TaxTMI 
TaxTMI 
2026 (8) TMI 805
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....ny engaged in buying and selling of jewelry. The Respondent No. 1 before us, namely, Mr. Rajeev Vasant Sheth, is the Chairman and Managing Director; Respondent No. 2, namely Ms. Aarti Sheth, and Respondent No. 3, Divya Sheth, being the daughters of Respondent No. 1, were the Promoters and Vice Presidents of TJL. 2.2. TJL was traded on the Bombay Stock Exchange and National Stock Exchange. It had entered the liquidation process by order dated 30.07.2019 passed by the National Company Law Tribunal. The Company suffered losses of Rs. 166.80 Crores during the quarter ending in September 2017, whereas in the previous quarter ending in June 2017 net loss was of Rs. 6.62 Crores. For the same period, net Sales of the Company fell by approximately 69%. 2.3. During the Unpublished Price Sensitive Information ['UPSI'] Period i.e., 02.10.2017 to 29.11.2017, the Respondent No. 1 sold of 30,93,948 shares owned by him, which was about 12.56% of the total shareholding of the company, and a further 29,75,000 shares by subsequent transactions. Respondents No. 2 and 3 sold of their entire holding - 1,14,440 each. Consequently, a cumulative loss of approximately Rs. 1.38 crores was avoided. 2....
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.... iv. Noticees no. 2 and 3 are directed to disgorge the amount to the extent of loss avoided by their insider trading, as given in Table 6 of the present order within 45 days from the date of receipt of this order. The amount shall be remitted by the Noticees no. 2 and 3 along with interest at the rate of 12% per annum and for this purpose the interest shall be calculated from November 30, 2017 till the date of deposit of the said amount by these two Noticees in the respective escrow accounts, in compliance with impounding order cum SCN: While calculating and remitting the disgorgement amount along with interest for the period, the Noticees 2 & 3 are allowed to set-off the amount already paid/deposited by them In the escrow accounts in the name of SEBI. In terms of the provisions of section 11(5) of SEBI Act, the amount so disgorged from the Noticees 1, 2 & 3 will be credited to Investor Education and Protection Fund (IEPF). v. Further, I impose the following Monetary penalties on the Noticees under the provisions of Sections 15G and 15HB for their respective violations of the provisions of SEBI Act and the PIT Regulations; Entity Provisions of law violat....
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....tion of Securities or Control" and specifically under Section 12A thereunder that no person shall directly or indirectly engage in insider trading. The said section is reproduced hereunder: "12A. Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control.-No person shall directly or indirectly- (a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a recognised stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of this Act or the rules or the regulations made thereunder; (b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed or proposed to be listed on a recognised stock exchange; (c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised stock exchange, in contravention of the provisions of this Act or the rules or the regulations made ther....
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....the term and other conditions of service of officers and employees of the Board under sub-section (2) of section 9; (c) the matters relating to issue of capital, transfer of securities and other matters incidental thereto and the manner in which such matters shall be disclosed by the companies under section 11A; (ca) the utilisation of the amount credited under sub-section (5) of section 11; (cb) the fulfilment of other conditions relating to collective investment scheme under sub-section (2A) of section 11AA; (d) the conditions subject to which certificate of registration is to be issued, the amount of fee to be paid for certificate of registration and the manner of suspension or cancellation of certificate of registration under section 12; (da) the terms determined by the Board for settlement of proceedings under sub-section (2) and the procedure for conducting of settlement proceedings under sub-section (3) of section 15JB; (db) any other matter which is required to be, or may be, specified by regulations or in respect of which provision is to be made by regulations." 6.3. Having proscribed insider trading in the above ter....
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....st of investors, or orderly development of securities market; or ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of investors or securities market; or iii) to secure the proper management of any such intermediary or person, it may issue such directions,- (a) to any person or class of persons referred to in section 12, or associated with the securities market; or (b) to any company in respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities market. Explanation.-For the removal of doubts, it is hereby declared that the power to issue directions under this section shall include and always be deemed to have been included the power to direct any person, who made profit or averted loss by indulging in any transaction or activity in contravention of the provisions of this Act or regulations made thereunder, to disgorge an amount equivalent to the wrongful gain made or loss averted by such contravention." 6.6. If a party is aggrieved by the imposition of a penalty, Section 1....
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.... board of directors of the asset management company of a mutual fund or is an employee thereof; or (g). a member of the board of directors or an employee, of a public financial institution as defined in section 2 (72) of the Companies Act, 2013; or (h). an official or an employee of a self-regulatory organization recognised or authorized by the Board; or (i). a banker of the company; or (j). a concern, firm, trust, Hindu undivided family, company or association of persons wherein a director of a company or his immediate relative or banker of the company, has more than ten per cent. of the holding or interest; NOTE: It is intended that a connected person is one who has a connection with the company that is expected to put him in possession of unpublished price sensitive information. Immediate relatives and other categories of persons specified above are also presumed to be connected persons but such a presumption is a deeming legal fiction and is rebuttable. This definition is also intended to bring into its ambit persons who may not seemingly occupy any position in a company but are in regular touch with the company and its officers and ....
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....anges in key managerial personnel. [***]. NOTE: It is intended that information relating to a company or securities, that is not generally available would be unpublished price sensitive information if it is likely to materially affect the price upon coming into the public domain. The types of matters that would ordinarily give rise to unpublished price sensitive information have been listed above to give illustrative guidance of unpublished price sensitive information." (emphasis supplied) 8. Regulation 3 of the PIT Regulations, 2015 prescribes that no insider shall communicate, provide or allow access to any UPSI other than in furtherance of legitimate purposes or discharge of, inter alia, legal obligations. The relevant part thereof inasmuch as it relates to the mainstay of the present lis, i.e., Regulation 4, is as under: "(3) Notwithstanding anything contained in this regulation, an unpublished price sensitive information may be communicated, provided, allowed access to or procured, in connection with a transaction that would:- (i) entail an obligation to make an open offer under the takeover regulations where the board of directo....
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....spute is- (a) off-market; (b) inter se transfer between insiders; (c) while they were in possession of same UPSI; and d) that it was not in violation of Regulation 3 with the exception of sub-regulation (3) of Regulation 3 which we have already extracted supra and (e) both parties made a conscious and informed trade decision. It is further provided that such inter-se transfer be notified to the company in two-working days and that such companies shall further transmit such information to the stock exchange where such company is listed. "(i) the transaction is an off-market inter-se transfer between [insiders] who were in possession of the same unpublished price sensitive information without being in breach of regulation 3 and both parties had made a conscious and informed trade decision. [Provided that such unpublished price sensitive information was not obtained under sub-regulation (3) of regulation 3 of these regulations. Provided further that such off-market trades shall be reported by the insiders to the company within two working days. Every company shall notify the particulars of such trades to the stock....
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....ted and no unpublished price sensitive information was communicated by the individuals possessing the information to the individuals taking trading decisions and there is no evidence of such arrangements having been breached;" 9.6. The sixth defence is trades carried out in accordance with trading plans as formulated under Regulation 5. 9.7. At the end of Regulation 4(1) there is a note that embeds a presumption of trades so made being motivated by such knowledge and information in his possession, when such a person has UPSI. The intentions and the purposes to which the proceeds of the transactions are applied are thereby made irrelevant. The text of the note is: "NOTE: When a person who has traded in securities has been in possession of unpublished 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....
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....ion "government or any other person" contained in Section 364-A of the Penal Code, 1860 with reference to ejusdem generis. This Court, in repelling the contention, went on to hold : (SCC pp. 523-25, paras 26-30 & 32) ... ... ... 27. In Siddeshwari Cotton Mills (P) Ltd. v. Union of India [Siddeshwari Cotton Mills (P) Ltd. v. Union of India, (1989) 2 SCC 458 : 1989 SCC (Tax) 297] M.N. Venkatachaliah, J., as his Lordship then was, examined the rationale underlying ejusdem generis as a rule of construction and observed : (SCC p. 463, para 14) '14. The principle underlying this approach to statutory construction is that the subsequent general words were only intended to guard against some accidental omission in the objects of the kind mentioned earlier and were not intended to extend to objects of a wholly different kind. This is a presumption and operates unless there is some contrary indication. But the preceding words or expressions of restricted meaning must be susceptible of the import that they represent a class. If no class can be found, ejusdem generis rule is not attracted and such broad construction as the subsequent words may admit will be favoured.....
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....ove-said 1992 Regulations, Regulation 3B appears to deal with defences, in similar terms to what is provided in Regulation 4(1) in the 2015 PIT Regulations. The most obvious difference that appears plain to us, is that there is no such 'note' as there is in the latter. In other words, there was no specific bar against the consideration of the issue of where the proceeds of such insider trading transactions are used. As such, apart from the fact that in Abhijit Rajan the shares were sold before the increase in price shares, as opposed to a fall in the prices in the present case, there was scope available for the Tribunal and the Court to consider why a particular person undertook the transactions in question. Had it been that there was a fall in the shares of the company in that case, their intent to scrounge up the money for the CDR process for the parent company could have been considered. If the same transactions were after the 2015 PIT Regulations, that could not have been considered. 16. For the reasons as aforestated, the appeal is allowed. On the aspect of the penalty and disgorgement, the order that has been issued by the WTM stands reproduced supra. The SAT, consequent t....