| Headnote |
SEBI (Prohibition of Insider Trading) Regulations, 1992: Regn 2(e)(i), 2(c) – Insider trading – Satyam scam – Appellantco-brother of the Chairman of SCSL-Satyam Computer Services Limited, was executive director of SCSL from 1993 to 2000 and non-executive director from 2000 to 2003 – Appellant holding 76,50,000 equity shares of SCSL – Letter by former Chairman of SCSL, to the stock exchange and SEBI that financial statement of the company had been grossly overstated – Show cause notice to appellant that being a promoter and director of SCSL, he was liable as an “insider”, having knowledge of Unpublished Price Sensitive Information (UPSI), as a result of which he stood to gain by selling his shares at an inflated value – Whole Time Member of SEBI and appellate tribunal held that the appellant was a “connected person” u/Regn 2(c) and, thus, “insider” u/Regn 2(e) – On appeal, held: Appellant cannot be described as a promoter since the annual reports, which contained his signatures as a director, did not show him as a promoter – Chairman and his brother described him as a promoter in letters written to various stock exchanges behind his back and duped him – He was victim of fraud perpetrated by them – By 2006, all the actual promoters disposed of their shareholding in SCSL because they were aware of the credit crunch faced by SCSL – Appellant continued to retain substantial shareholding in SCSL till the end of 2008 clearly points to lack of possession of UPSI – Appellant had no professional or business relationship with his co-brother and had no connection with any of the entities floated by his co-brother – Appellant ceased to be executive director in 2000 as such was not involved with fraudulent manipulation which began only from 2001 onwards – It has not been shown how appellant was in any manner responsible for actions taken by those in the management of SCSL – Inference of reasonably being expected to be in the knowledge of confidential information cannot be formed – SEBI (Prohibition of Insider Trading) Regulations, 2015 – Securities and Exchange Board of India Act, 1992. Regn 2(e)(ii), 2(h)(ix) – Unpublished Price Sensitive Information (UPSI) – Satyam scam – Appellant Company-private company of the executive director/non-director of SCSL and his wife – Each holding 50% share capital of the company – Appellant sold only 8,00,000 shares held in SCSL – 24,00,000 shares never sold by appellant, but for which only application money was received and returned by 17.4.2002 – Disgorgement order included gains made on account of the said shares – Minority judgment holding that 8,00,000 shares had been sold prior to the occurrence of the UPSI and 24,00,000 shares were never sold but were merely returned to executive director/non-director of SCSL, could not form the basis of any disgorgement order – On appeal, held: Minority judgment is upheld – Appellant does not have persons who are relatives of persons mentioned in sub-clauses (vi), (vii) and (viii) – Under these sub-clauses, a person is deemed to be a connected person if such person is a relative of persons in cl (i) to (v); or is a banker of the company; or is a relative of a connected person – Since none of these clauses are attracted, s. 2(h)(ix) not attracted. Regn 2(h)(viii) – Person deemed to be connected – Satyam scam – Father of executive director/non-executive director of the company – Father neither a promoter nor a director of SCSL, and sold 2,50,000 shares in 2005 and expired in 2007 – Order by the tribunal that father was a person deemed to be connected under Regn 2(h)(viii) since he was relative of a connected person – On appeal, held: Director/executive director ceased to be a connected person in 2003 – Thus, when the father sold shares in 2005, he could not be a deemed to be connected person since the director himself ceased to be a connected person – Thus, order of Whole Time Member quashed and set aside. Regn 2(e)(i) – Insider – Connected person – Satyam scam – Mother of the Chairman, though relative, yet made off market transactions way back in 2003 – Whole time member and majority judgment of the appellate tribunal holding that mother being the close relative, thus, must be presumed that she had access to UPSI – On appeal, held: CBI or the Enforcement Directorate did not proceed against the mother nor was referred to by the SFIO’s report – She was neither promoter nor director of SCSL – Thus, the test of the second part of clause 2(e)(i) not met with – Furthermore, had she been in possession of UPSI, she would also have sold shares at their peak price instead of selling them at a depressed price in 2003 – Thus, the majority judgment set aside. Regn 2(e)(i) – Insider – Satyam scam – Chairman’s sons roped in by the Whole time member and the appellate tribunal – On appeal, held: Second limb of clause 2(e)(i) cannot be put against either of the sons – There was no evidence of any complicity in the fraud committed by their father – Given the fact that they were expressly exonerated of the said fraud by the appellate tribunal, and that they were running independent businesses and were neither directors nor promoters of SCSL, and that they sold their shares for business purposes at a price much less than the peak price at which their father sold shares of SCSL in 2006, no case made out against them. Regn 2(h)(ix) – Insider – Person deemed to be connected person – Satyam scam – Appellant-private limited company owned shares of Satyam company which were pledged as security for obtaining a loan amount, that was borrowed to provide funds to ten independent companies, owned by the family of the Chairman – Majority judgment of the appellate tribunal held the appellant company as deemed to be a connected person u/Regn 2(h)(ix) – On appeal, held: Shareholding pattern of the appellant company, made it clear that Chairman and his brother individually held more than 10% interest in the appellant company, thus, the appellant company is deemed to be a connected person u/Regn 2(h)(ix) – Further, the appellant company was an ‘insider’ under the Regulations – It had pledged and got the shares of Satyam belonging to the Chairman and his brother and their spouses sold when in possession of UPSI and thus, violated SEBI Act and the Regulations – Thus, the finding of the majority judgment upheld. Regn 2(e)(i) and (ii) – Insider trading – Unpublished Price Sensitive Information (UPSI) – Satyam scam – Appellant-younger brother of the Chairman, roped in by the appellate tribunal – On appeal, held: From s. 246 it is clear that the SFIO’s report can be used as evidence in any other proceeding – By virtue of s. 246, it is possible to appreciate the role of the appellant in the so-called Satyam scam – Also, the judgment of the Special Court, delivered long after the show cause notice, proved that the appellant also played active role in the criminal conspiracy and cheating of SCSL, its share holders and investors – While it is true that adjudication proceedings and criminal proceedings are separate proceedings, the relevance of the Special Court’s judgment is only for the purpose of showing that the second part of the definition of an “insider” is made out in the appellant’s case – He was reasonably expected to have access to UPSI in respect of the securities of SCSL – Thus, SFIO’s report as well as the Special court judgment clearly and unmistakably points to the complicity of appellant, unlike that of the other family members, in the fraud committed – Majority judgment of the appellate tribunal upheld – Companies Act, 1956 – s. 246. |
