Balram Garg v. Securities and Exchange Board of India
VINEET SARAN, J.
1. The present Civil Appeals arise out of a common judgement
and order dated 21.10.2021 passed by the Securities Appellate Tribunal
(for short “SAT”), wherein the Tribunal dismissed the Appeals No.375
and 376 of 2021 filed by the Appellants herein and upheld the ord er
dated 11.05.2021 passed by the Whole Time Member (for short “WTM”)
of Securities and Exchange Board of India (for short “SEBI”)
2. Brief facts relevant for the purpose of the present appeals are
that P. Chand Jeweller Pvt. Ltd. was incorporated on April 13, 2005
under the Companies Act, 1956 as a Private Limited Company. However,
pursuant to a resolution passed by the shareholders on July 5, 2011, the
company was converted into a Public Limited Company, following which
the name of the company was changed to “PC Jeweller Ltd.” (for short
“PCJ”) and a fresh certificate of incorporation was issued.
3. The genesis of the present dispute is rooted in the act ion of
Respondent/SEBI against the appellants vide an impounding order dated
17.12.2019 and a show-cause notice dated 24.04.2020. The crux of the
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allegations of the impounding order and the show-cause notice ar e as
follows:
i. Padam Chand Gupta (P.C. Gupta) was the Chairman of
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 (for short “PIT Regulations”).
ii. Balram Garg, who is the brother of P.C. Gupta and the
Managing Director of PCJ is also a “connected person” in
terms of Regulation 2(1)(d)(i) and an “insider” unde r
Regulation 2(1)(g) of the PIT Regulations.
iii. That allegedly, the appellants in C.A. No.7590/2021, namely,
Sachin Gupta, Smt. Shivani Gupta and Amit Garg traded on
the basis of Unpublished Price Sensitive Information (for
short “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.
iv. The above proximity was alleged on the basis of the fac t
that Sachin Gupta and Smt. Shivani Gupta are the son and
daughter-in-law of Balram Garg’s deceased brother late
P.C. Gupta. Moreover, Amit Garg is the son of Amar Garg,
who was also the brother of Balram Garg. It was also
alleged that all the appellants shared the same residence.
4. Balram Garg, the appellant in C.A. No.7054/2021, filed his
reply (dated 07.08.2020) to the allegations made against him, wherein
he stated the following:
i. That the foundational facts were not there to prove or rais e
the alleged presumption. SEBI failed to place on record
any material to prove that the appellants in C.A. No.7590/
2021 were “connected persons” to Mr. Balram Garg as
required by Regulation 2(1)(d)(ii)(a) read with Regulation
2(1)(f) of the PIT Regulations, as none of the appellants
C.A. No.7590/2021 were financially dependent on Balram
Garg or consulted Balram Garg in any decision related to
trading in securities. Presumption is a rule of evidence
which cannot be drawn unless and until such foundational
facts are proved.
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
ii. That no material was brought on record to prima facie
show any transfer of information to the appellants in C.A.
No.7590 of 2021
iii. That merely being a family/relative cannot by itse lf be a
ground for the offence of insider trading, especially when
in furtherance of a family agreement, the family was
partitioned in 2011 and there had been no connection
between them ever since.
iv. Moreover, Sachin Gupta resigned from the post of P resident
(Gold Manufacturing) held by him in the company on
31.03.2015 pursuant to the family partition. Since then,
neither Sachin Gupta nor his wife Mrs. Shivani Gupta had
anything to do with the business of the PCJ.
5. After granting an opportunity of personal hearing to the appellant
on 24.12.2020, the Whole Time Member of SEBI passed final order
dated 11.05.2021, imposing a penalty of Rs.20 lakhs on the Appellants
along with restraining the appellants 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 a nd also
restrained the appellants from dealing with the scrip of PCJ for a period
of 2 years.
6. Aggrieved by the order of the WTM of SEBI, the Appellants
filed appeals before the SAT. The Tribunal, vide its common judgement
and order dated 21.10.2021, dismissed the Appeals preferred by the
Appellants and held that:
“Upon hearing both the sides, in our view, the reaso ning of
the Ld. WTM cannot be faulted with. The facts as highlighted
by the Ld. WTM would show that though there was a family
arrangement within the family on two occasions, the re was
no estrangement, as can be seen from the facts high lighted
by the Ld. WTM (supra). Additionally, in our view, the very
fact that appellant Shivani had authorized her cousin brother-
in-law i.e. appellant Amit to trade on her behalf, would belie
the case of the appellants that family settlements means family
estrangement. It cannot be gainsaid that the appellant s are
residing at the same address and even appellant Mr. Balr am
Garg’s address is ‘the front side’ of the premise. The tradi ng
pattern of the concerned appellant i.e. withholding of the
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selling of trade once buy back talk started within the company
and again selling spree the shares by them once the buy back
offer was made public till the rejection of the proposal by the
State Bank of India was made known to the public, w ould
clearly show that the concerned appellants were awa re of
both the UPSI.
It is true that there is no direct evidence as to w ho had
disseminated this insider information to the appell ants in
Appeal no. 376 of 2021. Late Shri Padam Chand Gupta was
the father of the appellant Mr. Sachin Gupta and fa ther-in-
law of the appellant Ms. Shivani Gupta and uncle of appellant
Mr. Amit Garg. Similarly, appellant Mr. Balram Garg is the
uncle of appellant Mr. Sachin Gupta and appellant Mr. Amit
Garg. All of them were residing in the same address. Appell ant
Mr. Sachin Gupta had financial transactions with the company
of which appellant Mr. Balram Garg was Managing Director.
Considering all of the above facts, on preponderanc e of
probability, it can very well be concluded that Late Padam
Chand as well as appellant Mr. Balram disseminated both
UPSI to the appellants in appeal no. 376 of 2021.”
7. Aggrieved by the above order of the SAT dated 21.10.2021,
the appellants filed the present appeals (C.A. No.7054/2021 by Balram
Garg and C.A. No.7590/2021 by Mrs. Shivani Gupta, Sachin Gupta,
Amit Garg and Quick Developers Pvt. Ltd.) under section 15Z of the
Securities and Exchange Board of India Act, 1992. Since, P.C. Gupt a
expired in January 2019 after the notices were issued, hence t he case
was dropped as against him.
8. Mr. Dhruv Mehta, learned Senior Counsel for the Appellant
Balram Garg (in C.A. No.7054 of 2021) has submitted that the WTM
has held that the appellants no.1 to 3 in C.A. No.7590 of 2021, namely,
Mrs. Shivani Gupta, Sachin Gupta and Amit Garg (also refe rred to as
Noticee no.1 to 3 in the show-cause notices) were not “connected
persons” or “immediate relatives” qua the appellant Balram Garg and
that this finding of the WTM has become final. It was further submitted
that the appellant Mr. Balram Garg was found to have vio lated only
Regulation 3 of PIT Regulations, 2015 and that unlike Regulation 4(2) of
PIT Regulations, there is no provision to raise any presumpti on under
the said Regulation 3.
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
9. It was also contented that to prove the violation of Regulation 3
of PIT Regulations, the burden of proof was on SEBI to establis h any
“communication” of UPSI by placing on record cogent evidence viz.
call details, emails, witnesses etc. It was submitted that the Respondent
in this case has failed to place any such evidence on record. Moreover,
it was submitted that the presumption against “immediate relative” is
provided in the Regulations to ensure that relatives who are financially
or otherwise under the complete control of a connected person are not
used for insider trading. However, in this case, no such possibility existed
in relation to the appellant Mr. Balram Garg and the other appellants in
C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta and
Amit Garg.
10. The learned Senior Counsel further contented that the reliance
of the respondent on the transactions between appellant Sachin Gupta
and the Company (PCJ) is against the principles of natura l justice as
these allegations were not part of the show cause notices. I t was also
submitted that the name of the appellant Balram Garg has been used
inter-changeably with that of late P.C.Gupta and 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 appellants in C.A. No.7590 of 2021.
11. Mr. V. Giri, learned Senior Counsel for the appellants in C.A.
No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta, Amit Garg
and Quick Developers Pvt. Ltd., has contended that the entire case of
insider trading is set up against these appellants only on the basis of the
close relationship between the parties. However, he submitted that the
appellants have placed sufficient material on record to demonstrate that
there was a complete breakdown of ties between the part ies, both at
personal and professional level and that the said estrangement was much
prior to the UPSI having coming into existence.
12. The learned Senior Counsel has further contented that even
assuming that the appellants have not been able to demonstrate a complete
breakdown of ties between the parties, it was not open for the SAT to
turn the Statute on its head by reversing the burden of p roof on the
appellants by conveniently ignoring the fact that the onus was actually
on SEBI to prove that the appellants were in possession or having access
to UPSI.
897
13. It was also contended that the charges against the appellants
in C.A. No.7590 of 2021 have been sustained solely on the basi s of
circumstantial evidence viz. trading patterns and timing of trades by the
appellants. Moreover, it was not open to the WTM and SAT to hold the
appellants guilty of the offence of insider trading in the absence of any
other concrete evidence as SEBI failed to produce such evidence. The
learned Senior Counsel also emphasized on the fact that the ch arges
against the appellants that they were “connected persons” within the
meaning of Regulation 2(1)(d) of the PIT Regulations was exp ressly
rejected by the WTM and that the burden of proving that the appellants
are “insiders” by invoking Regulation 2(1)(g)(ii) of PIT Regulations
was completely upon the SEBI and that they failed to dis charge this
burden.
14. Per contra, Mr. Arvind Datar, learned Senior Counsel for the
Respondent has submitted that on April 25, 2018, PCJ initiated discussions
regarding buy-back of fully paid up equity shares. On 10.05.2018, pursuant
to the discussion and approval by the Board, the company, after market
hours, informed the stock exchange of their offer o f buy-back of
1,21,14,285 fully paid up equity shares of Rs. 10/- each at a price of Rs.
350/- per equity share. As before this date, the information about buy-
back was not disclosed, and since the information pertained to change in
capital structure of the company, this information qualified as Unpublished
Price Sensitive Information-1 (for short “UPSI-1”). Accordingly, the
period from April 25, 2018 to May 10, 2018 has been taken as the period
of UPSI-1.
15. It was further submitted that on July 7, 2018, the lead Banker
of PCJ, State Bank of India (for short “SBI”), refuse d to give No
Objection Certificate (for short “NOC”) for the buy-back of equity
shares. Hence, on July 13,2018, the Board approved the withdrawal of
the buy-back offer and the same was informed to the Exc hanges after
market hours. It was submitted that this information has been considered
as Unpublished Price Sensitive Information-2 (for short “UPSI -2”) as
the same was likely to materially affect the price of the shares of the
company. Moreover, the information pertaining to proposed buy-back of
equity shares of the company came into existence on July 7, 2018 and
became public on July 13, 2018. Accordingly, the period from Jul y 7,
2018 to July 13, 2018 has been taken as period of UPSI-2.
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
16. It has been contended that appellant Balram Garg contravened
Regulation 3(1) of the PIT Regulations and Section 12A(c) of the SEBI
Act, 1992, by communicating the UPSI to the appellants in C.A. No.7590
of 2021, by being an “insider” and “connected person” within the meaning
of PIT Regulations, and by being privy to discussions and communications
pertaining to buy-back and withdrawal of equity shares. Additionally, by
virtue of being the Managing Director (MD) of the PCJ, Balram Garg
was in possession of UPSI-1 and UPSI-2.
17. Mr. Datar has contended that during the period 02.04.2018 to
31.07.2018, trades were executed by Appellants in C.A. No.7590 of
2021 while in possession of UPSI and that they made unlawful g ains
and avoided losses. Trades were executed from the trading account of
Mrs. Shivani Gupta from 02.04.2018 and continued till 24.04.2018. No
trades were undertaken in May and June 2018 and then sell trades were
undertaken from July 6, 2018 till July 13, 2018 i.e. during UPSI-2.
Appellant Mrs. Shivani Gupta had 100% concentration in the scrip of
PCJ and these trades were executed by Mrs. Shivani Gupta, Sac hin
Gupta and Amit Garg, i.e. Appellant No. 1,2, and 3 respectively in C.A.
No.7590 of 2021.
18. The learned Senior Counsel further contented that the Appellant
No. 4 (in C.A. No.7590 of 2021) i.e. Quick Developers Pvt. Ltd, to ok
short position on 13.07.2018 i.e. just before information pertaini ng to
withdrawal was communicated to the Exchanges. It is submitted that
such short positions were taken in anticipation of a price fall. Appellant
Amit Garg and his wife are 100% shareholders of Quick Develo pers
Pvt. Ltd., hence they, through the trades executed from the account of
Quick Developers Pvt. Ltd., avoided losses and also made profit.
19. In the context of the family settlement, learned Senior Counsel
has contended that such a settlement, at best, was an interna l division
and does not imply that all ties between the family members were severed
or that relationship of appellant Balram Garg with appellants in C.A.
No.7590 of 2021 was estranged. It was further argued that the appellants
did not cease to have association with each other, which is established
by the following facts:
i. Sachin Gupta continued to have business transactions with
PCJ. PCJ even paid rent to Sachin Gupta to the tune of
Rs.4 lakhs for Financial Year 2015-16, Rs.77 lakhs for the
Financial Year 2016-17 and Rs.78 lakhs for the financial
Year 2017-18.
899
ii. Sachin Gupta was the nominee of the Demat Account of
late P.C. Gupta and after his death, the holdings of P.C.
Gupta in the company were held by Sachin Gupta. Hence,
it cannot be said that the father and son relationship was
estranged.
iii. Appellant Balram Garg and the Appellants No. 1,2, and 3
in C.A. No.7590 of 2021 i.e. Mrs. Shivani Gupta, Sachin
Gupta and Amit Garg share the same residential address.
20. Reliance was placed on the SAT order in Utsav Pathak vs.
SEBI (order dated 12.07.2020 in Appeal No. 430 of 2019) wherein
the SAT had laid down the following ratio by relying upon the judgement
of this court in SEBI vs. Kishore R. Ajmera [(2016) 6 SCC 368] and
US District Court’s order in United States of America vs. Raj
Rajaratnam and Danielle Chiesi [09 Cr 1184 (RJH)] :
“From the aforesaid foundational facts, the circums tantial
evidence or on a preponderance of probability by a log ical
process of reasoning from the totality of the attend ing facts
and circumstances as stated aforesaid, an irresistible inferen ce
can be drawn that the appellant had passed on the p rice
sensitive information regarding the open offer to the Tippe es.
Such inference taken from the immediate and proximate fac ts
and circumstances surrounding the events is reasonable and
logical which any prudent man would arrive at such a
conclusion. The Supreme Court in Kanhaiyalal Patel (supra)
held that an inferential conclusion from proved and admitted
facts would be permissible and legally justified so long as
the same is reasonable.”
The learned Senior Counsel also submitted that the abovementioned
proposition has been followed by the SAT in Navin Kumar Tayal &
Anr. Vs SEBI in order dated 02.08.2021 in Appeal No. 08 of 2018.
21. Mr. Datar concluded his submissions by stating that the close
relationship of the appellants in C.A. No.7590 of 2021 with the appellant
Balram Garg, especially in view of the trading pattern makes it abundantly
clear that the appellants Mrs. Shivani Gupta, Sachin Gupt a and Amit
Garg were in possession of UPSI-1 & 2, who could not have got it from
anywhere else except Balram Garg, who by virtue of being the MD of
the company, possessed the crucial UPSI.
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
22. For ready reference, the relevant provisions of the concerned
Acts and Regulations are extracted below:
Section 11(2)(g) of the Securities and Exchange Board of
India Act, 1992
“11. (1) Subject to the provisions of this Act, it shall be the
duty of the Board to protect the interests of inves tors in
securities and to promote the development of, and t o
regulate the securities market, by such measures as it th inks
fit.
(2) Without prejudice to the generality of the fore going
provisions, the measures referred to therein may pr ovide
for—
(a)...
(b)...
(c)...
(d)...
(e)...
(f)...
(g) prohibiting insider trading in securities;
(h)…
………….
………….”
Section 11(4) of the Securities and Exchange Board of India
Act, 1992
“[(4) Without prejudice to the provisions contained in sub-
sections (1), (2), (2A) and (3) and section 11B, the Board
may, by an order, for reasons to be recorded in writing, in
the interests of investors or securities market, take any of
the following measures, either pending investigatio n or
inquiry or on completion of such investigation or inquiry,
namely:—
(a) suspend the trading of any security in a recogn ised
stock exchange;
(b) restrain persons from accessing the securities m arket
and prohibit any person associated with securities market
to buy, sell or deal in securities;
901
(c) suspend any office-bearer of any stock exchange or
self-regulatory organisation from holding such position;
(d) impound and retain the proceeds or securities in respec t
of any transaction which is under investigation;
(e) attach, after passing of an order on an applica tion
made for approval by the Judicial
Magistrate of the first class having jurisdiction, for a per iod
not exceeding one month, one or more bank account o r
accounts of any intermediary or any person associat ed
with the securities market in any manner involved i n
violation of any of the provisions of this Act, or the rul es
or the regulations made thereunder:
Provided that only the bank account or accounts or any
transaction entered therein, so far as it relates to the p roceeds
actually involved in violation of any of the provisions o f this
Act, or the rules or the regulations made thereunder shall be
allowed to be attached;
(f) direct any intermediary or any person associated w ith
the securities market in any manner not to dispose of or
alienate an asset forming part of any transaction which i s
under investigation:
Provided that the Board may, without prejudice to the
provisions contained in sub-section (2) or sub-secti on (2A),
take any of the measures specified in clause (d) or clau se (e)
or clause (f), in respect of any listed public comp any or a
public company (not being intermediaries referred to in sect ion
12) which intends to get its securities listed on any rec ognised
stock exchange where the Board has reasonable ground s to
believe that such company has been indulging in ins ider
trading or fraudulent and unfair trade practices re lating to
securities market.
Provided further that the Board shall, either before or after
passing such orders, give an opportunity of hearing to such
intermediaries or persons concerned.]”
(emphasis supplied)
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
Section 12A of the Securities and Exchange Board of India
Act, 1992
“Prohibition of manipulative and deceptive devices, insider
trading and substantial acquisition of securities or control .
12A. No person shall directly or indirectly—
(a) use or employ, in connection with the issue, purchas e
or sale of any securities listed or proposed to be liste d on
a recognized stock exchange, any manipulative or
deceptive device or contrivance in contravention of the
provisions of this Act or the rules or the regulations made
thereunder;
(b) employ any device, scheme or artifice to defrau d in
connection with issue or dealing in securities which are
listed or proposed to be listed on a recognised sto ck
exchange;
(c) engage in any act, practice, course of business w hich
operates or would operate as fraud or deceit upon a ny
person, in connection with the issue, dealing in securitie s
which are listed or proposed to be listed on a recognised
stock exchange, in contravention of the provisions of thi s
Act or the rules or the regulations made thereunder;
(d) engage in insider trading;
(e) deal in securities while in possession of mater ial or
non-public information or communicate such material or
non-public information to any other person, in a manner
which is in contravention of the provisions of this Act or
the rules or the regulations made thereunder;
(f) acquire control of any company or securities more than
the percentage of equity share capital of a company whose
securities are listed or proposed to be listed on a recognised
stock exchange in contravention of the regulations made
under this Act.]”
(emphasis supplied)
Section 15G of the Securities and Exchange Board of India
Act, 1992
“Penalty for insider trading.
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15G.If any insider who,—
(i) either on his own behalf or on behalf of any ot her
person, deals in securities of a body corporate lis ted on
any stock exchange on the basis of any unpublished price-
sensitive information; or
(ii) communicates any unpublished price-sensitive
information to any person, with or without his request for
such information except as required in the ordinary course
of business or under any law; or
(iii) counsels, or procures for any other person to deal in
any securities of any body corporate on the basis o f
unpublished price-sensitive information,
shall be liable to a penalty 81[which shall not be les s than
ten lakh rupees but which may extend to twenty-five crore
rupees or three times the amount of profits made out of i nsider
trading, whichever is higher].
(emphasis supplied)
Securities and Exchange Board of India (Prohibition of
Insider Trading) Regulations, 2015
Definitions.
2. (1) In these regulations, unless the context oth erwise
requires, the following words, expressions and derivations
therefrom shall have the meanings assigned to them as
under:–
(a) “Act” means the Securities and Exchange Board of
India Act,1992 (15of 1992);
(b) “Board” means the Securities and Exchange Board
of India;
(c) “compliance officer” means any senior officer,
designated so and reporting to the board of directors
or head of the organization in case board is not there,
who is financially literate and is capable of
appreciating requirements for legal and regulatory
compliance under these regulations and who shall be
responsible for compliance of policies, procedures,
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
maintenance of records, monitoring adherence to the
rules for the preservation of unpublished price
sensitive information, monitoring of trades and the
implementation of the codes specified in these
regulations under the overall supervision of the
board of directors of the listed company or the head
of an organization, as the case may be.
(d) “connected person” means,-
(i) any person who is or has during the six months
prior to the concerned act been associated with
a company, directly or indirectly, in any capacity
including by reason of frequent communication
with its officers or by being in any contractual,
fiduciary or employment relationship or by being
a director, officer or an employee of the company
or holds any position including a professional
or business relationship between himself and the
company whether temporary or permanent, that
allows such person, directly or indirectly, access
to unpublished price sensitive information or is
reasonably expected to allow such access.
(ii) Without prejudice to the generality of the
foregoing, the persons falling within the following
categories shall be deemed to be connected
persons unless the contrary is established, -
(a) an immediate relative of connected
persons specified in clause (i); or
(b) a holding company or associate company
or subsidiary company; or
(c) an intermediary as specified in section 12
of the Act or an employee or director
thereof; or
(d) an investment company, trustee company,
asset management company or an
employee or director thereof; or
(e) an official of a stock exchange or of
clearing house or corporation; or
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(f) a member of board of trustees of a mutual
fund or a member of the board of directors
of the asset management company of a
mutual fund or is an employee thereof; or
(g) a member of the board of directors or an
employee, of a public financial institution
as defined in section 2 (72) of the
Companies Act, 2013; or
(h) an official or an employee of a self-
regulatory organization recognised or
authorized by the Board; or
(i) a banker of the company; or
(j) a concern, firm, trust, Hindu undivided
family, company or association of persons
wherein a director of a company or his
immediate relative or banker of the
company, has more than ten per cent. of
the holding or interest;
NOTE: It is intended that a connected person is one who has
a connection with the company that is expected to put him in
possession of unpublished price sensitive informati on.
Immediate relatives and other categories of persons specifie d
above are also presumed to be connected persons but such a
presumption is a deeming legal fiction and is rebuttable. This
definition is also intended to bring into its ambit persons who
may not seemingly occupy any position in a company but are
in regular touch with the company and its officers and are
involved in the know of the company’s operations. I t is
intended to bring within its ambit those who would have access
to or could access unpublished price sensitive info rmation
about any company or class of companies by virtue of any
connection that would put them in possession of unpublished
price sensitive information.
(e) “generally available information” means informati on
that is accessible to the public on a non-discrimin atory
basis;
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
NOTE: It is intended to define what constitutes generall y
available information so that it is easier to cryst allize and
appreciate what unpublished price sensitive informat ion is.
Information published on the website of a stock exc hange,
would ordinarily be considered generally available.
(f) “immediate relative” means a spouse of a person, and
includes parent, sibling, and child of such person or of
the spouse, any of whom is either dependent financia lly
on such person, or consults such person in taking
decisions relating to trading in securities;
NOTE: It is intended that the immediate relatives of a
“connected person” too become connected persons for
purposes of these regulations. Indeed, this is a re buttable
presumption.
(g) “insider” means any person who is:
(i) a connected person; or
(ii) in possession of or having access to unpublished
price sensitive information;
NOTE: Since “generally available information” is defined,
it is intended that anyone in possession of or havin g access
to unpublished price sensitive information should b e
considered an “insider” regardless of how one came in
possession of or had access to such information. Va rious
circumstances are provided for such a person to demonstrate
that he has not indulged in insider trading. Theref ore, this
definition is intended to bring within its reach an y person
who is in receipt of or has access to unpublished p rice
sensitive information. The onus of showing that a c ertain
person was in possession of or had access to unpubl ished
price sensitive information at the time of trading would,
therefore, be on the person leveling the charge afte r which
the person who has traded when in possession of or hav ing
access to unpublished price sensitive information m ay
demonstrate that he was not in such possession or t hat he
has not traded or or he could not access or that his trading
when in possession of such information was squarely covered
by the exonerating circumstances.
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(h) “promoter”…………………………………
(i) “securities”………………………………...
(j) “specified”………………………………….
(k) “takeover regulations” ………………….
(l) “trading” means and includes subscribing,
buying, selling, dealing, or agreeing to subscribe,
buy, sell, deal in any securities, and “trade” shall
be construed accordingly;
NOTE: Under the parliamentary mandate, since the Section
12A (e) and Section 15G of the Act employs the term ‘dealin g
in securities’, it is intended to widely define the term “tradi ng”
to include dealing. Such a construction is intended to curb
the activities based on unpublished price sensitive inform ation
which are strictly not buying, selling or subscribing, s uch as
pledging etc when in possession of unpublished price sensit ive
information.
(m) “trading day” ……………………………
(n) “unpublished price sensitive information” means
any information, relating to a company or its
securities, directly or indirectly, that is not
generally available which upon becoming
generally available, is likely to materially affect
the price of the securities and shall, ordinarily
including but not restricted to, information
relating to the following: –
(i) financial results;
(ii) dividends;
(iii) change in capital structure;
(iv) mergers, de-mergers, acquisitions, delistings,
disposals and expansion of business and
such other transactions;
(v) changes in key managerial personnel.
(vi) material events in accordance with the
listing agreement
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
NOTE: It is intended that information relating to a company
or securities, that is not generally available woul d be
unpublished price sensitive information if it is li kely to
materially affect the price upon coming into the public d omain.
The types of matters that would ordinarily give ris e to
unpublished price sensitive information have been l isted
above to give illustrative guidance of unpublished price
sensitive information.
(2) Words and expressions used and not defined in t hese
regulations but defined in the Securities and Exchange Board
of India Act, 1992 (15 of 1992), the Securities Con tracts
(Regulation) Act, 1956 (42 of 1956), the Depositories Act, 1996
(22 of 1996) or the Companies Act, 2013 (18 of 2013) a nd
rules and regulations made thereunder shall have the meanings
respectively assigned to them in those legislation.
CHAPTER – II
RESTRICTIONS ON COMMUNICATION AND TRADING
BY INSIDERS
Communication or procurement of unpublished price sensitive
information.
3. (1) No insider shall communicate, provide, or allow access
to any unpublished price sensitive information, relating to a
company or securities listed or proposed to be listed, to any
person including other insiders except where such
communication is in furtherance of legitimate purpo ses,
performance of duties or discharge of legal obligatio ns.
NOTE: This provision is intended to cast an obligation on all
insiders who are essentially persons in possession of
unpublished price sensitive information to handle s uch
information with care and to deal with the information with
them when transacting their business strictly on a need-to-
know basis. It is also intended to lead to organisa tions
developing practices based on need-to-know principl es for
treatment of information in their possession.
909
(2) No person shall procure from or cause the communication
by any insider of unpublished price sensitive infor mation,
relating to a company or securities listed or propos ed to be
listed, except in furtherance of legitimate purpose s,
performance of duties or discharge of legal obligatio ns.
NOTE: This provision is intended to impose a prohibition on
unlawfully procuring possession of unpublished pric e
sensitive information. Inducement and procurement o f
unpublished price sensitive information not in furt herance
of one’s legitimate duties and discharge of obligations woul d
be illegal under this provision.
(3) Notwithstanding anything contained in this regu lation,
an unpublished price sensitive information may be
communicated, provided, allowed access to or procured , in
connection with a transaction that would:–
(i) entail an obligation to make an open offer under
the takeover regulations where the board of directors
of the 9[listed] company is of informed opinion that
10[sharing of such information] is in the best
interests of the company;
NOTE :It is intended to acknowledge the necessity of
communicating, providing, allowing access to or pro curing
UPSI for substantial transactions such as takeovers, mergers
and acquisitions involving trading in securities an d change
of control to assess a potential investment. In an ope n offer
under the takeover regulations, not only would the same price
be made available to all shareholders of the compan y but
also all information necessary to enable an informe d
divestment or retention decision by the public shareholders is
required to be made available to all shareholders in the letter
of offer under those regulations.
(ii) not attract the obligation to make an open offer under
the takeover regulations but where the board of
directors of the 11[listed] company is of informed
opinion 12 [that sharing of such information] is in
the best interests of the company and the information
that constitute unpublished price sensitive information
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
is disseminated to be made generally available at least
two trading days prior to the proposed transaction
being effected in such form as the board of directors
may determine 13[to be adequate and fair to cover
all relevant and material facts].
NOTE: It is intended to permit communicating, providing,
allowing access to or procuring UPSI also in transa ctions
that do not entail an open offer obligation under the takeover
regulations 14[when authorised by the board of dire ctors if
sharing of such information] is in the best interes ts of the
company. The board of directors, however, would cause public
disclosures of such unpublished price sensitive inf ormation
well before the proposed transaction to rule out an y
information asymmetry in the market.
(4) For purposes of sub-regulation (3), the board of direct ors
shall require the parties to execute agreements to contract
confidentiality and non-disclosure obligations on the part of
such parties and such parties shall keep informatio n so
received confidential, except for the purpose of sub-regul ation
(3), and shall not otherwise trade in securities of the company
when in possession of unpublished price sensitive informati on.
Trading when in possession of unpublished price sen sitive
information.
4. (1) No insider shall trade in securities that are listed or
proposed to be listed on a stock exchange when in possession
of unpublished price sensitive information:
Provided that the insider may prove his innocence b y
demonstrating the circumstances including the followin g: –
(i) the transaction is an off-market inter-se transfer
between 18[insiders] who were in possession of
the same unpublished price sensitive information
without being in breach of regulation 3 and both
parties had made a conscious and informed trade
decision.
(ii) in the case of non-individual insiders:-
911
a. the individuals who were in possession of
such unpublished price sensitive information
were different from the individuals taking
trading decisions and such decision-making
individuals were not in possession of such
unpublished price sensitive information when
they took the decision to trade; and
b. appropriate and adequate arrangements
were in place to ensure that these regulations
are not violated and no unpublished price
sensitive information was communicated by
the individuals possessing the information to
the individuals taking trading decisions and
there is no evidence of such arrangements
having been breached;
(iii)the trades were pursuant to a trading plan set
up in accordance with regulation 5.
NOTE: When a person who has traded in securities has been
in possession of unpublished price sensitive inform ation, his
trades would be presumed to have been motivated by the
knowledge and awareness of such information in his
possession. The reasons for which he trades or the pur poses
to which he applies the proceeds of the transactions are not
intended to be relevant for determining whether a person has
violated the regulation. He traded when in possessi on of
unpublished price sensitive information is what would need
to be demonstrated at the outset to bring a charge. Once this
is established, it would be open to the insider to prove his
innocence by demonstrating the circumstances mentioned i n
the proviso, failing which he would have violated t he
prohibition.
(2) In the case of connected persons the onus of establishin g,
that they were not in possession of unpublished price sensiti ve
information, shall be on such connected persons and in other
cases, the onus would be on the Board.
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
(3) The Board may specify such standards and requirements,
from time to time, as it may deem necessary for the purpo se of
these regulations.
23. We have heard learned counsel for the parties at length and
have carefully perused the record.
24. The submission of the Respondent that appellant Balram Garg
contravened Regulation 3(1) of the PIT Regulations and section 12A(c)
of the SEBI Act, by communicating the UPSI to the appellants in C.A.
No.7590 of 2021, being an “insider” and “connected person” within the
meaning of PIT Regulations is not worthy of acceptance. The Securities
Appellate Tribunal has erred in upholding the order of the Whole Time
Member of SEBI as it has failed to independently assess the evidence
and material on record while exercising its jurisdiction as the first appellate
court. As reiterated by this Court in a catena of judgements, it is the duty
of the first court of appeal to deal with all the issues and evidence led by
the parties on both, the questions of law as well as questions of fact and
then decide the issue by providing adequate reasons for its f indings.
Unfortunately, the SAT failed to apply its mind on the issues raised by
the parties and routinely affirmed the findings of the WTM without dealing
with the issues at hand. In this context, this Court has held i n H.K.N.
Swami v. Irshad Basith [(2005) 10 SCC 243] that:
“The first appeal has to be decided on facts as wel l as on
law. In the first appeal parties have the right to be heard both
on questions of law as also on facts and the first app ellate
court is required to address itself to all issues and decide t he
case by giving reasons. Unfortunately, the High Court, in the
present case has not recorded any finding either on fact s or
on law. Sitting as the first appellate court it was the duty of
the High Court to deal with all the issues and the ev idence
led by the parties before recording the finding regarding title.”
The above position was reiterated by this Court in UPSRTC vs
Mamta [(2016) 4 SCC 172] .
25. The SAT again fell in error when in spite of observin g 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.
913
26. Importantly, the WTM arrived at the finding that the appellants
in C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta,
Amit Garg and Quick Developers Pvt. Ltd. were not “connected
persons” qua the appellant Balram Garg. The WTM held that:
“I also note that it is not the case in the SCN that Noticee
no.1, 2 and 3 were in any contractual, fiduciary or employment
relationship with the company, or were the director or off icer
of the company, during the past 6 months of the allege d act
of insider trading. Noticee No. 1 and 2 seem to be in the
employment of the company but that was way back in 2015. I
also note that the SCN has also not identified that Noticee
no. 1,2,3 or 4 had any professional or business relation ship
with the company, that allows the said Noticees, dire ctly or
indirectly, access to unpublished price sensitive inf ormation.
In view of the above, I find that Noticee no. 1,2,3 and 4 cannot
be treated as ‘connected persons’ in terms of Reg. 2(1)(d )(i)
of PIT Regulations, 2015.”
[emphasis supplied]
27. In our opinion, two important findings of the WTM and SAT
need to be re-examined by this Court to adequately decide th e present
set of appeals. Firstly, 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? Secondly, could the
aforementioned appellants be rightly held to be “insiders” i n terms of
Regulation 2(1)(g)(ii) of the PIT Regulations, only and entirely on the
basis of circumstantial evidence?
28. The appellants in C.A. No.7590 of 2021, namely, Mrs. Shivani
Gupta, Sachin Gupta and Amit Garg, claimed before the WTM and SAT
that they were estranged from the family and did not have the required
connection with the appellant Balram Garg, who was the MD of t he
PCJ at the relevant time period. However, we are of the opinion that the
WTM and SAT wrongly rejected this claim of the Appellants in C.A.
No.7590 of 2021 without appreciating the facts and evidence as was
produced before them. The WTM and SAT ought to have appreciated
the relevant facts for ascertaining the true nature of relationship between
the parties.
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
29. To understand the abovementioned relationship, it is pertinent
to note that PCJ was promoted in 2005 by three brothers viz. P.C. Gupta
[since deceased], Amar Chand Garg and Balram Garg (Appe llant in
C.A. No.7054 of 2021). Subsequently, due to certain differences, Amar
Chand Garg and his branch of the family exited the Company by entering
into a family arrangement dated 01.07.2011 whereby their shareholding
in the company was reduced to a meagre 0.70%. In September , 2011,
Amar Chand Garg also resigned as the Vice Chairman of the company
and disassociated himself from the company. Further, the record reveals
that the son of Amar Chand Garg, i.e. Amit Garg (3rd Appellant in C.A.
No.7590 of 2021) was never associated with the comp any. On
31.03.2015, on account of certain disputes that had arisen between Sachin
Gupta (2 nd Appellant in C.A. No.7590 of 2021) and his parents P.C.
Gupta and Smt. Krishna Devi, Sachin Gupta, so as to exit the company
along with his family, resigned from his position as President ( Gold
Manufacturing) of the Company and Mrs. Shivani Gupta (1st Appellant
in C.A. No.7590 of 2021 and wife of Sachin Gupta) also resigned from
her post of Senior Assistant Manager, Karol Bagh Sto re of PCJ.
Importantly, both Sachin Gupta and Smt. Shivani Gupta were, at no point
of time, Directors of PCJ.
30. Subsequently, late P.C. Gupta and his son Sachin Gupta entered
into another family arrangement dated 10.04.2015 whereby P.C. Gupta
and his wife agreed to transfer at least 1,60,00,000 shares of the company
to Sachin Gupta and his family, and in lieu thereof Sachin Gupta and his
family agreed not to have any right whatsoever in the immovable and
movable property of P.C. Gupta and his wife. However, Sachin Gupta
and his wife Smt. Shivani Gupta were permitted to use the property at 1-
C, Court Road, Civil Lines, Delhi for residential purposes only. It is
pertinent to note here that the said plot of land is a large tract of land and
separate buildings were constructed thereon. P.C. Gupta and Sa chin
Gupta, along with their families, resided in separate floors of the same
building, whereas Amit Garg and Balram Garg resided in separate
buildings.
31. Post the agreed transfer of shares by P.C. Gupta and his wife,
Sachin Gupta and his wife Smt. Shivani Gupta inter alia, sold some
shares of the company from 02.04.2018 to 13.07.2018. This aforesaid
trade in shares was the subject matter of investigation by the Respondent/
SEBI as it was contented by SEBI that the abovementioned tra de was
915
based on UPSI and hence was in contravention of SEBI Act and PIT
Regulations. The WTM and SAT erred in not appreciat ing the
aforementioned facts which adequately establish that the ther e was a
breakdown of ties between both the parties, both at p ersonal and
professional level, and that the said estrangement happened much prior
to the two UPSI. Hence, we are of the opinion that when the two family
arrangements (dated 01.07.2011 and 10.04.2015) are considered in their
right perspective, it adequately demonstrates that there was a breakdown
of relations between the parties. Additionally, given the fa ct that the
entire case against the appellants for the offence of insider trading was
based on the nature of close relationship between the parties, once it has
been rightly held by the WTM that the appellants are neither “connected
persons” within the meaning of Regulation 2(1)(d) nor “immediate
relatives” within the meaning of Regulation 2(1)(f) of PIT Regulation,
the question of ipso facto relying on the nature of relationship between
the parties to come to the conclusion that they were “in possession of or
having access to UPSI” while trading with the shares of the company is
legally unsustainable.
32. Moreover, we find merit in the submission of the counsel for
the appellants in C.A. No.7590 of 2021 that even assuming that the said
family arrangements did not result in complete estrangement of s ocial
relations between the parties, the SAT could not, by virtue of this very
fact, discharge SEBI of the onus of proof placed on them to prove that
the Appellants were in possession of UPSI. In our opinion, the approach
adopted by the SAT turns the SEBI Act on its head as it pl aces the
burden of proving that there was a complete breakdown of ties between
the parties on the Appellants in C.A. No.7590 of 2021 while conveniently
ignoring the fact that the onus was actually on SEBI to prove th at the
appellants were in possession of or having access to UPSI. The legislative
note to Regulation 2(1)(g) makes the above position of law explicitly
clear. It states that:
“... The onus of showing that a certain person was in
possession of or had access to unpublished price se nsitive
information at the time of trading would, therefore, be on t he
person leveling the charge after which the person w ho 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
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
access or that his trading when in possession of su ch
information was squarely covered by the exonerating
circumstances.”
33. The second question before us is that could the appellants in
C.A. No.7590 of 2021, be rightly held to be “insiders” in term s of
regulation 2(1)(g)(ii) of the PIT Regulations, only and entirel y on the
basis of circumstantial evidence?
34. In this context, it is important to highlight that the two major
Corporate Announcements, purportedly related to a change in company’s
capital structure, which were:
i. UPSI-1 [Period between 25.04.2018 to 10.05.2018]:
The announcement of the Company on 10.05.2018 to buy
back up to 1,21,14,285 fully paid up equity shares of Rs. 10/
- each at a price of Rs. 350/- per equity share.
ii. UPSI-2 [Period between 07.07.2018 to 13.07.2018]:
The announcement of the company withdrawing their buy-
back offer due to non-receipt of NOC from State Bank of
India.
35. After carefully and extensively perusing the records, we have
come to the conclusion that the SAT erred in holding the appellants i n
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 patter n and their
timing of trading (circumstantial evidence). The reasoning of the SAT is
ex facie contrary to the records, as would be evident from the forthcoming
discussion wherein our analysis of the alleged transacti ons has been
divided into three phases viz. Phase-I [Period from 02.0 4.2018 to
24.04.2018], Phase-II [Period from 22.06.2018 to 06.07.2018] and Phase-
III [Period from 07.07.2018 to 13.07.2018].
36. Phase-I [02.04.2018 to 24.04.2018 i.e. Pre UPSI -1
Period]: Appellant Mrs. Shivani Gupta sold shares gifted to her by P.C.
Gupta and Smt. Krishna Devi (as part of the family arrangement dated
10.04.2015) for personal and commercial reasons. The said shares were
sold for a price of Rs. 300 per share during the said period. H owever,
since the price of the shares kept falling, Mrs. Shivani decided t o stop
selling shares on 24.04.2018. Further, if we presume that she had internal
knowledge of the company’s affair including the impending buy-b ack
917
offer, it would be reasonable to assume that she would not ha ve sold
such a large chunk of shares (74,35,071 shares) in the pre-UPSI-1 period
when the prices of the shares were falling and would have instead chosen
to wait for the buy-back offer. This also assumes importance since SEBI
itself, vide its show-cause notice dated 24.04.2020 had dropped the
charges with respect to the UPSI-1 period. This would mean tha t the
notional loss purportedly avoided by appellant Mrs. Shivani Gupta was
only for the shares traded during the UPSI-II Period, and even according
to SEBI, there was no case that she made any money or avoide d any
loss by trading in the shares of the company during the UPSI-1 Period.
37. Phase-II [22.06.2018 to 06.07.2018 i.e. Pre- UP SI-II
Period]: PCJ had requested SBI to issue a NOC for the proposed buy-
back offer on 07.07.2018 and the said request was rejected on the same
day by the SBI. However, even before the said refusal by the SBI, the
appellant Mrs. Shivani Gupta had sold 1,00,000 shares on 06.07.2018 at
a much lower price than the price at which the shares were sold earlier.
On the date on which these shares were sold, the UPSI-2 had not even
come into existence. If the arguments of the respondent hold any water,
the Appellants should have waited till UPSI-2 and would only ha ve
subsequently offloaded maximum number of shares during the said period
to avoid any notional loss. However, the records undercut the l ogic
adopted by the respondent/SEBI for the reason that the appellants were
not in possession of the UPSI-2 and hence the appellants started selling
the shares even before the UPSI-2 came into existence.
38. Phase-III [07.07.2018 to 13.07.2018 i.e. UPSI-I I
Period]: The Appellant Mrs. Shivani Gupta sold only 15,00,000 shares
during this period as opposed to the 74,35,071 shares that were sold at
an earlier point of time (Pre-UPSI-1 Period). Importantly, notwithstanding
the fact that the appellant Mrs. Shivani Gupta sold 15,00,000 shares, she
continued to hold 12,84,111 shares of the company, out of the total that
were transferred to her by way of the family arrangement. These above
factors undercut the argument of SEBI that the appellants s old huge
number of shares during UPSI-2 period because they had the information
that once the information of withdrawal of buy-back offer by PCJ was
made public, the price of the shares would drastically fall. Moreover, the
data reveals that the share price of the PCJ shares c onsistently fell
during the investigation period and therefore it would be incorrect to say
that the price of the shares fell only upon announcement of the withdrawal
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
of the buyback offer. In fact, the records reveal that eve n after the
announcement of the buy-back offer, there was no increase in the share
prices of the company. Resultantly, the appellants stopped selling shares
on 13.07.2018 because they believed that the market price continued to
fall so badly that the shares possessed by them were not bein g valued
accurately in the market. Hence, the appellants decided to constitute to
hold their shareholdings.
39. In such view of the matter, we are of the opinion that there is
no correlation between the UPSI and the sale of shares und ertaken by
the appellants in C.A. No.7590 of 2021. The said decisions of selling the
shares and the timings thereof were purely a personal and commerci al
decision undertaken by them and nothing more can be read into those
decisions. If the appellants did possess the UPSIs, we are unable to
understand that why would the appellant Mrs. Shivani Gupta sell only
15,00,000 shares during this period as opposed to the 74,35,071 shares
that were sold at an earlier point of time (Pre-UPSI-1 Period) and still
continue to hold 12,84,111 shares of the company that could have also
been sold along with the 15,00,000 shares that were sold during the
UPSI-2 period.
40. We are also of the opinion that 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. It would also be pertinent to note
here that Regulation 3 of the PIT Regulations, which deals with
communication of UPSI, does not create a deeming fiction in law. Hence,
it is only through producing cogent materials (letters, emails, witnesses
etc.) that the said communication of UPSI could be proved and not by
deeming the communication to have happened owing to the alle ged
proximity between the parties. In this context, even the show-cau se
notices do not allege any communication between the Appellant Balram
Garg and the other appellants in C.A. No.7590 of 2021. This is evident
from the following extract of the order of the WTM:
“A perusal of the SCNs shows that allegations of No ticees
no. 1 to 4 being connected person under Regulation 2(1)(d)(i)
919
seems to have been proceeded on the basis of inference drawn
that Noticees no. 1 to 3 being relatives of Late Shri Padam
Chand Gupta who was promotor and chairman of PC
Jewellers, and Noticee no. 5 who was the MD of PC Jewel lers,
would be having frequent communication with Late Shri Gupta
and Noticee No. 5. However, here I note that as per Regulation
2(1)(d)(i) , association by virtue of frequent commu nication
with the officer of the company must be arising in the discharge
of his/her duty towards the company. The SCNs does not allege
that there was any communication between Noticee no. 5 and
Noticee no. 1 to 4, arising out discharge of any duty owed by
Noticee no. 1,2,3 or 4 to the compoany.” [emphasi s
supplied]
41. This Court in Hanumant vs. State of Madhya Pradesh [AIR
1952 Supreme Court 343] has held that:
“Assuming that the accused Nargundkar had taken the
tenders to his house, the prosecution, in order to bring the
guilt home to the accused, has yet to prove the oth er facts
referred to above. No direct evidence was adduced in proof
of those facts. Reliance was placed by the prosecut ion and
by the courts below on certain circumstances, and in trinsic
evidence contained in the impugned document, Exhibit P-3A.
In dealing with circumstantial evidence the rules s pecially
applicable to such evidence must be borne in mind. In such
cases there is always the danger that conjecture or suspic ion
may take the place of legal proof and therefore it is right to
recall the warning addressed by Baron Alderson, to th e jury
in Reg v. Hodge ((1838) 2 Lew. 227), where he said :-
“The mind was apt to take a pleasure in adapting
circumstances to one another, and even in straining them
a little, if need be, to force them to from parts o f one
connected whole; and the more ingenious the mind of the
individual, the more likely was it, considering such matters
to overreach and mislead itself, to supply some little link
that is wanting, to take for granted some fact consi stent
with its previous theories and necessary to render them
complete.”
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
It is well to remember that in cases where the evidence in of a
circumstantial nature, the circumstances from which the
conclusion of guilt is to be drawn should in the first instanc e
be fully established, and all the facts so establis hed should
be consistent only with the hypothesis of the guilt of the
accused. Again, the circumstances should be of a con clusive
nature and pendency and they should be such as to exclude
every hypothesis but the one proposed to be proved. In other
words, there must be a chain of evidence so far complete a s
not to leave any reasonable ground for a conclusion consistent
with the innocence of the accused and it must be such as to
show that within all human probability the act must have been
done by the accused. In spite of the forceful arguments
addressed to us by the learned Advocate-General on be half
of the State we have not been able to discover any s uch
evidence either intrinsic within Exhibit P-3A or outs ide and
we are constrained to observe that the courts below have just
fallen into the error against which warning was utt ered by
Baron Alderson in the above mentioned case.” [emph asis
supplied]
42. This Court in Chintalapati Srinivasa Raju vs Securities
and Exchange Board of India [(2018) 7 SCC 443] has further held
that:
“Further, under the second part of Regulation 2(e)( i), the
connected person must be “reasonably expected” to h ave
access to unpublished price sensitive information. The
expression “reasonably expected” cannot be a mere ipse dixit
– there must be material to show that such person c an
reasonably be so expected to have access to unpublished pric e
sensitive information.
.
.
.
We have already demonstrated that the minority judgmen t is
much more detailed and correct than the majority judgme nt
of the Appellant Tribunal. We accept Shri Singh’s submission
921
that in cases like the present, a reasonable expectation to be
in the know of things can only be based on reasonab le
inferences drawn from foundational facts. This Court in SEBI
v. Kishore R. Ajmera, (2016) 6 SCC 368 at 383, stated:
“26. It is a fundamental principle of law that proof of an
allegation leveled against a person may be in the form of
direct substantive evidence or, as in many cases, such proo f
may have to be inferred by a logical process of reasoning
from the totality of the attending facts and circumst ances
surrounding the allegations/charges made and levele d.
While direct evidence is a more certain basis to come to a
conclusion, yet, in the absence thereof the Courts can not
be helpless. It is the judicial duty to take note o f the
immediate and proximate facts and circumstances
surrounding the events on which the charges/allegati ons
are founded and to reach what would appear to the Court
to be a reasonable conclusion therefrom. The test wou ld
always be that what inferential process that a reasonable/
prudent man would adopt to arrive at a conclusion.”
We are of the view that from the mere fact that the appellant
promoted two joint venture companies, one of which ultimately
merged with SCSL, and the fact that he was a co-bro ther of
B. Ramalinga Raju, without more, cannot be stated t o be
foundational facts from which an inference of reaso nably
being expected to be in the knowledge of confidenti al
information can be formed. The fact that the appellant was to
be continued as a director till replacement again d oes not
take us anywhere. Shri Viswanathan has shown us tha t two
other independent non-executive directors were appointed i n
his place on and from 23.1.2003. What is clear is t hat the
appellant devoted all his energies to the businesses he was
running, on and after resigning as an executive dire ctor of
SCSL, as a result of which the salary he was being pai d by
SCSL was discontinued.”
[emphasis supplied]
43. This Court has also held in a catena of cases that the foundational
facts must be established before a presumption is made. In this context,
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
in Seema Silk & Sarees vs. Directorate of Enforcement [(2 008) 5
SCC 580] this Court has held that:
“The presumption raised against the trader is a reb uttable
one. Reverse burden as also statutory presumptions can be
raised in several statutes as, for example, the Neg otiable
Instruments Act, Prevention of Corruption Act, TADA , etc.
Presumption is raised only when certain foundational facts
are established by the prosecution. The accused in such an
event would be entitled to show that he has not violate d the
provisions of the Act.”
In the present case, as rightly argued by the learned c ounsel of
the appellant, the foundational facts were not proved which could raise
the alleged presumption. SEBI failed to place on record any material to
prove that the appellants in C.A. No.7590/2021 were “connected
persons” to Balram Garg as required by Regulation 2(1)(d)(ii)(a) read
with Regulation 2(1)(f) of the PIT Regulations as none of the appellants
C.A. No.7590/2021 were financially dependent on Balram Garg or even
alleged to have consulted Balram Garg in any decision related to trading
in securities.
44. In light of the above principles of law laid down by this Court,
it was imperative on the Respondent/SEBI to place on record rele vant
material to prove that the appellants in C.A. No.7590 of 2021, namely,
Mrs. Shivani Gupta, Sachin Gupta, Amit Garg and Quick Devel opers
Pvt. Ltd. were “immediate relatives” who were “dependent
financially” on appellant Balram Garg or “consult” Balram Garg in
“taking decisions relating to trading in securities” . However, SEBI
failed to do so as has been already recorded by the WTM in its order
dated 11.05.2021. 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 said Balram
Garg in any decision making process relating to securit ies or even
otherwise.
45. In the context of appellant no. 4 (in C.A. No.7590 of 2021),
namely Quick Developers Pvt. Ltd., the record clearly reveals that it is
neither a “holding company” or an “associate company” or a
“subsidiary company” of PCJ nor the appellant Balram Garg has ever
been the Director of Quick Developers Pvt. Ltd. Therefore , Quick
923
Developers Pvt. Ltd. cannot be held to be a “connected person” vis-
à-vis the appellant Balram Garg.
46. Furthermore, reliance of the Respondent/SEBI on transactions
between appellant Sachin Gupta and PCJ and the subsequent payments
of rent by PCJ is against the principles of natural ju stice as these
allegations were not part of the Show Cause Notices. T o cement this
proposition, reference could be made to Tarlochan Dev Sharma vs
State of Punjab [(2001) 6 SCC 260] wherein this Court has held
that:
“We are, therefore, clearly of the opinion that not only the
principles of natural justice were violated by the factum of
the impugned order having been founded on grounds a t
variance from the one in the show cause notice , of which
appellant was not even made aware of let alone provided an
opportunity to offer his explanation, the allegatio ns made
against the appellant did not even prima facie make out a
case of abuse of powers of President.”
[emphasis supplied]
Similar observations have also been made by this Co urt in
Hindustan Lever Ltd. vs. Director General (Investig ation and
Registration) [(2001) 2 SCC 474].
47. Lastly, we have given our anxious consideration to the
judgements relied upon by the learned counsel of the Respondent viz.
SEBI vs Kishore R. Ajmera [(2016) 6 SCC 368] and Dushyant N.
Dalal vs. SEBI [(2017) 9 SCC 660]. Suffice it to hold that these cases
are distinguishable on the facts of the present case, as the former is not
a case of insider trading but that of Fraudulent/Manipulativ e Trade
Practices; and the latter case relates to Interests a nd Penalty rather
than the subject matter at hand. Reliance placed on the case of Kishore
R. Ajmera (supra) to show that presumption can be drawn on the basis
of immediate and relevant facts is contrary to law already settled by this
Court in the case of Chintalapati Srinivasa Raju (supra) where it is
held that “a reasonable expectation to be in the know of things can
only be based on reasonable inference drawn from fo undational
facts”. It has further been held that merely because a person was related
to the connected person cannot by itself be a foundational fact to draw
an inference.
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
48. To conclude, the entire case of the Respondents was premised
on two important propositions, that firstly, there existed a close
relationship between the appellants herein; and secondly, that based on
the circumstantial evidence (trading pattern and timing of tr ading), it
could be reasonably concluded that the appellants in C.A. No.7 590 of
2021 were “insiders” in terms of Regulation 2(1)(g)(ii) of the PIT
Regulations. However, as the discussion above would reveal, 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 the there was a breakdown of ties between the par ties, 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). We are of the firm opinion that 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 appell ants 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 i n 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 other wise. 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. T he Appellate
Tribunal was exercising jurisdiction of a First Appellate Court and was
bound to independently assess the evidenced and material on reco rd,
which it evidently failed to do.
925
49. Accordingly, the appeals are allowed and the impu gned
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.
50. No orders as to costs.
Bibhuti Bhushan Bose Appeals allowed.
(Assisted by : Neha Sharma, LCRA)
BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]