TaxTMI 
TaxTMI 
2025 (5) TMI 1148
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.... 2. The brief facts governing the issue are as follows : (i) The appellants are husband and wife and are engaged in investment activities. They knew (Late) Mr. Rakesh Jhunjhunwala, the ace investor since 1990s. In addition, Mr. Jhunjhunwala has stated to have made investment in broking firm of appellant no. 1, namely Alchemy Captial Management. (ii) Aptech, Aptech Ltd. / the company a listed company promoted by Mr. Rakesh Jhunjhunwala made a corporate announcement titled "Aptech forays into pre-school segment" on September 7, 2016. Aptech was engaged in vocational education, and vide a NDA Non-disclosure Agreement dated March 14, 2016 with Montana, it planned to venture into pre-school segment. The said announcement materially impacted the price of the Company's securities on the Exchange, as evidenced by a 9.99% increase in the stock price from INR 159.15/159.50 (closing on September 7, 2016) to INR 175/175.45 (closing on September 8, 2016). (iii) This information was not classified as UPSI by the company. The AO Adjudicating Officer of SEBI held the company in violation of Regulation 9(1) read with Schedule B of the PIT Regulations SEBI (Prohibition o....
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....on-Executive) and Promoter of the Company. (viii) Based on the above finding, the appellants were held as insiders under Regulation 2(1)(g)(i) of the PIT Regulations and impugned order with direction of disgorgement were issued along with order for debarment. 3. We have heard Ms. Shruti Rajan, learned advocate with Mr. Vivek Shah and Ms. Drishti Kapadia, learned advocates for the appellants and Mr. Pradeep Sancheti, learned senior advocate with Ms. Nidhi Singh, Ms. Komal Shah, Mr. Prateek Pai, Mr. Nishin Shrikhande and Mr. Harish Ballani, learned advocates for the respondent. 4. Ms. Shruti Rajan, learned advocate for the appellants made detailed submissions as under : 4.1 It was submitted that Mr. Lashit Sanghvi (Appellant No. 1) with over two decades of experience in Indian listed equities, has been publicly recognized for his successful investment track record. His wife, Ms. Neha Sanghvi, the Appellant No. 2, was listed as the 12th largest shareholder of Aptech in the company's Annual Report for FY 2014-2015 which demonstrates their prior interest / investment in the company. Together, the appellants have demonstrated significant market activity with trading vol....
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....e appellants to be 'insiders' under Regulation 2(1)(g)(ii) of the SEBI (PIT) Regulations, based on alleged access to UPSI through (Late) Mr. Rakesh Jhunjhunwala. However, the order holds the appellants as "connected persons" which implies reliance on Regulation 2(1)(g)(i) requiring a distinct and separate legal standard. It was alleged that the respondent has effectively modified the basis of the original SCN without due notice or opportunity of rebuttal. This deprived the appellants of their right to a fair hearing. She submitted that there is a trifold legal impact of such a unilateral reconstruction :- (i) Change in the evidentiary burden under Regulation 4(2) of the PIT Regulations; (ii) Judicial overreach by the WTM, violating principles of natural justice; and (iii) Prejudices the appellants' defense, as shifting regulatory basis leads to uncertainty regarding the onus of proof. 4.6 Learned advocate drew our attention to the respondent's reply furnished during the course of this appeal stating that the appellants were 'insiders' under Regulations 2(1)(g)(i) and 2(1)(g)(ii) both and submitted that this is legally untenable, as the two sub-regulati....
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.... v. SEBI Appeal 93 of 2023 decided on November 22, 2023, in which the following was held:- "43. In view of the aforesaid, we are of the view that the directions issued by the WTM as contained in paragraph nos. 37.3 and 37.4 of the impugned order was without jurisdiction and beyond the show cause notice. Such directions could not be issued since the show cause notice did not spell out such allegations." 4.8 With regard to alleged long standing association with (Late) Mr. Jhunjhunwala, which was held to be the reason for deeming access to UPSI, she submitted that it is not in dispute that the appellants have known Mr. Jhunjhunwala since 1990's and had co-promoted a company as well. However, this association alone cannot be the basis to presume communication of UPSI in relation to Aptech. It was submitted that the impugned trades were modest in size compared to a significantly high trading in other scrips (above 350 Cr in FY 2023-24) and consistent with the Appellants' other market activity. 4.9 Learned advocate submitted that the allegation hinges on a single phone call made by the appellant No. 1, that was 72 hours prior to the 1st trade made out of hundreds of ca....
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....espondent submitted as under :- 5.1 The appellants' trades coincided with those of (Late) Mr. Rakesh Jhunjhunwala and his family members (trading date - August 9, 2016), and Ms. Rekha Jhunjhunwala and Mr. Rajeshkumar Jhunjhunwala (trading period : September 6, 2016 - September 7, 2016). Notably, these large trades by the appellants took place just hours before the disclosure of UPSI on September 7, 2016, after which the stock price steeply rose approximately by 9.99%. 5.2 Trade logs show that the appellants did not trade in Aptech shares before the UPSI period (December 1, 2015 to March 13, 2016) or meaningfully after it (post September 7, 2016), except for a single insignificant trade of 50 shares on September 19, 2016. This sudden and isolated surge in activity during the UPSI period supports the presumption of insider trading. 5.3 The appellants did not produce prior trading history in respect of Aptech in their pleadings. He objected to the appellant's attempted reliance on demat statements and public documents (e.g., Annual Report FY 2014-15) during oral arguments on the ground of being procedurally improper and in violation of principles of natural justice. 5.....
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....istinct business verticals, both conceptually and commercially. 5.9 With regard to charging the appellant as 'insiders' under Regulation 2(1)(g)(ii) of the PIT Regulations, he submitted that any person in possession of or having access to UPSI qualifies as an 'insider'. Given that UPSI existed during the relevant period, and considering the appellant no. 1's long-standing association and communication with (Late) Mr. Rakesh Jhunjhunwala, appellant No.1 was privy to such UPSI and hence squarely falls within the definition of 'insider' irrespective of how the information was acquired. 5.10 Mr. Sancheti further submitted that every word used by the legislature must be given distinct meaning. Under Regulation 2(1)(g)(ii) of the PIT Regulations, 'access' must be distinguished from 'possession'; the former implies the ability or opportunity to obtain UPSI, while the latter denotes actual control. Access may be inferred from circumstantial evidence such as the nature of relationship, communication frequency, and proximity to insiders. To support this contention, he relied on dictionary meanings of 'access' as per Black's Law Dictionarv under :- "(i) "A right, opportunity, or abil....
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....egulation 2(1)(g)(i) or being "in possession / having access to UPSI" under Regulation 2(1)(g)(ii)? B. Whether the trading behaviour of the appellants can be construed to hold that trading by the appellants was guided by the UPSI? 6.1 We will address these questions as under :- Reg. : A. Whether appellants are 'insiders' under the PIT Regulations? And if so, whether they are insiders being "connected person" under Regulation 2(1)(g)(i) or by "being in possession having access to UPSI" under Regulation 2(1)(g)(ii)? We note that in the show cause notice dated October 1, 2020, the appellants were held as insiders as per regulations 2(1)(g)(ii) of the PIT Regulations, 2015, on the basis of the finding that the appellant no. 1 made a phone call to Mr. Jhunjhunwala on August 16, 2016 at 12:27:33 hrs for around one minute. Since, Mr. Jhunjhunwala, being the chairman of Aptech, was expected to be in possession of the information relating to the Aptech-Montana deal, (UPSI in the matter), it was held that Mr. Jhunjhunwala communicated the UPSI to Mr. Sanghvi through the phone call. 6.2 Subsequently, in the impugned order, the learned WTM however, took a different v....
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....in frequent communication. It is evident that the phone call dated August 16, 2016 was the only call found out in investigation by the SEBI during the entire UPSI period from March 14, 2016 to September 7, 2016. If during the immediate six months period there was only one brief phone call, it cannot be held that the two persons were in frequent communication with each other. Moreover, notably the phone call was initiated by the appellant no. 1, who obviously would not have knowledge about the UPSI prior to initiating this phone call. If the phone call was initiated by Mr. Jhunjhunwala, there could still be a possibility that he might have made the phone call to share the UPSI. However, since the phone call was initiated by the appellant, which lasted only for one minute any allegation of sharing of UPSI would imply as if Mr. Jhunjhunwala was awaiting appellant No. 1 to call him one day, while he was ready to share the said UPSI in that brief one minute call. Mr. Jhunjhunwala was an ace investor, who may be having investment related professional association with several persons as appellant. Keeping in view the above, we do not find any merit in the evidentiary value of one brief....
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....to avail the benefit of settlement scheme of respondent. 7.1 In our view, facts in appellants' case are different from Mr. Jhunjhunwala and his family member's. Evidently, those noticees were promoters/ immediate relatives of promoters of Aptech and were held to be in possession of the UPSI, which was actually not treated by the company as UPSI. Therefore, since the foundational facts in the matter are different, any similarity in trading behaviour alone cannot be the basis for holding that the trading by appellants was also guided by UPSI. 7.2 Secondly, despite having purchased the Aptech scrips during the UPSI period, appellants continued to hold on to the same for a long period of 8 years. The ostensible purpose of PIT regulations is to ensure that uninformed investors do not suffer loss, and insiders with the advantage of knowledge of UPSI, don't make unlawful gains by virtue of insiders trading due to information asymmetry. The differential in information asymmetry creates unlawful gains / loss, when such UPSI becomes public knowledge. In the case of Aptech shares too, there was steep hike in shares price by 9.99% when the said UPSI became public on September 7, 2016. ....