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2025 (1) TMI 17
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....the order dated April 27, 2021 passed by the WTM WTM - Whole Time Member, SEBI SEBI - Securities and Exchange Board of India under Section 11(1), 11(4) 11B (1) and (2) of the SEBI Act, 1992 SEBI Act, 1992 (Securities and Exchange Board of India Act, 1992) read with SEBI (PIT Regulations), 2015 SEBI (Prohibition of Insider Trading) Regulations, 2015. 2. Brief facts of the case are as under:- Mr. Dhiren Shah is engaged in the business of trading in shares and securities. He is a Director in various group companies, namely, M/s. Affluence Fincon Services Pvt. Ltd. (Appellant No. 1) and M/s. Affluence Shares and Stock Pvt. Ltd. (hereinafter referred to as 'ASSPL'), the latter is engaged in the business of providing share-broking services. Appellant No. 2 Mrs. Amee Dhiren Shah is wife of Mr. Dhiren Shah. Mr. Dhiren Shah is also the Karta of Dhiren Mahendrakumar Shah HUF (Appellant No. 3). Admittedly, Mr. Dhiren Shah generally takes investment decisions on behalf of the appellant Nos. 1 and 2. All three appellants, Mr. Dhiren Shah and ASSPL are referred to as "Dhiren Shah Group". 2.1 M/s. IAL M/s. IAL (Infibeam Avenues Ltd.) and M/s. IMGPL M/s. IMGPL (Infinium Motors (Gujarat) P....
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....ere held to have violated PIT Regulations and Section 12A(d) and (e) of the SEBI Act, 1992, and in view of this, were: a) restrained from accessing securities market for 1 year; b) restrained from dealing in scrips of IAL for 2 years; c) levied penalty of Rs. 15 Lakhs (separately on each appellant); and d) directed to deposit the following amounts as disgorgement of unlawful profits made in IAL shares by way of insider trading: Appellant Amount (in Rs.) (i) Appellant No. 1: Rs. 2,00,46,131.20 (ii) Appellant No. 2: Rs. 24,50,030.65 (iii) Appellant No. 3: Rs. 35,96,924/-. The present Appeal challenges this final order dated April 27, 2021. 3. In passing the impugned order, the Ld. WTM has reached to the above findings based on the following observations : 3.1 On June 26, 2017, IAL made a corporate announcement with the Stock exchanges for holding a board meeting on July 13, 2017, with an agenda for 'issue of splitting of 1 equity share of the face value of Rs. 10/- per share into 10 equity shares of face value of Rs. 1/- per share'. The discussion for finalizing agenda items for the proposed Board meeting was held o....
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....of ASSPL (another Dhiren shah company engaged in share broking and advisory services). [Though the SCN incorrectly mentions the name of Appellant no. 1 in place of ASSPL, the same has been amended in the final order passed by the WTM]. (iii) The appellants did not deal in the shares of IAL in the pre-UPSI period. (iv) Considering appellant's trading pattern, it was held that the appellant's investment decisions were guided by access to the UPSI. It was alleged that appellant had significantly traded in IAL scrip from April 3, 2017 to June 22, 2017 during the UPSI period, which shows that they had access to UPSI. Table - 1 Trading of Dhiren Mahendrakumar Shah HUF, Amee Dhiren shah and Affluence Fincon Service (P) Ltd. (Dhiren Group) Trade date(s) Buy quantity Weighted Average Purchased Value (Rs.) Sell Quantity Weighted Average Sell Value (Rs.) Prior to UPSI Period (August 1,2016 to November 21,2016) No trades observed by Dhiren Mahendrakumar Shah HUF, Amee Dhiren Shah and Affluence Fincon Service (P) Ltd During UPSI Period (November 22,2016 to June 26, 2017) Dhiren Mahendraku....
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....iod. 4. Before us, the appellants raised following grounds of appeal:- a) Appellants were supplied with redacted version of the investigation report, in violation of principle of natural justice. b) Appellants are not insiders in terms of the PIT Regulations. c) 'Connection' cannot be established in 2016-17, on the basis of the preferential allotment done in 2014. d) 'Connection' cannot be established on the basis of IMGPL being a client of Affluence (Appellant no. 1). e) Respondent has not discharged its burden to prove nor shown the preponderance of probabilities that the appellants were "connected persons" or "insiders" in terms of the PIT Regulations, 2015. f) A stock split cannot be said to be UPSI. g) Direction for disgorgement cannot be made on the basis of notional gains (as significant number of IAL shares acquired by the appellants have not been sold). 4.1 On the merits of the case, the Learned Senior Advocate for the appellants vehemently argued that the possibility of stock split was only an idea under discussion on November 22, 2016, when CFO made a presentation to the MD. The same was not discussed b....
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....r assets acquired or was there any change in capital structure through stock split and only the Face Value of existing shares was sub-divided. 4.3 It was also argued that the announcement made about stock split on June 27, 2017 had minimal impact on the share price of IAL, which increased by 1.46% on BSE and 1.25% on NSE with an increase in trading volume by 11.71% on BSE and decline of 9.61% on NSE. It was argued that such a price movement is normal, irrespective of any UPSI. The learned senior Advocate urged that during 2016 and 2017 on BSE & NSE, there were 48 instances when change in price of IAL shares was more than 1.46% and 54 instances when price change was more than 1.25%, which implies that the said UPSI had insignificant effect on the price, after the same was made available to public. Furthermore, countering the allegation with the rise in price of IAL shares was more than the movement in SENSEX and NIFTY on June 27, 2017, it was argued that this is an untenable argument with unnecessary emphasis on movement of price in any scrip to be in line with the index, which are derivatives of all scrips traded. 4.4 Further, refuting the examples of post stock split price r....
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....ned order, the Ld. WTM paid no credence to the clear finding given in SEBI's Investigation report (page 22) that 'based on UCC/KYC details, off-market transactions, broker's replies and bank statements, no connection was found between Dhiren group with other suspected entities or directors/promoters of the company IAL. 4.8 It was submitted that in the impugned order, it is alleged that after the disclosure of the UPSI, the market rate reached to Rs. 1049.85, which was higher by 1.46% compared with the last closing price on BSE. 4.9. The Ld. Senior Advocate drew our attention to the details of trades made by the appellants [Table - 1 at para 3.3(iv)], which was also reproduced in the impugned order and submitted that Affluence had sold off 3 lakh shares during the alleged UPSI period and made significant profit, much before the said UPSI was made public and that bulk of shares are still being held by the appellants as on date. 4.10 It was submitted that the appellants started trading in IAL only in April 2017, since in the last week of March 2017, the market prices had fallen by approximately 35% and, therefore, it was considered a good opportunity to buy additional shares ....
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....mpugned order does not look into the fact that the prices had increased within the month on other trading as well, it was argued that the impact of an event such as a possible stock split can only be assessed with reference to the micro trend which can be seen from the price movement witnessed immediately before and after publication of such information. The impugned order shows that three days prior to the announcement of stock-split i.e. on June 27, 2024, the price of the scrip had decreased, even though the Market indices had increased. Such downward trend in the scrip of IAL had reversed immediately on the day of announcement when price of the scrip increased even though the market index had decreased. 5.1 We have heard both sides at length and considered the facts of the case and perused the records. 5.2 The respondent has held appellants no. 1, 2 and 3 (of Dhiren Shah group) as insiders qua the IAL Ltd (a public company promoted by Mehta group) under Sec. 2(g)(ii) of the PIT Regulations; and held that their dealings in the scrip of IAL during the UPSI period (from 22.11.2016 till 27th June, 2017), were guided by their access to the UPSI. In the light of rival content....
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....itting of shares results in shares of smaller face value, which makes the shares affordable, and thereby allows new sets of shareholders to come into picture with the resulting impact on demand and liquidity, that is likely to influence the price trends. Further, instances of three cases of stock split brought out by the respondent show that it resulted in price rise on the day of split, compared to the previous day: 5.6 In our view the appellant's argument that there was insignificant price rise of 1.46% on BSE and of 1.25% on NSE on June 27, 2016 upon disclosure of the information compared to the previous trading day, is not relevant as it is the likelihood of materially affecting the price of the securities, which is the main factor to determine price sensitivity of information and not actual price rise. In holding so, we are guided by this Tribunal's decision in the case of ICICI Bank Ltd. Vs. SEBI ICICI Bank Ltd. Vs. SEBI (Appeal No. 583 of 2019 decided on July 8, 2020 ) wherein it is held as under :- "What is relevant for disclosure is the materiality and the ex-ante possibility of impacting prices of the securities, which may not come true ex-post due to several ....
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....ed from June 26, 2017 to July 15, 2017 i.e. till 48 hours after the proposed board meeting on July 13, 2017. 5.9 On careful consideration of the facts and in particular the contents of presentation made by CFO to the MD of IAL on November 22, 2016 (which is the only documentary evidence with regard to the meeting in question), in our view on that date, the MD of IAL was at best appraised by the CFO about general concepts relating to Stock split. The presentation was made in a one-to-one meeting and covered impact of stock split, advantages/disadvantages, etc. without any specific analysis of impact of stock split of IAL. The term "Unpublished Price sensitive Information" as per Section 2(n) of PIT Regulations is defined as- ".. any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities.....". It is evident that in the meeting held on November 22, 2016, the discussion was in the nature of a general briefing on the concept of stock split, without any specific reference to securities of IAL. Hence it cannot be held that the....
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....ected with each other. Similarly, there is no dispute regarding connection amongst various Mehta Group entities namely; Mr. Vishal Mehta, promoter and Managing Director of IAL, his brother Malav Mehta, director of IMGPL, and the two Mehta group companies namely; IAL and IMGPL. The issue in question is whether the appellants may be held as 'connected person' qua the Mehta group. 6.3 In the SCN, the appellants were alleged as insiders within the meaning of Reg. 2(1)(g)(i) of PIT Regulations, being 'connected persons' [as defined under Reg. 2(1)(d)], who were reasonably expected to have access to UPSI. The fulcrum of the aforesaid connection was alleged to be Mr. Dhiren Shah, director of ASSPL, a company engaged in providing share broking and advisory services, which was alleged to have provided such services to IMGPL, a group company of IAL. The second reasoning for alleging the said connection was significant investment of Rs 49.99 Crore by Mr. Dhiren Shah and Mrs. Amee Shah in IAL in 2014, in pre-IPO allocation of its preferential shares. 6.4 It was urged on behalf of the appellants that preferential allotment in IAL was made in 2014 and that IMGPL traded only in the scrip of....
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....ed a list of all such allottees, which was filed in compliance of the Companies (Share capital and debenture) Rules, 2014. The list shows that apart from the Appellant No. 2 and her husband, there were more than 80 such allottees, who had subscribed to the preferential allotment. The last column of the prescribed form makes disclosure of such allottees as 'Unrelated party' or 'promoter / promoter group'. Majority of such preferential allottees including appellant No. 2 and her husband were shown as 'unrelated party'. Therefore, in our view, in contrast with the 'promoters', such unrelated parties cannot be held as 'connected persons', unless otherwise provided in the regulation. Further, in establishing the connection, the Ld. WTM presumes that a relationship is developed between the company/promoters with preferential allottees, since such subscription was through personal reach. However, such an undefined 'relationship' cannot be construed to be in the nature of 'connection' within the meaning of Regulation 2(1)(d). It is generally seen that prior to listing, subscription to its capital comes through reaching out to potential investors, directly or indirectly, since till the c....
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.... burden as also statutory presumptions can be raised in several statures as, for example, the Negotiable Instruments Act, Prevention of Corruption Act, TADA, etc. Presumption is raised only when certain foundational facts are established by the prosecution. The accused in such an event would be entitled to show that he has not violated the provisions of the Act." In the present case, as rightly argued by the learned counsel of the appellant, the foundational facts were not proved which could raise the alleged presumption. SEBI failed to place on record any material to prove that the appellants in C. A. No. 7590/2021 were "Connected persons" to Balram Garg as required by Regulation 2(1)(d)(ii)(a) read with Regulation 2(1)(f) of the PIT Regulations as none of the appellants C. A. No. 7590/2021 were financially dependent on Balram Garg or even alleged to have consulted Balram Garg or even alleged to have consulted Balram Garg in any decision related to trading in securities." 6.9 The respondent's case is built on preponderance of probabilities produces in the case of Chintalapati Srinivasa Raju vs. SEBI Chintalapati Srinivasa Raju vs. SEBI [ ( 2018 ) SCC Online SC 586 ], H....
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....ation is what would need to be demonstrated at the outset to bring a charge." We have already held that there is no evidence suggesting that the appellants had access to or mere in possession of UPSI. Therefore, it cannot be held that trades made by the appellants during the alleged UPSI period were motivated by knowledge of UPSI. 7. It has been held that considering the serious nature of charges, there should be higher preponderance of probabilities. In holding so, we are guided by this Tribunal's decision in the case of Dilip Pendse vs. SEBI Dilip Pendse vs. SEBI ( Appeal No. 80 of 2009 decided on November 19, 2009 ). "13. The charge of insider trading is one of the most serious charges in relation to the securities market and having regard to the gravity of this wrong doing, higher must be the preponderance of probabilities in establishing the same. In Mousam Singha Roy v. State of West Bengal (2003) 12 SCC 377, the learned judges of the Supreme Court in the context of the administration of criminal justice observed that, "It is also a settled principle of criminal jurisprudence that the more serious the offence, the stricter the degree of proof, since a higher de....
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....n by the appellants in C. A. No. 7590 of 2021." "Moreover, in the absence of any material available on record to show frequent communication between the parties, there could not have been a presumption of communication of UPSI by the appellant Balram Garg. The trading pattern of the appellants in C. A. No. 7590 of 2021 cannot be the circumstantial evidence to prove the communication of UPSI by the appellant Balram Garg to the other appellants in C. A. No. 7590 of 2021. There is no material on record for the WTM and the SAT to arrive at the finding that both late P. C. Gupta and the appellant Balram Garg communicated the UPSI to the other appellants in C. A. No. 7590 of 2021." We find that in the instant case also, there is no evidence or inkling of communication of UPSI by insiders of IAL to the appellants. In view of this, there is no merit in the allegations that appellants traded in IAL based on knowledge of UPSI in their possession. 7.2 On careful consideration of facts and circumstances, we hold as under :- (a) It is not denied by the respondent that Mr. Dhiren Shah has significant experience in share trading and investment and his Company M/s ASSPL pro....