Noticees were granted the opportunity of personal hearing in the matter on November 19, 2020, December 14, 2020, December 17, 2020 and December 24, 2020. All the Noticees sought adjournment on the earlier three hearings dates i.e. November 19, 2020, December 14, 2020, December 17, 2020 and the matter finally came to be heard on December 24, 2020. Noticee no. 5, has also filed written submissions in the matter on December 28, 2020. 6. The Noticee no. 1 to 4 vide their reply dated March 5, 2020 and August 20, 2020, submissions made at the personal hearing held on December 24, 2020, have raised the following key contentions to the allegat....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s of the Company to Noticee no. 1 on April 2, 6, 10, 13, 17 and 20, 2018. Thus, in pursuance of the aforesaid Family Arrangement, Noticee no. 1 received a total of 1,60,14,182 shares of the Company. Evidently, the Family Arrangement dated April 10, 2015 was made due to estrangement between Noticee no. 2 and his family and the rest of the Param Chand Gupta family. In furtherance of the Family Arrangement dated April 10, 2015 and in order to secure the future of the family of Noticee no. 2, Noticee no. 1 sold the shares of the Company that were gifted to her by Smt. Krishna Devi and Late Shri Padam Chand Gupta. Noticee no. 2 also transferred shares of the Company held by him to his wife's account by way of Gift and these too were sold by Noticee no. 1. A total of 15.05 Lakh shares were sold by Noticee no. 1 during the UPSI Period-II. ii. In order for SEBI to establish that the Noticee no. 1 to 4 are "connected persons", SEBI would have demonstrated that: I. The persons in question were office bearers of the Company; or II. Such persons though not office bearers in the Company, had frequent communication with office bearers in the Company; or III....
X X X X Extracts X X X X
X X X X Extracts X X X X
....amily. In fact their address the extra words "Front Side" after the words "1-C", in order to indicate the separate building. Shri Amar Chand Garg was not associated with the Company. In any capacity at the relevant time and is therefore, neither an insider nor a connected person qua the Company in terms of Reg. 2(1)(d) of PIT Regulations, 2015. Shri Amar Chand Garg stepped down as Vice- Chairman of the Company in September 2011, over a year before the Company was listed. Therefore, the link sought to be established between him and Sri Amit Garg is absurd. Therefore, since Noticee no. 1, 2 and 3, are not "connected persons", they also cannot be insiders under Reg. 2(1)(g)(i) of PIT Regulations, 2015. As far as, Reg. 2(1)(g)(ii) is concerned, SEBI would have to demonstrate that the said Noticees, despite not being "connected persons", were in possession of or had access to UPSI. No material to this effect has been shown by SEBI. vi. Noticee no. 3 and his wife, were equal shareholders of Noticee no. 4, since May 29, 2015. They are not directors of Noticee no. 4 since April 3, 2018. It may be noted that: I. As on June 30, 2018 and before September 30, 2018 i.e. UPSI Peri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the UPSI owing to the estrangement between Noticee no. 2 and Late Shri Padam Chand Gupta. IV. Noticee no. 3 was not an insider qua the Company and in any event, he did not trade in the shares of the Company during the relevant period. 7. The Noticee no. 5 vide his reply dated February 23, 2020 and August 7, 2020, submissions at the personal hearing held on December 24, 2020 and written submissions dated December 28, 2020, has raised the following key contentions to the allegations in the SCNs: i. FOUNDATIONAL FACTS NOT PROVED TO RAISE PRESUMPTION: • SEBI has failed to place on record any material to prove that Noticee Nos. 1-4 are "connected person" to "Noticee No. 5" as required by Regulation 2(1)(d)(ii)(a) read with 2(1)(f) of the PIT Regulations, 2015; as none of the said Noticees are financially dependent or consult the Noticee No. 5 in any decision relating to trading in securities. • As per the law laid down by the Hon'ble Supreme Court in Chintalapati Srinivasa Raju v SEBI, (2018) 7 SCC 443, merely because a person is related to a "connected person" that itself cannot be a ground for insider trading. • Family s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....immediate relatives of Noticee No. 5. It was incumbent on SEBI to establish that these Noticees had frequent and relevant communication with the Noticee No. 5 before drawing the inference of alleged communication of UPSI-I and UPSI-II On the contrary the Noticee no. 5 has brought on record the following facts which contradict each and every assertion of SEBI against the Noticee No. 5: • 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. • Thereafter Noticee no. 2 and his family separated from Mr. Padam Chand Gupta in the year 2015. Consequently, Noticee no. 2 resigned from the post of President (Gold Manufacturing) held by him in the Company on 31.03.2015, which resulted in the Noticee No. 1 & 2 severing their ties with PC Jeweller. • Due to the aforesaid two estrangements, the Noticee No. 5 did not regularly interact with the families of both Mr. Amar Chand Garg (including Noticee No.3) and Noticees No. 1 & 2. Moreover Noticee no. 2, Noticee no. 1 and Noticee no. 3 have never been directors in the Company, theref....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder; (f)........................." Relevant extract of provisions of PIT Regulations, 2015: "Definitions. 2. (1) In these regulations, unless the context otherwise requires, the following words, expressions and derivations therefrom shall have the meanings assigned to them as under: (d) "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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....er dependent financially on such person, or consults such person in taking decisions relating to trading in securities; (g)"insider" means any person who is: i) a connected person; or ii) in possession of or having access to unpublished price sensitive information; NOTE: Since "generally available information" is defined, it is intended that anyone in possession of or having access to unpublished price sensitive information should be considered an "insider" regardless of how one came in possession of or had access to such information. Various circumstances are provided for such a person to demonstrate that he has not indulged in insider trading. Therefore, this definition is intended to bring within its reach any person who is in receipt of or has access to unpublished price sensitive information. The onus of showing that a certain person was in possession of or had access to unpublished price sensitive information at the time of trading would, therefore, be on the person leveling the charge after which the person who has traded when in possession of or having access to unpublished price sensitive information may demonstrate that he was not in su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....shed price sensitive information, his trades would be presumed to have been motivated by the knowledge and awareness of such information in his possession. The reasons for which he trades or the purposes to which he applies the proceeds of the transactions are not intended to be relevant for determining whether a person has violated the regulation. He traded when in possession of unpublished price sensitive information is what would need to be demonstrated at the outset to bring a charge. Once this is established, 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." 10. Section 11(1) of the SEBI Act, 1992 provides that 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. Section 11(2) provides that prohibiting insider trading in securities may be one of the measures, for this purpose. In discharge of its duty under Section 11(1) readwith Section 11(2)(g), SEBI had framed SEBI (Prohibition of Insider Trading) Regulations, . ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2015 by trading in the shares of PC Jeweller when in possession of UPSI-II whereas Noticee No.5, is alleged to have violated Section 12A(e) of the SEBI Act, 1992 and Regulation 3(1) of PIT Regulations, 2015, by communicating UPSI-I and UPSI-II to Noticees No.1 to 4. Thus, in these proceedings, it has to be determined whether Noticees no. 1 to 4 have violated Regulations 4(1) and (2) of the PIT Regulations, 2015. If yes, then, Noticees no. 1 to 4 can be said to be in violation of Section 12A(d) and (e) of the SEBI Act, 1992. Similarly, it has to be determined whether Noticee no. 5 has violated Regulation 3(1) of PIT Regulations, 2015. If yes, then, Noticee no. 5 can be said to be in violation of Section 12A(e). In this order, determination of these violations has been carried out under the following heads: A. Whether there were UPSI-I and UPSI-II, as alleged in the SCNs? B. Whether Noticees are "insider", as alleged in the SCNs? 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 the SCNs? A. Whether there were UPSI....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... each at a price of Rs. 350/- per equity share. The said information was disseminated by BSE on May 10, 2019 at 20:29:03 and by NSE on May 11, 2019 at 08:33, on their websites. I note that as per Section 68 of the Companies Act, 2013, a purchase by company of its own shares or other specified securities is termed as "buy-back". As buy-back involves purchasing of its own shares by the company which are extinguished, therefore, consequent to a buy-back by a company, its paid-up capital stands reduced which results into change in capital structure of the company. In terms of Regulation 2(1)(n)(iii) of the PIT Regulations, 2015, information pertaining to change in capital structure of a company is per se treated as UPSI. Thus, in the present case, information pertaining to the decision taken by the board of directors of the Company in its meeting held on May 10, 2018 regarding buy-back of the shares of the Company was a price sensitive information and before its disclosure to the stock exchanges on May 10, 2018 was UPSI-I, as alleged in the SCN. I note that ppreliminary discussion among MD, ED, COO and CFO in relation to the proposal for buyback of fully paid-up equity shares of the Co....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ations, 2015. Without prejudice to the foregoing findings, I note that in terms of the disclosure made by the Company on May 10, 2018, the general public was made aware that the Company was going to buy-back upto 1,21,14,285 fully paid-up equity shares of the Company of Rs. 10/- each at a price of Rs. 350/- per equity share which was an unpublished price sensitive information within the meaning of Regulation 2(1)(n)(iii), as discussed in the previous para, as the said information was pertaining to the change in the capital structure of the Company. As the said decision of buy-back of shares by the Company was abandoned by the Company on July 13, 2018 when its board of directors decided to withdraw the buy-back offer, therefore, as a corollary, I find that the said information was also an unpublished price sensitive information within the meaning of Regulations 2(1)(n)(iii) of the PIT Regulations, 2015 as being an information pertaining to the change in capital structure of the Company. I find that as mentioned above, the said unpublished price sensitive information which has been identified as UPSI-II in the SCNs, came into existence on July 07, 2018 when the State Bank of India re....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ers 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 of Regulation 2(1)(d), "connected person" means any person who falls in either clause (i), connected person, or clause (ii), deemed connected person, of Regulation 2(1)(d) of PIT Regulations, 2015. I note that Noticee no. 1 to 4 have been identified by the SCNs as a 'connected person' in terms of Regulation 2(1)(d)(i) of PIT Regulations, 2015. As per Regulation 2(1)(d)(i), connected person means any person who is associated with the company during the past six months, in any capacity including by reason of (i) frequent communication with the officers of the company; or (ii) being in any contractual, fiduciary or employment relationship; or (iii) being a director, officer or an employee of the company; or (iv) holds any position including a professional or business relationship between himself and the company; that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access. As per Regulation 2(1)(d)(i), if a person is found to be associated with a company during the past si....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t financially on such person, or consults such person in taking decisions relating to trading in securities. Thus, as per the definition of "immediate relative" mere being in enumerated relationships (which is again an inclusive list) is not sufficient to be termed as "immediate relative" as further requirements like financial dependence or consultation in taking decisions relating to trading in securities, are also to be fulfilled. In the present case, allegations made in the SCNs show that Noticee no. 1, 2 and 3 have been shown as relatives of Late Shri Padam Chand Gupta and Noticee No. 5, who were the connected persons and were also "insider" as possessing UPSI-I and II, however, the SCNs do not allege that these Noticees were either financially dependent on or consulted with, in taking decisions relating to trading in securities, Late Shri Padam Chand Gupta and/or Noticee no. 5. Thus, the SCNs treats these Noticees as connected person under Regulation 2(1)(d)(i) instead of Regulation 2(1)(d)(ii). In my view, unless the persons belonging to the categories specified in Regulation 2(1)(d)(ii), satisfies the requirements under 2(1)(d)(i), separately, their deemed connection with th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 his family members were not to have a substantial interest in PC Jeweller. • Noticee no. 2 resigned from the post of President (Gold Manufacturing) held by him in the Company on March 31, 2015 pursuant to family partition in Padam Chand Gupta's family. Since then he and his wife had nothing to do with the business of the Company. • Due to the aforesaid two estrangements the Noticee No. 5 claims that he did not regularly interact with the families of both Mr. Amar Chand Garg (including Noticee No.3) and Noticees No. 1 & 2. Moreover, according to Noticee no. 5 - Noticee no. 2, Noticee no. 1 and Noticee no. 3 have never been directors in the Company, therefore no occasion arose for Noticee No. 5 to communicate with the aforesaid three individuals either before or after or during the alleged UPSI period in respect of the business of the Company. 20. I note that the SCNs states that Late Shri Padam Chand Gupta, Notice No. 5 and Shri Amar Chand Garg are the real brothers. Here it is worth to point out that Late Shri....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ing 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 Company. It appears that PC Jeweller has paid rent worth to Rs. 4 Lakhs for the FY 2015-16, Rs. 77 Lakhs for the FY 2016-17 and Rs. 78 Lakhs for the FY 2017-18, to Noticee no. 2. From the Annual Report of FY 2016-17, it also appears that Noticee no. 2 has paid rent worth Rs. 66 Lakhs to PC Jeweller. (ii) From the Annual Report of PC Jeweller for the FY 2018-19, I find that Noticee no. 2 was the nominee of the demat account of Late Shri Padam Chand Gupta and after the death of Shri Padam Chand Gupta, the holdings of the deceased in PC Jeweller are being held by Noticee no. 2 as the nominee. I am not implying that a nominee is the successor, but being a nominee is a position of trust and responsibility. If the relations between the father and son were so 'estranged' since 2015, why would the Late Shri Padam Chand Gupta choose Noticee no. 2 as his nominee. He always had the option to make Mr. Nitin Gupta (son) or Smt. Krishna Devi (wife) to be the nominee. (iii) Noticee no. 1, 2, 3 and 5 share the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rip 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) % activity in this scrip compared to all other scrips traded by entity Pre-UPSI Period-I (April 02, 2018 to April 24, 2018) 02-Apr-18 - 3,60,000 - 313.70 3,60,000 - 1,129.33 100% 03-Apr-18 - 4,40,000 - 313.70 4,40,000 - 1,380.28 04-Apr-18 - 1,00,000 - 298.73 1,00,000 - 298.73 05-Apr-18 - 5,50,000 - 299.35 5,50,000 - 1,646.42 06-Apr-18 - 7,00,000 - 297.90 7,00,000 - 2,085.31 09-Apr-18 - 3,50,000 - 298.18 3,50,000 - 1,043.65 10-Apr-18 - 9,00,000 - 308.07 9,00,000 - 2,772.65 11-Apr-18 - 5,50,000 - 309.36 5,50,000 - 1,701.46 12-Apr-18 - 9,00,000 - 306.80 9,00,000 - 2,761.20 13-Apr-18 - 1,81,362 - 303.39 1,81,362 - 550.23 16-Apr-18 - 7,00,000 - 300.75 7,00,000 - 2,105.23 17-Apr-18 - 6,00,000 - ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....-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 July 7, 2018 to the management of PC Jeweller cannot be ruled out. Noticee no. 1 is seen to have continued its selling spree from July 6, 2018 till July 13, 2018, the day on which the Company's Board approved the withdrawal of buyback proposal. This indicates that Noticee no. 1 (and Noticee no. 2 and 3 who were placing orders from the account of Noticee no. 1) came into possession of UPSI-II and immediately, started selling the shares of PC Jeweller to avoid loss that may arise in future due to the negative news of non-receipt of NOC for buyback from SBI and subsequent withdra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 (through stock broker Karvy) during UPSI Period-II, I find that Noticee no. 4 was nothing but a front entity of Noticee no. 3 for trading in the securities market, including trading in the scrip of PC Jeweller. I note that Noticee no. 3 has completely downplayed the aforesaid fund transfers between him and Noticee no. 4, by calling them as an inconsequential and inconclusive evidence. However, from all the attendant facts and circumstances, I find that Noticee no. 4 was a wholly owned and controlled company of Noticee no. 3 and ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the SCNs? 32. I note that neither Noticee no. 1, nor Noticee no. 4 have disputed the veracity or authenticity of the trades in the scrips of PC Jeweller that took place from their respective trading accounts during the Investigation Period. I also note that neither Noticee no. 2, nor Noticee no. 3, have disputed the fact that certain trades (specifically mentioned in the SCN and its Annexure), in the scrip of PC Jeweller, were executed by them through the trading accounts of Noticee no. 1 d....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ducting 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 also violated Section 12A(d) and (e) of SEBI Act, 1992. 35. I note that the SCNs have alleged that UPSI-I and UPSI-II came to be communicated to Noticee no. 1 to 4 from Late Shri Padam Chand Gupta and Noticee no. 5. However, owing to the death of Late Shri Padam Chand Gupta, no action has been proposed by the SCNs against him. I note that Noticee no. 5 was MD of PC Jeweller. Being MD, Noticee no. 5 was in-charge of the day to day control of the Company. Noticee no. 5 was duly involved....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 3,59,28,000.00 (-) LESS NO. OF FUTURES SOLD WHILE IN POSSESSION OF UPSI-II 3,00,000 X (MULTIPLY) CLOSING PRICE ON THE FOLLOWING TRADING DAY AFTER UPSI-II BECAME PUBLIC Rs. 89.00 SUBTOTAL (II) Rs. 2,67,00,000.00 NOTIONAL GAINS (APPROX.) [(I)-(II) = (Y)] Rs. 92,28,000.00 TOTAL OF NOTIONAL LOSS AND GAINS BY NOTICEE NO. 4 (....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 listed on any stock exchange on the basis of any unpublished pricesensitive information; or (ii) communicates any unpublished price-sensitive information to any person, with or without his request for such information except as required in the ordinary course of business or under any law; or (iii) counsels,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ault; (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 19 of the SEBI Act, 1992 and SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995, hereby direct as under: (i) Noticee no. 1, 2, 3, 4 and 5 are restrained from accessing the secur....