TaxTMI 
TaxTMI 
2025 (11) TMI 1721
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....ulations 3(1) and 4(1) of SEBI (PIT) Regulations, 2015 Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 and Section 12A (d) and (e) of SEBI Act, 1992 and a penalty of Rs. 3 lakh each on both the appellants for violation of Clause 6 of the Minimum Standards for Code of Conduct to regulate, monitor and report trading by insiders specified in Schedule B read with Regulation 9(1) of SEBI (PIT) Regulations, 2015. 2. Brief facts leading to the filing of the appeal are: • The appellants are the promoters and directors of Tree House Education & Accessories Private Limited ("THEAL"), a Public Limited Company. Appellants were considering divesting a part of their shareholding in THEAL to repay their personal loans. For this purpose, Appellant No. 1, had a meeting with Mr. Subhash Chandra Goel, promoter and director of ZEE group on November 30, 2015. • In the said meeting, Mr. Subhash Chandra Goel agreed to purchase a total of 40,00,000 shares of THEAL for a total consideration of Rs. 80.20 crores @ Rs. 200.50 per share through ZEE group (Transaction no. 1). The transaction was to be done through the mechanism of 'Block dea....
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.... issuing SCN and this appeal deserves to be allowed on the ground of delay. In support of this submission, he relied on Ashlesh Gunvant bhai Shah v. SEBI Paras 12 and 15 of Ashlesh Gunvantbhai Shah v. Securities and Exchange Board of India, decided on 31.12.2020 in Appeal No. 169 of 2019 by Hon'ble Securities Appellate Tribunal, Mumbai • The SEBI's contention that no serious prejudice is caused to the appellants in not furnishing the copy of investigation report and correspondence is untenable as it amounts to violation of principles of natural justice. In support of this submission, he relied upon T. Takano v. SEBI Takano v. Securities and Exchange Board of India decided on by Hon'ble Supreme Court of India (2022) 8 SCC 162.. • That appellant No. 1 met Mr. Subhash Chandra Goel on November 30, 2015 to discuss the sale of 40 lakh shares of THEAL only wherein, Mr. Subhash Chandra Goel also proposed for a merger of THEAL with ZLL, a ZEE group company. No commitment was made by the Appellant No. 1, who sought time to discuss within the Board of THEAL. The merger proposal was discussed in the Board on December 4, 2015 only and the board accorded in-principle ap....
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.... • That undisputedly, the sale of THEAL shares were made to repay the loans from 5 financial institutions, which was promptly done within 2 days of equity sale. The SEBI as a regulator cannot sit in appeal over the commercial wisdom exercised by the appellants. • That with regard to the trading through the "Block deal" mechanism of the stock exchanges, an exception was carved out in the PIT Regulations, by way of an amendment brought in w.e.f. April 1, 2019, through proviso (ii) to Regulation 4(1) of PIT Regulations. This is a beneficial piece of legislation and appellants are, therefore, entitled for the said benefit through its retrospective application. In support of this submission, he relied Sudhir Bapusaheb Devkar Vs SEBI Sudhir Bapusaheb Devkar v. Securities and Exchange Board of India, decided on 10.10.2022, in Appeal No. 654 of 2022. The appellants prayed to set aside the impugned order. 5. Shri Sumit Rai, learned Advocate appearing for the respondent submitted: • That with respect to the delay in issuance of SCN, there is no provision in the SEBI Act, which provides limitation to take action against the violations of prov....
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....curities and Exchange Board of India, decided on 23.04.2012 in Appeal No. 21 of 2012. • That the appellants' trades do not qualify under any express exception to Regulation 4(1) of PIT Regulations, 2015. For the first time by way of rejoinder, the appellants have made an attempt that the exception brought by way of amendment has to be made applicable retrospectively, because it is a beneficial legislation. The judgment relied on by the appellants i.e., Sudhir Bapusaheb Devkar vs. SEBI doesn't apply to the present case as there was no allegation of insider trading involved in that case and also SEBI vs. Abhijit Rajan doesn't help the appellants in anyway as it was not under 2015 Regulations. With these submissions, Mr. Rai prayed for dismissal of the appeal. 6. We have carefully considered the facts of the case in the light of the submissions made by both sides and also available facts on record. Based on the same, following questions arise for our consideration: A. Whether the appellants' case is covered under the exceptions given in the proviso to Regulation 4(1), as the transaction of sale of 9% equity was carried out by both parties through the block dea....
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....r person under sub-regulation (3) of regulation 3 of these regulations. .............." (Emphasis supplied) 6.3. The underlying objective of the Insider trading regulations is to prevent unfair advantage to Insiders having access to non-public, material information, at the expense of other investors. However, where both parties have information symmetry, there is no question of unlawful gains for one party at the expense of the other, e.g. where trading has been done between two parties through off-market deal or block deal, while having access to UPSI without violating Regulation No. 3. The exception was provided for off-market deals in the original regulation. The case of Block deals is still stronger as accuracy of information with regard to price, quantity and time for both parties is quintessential, failing which block deal cannot be executed. Noticing this, specific exceptions was provided for block deals w.e.f. April 1, 2019. 6.3.1 In the instant case, the sale of 9% equity in THEAL was undertaken through the block deal window mechanism on December 3, 2015 for which due disclosure was also made on the same day. Undisputedly, both the appellant No. 1 a....
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....y prospectively. 6.5 On careful consideration, we are in agreement with the view of the Ld. Advocate for the appellant that though this exception has been made in 2019, being a beneficial amendment, it may be read retrospectively. In holding so, we rely on the decision of Hon'ble Supreme Court in CIT v. Vatika Township (P) Ltd., [(2015) 1 SCC 1]. The respondent's plea that Sudhir Bapusaheb Devkar v. SEBI doesn't apply in the case, as it did not relate to PIT regulations has no merit, as we are concerned with the underlying object, which has been confirmed by Hon'ble Supreme Court in the Vatika Township (P) Ltd. case. 6.5.1 Further, it is relevant to note that the enabling proviso while enumerating the exceptional circumstances starts with the word "including", which make the proviso inclusive and not exhaustive: "Provided that the insider may prove his innocence by demonstrating the circumstances including the following....." Thus, the legislature in its wisdom has granted an opportunity to prove innocence in various circumstances, and not just limited only to specified circumstances. We also find that undisputedly, no unlawful gains have been made by the appel....
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.... 6.6.2 It is SEBI's case that the 9% equity sales by appellants to 6 companies was guided by possession of the UPSI being in the nature of "likely merger of THEAL with ZEEL"(Transaction No. 2), which was also a subject matter of discussion of appellant No. 1 with Mr. Subhash Chandra Goel at the time of meeting held on November 30, 2015. However, we find that there is no evidence to suggest that this issue was an agreed agenda item, at the time of meeting on November 30, 2015. We find that the respondent has relied upon a disclosure by THEAL to BSE on March 11, 2017 in which the appellant No. 1 has stated as under:- "I state that during November 2015, I had a meeting with Mr. Subhash Chandra Goel through one Mr. Ganesh of Inga Capital wherein Mr. Subhash Chandra Goel had discussed the possibility of merger of his company ZEE Learning Ltd. (ZLL) with THEAL for the shares exchange ratio of 53 shares of Rs. 1 each of ZLL with 10 shares of THEAL." Further, SEBI has also relied upon a post-hearing submission of the appellant dated January 12, 2021 which reads as under :- "I had meeting with Mr. Subhash Chandra Goel. He agreed to buy 40 lakh shares, for a total con....
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....that any decision in this regard will be taken by the board. 6.6.6 In our considered view, it is improbable to have discussion on both the 9% equity sale and 'Merger' as part of the agreed agenda in the same meeting, since both options have different implications for sellers and buyers. The equity sale enabled sellers to quickly discharge the debts of five financial institutions, which was their priority, while allowing them to continue to have control over THEAL and operate play schools. In the 2nd option of Merger of THEAL with ZLL, appellants would not have received cash in short run, which was their urgent need and, it is likely that their role in the merged entity would have been restricted. Thus, the possibility of strategically discussing both agenda items simultaneously does not look practical. In our view, not much needs to be read into the fact of Zee patriarch Mr. Goel spontaneously making a proposal to also consider merger of THEAL with ZLL, during the meeting held for discussing 9% of equity of THEAL for ZEE group. The proposal was not concrete, was without any authorization by ZLL and not accepted by appellant no. 1 during the meeting. 7. As per PIT Regulations,....