Corporate Law Daily – Editorial Team
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In the instant case, the Supreme Court set aside orders of the SEBI and the SAT whereby the Managing Director of PC Jewellers and some of his relatives were held guilty of violating insider-trading norms. ?
Brief Facts ?
The SEBI had imposed a fine of Rs. 20 lakh on appellants and restrained them from accessing the securities market and buying, selling or dealing in securities directly or indirectly for a year. SEBI also restrained the appellants from dealing with the scrips of their company for two years. ?
The order was based on the finding of the SEBI that the family members concerned had traded on the basis of 'Unpublished Price Sensitive Information' (UPSI) received on account of their alleged closeness to the company and its Managing Director. The SAT upheld the same. ?
Supreme Court’s Ruling
On appeal, the Apex Court observed that the SAT was exercising the jurisdiction of a First Appellate Court and was bound to independently assess the evidence and material on record, which it evidently failed to do. ?
It was observed that the charge of Insider Trading by communication of Unpublished Price Sensitive Information by an insider to other insiders or any other persons (Regulation 3 of SEBI(Prohibition of Insider Trading) Regulations,2015), is required to be established by adequate material on record and cannot be established from only circumstantial evidence of share trading timing/pattern. To raise the statutory presumption of communication of UPSI, there needs to be adequate material on record to show frequent communication between the parties. No presumption can be raised without proving foundational facts. ?
The Apex Court noted the entire case of the Respondents SEBI was premised on two important propositions, firstly, there existed a close relationship between the appellants herein; and secondly, based on the circumstantial evidence (trading pattern and timing of trading), it could be reasonably concluded that the appellants in C.A. No.7590 of 2021 were "insiders" in terms of Regulation 2(1)(g)(ii) of the PIT Regulations. However, the WTM and SAT wrongly rejected the claim of estrangement of the Appellants in C.A. No.7590 of 2021, without appreciating the facts and evidence as was produced before them.
The records and facts adequately establish that there was a breakdown of ties between the parties, both at the personal and professional levels and that the said estrangement happened much prior to the two UPSI. Secondly, the SAT erred in holding the appellants in C.A. No.7590 of 2021 to be "insiders" in terms of regulation 2(1)(g)(ii) of the PIT Regulations on the basis of their trading pattern and their timing of trading (circumstantial evidence).
There is no correlation between the UPSI and the sale of shares undertaken 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. ?
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 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 communicated the UPSI to the other appellants in C.A. No.7590 of 2021. ?
The said appellants in C.A. No.7590 of 2021 were not "immediate relatives" and were completely financially independent of the appellant and had nothing to do with him in any decision-making process relating to securities or even otherwise. ?
The Apex Court held that the SAT order suffers from non-application of mind and the same is a mere repetition of facts stated by the WTM. The Appellate Tribunal was exercising jurisdiction of a First Appellate Court and was bound to independently assess the evidence and material on record, which it evidently failed to do. ?
Accordingly, the appeals are allowed and the impugned judgement and final orders of WTM and SAT are set aside. The deposits made by the appellants in both the appeals in terms of the impugned orders or interim orders of this Court shall be refunded to the respective appellants. ?
Earlier the SEBI vide Circular No. SEBI/HO/CFD/DIL2/CIR/P/2021/2480/1/M dated March 16, 2021 (March 21 circular), had put in place measures to have a uniform policy to further streamline the processing of the ASBA applications through the UPI process among intermediaries/ Self-Certified Syndicate Banks (SCSBs). ?
As per the March 21 circular “SCSBs shall ensure that the unblock for non-allotted/partial-allotted applications is completed by the closing hours of bank day on BOA+1. SCSBs shall submit the confirmation on the same, to Lead Managers and RTA, not later than BOA+1. Such report shall be submitted as per the format prescribed in Annexure IV.” ?
SEBI has reviewed the performance of SCSBs on timely unblocking of application amounts and based on the feedback received from market intermediaries notified “a new reporting format” to capture the data of all ASBA applications unblocked by SCSBs and their corresponding date of actual unblock. ?
The format as prescribed in Annexure IV of the March’21 circular has been devised.
Further, in order to streamline the processing of ASBA applications made through the UPI process, the SEBI has decided that the Self Certified Syndicate Banks (SCSBs) /UPI Apps eligible for Public Issues shall send SMS Alerts to Investors for all ASBA applications and may also provide the Invoice in the Inbox as an additional feature to verify the UPI mandate details.
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