2022 Supreme(SC) 345

SUPREME COURT OF INDIA
VINEET SARAN, ANIRUDDHA BOSE, JJ.
Balram Garg - Appellant
Versus
Securities and Exchange Board of India - Respondent
Civil Appeal No. 7054 of 2021
With
Ms. Shivani Gupta & Ors. - Appellants
Versus
Securities and Exchange Board of India - Respondent
Civil Appeal No. 7590 of 2021
Decided On : 19-04-2022

The onus of proving that a certain person was in possession of or had access to unpublished price sensitive information at the time of trading would, therefore, be on the person leveling the charge after which the person who has traded when in possession of or having access to unpublished price sensitive information may demonstrate that he was not in such possession or that he has not traded or he could not access or that his trading when in possession of such information was squarely covered by the exonerating circumstances.

Headnote:

SEBI ACT, 1992 - INSIDER TRADING - PENALTY - IMPOSITION - APPELLANT BALRAM GARG - NOT A CONNECTED PERSON - APPELLANTS IN C.A. NO.7590 OF 2021 - NOT INSIDERS - NO COMMUNICATION OF UPSI - TRADING PATTERN AND TIMING OF TRADES - NOT CIRCUMSTANTIAL EVIDENCE - SAT ERRED IN UPHOLDING WTM ORDER - APPEALS ALLOWED - IMPUGNED JUDGEMENT AND FINAL ORDERS OF WTM AND SAT SET ASIDE.

Fact of the Case:

Appellant Balram Garg was the Managing Director of PC Jeweller Ltd. (PCJ) during the relevant period and was a “connected person” in terms of Regulation 2(1)(d)(i) and an “insider” under Regulation 2(1)(g) of the SEBI (Prevention of Insider Trading Regulations), 2015 (PIT Regulations). Appellants in C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta, Amit Garg and Quick Developers Pvt. Ltd., were alleged to have traded on the basis of Unpublished Price Sensitive Information (UPSI) received by them on account of their alleged proximity to P.C. Gupta and Balram Garg between the period from 01.04.2018 to 31.07.2018. The Whole Time Member (WTM) of SEBI passed a final order dated 11.05.2021, imposing a penalty of Rs.20 lakhs on the Appellants along with restraining them from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner for a period of 1 year from the date of the order and also restrained the appellants from dealing with the scrip of PCJ for a period of 2 years. The Securities Appellate Tribunal (SAT) dismissed the Appeals preferred by the Appellants and upheld the order of the WTM.

Finding of the Court:

The WTM and SAT erred in rejecting 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 the there was a breakdown of ties between the parties, both at personal and professional level and that the said estrangement happened much prior to the two UPSI. Secondly, as has already been discussed, 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 Balram Garg. 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 Balram Garg 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 Balram Garg 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 Balram Garg and had nothing to do with the him in any decision making process relating to securities or even otherwise. The submission of the learned counsel of the respondent regarding the same residential address of the appellants also falls flat as admittedly the parties were residing in separate buildings on a large tract of land. Lastly, in our opinion, 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 evidenced and material on record, which it evidently failed to do.

Issues: Whether the WTM and SAT rightly rejected the claim of estrangement of the appellants in C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta and Amit Garg? Could the aforementioned appellants be rightly held to be “insiders” in terms of Regulation 2(1)(g)(ii) of the PIT Regulations, only and entirely on the basis of circumstantial evidence?

Ratio Decidendi: The SAT erred in upholding the order of the WTM as it failed to independently assess the evidence and material on record while exercising its jurisdiction as the first appellate court. The SAT again fell in error when in spite of observing that there is no direct evidence which suggests as to who had disseminated the insider information to the appellants in C.A. No.7590 of 2021, it concluded on mere “preponderance of probability” that it was late P.C. Gupta as well as appellant Balram Garg who disseminated both UPSI to the appellants in C.A. No.7590 of 2021. 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 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).

Final Decision: 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.