IMPORTANT POINT
Although penal statutes require strict construction, such interpretation should not result in incongruence with the purpose of the regulation.
Legislature should be presumed to be inserting every part of the statute for a purpose.
Intermediary trading on information of substantial client order involving fraud would be fraudulent.
`Expressio unius est exclusio alterius' is not a rule of law but a tool of interpretation. Must be applied cautiously.
An act, expression, omission or concealment inducing another person to deal in securities is fraud.

Headnote:Per N.V. Ramana, J.
       (a) Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities market) Regulations 2003 – Front running – Tippee trading, Hedging, and Trading ahead – Trading ahead recognized under regulation 4(2)(q). (Para 19)
       (b) Interpretation – Penal statutes – Strict construction – Well established principle – Such interpretation, however, should not result in incongruence with the purpose of the regulation. (Para 20)
       (2016) 6 SCC 368 – Relied upon
       (2011) 1 SCC 529; (2004) 1 SCC 391 – Referred
       (c) Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities market) Regulations 2003 – Regulations 3 and 4 – An interpretation protecting unjust claims over just, fraud over legality and expediency over principle must not be adopted. (Para 22)
       (d) Interpretation of statute – Rule against redundancy – Legislature should be presumed to be inserting every part of the statute for a purpose – True intention of the legislature should be realized. (Para 23)
       (e) Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities market) Regulations 2003 – Regulation 3, 2(c) and 4 – Dealing in securities – Broad definition – Fraud – Includes many situations which may not be a fraud under the Contract Act or 1995 Regulations – Unfair Trade practices – Distinction between fraud and unfair trade practices – Inducement to bring about inequitable result amounts to fraud – Intermediary trading on information of substantial client order involving fraud would be fraudulent – Charges u/s 2, 3 and 4 must be established. (Para 25, 27, 30, 31, 33, 36)
       (f) Maxim – `Expressio unius est exclusio alterius' – Not a rule of law but a tool of interpretation – Must be applied cautiously. (Para 35)
       (g) Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities market) Regulations 2003 – Regulations 3 (a), (b), (c), (d) and 4(1) – All these provisions get attracted in case of fraudulent dealing in securities – Not necessary to invoke any individual provision only. (Para 37)
       (h) Interpretation of statute – Foreign judgments – No need to rely upon – But developments in other countries must be kept in mind. (Para 40)
       444 U.S. 507:100 S.Ct. 763: 62 L.Ed.2d 704 (1980); 393 U.S. 453 (1969); 484 U.S. 19 – Referred
       Per Ranjan Gogoi, J.
       (i) Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations 2003 – Regulation 2(c),(3) and (4) – Fraud – If an act, expression, omission or concealment induces another person to deal in securities – Inducement does not require any element of dishonesty or bad faith – Instantly, provisions of Regulation 3(a) and Regulation 4(1) are attracted. (Para 48, 51, 54)
       (2016) 6 SCC 368 – Relied upon
       Facts of the case:
       SEBI appellate Tribunal has taken two different views in cases involving front running in security market. Hence the SEBI and private individuals have come up with these appeals.
       The question arising in these appeals is whether `front running by non-intermediary' is a prohibited practice under regulations 3 (a), (b), (c) and (d) and 4(1) of FUTP 2003?
       Finding of the Court:
       Provisions of Regulation 3(a) and Regulation 4(1) are attracted.
       Result: Civil Appeal Nos. 5829 of 2014 and 11195-11196 of 2014 dismissed and Civil Appeal Nos. 2595, 2596 and 2666 of 2013 allowed.

JUDGMENT

N. V. RAMANA J.

The important question of law, arising in these batch of cases, being similar and the facts involved being largely comparable, all the appeals were heard together and are being decided by this common judgment.

2. This case revolves round the legality of `non-intermediary frontrunning' in security market under the SECURITIES AND EXCHANGE BOARD OF INDIA (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 2003 [hereinafter `FUTP 2003' for brevity]. As SEBI Appellate Tribunal [hereinafter `SAT' for brevity] has taken two different views in different cases appealed herein, Securities and Exchange Board of India [herein after `SEBI' for brevity] as well as private individuals, who are alleged to have been involved in front running, are in appeal before us.

3. A brief factual background would be necessary before we deal with the question of law that has arisen in this case instant. Broadly to understand the issue at hand, the facts in CIVIL APPEAL NO. 2595 OF 2013 AND 2596 OF 2013 (related cases) may be stated in brief. SEBI investigated into the activities of Shri Kanaiyalal Baldevbhai Patel [herein after `KB' for brevity] an individual trader. During the investigation, it was found that KB was putting orders ahead of orders placed by Passport India Investment (Mauritius) Ltd. [herein after `PII' for brevity]. One Dipak Patel, was the portfolio manager of PII, who also happens to be a cousin of KB and one Shri Anandkumar Baldevbhai Patel [herein after `AB' for brevity]. It was alleged that Dipak Patel provided information to KB and AB regarding forthcoming trading activity of the PII. It is to be noted that trades were executed using the telephone number registered in the name of AB at the common residential address of KB and AB. Taking advantage of the information received from Dipak Patel, KB had indulged in trading before the PII and consequently squared off the position when the order of PII were placed in the market. It was estimated that the KB earned a total profit of Rs. 1,56,32,364.01/- from the alleged trades. This Court in CIVIL APPEAL NO. 2594 OF 2013, by order dated 05.04.2017, while remanding the matter back to the Appellate Tribunal with respect to AB, held that there is no finding or conclusion recorded with respect to AB in the following manner-

Learned counsel for the appellant (SEBI) has vehemently urged that such findings are recorded in the Adjudication Order and the said order has merged with the order of the learned Appellate Tribunal. We disagree with the aforesaid contention urged by the learned counsel for the appellant. In the appeal(s) filed by the aggrieved person(s) against the order(s) of the Adjudicating Officer, the learned Appellate Tribunal was expected to record its own independent findings and arrive at its own conclusions for holding the respondent liable for the penalty imposed. It seems that the learned Appellate Tribunal has proceeded on the basis that the case of the respondent is same and similar to the case of Kanaiyalal Baldev Patel and Dipak Patel which, evidently, is not.

4. In CIVIL APPEAL NO.2666 OF 2013, Sujit Karkera and Group were trading through B.P. Equity Pvt. Ltd. SEBI alleges that they were trading ahead of the trades of CITIGROUP Global Markets Mauritius Pvt. Ltd.(CGMMPL) on the basis of information provided by Suresh Menon (trader of CGMMPL) who was in possession of the orders of CGMMPL for 6 scrip days. SEBI in its investigation had found that there were several calls made between Suresh Menon and his family friend Sujit Karkera during this time period of 6 days. In these telephonic conversations, it was alleged that there was exchange of information related to scrip name, order quantity, order timing, and order price of the orders placed by Suresh Menon for CGMMPL. Sujit Karkera utilized the information

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2017 Supreme(SC) 955

Cases Referred (4)