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2025 (11) TMI 1561
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.... and Exchange Board of India Act, 1992 and Regulation 4(1) of the PIT Regulations PIT Regulations, 2015 - Securities & Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, the following directions have been issued in the impugned order against the appellant under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) of the SEBI Act :- (a) To disgorge a sum of Rs. 15,82,42,010/- being unlawful avoidance of loss through insider trading. (b) Restraining the appellant from the securities market and further prohibiting him from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market, in any manner, for a period of 1 year. (c) Restraining the appellant from buying, selling or otherwise dealing in securities of GGL, in any manner, for a period of 2 years. (d) Imposing a penalty of Rs. 1 Crore under Section 15G(i) of the SEBI Act. 2. Brief facts of the case are as under: - (i) Appellant is a high net-worth citizen of Belgium. His main business is trading in diamonds and manufacture of jewellery. (ii) GGL, an Indian company is promoted by Mr. Mehul Ch....
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....nformation ("UPSI") of 'high probability of detection of fraud upon retirement of Mr. Shetty'. The said UPSI was held to have come into existence on May 31, 2017, on the date of retirement of Mr. Gokulnath Shetty as his retirement resulted in increased probability that the fraud would be discovered. (x) On July 15, 2021, SEBI issued a show cause notice to the appellant, to which he filed his reply on August 20, 2021. Thereafter, on January 31, 2022, the impugned order has been passed by WTM. 3. Before us, Mr. P.N. Modi, learned senior advocate for the appellant and Mr. Shiraz Rustomjee, learned senior advocate for the respondent have made detailed submissions. 4. The learned senior advocate for the appellant handed detailed written submissions. 4.1 Mr. Modi submitted that the information of fraud of similar nature in other banks was in public domain long before the trading by the appellants in December 2017. He referred to the findings in para (vii) at page 5 of the impugned order, stating that a fraud with similar modus operandi was earlier found in Indian Overseas Bank (IOB), which was in the public domain since August 2016. He further submitted that impugned or....
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....GGL by 8.4% on February 6, 2018 and selling of shares of GGL by the appellant. 4.3.3 He also submitted that there were other investors who had purchased the convertible warrants and sold the shares after conversion. However, yet only appellant is held guilty of violation. 4.4.1 With respect to the findings regarding the connection between Noticee No. 1 (Mr. Mehul Choksi) and the appellant, the learned advocate submitted that it was only a 'business connection' based on their shareholdings in JTPL, a promoter company of GGL. With regard to JTPL, he submitted that there was a proposal for sale of a real estate project, which required common directors and shareholders, due to which the appellant and others were made shareholders and directors of JTPL. The transfer could not materialize and the property is still in possession of the appellant/JTPL. 4.4.2 With regard to the other ground for holding a connection between the appellant with Noticee No. 1 (Mr. Mehul Choksi) based on the funding of initial payment of Rs. 12.35 crores for acquisition of warrants of GGL, through its subsidiaries GVDMCC and "Eternity Jewels", the learned Senior advocate submitted that the amount was re....
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....ontentions, he referred to this Hon'ble Tribunal's order in the matter of Umang Dhanuka and Ors. Vs SEBI Appeal No. 102 of 2020 (Appeal No. 102 of 2020). "37. Insofar as the Dhanuka Family is concerned we are satisfied that the finding that the said appellants were in close proximity with the Company is based on surmises and conjectures. It has come on record that there was business dealings between the Company namely, Bihariji in which loans were taken from the Company at a higher rate of interest. Further, having a business connection with the Company does not mean that there were part of the scheme of manipulating the price or they were part of some collusion which in any case is not the finding given by the WTM. The only charge is that being connected through this loan transaction the Dhanuka family is guilty of violation of regulations 3& 4 of the PFUTP Regulations which is perverse." "38. We are of the view that there is no connection between the appellants and the Company, or its promoters, directors or promoter entities. The appellants invested their own funds and were not funded by anyone else nor there is any finding that the profits earned by the appell....
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....ot unusual, as it is observed in Para No. 20 of the impugned order that Nirav Modi periodically visited the PNB Brady House branch at Mumbai. He argued that even if it is assumed that Noticee No. 1 passed information to appellant, this information is of no use for holding or selling the shares of GGL. 5. In response, Mr. Shiraz Rustomjee, learned senior advocate made detailed submissions. He submitted that in the present case, the UPSI is the 'high probability of fraud relating to fraudulent issue of LOUs to Gitanjali Group becoming public'. Countering the argument of the appellant that it would not be possible for the appellant to know when the employee of PNB Mr. Gokulnath Shetty had to retire, he submitted that the appellant had close relations and was in frequent communication with Noticee No. 1 (Mr. Mehul Choksi). The SCN and the impugned order provide clear reasons to hold that UPSI arose on May 31, 2017 and refuted that the UPSI could have arisen only on February 5, 2018. 5.1 Mr. Rustomjee submitted that it is an admitted fact that both the Nirav Modi Group and Gitanjali Group were using the same branch of PNB for issuance of fraudulent LOUs and were assisted by the sa....
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....tted that one Mr. Vipul Chitalia an employee of GGL who is also a co-accused in PNB case stated before the Enforcement Directorate that the source of funds of the investment made by the appellant in GGL was Noticee No. 1 (Mr. Choksi). 5.6 Learned senior advocate refuted the appellant's submission that the appellant invested in GGL because of its sound health. He further submitted that the common directorship and communication was not the only basis for concluding that the appellant and Noticee No. 1 were connected and close associates. He further submitted that the basis of connection between the appellant and Noticee No. 1 is the shareholding of both the appellant and Noticee No. 1 (Mr. Choksi) in JTPL, which is the promoter company of GGL. The appellant was in a contractual/Business relationship with GGL through JTPL, both of which are controlled by Mr. Mehul Choksi. 5.7 With respect to appellant's submission that he sold the shares of GGL because his brother was in dire need of funds for his business expansion, the learned advocate for the respondent submitted that the same is inconsistent with the rationale provided by the appellant in his e-mail dated February 24, 2020 t....
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....and Gitanjali group by PNB Brady House branch. When their terms were getting over, these LOUs were rolled over by Mr. Shetty. Since this arrangement would not have lasted after his retirement, it was held that there was high probability of detection of this fraud after May 31, 2017. 6.3 Further, the Ld. WTM noted that since both Nirav Modi Group and Gitanjali Group got fraudulent LOUs issued from the same branch of PNB with the help of same employee of PNB, and there was close connection between Mehul Choksi and Nirav Modi, being uncle and nephew, which indicated that the detection of fraudulent LOUs issued to Nirav Modi group on the maturity date of LOUs i.e. January 25, 2018 would also lead to detection of fraudulent LOUs issued to Gitanjali Group. He accordingly held that due to this, the fate of Gitanjali Group was likely to be the same as that of Nirav Modi group and therefore, Noticee No. 1 was in possession of UPSI regarding the imminent exposure of fraudulent issuance of LOUs to Gitanjali Group in public domain. Hence, Noticee No. 1 was held to be in possession of UPSI and an insider with respect to GGL. 6.4. We note that the Ld. WTM has deemed the scenario of "high p....
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.... Shetty. In our view, such a probability was equally high considering that Mr. Shetty was liable for transfer from that position, which is likely in a Public Sector Bank, considering their transfer policy and administrative grounds. Further, PSBs have their own surveillance mechanism and checks in the form of annual audit or vigilance inspections, which could have exposed the fraud even prior to Mr. Shetty's retirement on May 31, 2017. Moreover, there is a possibility that like Mr. Shetty, his successor could also have followed the same path to facilitate roll over of LOUs for both groups. 6.7. In view of this, the presumption of high probability of detection of fraud consequent upon certain event (superannuation of Mr. Shetty) cannot be held as an Information per se, which could be treated as UPSI under the PIT regulations. In view of this, we decide this question in Negative. B. Whether the appellant can be held as a 'connected person' within the meaning of regulation 2(1)(d)(i) of PIT with GGL? 7. We note that the Ld. WTM has held the appellant as a 'connected person' with a connection with the company (GGL) that is expected to put him in possession of/ having access to....
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....of the fact that the appellant has made the balance payment of Rs 37.03 cr. for subscribing to warrants of GGL from own sources. 7.3 With regard to the finding of shareholding by both the noticees in the GGL group company, JTPL, we find that the appellant is holding 17.2% shares of JTPL (earlier held by his father) and five of the Gajera family members are directors in the said company. The explanation of the appellant that this arrangement was resorted to for executing a deal for sale of immovable property, was not accepted by the Ld. WTM. 7.4 In our considered view, the fact of two unrelated parties sitting in different geographies deciding to enter into a real estate transaction and earlier extending a concessional loan by Noticee No. 1 to appellant, shows a definite 'business connection' between the two, albeit limited to these activities. The two sides are undisputedly not partners in the main business of GGL of export of diamond/jewellery, for which the fraudulent LOUs were issued. 7.5 However, here the moot question is whether based on such limited 'business connection' alone, can it be held that the connection of the appellant with the company GGL is such that is e....
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.... appellant allow his group company Lakshmi Infra Development (LIDL), in which he is a shareholder, to make further investment in companies of noticee No. 1 in January 2018, after he came to know about the fraud. In view of the above, preponderance of probabilities suggests that there is no reasonable ground to assume that the noticee No. 1 may have shared UPSI with the appellant. Undisputedly, the Ld. WTM has not brought on record any evidence which may suggest that the said UPSI was actually communicated, directly or indirectly, by the noticee No.1 to appellant. Hence, there is no case for holding appellant as an insider under Regulation 2(1)(g)(ii) either. 8.4 In view of the above, we decide this question in Negative. D. Whether the trading of GGL shares by the appellant was guided by the UPSI? 9. Ld. WTM held that since the appellant was a connected person, he had access to UPSI. Based on these findings, he held that the trading by the appellant in the shares of GGL in December 2017 were guided by such UPSI. 9.2 As we have noted that the tipper Noticee No. 1 himself has not traded in the shares of GGL during the UPSI period despite holding 26.09% share capital of GGL....