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2022 Supreme(SC) 924
SUPREME COURT OF INDIA
INDIRA BANERJEE, V. RAMASUBRAMANIAN, JJ.
Securities And Exchange Board Of India - Appellants
Versus
Abhijit Rajan - Respondent
Civil Appeal No.563 of 2020
Decided on : 19-09-2022
For the Appellant(s) : Mr. Pratap Venugopal,Adv. Ms. Surekha Raman,Adv. Mr. Akhil Abraham Roy,Adv. Mr. Vijay Valsan,Adv. For M/S. K J John And Co, AOR
For the Respondent(s): Mr. Somasekhar Sundaresan,Adv. Mr. Divyam Agarwal, AOR Mr. Vikram Raghani,Adv. Mr. Pulkit Sukhramani,Adv. Mr. Abhishek V.,Adv. Ms. Vidhi Jhawar,Adv. Mr. Mayank Ratnaparkhe,Adv.
The Court emphasized that the motive for making a gain is essential in insider trading cases, and the actual gain or loss is immaterial. It also highlighted the significance of the likelihood of the information materially affecting the price of securities.
Headnote:
Insider Trading - Securities Appellate Tribunal - Securities and Exchange Board of India Act, 1992, Section 12A(d) and (e) - SEBI Act, 1992 - Regulations 3 and 4 - Regulation 2(ha) - Regulation 2(k) - Regulation 3 - Regulation 4 - Regulation 2(e) - Regulation 2(d) - SEBI (Insider Trading) (Amendment) Regulations 2002 - SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 - SEBI Act, 1992, Section 15Z - SEBI Act, 1992, Section 30
Fact of the Case:
The respondent, a Chairman and Managing Director of a company, sold shares before the public disclosure of termination of two shareholders' agreements. SEBI found him guilty of insider trading and directed disgorgement of unlawful gains. The Securities Appellate Tribunal set aside SEBI's order.
Finding of the Court:
The Court analyzed the information, the respondent's sale of shares, and the impact on the company's securities. It concluded that the respondent's sale did not constitute insider trading as it was similar to a distress sale made before the information could positively impact the share price.
Issues: 1. Whether the information regarding the termination of the contracts was price sensitive. 2. Whether the respondent's sale of shares constituted insider trading. 3. Whether SEBI should have considered the last trade price of the day on which information was disclosed instead of the next day's trade price.
Ratio Decidendi: The Court held that the information regarding the termination of the contracts was price sensitive, likely to place existing shareholders in an advantageous position. The respondent's sale of shares did not fall within the mischief of insider trading, resembling a distress sale made before the information could positively impact the share price.
Final Decision: The Court dismissed the appeal, finding no interference necessary with the Tribunal's order. No costs were awarded.
JUDGMENT :
V. Ramasubramanian
1. The Securities and Exchange Board of India has come up with the above appeal, challenging an Order of the Securities Appellate Tribunal, by which the Order of its Whole Time Member (for short “WTM”) directing the respondent to disgorge the amount of unlawful gains made by him, was set aside.
2. We have heard Mr. Arvind P. Datar, learned senior counsel for the appellant and Mr. Somasekhar Sundaresan, learned counsel appearing for the respondent.
3. The background facts leading to the above appeal are as follows:
(i) The respondent herein was the Chairman and Managing Director of a company by name Gammon Infrastructure Projects Limited (hereinafter referred to as “GIPL”) till September 20, 2013. Thereafter, he ceased to be the Chairman Managing Director, but continued to be a Director of the Company.
(ii) In the year 2012 GIPL was awarded a contract by National Highways Authority of India. The total cost of the project was Rs.1648 crores. For the execution of the project, GIPL set up a special purpose vehicle called Vijayawada Gundugolanu Road Project Private Limited (“VGRPPL”).
(iii) Similarly, another company by name Simplex Infrastructure Limited (SIL) was awarded a contract by NHAI in Jharkhand and West Bengal and the total cost of the project was Rs.940 crores. For the execution of the project, SIL set up a special purpose vehicle called Maa Durga Expressways Private Limited (MDEPL).
(iv) GIPL entered into two shareholders agreements with SIL. Under these agreements, GIPL was to invest in MDEPL and SIL was to invest in VGRPPL for their respective projects. The mutual investments were to be tuned in such a manner that GIPL and SIL would hold 49% equity interest in each other’s projects.
(v) However, on 9.08.2013 the Board of Directors of GIPL passed a resolution authorizing the termination of both shareholders agreements.
(vi) On 22.8.2013, the respondent sold about 144 lakhs shares (approx.) held by him in GIPL, for an aggregate value of approximately Rs.10.28 crores.
(vii) On 30.08.2013 GIPL made a disclosure to the National Stock exchange of India and BSE regarding the termination of two shareholders agreements.
(viii) On 20.09.2013 the respondent resigned from the post of Chairman and Managing Director of GIPL.
(ix) Pursuant to an input received from the National Stock Exchange, about the aforesaid transaction and the possibility of the trading having taken place on the basis of unpublished price sensitive information, SEBI conducted a preliminary enquiry. After completion of the preliminary enquiry, SEBI passed an exparte interim order on 17.07.2014 holding prima facie that the respondent violated the provisions of Section 12A(d) and (e) of The Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act, 1992”) and consequently restraining the respondent from buying, selling or dealing in securities and accessing the security markets directly or indirectly. This exparte interim order was also confirmed by a confirmatory order dated 23.03.2015, passed after providing an opportunity of hearing to the respondent. The appeal filed by the respondent against the said confirmatory order was dismissed as withdrawn on 4.02.2016.
(x) In the interregnum, SEBI completed the investigation and issued certain directions on 21.03.2016, followed by a show cause notice dated 29.03.2016. The show cause notice was addressed not only to the respondent herein, but also to another Company by name Consolidated Infrastructure Company Private Limited and two of its Directors. The noticees filed their replies and after giving an opportunity of hearing to the noticees, the WTM passed an Order dated 13.07.2016. By the said order the WTM held the respondent herein guilty of insider trading and hence liable to disgorge the amount of unlawful gains made by him to the tune of Rs.1.09 crores. The show cause notices issued to the others, namely, Consolidated Infrastructure Company Private Limited and its Dire
