Securities Appellate Tribunal
Kirloskar Brothers Ltd. vs Sebi on 12 October, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 29.06.2022
Date of Decision : 12.10.2022
Misc. Application No. 535 of 2020
(Urgency Application)
And
Misc. Application No. 536 of 2020
(Stay Application)
And
Appeal No. 499 of 2020
1. Alpana R. Kirloskar
'Lakaki' Compound,'
Pune - 411 016, Maharashtra.
2. Arti A. Kirloskar
"Radha", 453, Gokhale Road,
Pune - 411 016, Maharashtra.
3. Jyotsna G. Kulkarni
1, Yena Bungalow,
Adwait Nagar, Paud Road,
Kothrud, Pune - 411 038.
4. Rahul C. Kirloskar
'Lakaki' Compound,'
Pune - 411 016, Maharashtra.
5. Atul C. Kirloskar
"Radha", 453, Gokhale Road,
Pune - 411 016, Maharashtra.
6. Nihal G. Kulkarni
1, Yena Bungalow,
Adwait Nagar, Paud Road,
Kothrud, Pune - 411 038.
7. Ambar G. Kulkarni
1, Yena Bungalow,
Adwait Nagar, Paud Road,
Kothrud, Pune - 411 038. ..... Appellants
Versus
2
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Darius Khambata, Senior Advocate with Mr. Kunal Katariya, Mr. Pheroze Mehta i/b.
Mr. Tushar Ajinkya and Ms. Misha Matlani, Advocates for the Appellants.
Mr. Fredun E. De Vitre, Senior Advocate and Mr. Mustafa Doctor, Senior Advocate with
Mr. Rahul Lakhiani, Mr. Mihir Mody, Mr. Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b.
K. Ashar & Co. for the Respondent.
With
Misc. Application No. 542 of 2020
(Stay Application)
And
Appeal No. 503 of 2020
Anil N. Alawani
Flat No. 5, Yashodeep, C
Rambaug Colony, Navi Peth,
Pune - 411030. ..... Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Pesi Modi, Senior Advocate with Mr. Kunal Katariya, Advocate i/b. Ms. Sukanya
Sehgal, Advocate for the Appellant.
Mr. Mustafa Doctor, Senior Advocate with Mr. Rahul Lakhiani, Mr. Mihir Mody, Mr.
Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b. K. Ashar & Co. for the Respondent.
With
Appeal No. 504 of 2020
Kirloskar Industries Ltd.
Office No. 801, 8th Floor, Cello Platina
3
Fergusson College Road, Shivajinagar,
Pune - 411 005. ..... Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Dinyar Madon, Senior Advocate i/b Ms. Ankita Kashyap, Advocate for the Appellant.
Mr. Mustafa Doctor, Senior Advocate with Mr. Rahul Lakhiani, Mr. Mihir Mody, Mr.
Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b. K. Ashar & Co. for the Respondent.
With
Appeal No. 505 of 2020
Sanjay Kirloskar
Trustee of Kirloskar Brothers Ltd.
Employee Welfare Trust Scheme
Sr. No. 270, Plot No. 22 & 23,
Pallod Farms, Baner,
Pune - 411045. ..... Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Somasekhar Sundaresan, Advocate with Mr. P. R. Ramesh, Ms. Yugandhara
Khanwilkar, Advocates for the Appellant.
Mr. Mustafa Doctor, Senior Advocate with Mr. Rahul Lakhiani, Mr. Mihir Mody, Mr.
Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b. K. Ashar & Co. for the Respondent.
With
Appeal No. 506 of 2020
Pratima Sanjay Kirloskar
Sr. No. 270, Plot No. 22 & 23,
Pallod Farms, Baner,
4
Pune - 411045. ..... Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Somasekhar Sundaresan, Advocate with Mr. P. R. Ramesh, Ms. Yugandhara
Khanwilkar, Advocates for the Appellant.
Mr. Mustafa Doctor, Senior Advocate with Mr. Rahul Lakhiani, Mr. Mihir Mody, Mr.
Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b. K. Ashar & Co. for the Respondent.
With
Appeal No. 507 of 2020
Karad Projects and Motors Ltd.
Plot No. B-67/68,
MIDC Karad Industrial Area,
Tasawade, Karad - 415 109. ..... Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Somasekhar Sundaresan, Advocate with Mr. P. R. Ramesh, Ms. Yugandhara
Khanwilkar, Advocates for the Appellant.
Mr. Mustafa Doctor, Senior Advocate with Mr. Rahul Lakhiani, Mr. Mihir Mody, Mr.
Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b. K. Ashar & Co. for the Respondent.
With
Appeal No. 508 of 2020
Prakar Investments Pvt. Ltd.
Sr. No. 270, Plot No. 22 & 23,
Pallod Farms, Baner,
Pune - 411045. ..... Appellant
5
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
Mr. Somasekhar Sundaresan, Advocate with Mr. P. R. Ramesh, Ms. Yugandhara
Khanwilkar, Advocates for the Appellant.
Mr. Mustafa Doctor, Senior Advocate with Mr. Rahul Lakhiani, Mr. Mihir Mody, Mr.
Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b. K. Ashar & Co. for the Respondent.
With
Misc. Application No. 569 of 2020
(Urgency Application)
And
Misc. Application No. 570 of 2020
(Exemption from filing certified copy)
And
Misc. Application No. 571 of 2020
(Delay Application)
And
Misc. Application No. 572 of 2020
(Delay Application)
And
Misc. Application No. 540 of 2020
(Interim Application)
And
Appeal No. 44 of 2021
Kirloskar Brothers Ltd.
'Yamuna', Survey No. 98 / (3 to 7),
Plot No. 3, Baner, Pune - 411 045. ..... Appellant
Versus
Securities & Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ...Respondent
6
Mr. Janak Dwarkadas, Senior Advocate with Ms. R. Singh, Mr. Chirag Kamdar, Mr. Rustam Gagrat,
Ms. Ipshita Sen, Ms. Meghna Talwar, Advocates i/b Gagrats Advocates & Solicitors for the
Appellant.
Mr. Mustafa Doctor, Senior Advocate with Mr. Rahul Lakhiani, Mr. Mihir Mody, Mr.
Arnav Misra, Mr. Mayur Jaisingh, Advocates i/b. K. Ashar & Co. for the Respondent.
CORAM : Justice Tarun Agarwala, Presiding Officer
Justice M. T. Joshi, Judicial Member
Ms. Meera Swarup, Technical Member
Per : Justice M. T. Joshi, Judicial Member
1. All the present appeals are arising out of the same transactions
alleged to be insider trading regarding which all the impugned orders
are passed on the same date though separately. All the present
appeals are, therefore, heard together and are, therefore, decided
together.
2. Appeal nos. 499 of 2020 and 503 of 2020 are against a common
order passed on October 20, 2020. Vide this order of the learned
Whole Time Member (hereinafter referred to as 'WTM') of
Securities and Exchange Board of India (hereinafter referred to as
'SEBI') the relevant appellants were restrained from accessing the
securities market, in any manner, for a different period of time. As
regards disgorgement of an amount as against these appellants, WTM
7
proposed different principles for paying disgorged amount than given
in the show cause notice. Therefore, the relevant appellants were
directed to first deposit the proposed disgorged amount as calculated
vide table no. 18 of paragraph no. 154 of the impugned order and the
post decisional hearing was provided thereafter. Further, they were
directed to pay penalty as detailed in table no. 20 under paragraph no.
164 of the impugned order.
3. Appeal No. 503 of 2020 is filed by original noticee no. 9 Mr.
A. N. Alawani who was authorized to execute the trades. Therefore,
penalty is imposed upon him as per the table referred above.
4. Aggrieved by the said common decision, these three appeals
are filed.
5. Appeal no. 44 of 2021 is filed by Kirloskar Brothers Ltd.
(hereinafter referred to as 'KBL') - the complainant - who claims that
on the basis of it's complaint the impugned order is passed, but not to
its satisfaction. Therefore, this original complainant has filed the
present appeal praying for an increase in the penalty as well as
disgorgement amount.
8
6. Appeal no. 504 of 2020 is filed by Kirloskar Industries Ltd.
(hereinafter referred to as 'KIL') which is aggrieved by a separate
order of the same date against whom a penalty of Rs. 5 lacs is
imposed for non-disclosure of certain events pertaining to the same
transactions as required under Securities and Exchange Board of
India (Listing Obligations and Disclosure Requirements)
Regulations, 2015 (hereinafter referred to as 'Listing Regulations').
7. Appeal nos. 505 of 2020, 506 of 2020, 507 of 2020 and 508 of
2020 are filed by a separate group allegedly led by Mr. Sanjay
Kirloskar, appellant in appeal no. 505 of 2020. They had also
transacted in the shares of KBL during the same period. Separate
common order against them was passed by the learned WTM for
same set of violations as found against the appellants in appeal nos.
499 of 2020 and 503 of 2020.
8. For the sake of convenience, the appellants in appeal nos. 499
of 2020 and 503 of 2020 would be termed as Alpana group while the
appellants in appeal nos. 505 to 508 of 2020 would be termed as
Sanjay group.
9
9. The charge against these groups is of insider trading on
October 6, 2010 by Alpana group and on October 14, 2010 by Sanjay
group in the shares of KBL. In fact those were the bulk trades carried
through the platform of the exchanges where under the individual
promoters of KBL sold the shares of KBL to another promoter KIL.
The transactions of Alpana group on October 6, 2010 are as under :-
Name Designation Buy (Qty) Sell (Qty) Avg.
Price
(Rs.)
Alpana Rahul Promoter 0 19,49,900 256
Kirloskar
Arti Atul Promoter 0 19,49,900 256
Kirloskar
Jyotsna Gautam Promoter 0 19,49,900 256
Kulkarni
Rahul Director / 0 16,22,900 256
Chandrakant Promoter
Kirloskar
Atul Chandra - Promoter 0 16,22,900 256
kant Kirloskar
Gautam Achyut Vice 0 16,22,900 256
Kulkarni since Chairman /
deceased Promoter
Kirloskar Promoter 1,07,18,400 0 256
Industries Ltd.
Total 1,07,18,400 1,07,18,400
Appellant Jyotsna, Nihal and Ambar were arraigned as the notices
being legal representatives of deceased Gautam. Nihal additionally
10
was the director of KIL and insider to the impugned informations
alleged to be unpublished price sensitive information. Appellant
Alawani though not traded, was the director with same allegation
made as against Nihal. Additionally, appellant Alawani bought the
above shares on behalf of KBL.
10. The transactions carried by Sanjay group were also
admittedly inter se promoters/insiders in the shares of KBL on
October 14, 2010. The details are as under :-
Name Designation Buy (Qty) Sell (Qty) Avg. Buy /
Sell Price
(Rs.)
Pratima Sanjay Promoter 0 1,43,200* 244.50
Kirloskar
Prakar Promoter 1,43,200* 0 244.50
Investments Pvt.
Ltd. ( PIPL )
Kirloskar Promoter/ 78,750 0 244.50
Brothers Ltd. CMD
Employees
Welfare Trust
Scheme - Sanjay
C. Kirloskar was
Trustee**
Hematic Motors Promoter 0 78,750 244.50
Pvt. Ltd. ( now
Karad Projects
and Motors
Limited)
Total 2,21,950 2,21,450
11
* PIPL bought 1,42,700 shares from Pratima Kirloskar and additional
500 shares of KBL on Oct 14, 2010, from the market
** The shares of Kirloskar Brothers Limited Employees Welfare
Trust Schemes are held in the name of its Trustee i.e. Sanjay C
Kirloskar
11. Both these groups are found by the learned WTM to have
traded when in possession of two Unpublished Price Sensitive
Informations (hereinafter referred to as 'UPSI'). First of the UPSI,
claimed by the respondent is of information of capital loss of the
investment / the advances given by KBL to one of it's subsidiary i.e.
Kirloskar Constructions and Engineers Ltd. (KCEL) (hereinafter
referred to as 'UPSI-1'). Second information is of financial results of
KBL for quarter July to September 2010 (hereinafter referred to as
'UPSI - 2').
12. The Alpana group is charged of violating the provisions of
Securities and Exchange Board of India (Prohibition of Insider
Trading) Regulations, 1992 (hereinafter referred to as 'PIT
Regulations, 1992') read with Regulation 12 of Securities and
Exchange Board of India (Prohibition of Insider Trading)
Regulations, 2015 (hereinafter referred to as 'PIT Regulations,
2015') for issuing appropriate directions under Section 11(1), 11(4),
12
11B(1), 11B(2) read with Section 15G and 15HA and 11(4A) of the
Securities and Exchange Board of India Act, 1992 (hereinafter
referred to as 'SEBI Act'). They were also alleged to have violated
the provisions of Section 12A(a), (b) and (c) of the SEBI Act read
with Regulation 3(a), (b), (c), (d) and 4(1) of the Securities and
Exchange Board of India (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 2003
(hereinafter referred to as 'PFUTP Regulations') for committing
fraud on KIL with other stakeholders including the minority
shareholders. Certain allegations of violating the Model Code of
Conduct were made against the original noticee nos. 1, 3 and 4 i.e.
appellant Alpana, appellant Jyotsna and appellant Rahul as one of the
entity, namely, Gautam Kulkarni had died after commission of above
transactions, SEBI has arrayed appellant Jyotsna, appellant Nihal and
appellant Ambar as his legal representatives liable for violations of
the above regulations and the orders came to be passed against them.
As regards the appellant Nihal in his individual capacity and another
noticee Mr. A. R. Sathe it is alleged that they had played fraud upon
minority shareholders and, therefore, were liable under PFUTP
Regulations.
13
13. So far as Sanjay group is concerned, they are also alleged to
have committed violations of PIT Regulations as well as violations of
Model Code of Conduct as regards the appellant Sanjay and
appellant Pratima, his wife.
14. We have heard Mr. Darius Khambata, Mr. Pesi Modi, Mr.
Dinyar Madon and Mr. Janak Dwarkadas, the learned senior counsel
with Mr. Kunal Katariya, Mr. Pheroze Mehta, Mr. Somasekhar
Sundaresan, Mr. P. R. Ramesh, Ms. Yugandhara Khanwilkar, Ms. R.
Singh, Mr. Chirag Kamdar, Mr. Rustam Gagrat, Ms. Ipshita Sen, Ms.
Meghna Talwar, the learned counsel for the appellants and Mr.
Fredun E. De Vitre, the learned senior counsel and Mr. Mustafa
Doctor, the learned senior counsel with Mr. Rahul Lakhiani, Mr.
Mihir Mody, Mr. Arnav Misra, Mr. Mayur Jaisingh, the learned
counsel for the respondent.
The record shows that both KBL as well as KIL are part of the
Kirloskar group companies. KIL is claimed to be an investing
company and is a promoter of KBL along with all the notices as
detailed supra.
14
15. The UPSI - 1 i.e. information of capital loss of the
investment / advances given to KCEL a wholly owned subsidiary of
KBL, according to SEBI, was a price sensitive information in terms
of Regulation 2(ha) of the PIT Regulations, 1992. Regulation 2(ha)
reads as under :-
"2(ha). Price sensitive information means any
information which related directly or indirectly to a
company and which if published is likely to materially
affect the price of the securities of the company.
Explanation - The following shall be deemed to be
price sensitive information :- ................................
16. According to SEBI, the information remained unpublished
for the period March 8, 2010 to April 26, 2011. It was alleged that a
note was attached to the agenda of the board meeting of KBL held on
March 8, 2010. The note had details to consider the performance and
strategic options for KCEL. This note would show that KCEL was
making losses for three years preceding the above date from Rs. 1.39
crores to Rs. 11.77 crores and the loss for financial year 2009-10 was
expected to increase to Rs. 16 crores. Certain reasons for increase in
loss were given. It was also expected in the note that the net worth of
KCEL would erode by the end of the financial year. Therefore, the
15
KBL had engaged ICICI Investment Banking Group to identify
investors to invest in KCEL. It is noted in the note that KBL felt that
it would not be able to turn around the business of KCEL and if KBL
were to sell KCEL, KBL would get a valuation of Rs. 53 crores to
Rs. 58 crores below the invested amount of Rs. 148 crores in the
business of KCEL which included the acquisition price, unsecured
loans, term loan, etc.
Further, the minutes of the board meeting of KBL dated July
27, 2010 showed that some of the board of directors of KBL had
sought presentation on KCEL. A report on the viability study was
shared with the board members. This report also depicted the same
picture with a remark that the KCEL was not in a position to repay
the funds of KBL and there was a total diminution in the value of the
shares of KCEL. It was also observed in the said report that despite
KBL financial assistance, KCEL could not improve it's performance.
In the board meeting of KBL dated September 3, 2010, the
recommendation made in the viability report was considered and
after considering the net loss had approved the sale of KCEL on an
"as is where is basis" for a value of Rs. 65 crores.
16
In the circumstances the final decision was taken in the
meeting of the board meeting dated April 26, 2011 of KBL to write
off Rs. 67.47 crores towards the loan in the form of advances given
to KCEL. This decision was disclosed on the platform of the
exchanges, by KBL alongwith financial results for the quarter and
year ended on March 31, 2011. During all this period, i.e. since
March 8, 2010 to April 26, 2011, according to SEBI, this information
of capital losses or loss of advances remained unpublished.
17. As regards the UPSI - 2, it was found by SEBI that the
information of financial results of KBL for quarter July - September
2010, which was published on October 28, 2010 was a price sensitive
information right from August 6, 2010 to that date. During that
period, the financial position of KBL had deteriorated both on
monthly as well as quarterly basis in comparison with previous year,
and quarter respectively as detailed in paragraph no. 97 of the
impugned order passed against the Alpana group. In this regard, it is
an admitted position that the relevant appellants used to get Kirloskar
group's monthly interim financial information called Kirloskar
Group Management Operating Board report (hereinafter referred to
as KG-MOB report). For the month of July 2010, the KG-MOB
17
report is dated August 6, 2010. For the month of August 2010 the
KG-MOB report is dated September 3, 2010. These two KG-MOB
reports contained balance sheets, figures of profit and loss, fixed cost
analysis, fund flow statement, key financial ratio, sales figures, etc.
as detailed in paragraph no. 103 of that order.
18. SEBI therefore concluded that these KG-MOB reports were
not merely a management information system report but were fairly
detailed financial reports of KBL which contained many financial
figures and data for each month. These KG-MOB reports were
shared in advance with the board members. According to SEBI,
these KG-MOB reports of two months already circulated was indeed
a price sensitive information and the same remained unpublished till
October 28, 2010 i.e when financial result for the quarter July -
September 2010 was disclosed. The date of the tradings was October
6, 2010 and October 14th 2010 as detailed supra, therefore, it was
held that they have traded when in possession of these two UPSIs.
19. Before SEBI, except appellant Anil Alawani, none of these
appellants from Alpana group had specifically denied the existence
of the note said to have been annexed to the agenda of the board
meeting dated March 8, 2010. Appellant Anil Alawani has in his
18
reply before SEBI had only qualified the note by affixing term
"alleged" as and when he referred the note, etc. without specifically
denying the existence of the note.
20. Before us, Mr. Darius Khambata, the learned senior counsel
in appeal no. 499 of 2020 of Alpana group (except the appellant Mr.
Anil Alawani) strenuously submitted that the note was not at all in
existence and the same is the belated innovation of the rival group
led by Sanjay Kirloskar. He elaborated this submission from various
circumstantial evidences, namely, the first reply by KBL during
investigation which would show the absence of the note but later on
the note was submitted by KBL to SEBI on June 28th 2019, when the
company was under the control of Mr. Sanjay Kirloskar. In the
result, he submitted that the alleged UPSI - 1 did not come into
existence from March 8, 2010, as alleged by SEBI.
We are however, unable to agree with the submission. The
show cause notice dated July 14, 2020 had an independent paragraph
on the existence of the said note which was not denied by these
appellants. Mr. Darius Khambata in his usual skill however had tried
to explain this non-traverse by submitting that delay in issuing the
show cause notice and supplying of voluminous data by SEBI
19
alongwith the show cause notice was the cause for not specifically
denying the existence of the note.
21. On merit of the substantial case, these appellants submitted
that the alleged UPSI -1 was not at all an unpublished information. It
was further submitted that the information in question is not in
anyway connected to the sale of shares of KBL to KIL by these
entities.
22. Following submissions were made by Mr. Darius
Khambata :-
The entire transaction was to reorganize the Kirloskar family
holdings in the group companies whereby the selling promoters from
Alpana group sold their shares of KBL in their possession to another
promoter i.e. KIL and then consolidated their holdings in KIL by
increasing their stakes therein from 15% to 72%. KIL is a part of
promoter group of KBL. Around Rs. 300 crores surplus fund was
lying with KIL. It was therefore proposed to gainfully employ this
fund. Long term investment expectation of good returns in KBL was
expected on the basis of the then stock market scenario. Investment
in group companies was one of the objects of KIL and KIL had been
20
investing in the shares of group companies as long term investment.
In the circumstances, the board meeting dated July 28, 2010 of the
KIL was held and it was agreed that the transaction would be at the
prevailing market price as on the date of acquisition. Since large
numbers of shares were to be purchased by KIL from these
promoters, it was found that the transactions in the regular market
would disturb the price and therefore, bulk transactions through the
stock exchange platform were carried out. The transaction was
consummated by Alpana group on October 6, 2010 as during that
period Late Mr. Gautam Kulkarni, the original noticee nos. 6 was just
diagnosed with cancer and the promoters were unclear as to when
they would be in a position to sell the holding in KBL to KIL. All
these promoters had indicated their preference to sell their shares in
KBL to KIL together on the same date and at the same price.
23. He further submitted that though, this UPSI - 1 is alleged to
be a negative one i.e. expected to cause adverse effect on the price of
the KBL due to the capital loss, yet noticee nos. 9 appellant Anil
Alawani is alleged to have dealt with in the shares by holding shares
of KIL which is the exact opposite of what would have been the
trade.
21
24. Mr. Khambata pointed out that, appellant Atul Kirloskar, the
then chairman of the KIL before beginning of the meeting vacated
the chair and the non-interested directors present in the meeting i.e.
Mr. A. R. Sathe, occupied the chair. Additionally, the appellant Atul
as well as Mr. Nihal being interested in the business did not
participate in the discussion of proposal. Mr. A. R. Sathe informed
the board i.e. Rs. 288 crore was available with KIL for the proposed
investment. Finally, KIL approved the investment by way of
purchase of equity shares of KBL from these appellants from Alpana
group except appellant Mr. Anil Alawani. Mr. Anil Alawani was the
director of KIL. He and the company secretary were authorised to
execute the decision of the board i.e. to buy the shares of KBL from
these promoters.
25. It was submitted that though according to the learned WTM
the financial condition of KBL was deteriorating and write off or
capital loss would have additional adverse effect on the price of the
shares of KBL, in fact, upon disclosure of the decision, the price of
the scrip had risen during the succeeding sessions of public trades as
detailed in the order. Further, KCEL was one amongst the many
22
subsidiaries of KBL and the decision to write off the capital loss was
not material.
26. It was emphatically submitted that the facts that KCEL was
continuously running into losses was a public information since long
as and when the quarterly, half yearly or yearly financial results were
disclosed on the exchange platforms. Various alternatives for having
solution on this issue were proposed, counter proposed between the
promoters/directors as can be seen from the viability report, etc. and
ultimately decision to write off the capital loss was taken finding
that this subsidiary cannot be sold for a reasonable consideration.
This decision was disclosed on the same day i.e. on April 26, 2011 to
the stock exchange on the same date alongwith with financial results
for the year and quarter ended March 31, 2011.
27. The learned WTM reasoned in the impugned order that while
the show cause notice clearly articulated that the information on the
capital loss of the investment / advances given to the KCEL is UPSI,
these appellants were interpreting the same that the write off all the
loans to KCEL in the books of accounts of KBL is an event, the
information of which is the UPSI. An illustration of a damage and
destruction of certain raw material stored in a warehouse and a
23
decision regarding sale of remaining raw material, salvage, etc. was
given by the learned WTM. It was explained that though the
decision may have come into existence on April 26, 2011 and not on
March 8, 2010, the information of capital loss remained unpublished
right from March 8, 2010. It would be appropriate to quote the
finding of the learned WTM as found in paragraph no. 47.6 which is
as under :-
"47.6. The Noticees seek to interpret the SCN as "the
UPSI is the information on the accounting of the loss"
which was approved by the Board only 13 months later
in April of the following year. And on this basis, they
submit that the UPSI came into existence only in April of
the following year. Clearly, however, the loss had
occurred much earlier and the directors had access to
this information much earlier, based on the note
circulated to them in March of the previous year itself."
28. We are unable to agree with the finding recorded by the
learned WTM that the information of capital loss / investment /
advances given to KCEL was an UPSI. It is not in dispute that the
KCEL i.e. the subsidiary of KBL was running in losses since 2006-
07 and the financial results of KBL were being published with facts
and figures. These figures as detailed by the learned WTM in
paragraph no. 40 of the impugned order indicates that KCEL was
running into losses which was increasing day by day.
24
29. Leaving aside the issue as to whether the note said to have
been annexed to the agenda of board meeting dated March 8, 2010,
existed or not, one thing is clear that the facts and figures mentioned
in the note was an information which was in the public domain.
30. A snapshot given in the note is regarding the profit and loss
statement of KCEL for financial years 2006-07, 2007-08 and 2008-
09. The note cautioned that in future there can be an increase in the
loss in case certain projects were not delivered or handed over to the
customers. In the circumstances, various options like shifting some
projects to Pune, part merger of KCEL with KBL or divesting were
given. Though, the minutes of the board meeting dated March 8,
2010 were not supplied to these appellants despite seeking for the
same, it is however a fact that no resolution was passed by the board
of directors in this regard.
31. It cannot be gainsaid that the facts and figures given in the
said note was the publicly available information in view of the
disclosure of the results as detailed above.
32. Next is the case of viability report circulated on August 20,
2010 and recirculated on September 1, 2010 which is annexed as
25
annexure 8 to the show cause notice. In this viability report, by way
of background, the entire picture of investment made in the KCEL is
given; the auditor's statement account of KCEL to show the net
worth was given and again various options were suggested. These
options included continuance of KCEL as a standalone entity, merger
with the parent company or sale of KCEL. These various options
were discussed in the viability report and it was ultimately
recommended to sell KCEL on "as is where is basis". The minutes
of board meeting dated September 3, 2010 would show that proposal
to sell KCEL for a value upto Rs. 65 crores was specifically
approved.
33. In these circumstances, minutes of board meeting i.e. dated
April 26, 2011 in which the decision to write off the loan given to
KCEL requires consideration. The minutes record that though KBL
had advanced money to KCEL from time to time depending on the
business requirements, despite the best efforts to revive KCEL it
suffered huge operational losses which was on increase. Therefore, it
was approved to write off the loan given to KCEL.
34. What can be understood from the above admitted facts is
that KCEL was running into losses continuously from year to year.
26
The management was considering various options to find a solution
as can be seen from the alleged note as well as the viability report.
Various options and counter options like relocating some projects to
Pune, making KCEL as a standalone company, divesting the
investment or to sell the entity on "as is where is basis" were
considered one after another and the last of the options of writing off
all the loans was taken in the board meeting dated April 26, 2011.
35. In these circumstances, the definition of UPSI as found in
Regulation 2(ha) of the PIT Regulations, 1992 will have to be taken
into consideration. The definition would show that a price sensitive
information would be an information relating to the company directly
or indirectly and if upon its publication it is likely to materially affect
the price of the securities of the company, it would be UPSI till it is
published.
36. In the present case, the fact that KCEL continued to run into
losses was a publicly available information. What was not known to
the public was the decision which the management was going to take.
The management i.e the board of directors of KBL was considering
various options to overcome the said difficulty and ultimately on
April 26, 2011, it took the decision to write off the loan and
27
immediately this decision was disclosed on the platform of the stock
exchange alongwith financial results as detailed (supra).
37. This Tribunal had occasion to consider somewhat similar
circumstances in the case of Pia Johnson & other connected appeal
vs. SEBI appeal no. 59 of 2020 decided on April 8, 2022.
38. In that case, appellant Pia Johnson was a non-executive
director of one listed company, namely, IVL during the relevant
period. Appellant nos. 2 Mehul Johnson was her husband. They had
purchased the shares of the company from April 1, 2015 to March
14, 2017. It was alleged that the sale of one of the subsidiary of IVL,
namely, Indiabulls Distribution Services Ltd. (hereinafter referred to
as 'IDSL') was the UPSI for a period from February 16, 2017 to
February 22, 2017. The facts were that board of directors of IDSL
had meeting on May 4, 2016 and resolved to sell the entire
investment in ILPL. Even the shareholders had approved the said
proposal on a meeting dated July 20, 2016. Appellant Pia Johnson
therein was a member of the managing committee who was
authorised to sell the stacks. Thereafter, however on January 14,
2017, a proposal for grant of loan to ILPL from another company IIL
was made. This IIL, in its Extra Ordinary General Meeting (EGM)
28
dated March 1, 2017, resolved to invest its surplus funds by way of
loan to IIL or to buy it. Further, discussion on grant of loan
continued on January 24, 2017. In principle, it was agreed to go
through the transaction of loan. Thereafter, however in the EGM of
IIL, it was decided to purchase the shareholding of ILPL. Thereafter,
a definite agreement dated March 14, 2017 for sale and purchase of
this entity ILPL to IIL was entered into. The learned WTM, in that
case held that the resolution passed on July 15, 2017 was only raw
information and there was no crystalized offer to identify purchaser.
The learned WTM held that the UPSI came into existence on January
24, 2017. It was a date on which in fact a discussion regarding grant
of loan was held and there was nothing to say just that any offer for
purchase of ILPL was made by the relevant parties. This tribunal
finding that till February 3, 2017 there was no talk of purchase did
not agree with the findings of the WTM that UPSI relating to
sale/purchase came into existence prior to it.
39. In the present appeal, what we find is, that the fact that KCEL
was suffering losses after losses was a published information. The
board of directors was deliberating to come out with the solution
over the years as detailed supra and ultimately, on April 26, 2011,
29
they came out with the final solution of writing off the loan. Thus,
the information of loans and advances given to KCEL by KBL being
in the public domain, was not an unpublished price sensitive
information. The decision to write off the loan came into existence
on April 26, 2011 and the said decision was disclosed immediately
on the platform of the stock exchange. Hence, in our opinion, the
said information cannot be said as UPSI from March 8, 2010 till
April 26, 2011.
40. In view of the above, there is no need to consider as to
whether the said information was a price sensitive information for
KBL as also the arguments and counter arguments as to whether that
information was material information likely to materially affect the
price of the securities of the company in as much as, the information
to write off the loan was made public immediately after the decision
was taken.
41. Interestingly, the learned WTM further held that these
appellants form Alpana group traded in the stock of KBL while in
possession of UPSI-1, but not on the basis of said UPSI. Similar
finding were recorded as regards Sanjay group. As detailed
hereinafter, similar view was taken as regards UPSI 2 in both the
30
cases. In fact, when we have already arrived at the conclusion that
the information was not at all UPSI 1, consideration of these facts
would not arise. Leaving aside this fact for a while, we find that the
reasoning of the learned WTM in this regard is mired in confusion
for the reasons to follow.
42. The appellants from Alpana group have shown that while the
facts and figures as found in the financial results were positive, the
appellants had in fact sold the shares in their possession to KBL
which would show that they did not act on the basis of this alleged
UPSI 1. The learned WTM disputed the said interpretation of the
figures, but did not specifically deal with the fact that the price of the
share had risen even after, inter-alia, disclosure of the decision of
write off the loan.
43. The learned WTM noted in paragraph no. 7.2.2. that the quarter
ended September 2010, Profit After Tax (hereinafter referred to as
'PAT') was reduced to Rs. 19.49 crore from Rs. 33.40 crores in
comparison to previous year quarter ended September 2009.
Similarly, for quarter in the June 2010, PAT reduced to Rs. 4.45
crores from Rs. 5.60 crore in the previous year quarter ended June
31
2009. Further, FY 2010-11, PAT has been reduced to Rs. 61.40
crores from Rs. 117.50 crores for FY 2009-10.
44. The appellants however had interpreted the same figures in
different manner to show that the long term prospect of KBL was
positive. In paragraph no. 11.7.4. of the impugned order, the
appellants' submissions in this regard are recorded by the learned
WTM. They submitted that the appropriate manner to evaluate a
company's operating performance is to look at profit before tax
('PBT') and earnings before interest, depreciation, tax and
amortization ('EBIDTA') and exclude exceptional items. If the
figures are looked into from this perspective, it would show that the
operating performance was improving year on year by KBL. Cash
profit of KBL increased between FY 2009-10 and also in the next
year. It was submitted that there is no correlation between the
revenue numbers and the corresponding PAT figures. According to
them, looking at the numbers for a single quarter in isolation would
not provide any trend that can be established performance in
deteriorating or otherwise of KBL. The appellants further given the
facts and figures which are recorded by the learned WTM in
subsequent paragraphs.
32
45. On the basis of the above submission, the appellants rightly
showed that the decision to sell the shares of KBL to KIL was in fact
contrary to the indication that they wanted to get rid of the shares
while in possession of alleged UPSI. The learned WTM however
stuck to the words 'trading when in possession of an UPSI'. To be
fair with the learned WTM, it is however recorded in paragraph no.
77 of the impugned order that Section 15G of the SEBI Act, the
requirement is to prove that insider has traded not only "while in
possession of" any UPSI but also "on the basis of" an UPSI. It was
also recorded that there is a presumption, albeit rebuttable, that if
trading was done "while in possession of" UPSI, then it was done
"on the basis of" UPSI. Learned WTM however recorded in
paragraph no. 76 that there is no requirement of establishing the fact
of dealing in securities "on the basis of" UPSI for passing
appropriate direction under Section 11(4), 11B(1) of the SEBI Act
for violation of provisions of Section 12A(d) and (e) of the SEBI Act
and Regulation 3 of the PIT Regulations, 1992. The learned WTM
has thus, divided the relevant provisions in two categories. One
requiring both the ingredients of trading "on the basis of" and "while
33
in possession of" UPSI and another solely dealing in securities
"while in possession of" UPSI.
46. The learned WTM however was alive of the decision of this
Tribunal in the matter of Mrs. Chandrakala vs. SEBI in Appeal No.
209 of 2011 decided on January 31 2012 wherein this Tribunal has
held that the prohibition contained in Regulation 3 of the PIT
Regulations, 1992 applies only when the insider has traded "on the
basis of" any UPSI and that the trades executed should be motivated
by the information in possession of the insider. Similarly, the
learned WTM has also took note of the decision of this Tribunal in
the case of Mr. Manoj Gaur vs. SEBI in Appeal No. 64 of 2012
decided on October 3, 2012 where the similar declarations were
made.
47. After recording this, the learned WTM rightly recorded that
the burden of proof lies on the insider to prove that he has not dealt
with the securities of the company on the basis of UPSI but on the
basis of other circumstances as there is a rebuttable presumption that
the insider is trading on the basis of UPSI. It is also further recorded
by the learned WTM that the appellants claim that though the show
cause notice alleges the said UPSI as negative, the appellant Mr.
34
Alawani is alleged to have dealt in the shares by holding to buy the
shares which is exact the opposite that what would have been the
trade. It was also pointed out that operating performance of KBL as
detailed supra was positive still the relevant appellants sold KBL to
KIL. The learned WTM however differentiated reasoning in the
decisions of Mrs. Chadrakala vs. SEBI and Mr. Manoj Gaur vs.
SEBI (supra) on the ground that in that case, this Tribunal has
looked into the trading pattern of the entities. It was noted that the
trading pattern in the present appeal is not a specific trading pattern
like in the case of Mrs. Chadrakala vs. SEBI cited (supra). It was
noted that the present appellants did not trade in the shares of KBL
prior to or after the alleged UPSI - 1 becoming public. Further, the
relevant appellants are not in the business of trading and therefore,
according to the learned WTM, the ratio of Mrs. Chadrakala vs.
SEBI and Mr. Manoj Gaur vs. SEBI (supra) would not be
applicable.
48. Having held so in paragraph no. 84 however, the learned
WTM agreed with the submissions of the Alpana group appellants
that the surplus funds of Rs. 300 crores of KIL was required to be
invested and KIL had expected a good return from long term
35
investment by making it in KBL. Further, on the basis of documents
available on record, the learned WTM agreed that during the period
July - October 2010, KIL was in the process of becoming a core
investment company having holdings predominantly in group
companies. Not only this, in paragraph no. 92, the learned WTM on
preponderance of probability basis accepted that the intention of
execution of all these block trades on the window of the exchanges
was to consolidate the family holdings and the decision to trade taken
on or before July 28, 2010 and the actual trade on October 6, 2010
were done on the basis of this probability. In the circumstances, the
learned WTM doubted that the appellants had traded on the basis of
UPSI - 1.
49. Thus, having agreed with the submission of the relevant
appellants that they did not trade on the basis of the alleged UPSI -1,
in paragraph no. 95 however again the learned WTM recorded that
the relevant appellants traded while in possession of UPSI - 1 and
thereby violated the one group of the relevant provisions of
regulations as detailed supra in paragraph no. 42 which do not
require that the trading should be on the basis of UPSI while another
group of provisions has such a requirement.
36
50. In the paragraph no. 76 of the impugned order, the learned
WTM made the following observations regarding the provisions
applicable to the present proceeding as under :-
"76. The prohibition contained in Regulation 3 of the
PIT Regulations, 1992 applies not only when the insider
has traded "on the basis of" any unpublished price
sensitive information but also applies when the insider
has traded "while in possession of" any UPSI. When it
comes to imposition of monetary penalty under section
15G of SEBI Act, 1992, the requirement of dealing in
securities is "on the basis of" UPSI. Therefore,
violation of section 15G of SEBI Act, 1992 read with
Regulation 3 of the PIT Regulations, 1992 also requires
the proof of dealing in securities "on the basis of" UPSI.
However, the same is not the case in respect of passing
of appropriate directions under Section 11(4), 11B(1) of
SEBI Act, 1992 for violation provision of Section 12A(d)
& (e) of SEBI Act, 1992 and Regulation 3 of PIT
Regulations, 1992, which requires only establishing the
fact of dealing in securities "while in possession of"
UPSI."
51. The reading of the above observations would show that the
learned WTM reasoned that while Regulation 3 of the PIT
Regulations, 1992 requires, inter-alia, two ingredients for violation
of PIT Regulations i.e. "on the basis of" and "while in possession
of", so far as the issue of monetary penalty is concerned, it is
governed by Section 15G of the SEBI Act wherein the requirement is
37
of the dealing in securities "on the basis of" UPSI. It was further
reasoned that violation of Section 15G of the SEBI Act read with
Regulation 3 of the PIT Regulations required proof of dealing in
securities "on the basis of" UPSI. But so far as the second group of
provisions are concerned, the learned WTM reasoned that the power
to issue appropriate directions by SEBI under Section 11(4), 11B(1)
of the SEBI Act for violation of provisions of Section 12A(d) and (e)
of the SEBI Act and Regulation 3 of the PIT Regulations requires
only establishing the fact of dealing in securities "while in possession
of" UPSI.
52. While categorizing the statutory provisions in two groups,
the learned WTM categorized Regulation 3 of the PIT Regulations in
both the group, firstly by grouping it with Section 15G of the SEBI
Act and then also grouping it with Section 11(4)(a), (b) and (c), 11 B
and !2 A (d) and (e)of the SEBI Act as detailed supra.
53. Even though, for the reasons to follow, we find that this
grouping is flawed, it is necessary to point out one mistake
inadvertently committed by the learned WTM in this regard.
Regulation 3 of the PIT Regulations, 1992 as it stood prior to the
amendment of 2002 read as under :-
38
"3. Prohibition on dealing, communicating or
counseling on matters relating to insider trading. - No
insider shall -
(i) either on his own behalf or on behalf of any other
person, deal in securities of a company listed on
any stock exchange on the basis of any
unpublished price sensitive information;
(ii) communicate 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) counsel or procure any other person to deal
insecurities of any company on the basis of
unpublished price sensitive information."
(Emphasis supplied)
54. The amendment of 2002 replaced the term "on the basis of"
with "when in possession of". As the present appellants had dealt in
the shares of KBL in October 2010 i.e. after the amendment of 2002,
the observation of the learned WTM that Regulation 3 of the PIT
Regulations could be applicable if the insider trades both "on the
basis of " as well as "while in possession of any UPSI" is strictly
against this provision. May be learned WTM was under the
impression that as the provisions of Section 15G of the SEBI Act
provides for monetary penalty only when the insider trading is done
39
"on the basis of", the same can applied to the Regulation 3 of the PIT
Regulations to award penalty but not to the protective orders of
passing appropriate directions under Section 11B, 11(4) of the SEBI
Act for violation of provisions of Section 12A(d) and (e) of the SEBI
Act again read with Regulation 3 of the PIT Regulations. However
the learned WTM has also directed for payment of penalty vide the
impugned order though the learned WTM as pointed above reasoned
that the penalty can be imposed as provided by Section 15G of SEBI
Act only when the trading is on the basis of UPSI, and in fact these
appellants from Alpana group did not trade on the basis of UPSI .
55. It would be relevant to reproduce the relevant provisions
grouped into two categories by the learned WTM. Those are as
under :-
"S. 15G SEBI Act 1992- Penalty for insider trading.--If
any insider who,--
(i) either on his own behalf or on behalf of any
other person, deals in securities of a body
corporate listed on any stock exchange on the basis
of any unpublished price sensitive information; or
(ii) communicates any unpublished price sensitive
informa-tion to any person, with or without his
request for such informa-tion except as required in
the ordinary course of business or under any law;
or
40
(iii) counsels, or procures for any other person to
deal in any securities of anybody corporate on the
basis of unpub-lished price sensitive information,
shall be liable to a penalty [of twenty-five crore
rupees or three times the amount of profits made
out of insider trading, whichever is higher]."
"Regulation 3 PIT Regulations, 1992 -. No insider
shall--
(i) either on his own behalf or on behalf of any other
person, deal in securities of a company listed on any
stock exchange [when in possession of] any
unpublished price sensitive information; or
[(ii) communicate [or] counsel or procure directly or
indirectly any unpublished price sensitive
information to any person who while in possession
of such unpublished price sensitive information shall
not deal in securities :
Provided that nothing contained above shall be
applicable to any communication required in the
ordinary course of business [or profession or
employment] or under any law.]"
"Section 11[(4) SEBI Act 1992 - 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 investigation or inquiry or on completion
of such investigation or inquiry, namely :--
(a) suspend the trading of any security in a recognised
stock exchange;
41
(b) restrain persons from accessing the securities market
and prohibit any person associated with securities
market to buy, sell or deal in securities;
(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
respect of any transaction which is under
investigation;
(e) attach, after passing of an order on an application
made for approval by the Judicial Magistrate of the
first class having jurisdiction, for a period not
exceeding one month, one or more bank account or
accounts of any intermediary or any person
associated with the securities market in any manner
involved in violation of any of the provisions of this
Act, or the rules 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 proceeds actually involved in violation of any of
the provisions of this Act, or the rules or the
regulations made thereunder shall be allowed to be
attached;
(f) direct any intermediary or any person associated with
the securities market in any manner not to dispose of
or alienate an asset forming part of any transaction
which is under investigation :
Provided that the Board may, without prejudice to the
provisions contained in sub-section (2) or sub-section
(2A), take any of the measures specified in clause (d) or
clause (e) or clause (f), in respect of any listed public
company or a public company (not being intermediaries
referred to in section 12) which intends to get its
securities listed on any recognised stock exchange where
42
the Board has reasonable grounds to believe that such
company has been indulging in insider trading or
fraudulent and unfair trade practices relating 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."
"Section 11B SEBI Act 1992 - Save as otherwise
provided in section 11, if after making or causing to be
made an enquiry, the Board is satisfied that it is necessary
--
(i) in the interest of investors, or orderly development of
securities market; or
(ii) to prevent the affairs of any intermediary or other
persons referred to in section 12 being conducted in
a manner detrimental to the interests of inventors of
securities market; or
(iii) to secure the proper management of any such
intermediary or person,
it may issue such directions -
(a) to any person or class of persons referred to in
section 12, or associated with the securities market;
or
(b) to any company in respect of matters specified in
section 11-A,
as may be appropriate in the interests of investors in
securities and the securities market.
Explanation. - For the removal of doubts, it is
hereby declared that the power to issue directions
under this section shall include and always be
deemed to have been included the power to direct
43
any person, who made profit or averted loss by
indulging in any transaction or activity in
contravention of the provisions of this Act or
regulations made thereunder, to disgorge an amount
equivalent to the wrongful gain made or loss averted
by such contravention."
"Section 12A SEBI Act 1992- No person shall directly
or indirectly --
(d) engage in insider trading;
(e) deal in securities while in possession of material 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;"
56. Section 11 of the SEBI Act provides for powers and
functions of the board to protect the interest of the investors in
securities and to promote the development of as well as to regulate
the securities market by such measures as it thinks fit. Sub-section 2
provides for specific powers without prejudice to the generality of
sub-section (1). Sub-section 4 specifically provides for passing an
order, for reasons to be recorded in writing for taking various steps as
enumerated in that sub-section including disgorgement of the amount
pursuant to a direction issued under Section 11B of the SEBI Act.
44
This Section 11B provides for power to issue directions which
includes issuing direction to any persons or class of persons referred
to in Section 12 or to any person associated with securities market.
Section 12A provides for prohibition of manipulative and deceptive
devices, insider trading and substantial acquisition of securities or
control. Clause (d) and (e) deals with prohibition in engagement in
insider trading.
57. The division made by the learned WTM that in passing
protective orders like restraining from accessing to the security
market and to disgorge unlawful gains there is no need to look into
the trading to find out as to whether the trading was made on the
basis of insider information, is flawed. On the same line, the
reasoning of the learned WTM that this requirement is only for
dealing with the case while imposing penalty is also wrong.
58. Section 12A of the SEBI Act generally prohibits
manipulative and deceptive devices and thereafter enumerates the
various devices, including engaging in insider trading. It does not
define insider trading. The provision, thus, generally prohibits this
manipulative and deceptive device. Section 15G specifically
provides for penalty for insider trading by specifically providing that
45
the person dealing in securities "on the basis of" any UPSI shall be
liable for penalty.
59. Section 11(4) and 11B(1) of SEBI Act 1992, referred by the
learned WTM are called as general powers to protect the interest of
investors, etc. and in that regard pass necessary orders which
includes disgorgement of the ill-gotten gains and / or restraining from
accessing the securities market. It is nowhere provided that these
protective orders can be passed even when trading is not "on the
basis of" an UPSI. What these provisions inter alia provides is
prohibition of insider trading and for protection from such insider
trading either by restraining the person from accessing the securities
market in future or by disgorging the ill-gotten amount by him.
60. Insider trading is considered to be a heinous act where a
person takes undue advantage of his privilege of having insider
information - technically called as UPSI - to the detriment of the
general investors unaware of such information.
61. There are number of cases decided by this Tribunal in this
regard. Mrs. Chadrakala vs. SEBI (supra) is itself quoted by the
learned WTM but did not appreciate the same in proper perspective.
46
Even after the requirements of insider trading "on the basis of" UPSI
as was found in the subordinate legislation i.e Regulation 3 of PIT
Regulation, was deleted by amendment to the PIT Regulations in
2002, still in view the provisions of the principal legislation i.e.
Section 15G of SEBI act 1992, this Tribunal in the cases of Abhijit
Rajan vs. SEBI appeal No. 232 of 2016 decided on November 8,
2019 and Mr. Manoj Gaur vs. SEBI (supra), has taken into
consideration as to whether there was any co-relation between the
trading and existence of UPSI.
62. If the trading of a person is unrelated to the UPSI, naturally
it cannot be said that he has taken any undue advantage of any UPSI.
Therefore, he would not be liable either for a penalty or for any
protective order like restraining from securities market or
disgorgement of any amount which naturally would not be an ill-
gotten gain. It is illogical to affirm that while SEBI can disgorge the
gains of such trade holding it ill-gotten, it cannot impose penalty for
the very same trade. The division made by the learned WTM
regarding these two types of orders as can be found in paragraph no.
77 above therefore cannot be sustained.
47
63. As regards the UPSI - 2, i.e. of trading in the shares of
KBL while in possession of KG-MOB reports for July and August
received by them on August 6, 2010 and September 3, 2010, the
learned WTM held that the present appellants in Alpana group have
traded in the shares of KBL while in possession of UPSI - 2.
However, the learned WTM accepted their plea that in the board
meeting of KBL, a decision was already taken on July 28, 2010 KIL
to buy the shares of KBL pursuant to which the trading was done on
August 6, 2010 and on the date of decision the KG-MOB report of
July was not in existence. Therefore, the learned WTM held that
none of the appellants had insider information regarding the KBL
financial for July 2010 or August 2010 or of September 2010. Thus,
no UPSI had existed on the date, the decision was taken. The learned
WTM concluded that there is no relevance of the alleged UPSI to the
detriment of the appellants who had traded on August 6, 2010.
Therefore, the appellants were exonerated by the learned WTM from
the charge on this count.
64. In the case of Sanjay group, however, since the appellants
simply took a plea of restructuring of family holding, the learned
WTM held that these appellants traded when in possession of UPSI
48
2. However the plea that the trading was not done on the basis of
UPSI 2 was accepted for the reasons that the trading was done for
restructuring of the family holdings.
65. As we have found that the alleged UPSI - 1 was not at all
UPSI and the learned WTM had held that UPSI - 2 was unrelated to
the trading of the appellants in Alpana group or trading was not done
by Sanjay group on the basis of this UPSI in the shares of KBL, the
present appeals deserved to be allowed on merit.
66. Besides this, the appellants have made submissions on the
inordinate delay in issuing the show cause notice, violation of
principles of natural justice by not providing some documents and
non- liability of the legal heirs of deceased - noticee no. 6 Gautam
Kulkarni or the appellant nos. 1 and 3 Alpana Kirloskar and Jyotsna
Kirloskar had no access to UPSI or the quantum of disgorgement,
period of restrainment or quantum of monetary penalty needs no
consideration as we have decided the matter on merits. We may
however add, that if the WTM departs from the proposed
methodology as provided in the show cause notice relating to
calculation of disgorgement, then an opportunity has to be provided
by the WTM before departing from the methodology provided in the
49
show cause notice. Passing an order on disgorgement and then
providing a post decision hearing is not permissible.
67. Since we find that there was no insider trading, the appeals of
Alpana group as well as of Sanjay group are required to be allowed,
the grievance of the original complainant i.e. Kirloskar Brothers Ltd.
who has filed Appeal No. 44 of 2021 for enhancement of the penalty
as well as the disgorgement amount cannot survive. In our view, the
complainant cannot be said to be aggrieved by the decision of SEBI
and, therefore, also the appeal is not maintainable. In view of the
forgoing reasons, the following order :-
ORDER
1. Appeal Nos. 499 of 2020, 503 of 2020, 504 of 2020, 505 of 2020, 506 of 2020, 507 of 2020 and 508 of 2020 are hereby allowed without any order as to costs. The impugned orders dated October 28, 2020 passed against them are hereby set aside.
2. Appeal No. 44 of 2021 filed by the complainant Kirloskar Brothers Ltd. is hereby dismissed without any order as to costs.
3. All the Misc. Applications stands disposed of. 50
4. This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.
Justice Tarun Agarwala Presiding Officer Justice M. T. Joshi Judicial Member Ms. Meera Swarup RAJALA Digitally signed by Technical Member KSHMI RAJALAKSHMI H 12.10.2022 H NAIR NAIR Date: 2022.10.14 10:29:43 +05'30' PTM