Securities Appellate Tribunal
Ameen Khwaja & Ors. vs Sebi on 15 June, 2022
Author: Tarun Agarwala
Bench: Tarun Agarwala
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Date of Hearing : 24.03.2022
Date of Decision : 15.06.2022
Appeal No. 584 of 2019
1. Ameen Khwaja
2. Noorjahan A. Khwaja
3. Ashik Ali Khwaja
4. Rozina Hirani Khwaja
5. Shefali Ameen Khwaja
6. Shahid Khwaja
Flat No. 4B, H. No. 4-1-1233/4, 4th Floor,
Subodaya Apartments, Besides Fernandz
Hospital, Boggulakunta,
Hyderabad - 500001. ..... Appellants
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai - 400 051. ... Respondent
With
Appeal No. 696 of 2021
1. Ameen Khwaja
2. Noorjahan A. Khwaja
3. Ashik Ali Khwaja
4. Rozina Hirani Khwaja
5. Shefali Ameen Khwaja
6. Shahid Khwaja
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Flat No. 4B, H. No. 4-1-1233/4, 4th Floor,
Subodaya Apartments, Besides Fernandz
Hospital, Boggulakunta,
Hyderabad - 500001. ..... Appellants
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. Kunal Kataria, Advocate with Mr. Ankur Loona, Ms. Aparna
Wagle, Ms. Siddhi Somani, Advocates i/b Alliance Law for the
Appellants.
Mr. Pradeep Sancheti, Senior Advocate with Mr. Abhiraj Arora,
Ms. Anshu Mehta, Mr. Shourya Tanay, Mr. Harshvardhan Nankani,
Advocates i/b ELP 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. Vide the impugned order dated August 13, 2019, the learned
Whole Time Member (hereinafter referred to as 'WTM') of the
respondent Securities and Exchange Board of India (hereinafter
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referred to as 'SEBI') had restrained the present appellants from
accessing the securities market, in any manner, for a period of three
years and prohibited their association with any listed companies for
the similar period and also directed the present appellant nos. 2 to 6
to disgorge the amount indicated in the table in paragraph no. 73 of
the impugned order. Disgorged amount was already impounded vide
interim order dated February 4, 2016, as regards the appellant no. 1
Ameen Khwaja however was directed to be released.
By another impugned order dated September 2, 2021 passed
by the Adjudicating Officer (hereinafter referred to as 'AO') various
penalties were imposed on the appellants.
2. Aggrieved by the adverse directions as detailed above, the
present appeals are preferred. Facts narrated in the appeal no. 584 of
2019 are taken into consideration.
3. The appellants except appellant Ameen Khwaja alongwith
other 9 entities were alleged to have violated the provisions of the
Section 12A(d) and 12A(e) of the Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as 'SEBI Act') and
Regulation 3(i) and 3(ii) of the Securities and Exchange Board of
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India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter
referred to as 'PIT Regulations, 1992') read with Regulation 12 of
the Securities and Exchange Board of India (Prohibition of Insider
Trading) Regulations, 2015 (hereinafter referred to as 'PIT
Regulations, 2015'). Appellant Ameen Khwaja was alleged to have
violated all the above provisions except 3(i) of the PIT Regulations,
1992.
4. In essence, the allegations against the present appellants are
that appellant nos. 1 Ameen Khwaja having Unpublished Price
Sensitive Information (hereinafter referred to as 'UPSI') concerning
Palred Technologies Ltd. (hereinafter referred to as 'PTL or the
company') imparted the said information of the company to other
appellants who traded in the stock of the company when in
possession of said UPSI. Appellant Noorjahan A. Khwaja is the
mother of the appellant Ameen Khwaja. Ashik Ali Khwaja is his
father. Appellant Shefali Ameen Khwaja is his wife while appellant
Shahid Khwaja is his brother and appellant Rozina Hirani Khwaja is
his brother's wife.
5. The show cause notice covered two UPSIs. So far as the
present appellants are concerned, allegations against them are
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restricted to first UPSI which according to SEBI started from
September 18, 2012 to August 10, 2013. The said UPSI was in
respect of slump sale of software solution business of the company to
one Kewill group. The next of the UPSI with which the appellant is
not concerned is declaration of interim dividend of Rs. 29 per share
as a result of the slump sale and reduction of the 50% of the capital
of the company, etc. which came into existence on September 12,
2013 and continued till October 14, 2013.
6. The record would show that the company had executed a
non-disclosure agreement (hereinafter referred to as 'NDA') on
September 18, 2012 of slump sale of the software solution business
to Kewill group. Vide the same NDA, Kewill group proposed to
acquire the company's entire investments in the share capital of its
foreign three subsidiaries for a lump sum cash consideration of USD
22.5 million. Besides this, the company agreed to transfer its entire
investments in the share capital to those foreign subsidiaries. The
aggregate consideration was of USD 43.13 million. The proposals
were earlier put before the board of the company on August 10,
2013and was approved. During the same meeting, the board of
directors considered the utilization of the funds to distribute the
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excess fund that would be lying with the company upon slump sale,
to the shareholders, etc. Initial discussions were earlier held with
notice no. 1 Palem Reddy, the managing director of the company and
some other noticees (not the appellant). Thereafter, the above NDA
came to be executed on September 18, 2012. Thereafter, other steps
like sharing of information, visit of certain teams, etc. started and the
corporate announcement about it was made on October 10, 2013.
7. Between September 18, 2012 to August 20, 2013, appellant
nos. 2 to 6 transacted / principally purchased the shares of the
company in the following manner.
18.09.2012 to 20.08.2013
Buy Sell
Noorjahan A. Khwaja 120972 2456
Khwaja Ashik Ali 64193 0
Rozina Hirani 43014 0
Shefali Ameen Khwaja 45000 0
Shahid Khwaja 50822 0
8. SEBI alleged that the above trading was made by the
respective appellants on the basis of the information received by
them from the appellant Ameen Khwaja being their near relatives as
detailed (supra).
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9. In so far as the appellant Ameen Khwaja's connection is
concerned, annual report of the company PTL for the period 2012-13
showed that one Pal Premium Online Media Pvt. Ltd. (hereinafter
referred to as 'POMPL') was an enterprise influenced by key
managerial personnel or its relatives. Appellant Ameen Khwaja
was the co-director-promoter of this POMPL alongwith another
promoter and managing director of the present company PTL i.e.
noticee no. 1 Palem Reddy. Further, POMPL had provided services
to the present company PTL during September 2011 to May 2013 in
the nature of search engine related services. On January 8, 2014
POMPL merged into the company PTL, discussion of which started
on December 19, 2013. Further, on January 8, 2014, the present
company PTL acquired a website from Premium Web Services Pvt.
Ltd. (hereinafter referred to as 'PWSPL') wherein the appellant
Ameen Khwaja was the director alongwith his parents. On the basis
of these connections, SEBI alleged that the appellant Ameen Khwaja
can be reasonably inferred to have the first UPSI with him,
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which he parted with his other near relatives i.e. rest of the appellants
and they ultimately traded when in possession of the said UPSI.
10. To buttress this inference, respondent SEBI alleged that four
of the appellants except appellant Noorjahan Khwaja had opened
trading account only during the relevant period i.e. between June 26,
2013 to July 12, 2013. Those appellants had not earlier traded at all
in any scrip. So far as the appellant Noorjahan Khwaja is concerned,
though she had traded in more than 70 scrips other than the company
PTL, her maximum purchases value was Rs. 2.13 lacs. However, her
trading in the scrip of the company was of Rs. 16.62 lacs. Appellant
Noorjahan Khwaja did not trade in any scrip during the above period.
Thus, within a short period of two and half months, this appellant
group invested more than Rs. 49 lacs for 3,24,002 shares of PTL.
The shares of the company PTL were not frequently traded scrip.
They had bought 3,24,001 shares of the company PTL for a price of
Rs. 49,25,124/- as can be seen from the above table for an average
price of Rs. 15.20 having knowledge of the forthcoming slump share
of the software division of the company.
11. The appellants denied the allegations. It was denied that the
appellant Ameen Khwaja had any knowledge of UPSI or that the
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appellants traded when in possession of the UPSI supplied by him.
The learned WTM and the AO however did not agree with the
submissions. Hence the present appeals.
12. We have heard Mr. Kunal Kataria, the learned counsel with
Mr. Ankur Loona, Ms. Aparna Wagle, Ms. Siddhi Somani, the
learned counsel for the appellants and Mr. Pradeep Sancheti, the
learned senior counsel with Mr. Abhiraj Arora, Ms. Anshu Mehta,
Mr. Shourya Tanay, Mr. Harshvardhan Nankani, the learned counsel
for the respondent.
13. The appellants filed their replies to the show cause notice
issued by the respondent SEBI. They submitted that SEBI has
wrongly drawn an inference that the noticees were insiders and
connected persons based on the fact that the appellant Ameen
Khwaja was a common director with Mr. Palem Reddy who also
happened to be managing director of the present company PTL. A
person being a common promoter or common director in another
company cannot be treated as an insider or connected person during
the investigation period as per the provisions of the Regulation 2(c)
and 2(e) of the PIT Regulations. The fact that appellant Ameen
Khwaja participated in the discussion regarding to the merger of
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PMEPL and PTL with the present company after the investigation
period, has no relevance for determining the status of the person as
an insider or a connected person. Appellant Ameen Khwaja was not
actively involved in providing search engine services by PMOPL to
the company PTL. He was not holding any position, or not involved
in any company business relationship between himself and the
company. They further submitted that even if it is assumed that the
appellant Ameen Khwaja was an insider and the connected person of
PTL during the relevant period, he could not be reasonably expected
to have access to the UPSI to the company, as the nature of his job
being done by PMOPL for the company had nothing to do with UPSI
regarding slump share. Merely because PMOPL was providing
search engine services to the company there in nothing to infer that
Palem Reddy, the managing director of the company had directly or
indirectly imparted UPSI to the appellant Ameen Khwaja. Sweeping
and vague allegations cannot be accepted to prove the charges of
insider trading since appellant Ameen Khwaja was not in possession
of the UPSI relating to the company, consequently question of
communicating such UPSI to other appellants would not arise.
Further, there is no evidence of any nature to show that the appellant
Ameen Khwaja has provided the said UPSI to the other appellants. It
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was further submitted that the Khwaja family had sold certain
immovable property during the relevant period and from the
proceeds of the said sale, appellant nos. 2 to 6 had purchased the
shares of the company during the said period. Appellant nos. 2 to 6
were of the view that the company had a good future prospectus and
based on this fact, they made investment in the scrip of the company.
14. The learned WTM held that the company PTL itself in annual
report 2012-13 has described PMOPL as enterprise significantly
influenced by key managerial persons or their relatives. Appellant
Ameen Khwaja and Mr. Palem Reddy were the co-promoters of the
PMOPL. Mr. Palem Reddy was also managing director in the PTL
during the relevant period. Further, PMOPL provided search engine
related services to PTL during the period from September 2011 to
May 2013. During the same period, the UPSI one had arisen.
Further, post these transactions PMEPL and PMOPL got merged
with PTL. Discussion about merger started on December 19, 2013
and ultimately a public announcement was made on January 8, 2014.
All these facts according to SEBI would show that there was close
connection between the appellant Ameen Khwaja and Mr. Palem
Reddy, the managing director of PTL.
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15. Further, the trading pattern of the appellant nos. 2 to 6 was
taken into consideration by the WTM and the AO. They alongwith
Appellant Ameen Khawja reside in one house. It was found that
during UPSI period, these near relatives of the appellant Ameen
Khwaja had purchased 3,24,001 shares of PTL though the shares of
PTL were not frequently traded and that except appellant Noorjahan
Khwaja, none of them had traded earlier in any stocks. Further, the
trading of appellant Noorjahan Khwaja prior to the impugned trades
was meager of Rs. 2,13,000/- while she was invested Rs. 16.62 lacs
in the scrip of PTL. The overall trading pattern of the Khwaja group
in PTL in a short period of two and half months wherein more than
Rs. 49 lacs were invested by these appellants, in view of the learned
WTM and AO confirmed that the appellants' trades were based on
the communication of the UPSI relating to the scrip by Ameen
Khwaja. It was further pointed out by the learned WTM that while
this appellant group started trading in the scrip from June 20, 2013,
after the execution of the non-binding agreement from buyers they
stopped trading in PTL from August 2013 i.e. just before the
announcement of the transaction by PTL to the stock exchange was
made. Considering all these facts, the orders came to be passed.
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16. The learned counsel for the appellants strenuously submitted
before us that neither Ameen Khwaja can be called as connected
person nor insider within the meaning of the PIT Regulations, 1992.
Consequently, rest of the appellants cannot be termed as connected
person. He submitted that merely because appellant Ameen Khwaja
happened to be a co-promoter in the company in which Mr. Palem
Reddy, the managing director of the PTL was also promoter
alongwith the facts that some services were rendered by this
company PMOPL to PTL cannot ipso facto conclude that the
appellant Ameen Khwaja received UPSI from Mr. Palem Reddy.
17. The definition of a 'connected person' is found in Regulation
2(c)(ii) of the PIT Regulations, 1992. The same is as under :-
"2(c)(ii). occupies the position as an office or an
employee of the company or holds a position involving a
professional or business relationship between himself
and the company whether temporary or permanent and
who may reasonably be expected to have an access to
unpublished price sensitive information in relation to
that company:
Explanation : For the purpose of Clause (c), the words
"connected person" shall mean any person who is
connected person six months prior to an act of insider
trading;"
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18. Under Regulation 2(e) an 'insider' is defined as under :-
"2(e). "insider" means any person who,
(i) is or was connected with the company
or is deemed to have been connected
with the company and is reasonably
expected to have access to
unpublished price sensitive
information in respect of securities of
a company, or
(ii) has received or has had access to
such unpublished price sensitive
information;"
19. The learned counsel emphatically submitted that to brand a
person as a connected person merely professional or business
relationship between himself and the company is not sufficient. The
term "and" as found in the definition of connected person would
show that it should also be reasonably expected that he had an access
to UPSI in relation to the said company. Further, a person can be
termed as an insider only when he has received or had access to such
UPSI.
20. In the present case, SEBI alleges that the appellant Ameen
Khwaja was connected person. So far as the PTL is concerned, he
had business relationship through company PMOPL of which he was
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a promoter, in view of the services rendered by PMOPL to PTL.
Further, a person can be treated as insider when he is connected or
remain to be connected with the company and is reasonably expected
to have access to the UPSI.
21. Upon hearing both the sides in our view both the appeals are
liable to be dismissed for the reasons to follow.
22. There is no denial to the fact that the appellant Ameen
Khwaja during the relevant period was co-promoter of the PMOPL
along with Mr. Palem Reddy who was the managing director of the
PTL during the relevant period. Additionally, the said PMOPL was
providing search engine services to PTL. Besides this, post UPSI,
deliberation for merger of PMOPL with PTL had started and
ultimately the merger took place. All these facts coupled with the
trading pattern of the appellant nos. 2 to 6 as detailed (supra) on
preponderance of probability would establish that appellant no. 1
Ameen Khwaja can "reasonably expected to have access to the
unpublished price sensitive information" and he being near relatives
of the rest of the appellants who reside together with him can
reasonably expected to have imparted the said UPSI to the rest of the
appellants.
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23. The trading pattern of the appellant nos. 2 to 6 would show
that in this illiquid stock of PTL, without any earlier history of
trading, they have invested an amount of Rs. 49 lacs and purchased
the shares of the company for an average price of Rs. 15/-. The
record would show that, during this first UPSI it was deliberated by
the PTL that the proceeds of the sale would be distributed to the
shareholders. This discussion is a part and parcel of the process of
decisions regarding slump sale. After the slump sale, the company
PTL distributed dividend at the rate of Rs. 29/- per share as against
the average price of Rs. 15/- paid by the appellant nos. 2 to 6 for
purchase of the shares.
24. The learned counsel for the appellants heavily relied on the
ratio in the judgments of Chintalapati Srinivas Raju & Ors. vs.
SEBI [AIR 2018 SC 2411] as well as Balram Garg vs. SEBI Civil
Appeal No. 7054 of 2021 decided by the Hon'ble Supreme Court on
April 19, 2022.
25. So far as the case of Chintalapati S. Raju (supra) is
concerned, vide the majority judgment of this Tribunal the decision
of the respondent SEBI that Chintalapati S. Raju had indulged into
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the insider trading was upheld. Minority judgment however did not
accept the said proposition. Aggrieved by the majority judgment the
appeal was preferred.
26. The Hon'ble Supreme Court of India took into consideration
the definitions of the connected persons, insider and other persons as
provided in the PIT Regulations. In paragraph no. 11, it was
underlined that under the second part of the Regulation 2(e)(i), the
connected person must be reasonably excepted to have access to the
UPSI. It was declared that the expression 'reasonably expected'
cannot be a mere ipse dixit - there must be material to show that such
person can reasonably expected to have access to the UPSI. The
facts of the case would show that one B. Ramalinga Raju had
manipulated financial statement of Satyam Computer Services Ltd.
(hereinafter referred to as 'SCSL') with some other personnel. The
same was suppressed from the board of directors. Ultimately, the
same was disclosed later on. Appellant Chintalapati Raju was a non-
executive director of the said company SCSL. The appellant was
also co-brother of Mr. B. Rama Raju. The Hon'ble Supreme Court
found that though the appellant was non-executive director of the
board, it was the case of SEBI itself that the financial results were
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suppressed from the board of directors of SCSL. Therefore, it was
found difficult to hold that the appellant was in possession of the said
UPSI. Further, the fact that the promoters of the company who
became aware of the credit crunch faced by the SCSL sold their
shareholding but the appellant continued to retain the substantial
shareholding showed that the appellant was not aware of the UPSI.
Additionally, the last transaction of sale of shares by the appellant
was made just like any other shareholders of SCSL. Last but not the
least, the appellant had no professional or business relationship with
his co-brother B. Rama Raju and he had no connection with any
other entities who colluded by the Rama Raju. All these facts were
highlighted in the minority judgment and the Hon'ble Supreme Court
held that the view is correct both in law and facts and deserved the
acceptance.
27. In the case of Balaram Garg vs. SEBI cited (supra), the
appellant Balram Garg was the managing director of PC Jewellers
Ltd. (hereinafter referred to as 'PCJ'). His deceased brother's
daughter-in-law Shivani Gupta had traded in the shares of PCJ
through her husband and cousin brother-in-law. It was alleged that
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she traded on the basis of UPSI received by her on account of
proximity with deceased P. C. Gupta and his brother Balram Garg.
28. This Tribunal upholding decision of SEBI held that the insider
trading was made. The Hon'ble Supreme Court of India, set aside
the said decision. The Hon'ble Supreme Court found that there were
two family partitions / settlements between the family. Further, all
these persons were residing in separate residence in a big plot and
there was no evidence that either appellant Balram Garg or deceased
P. C. Gupta had imparted the information to these appellants.
Further, the Hon'ble Supreme Court underlined that Shivani earlier
to UPSI had also sold the scrip like during UPSI. It was underlined
that onus to prove that the appellant was in possession of the UPSI
was on SEBI. In these circumstances, the appeal was allowed by the
Supreme Court.
29. Learned counsel for the appellants heavily relied on the
certain paragraphs of the said judgment. In paragraph no. 32, the
Hon'ble Supreme Court of India has observed as under :-
"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 social relations
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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 places 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 that 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.
"....... The onus of showing that a certain person
was in possession of or had access to unpublished
price sensitive information at the time of trading
would, therefore, be on the person leveling the
charge after which the person who has traded when
in possession of or having access to unpublished
price sensitive information may demonstrate that he
was not in such possession or that he has not traded
or he could not access or that his trading when in
possession of such information was squarely
covered by the exonerating circumstances."
30. Learned counsel for the appellants further submitted that
while the burden of proof to prove that the appellant Ameen Khwaja
was in possession of UPSI is on SEBI, in paragraph no. 39 of the
learned WTM in the impugned order dated August 13, 2019
concluded as under :-
"39. In my view, Ameen Khwaja is a promoter director
of Pal Premium Online Media Pvt. Ltd. (PMOPL) with
Palem S. Reddy who was also a promoter-director of
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POMPL. POMPL was rendering professional services
related to IT to PTL. As Palem Reddy and Ameen
Khwaja were co-promoters and co-directors of POMPL,
I am of the view that there existed a business
relationship between the two promoters and by
extending services of POMPL to PTL, Ameen Khwaja
can also be stated to have had a business relationship
with the company because the service contract between
the two companies would be a reflection of the
understanding exchanged between these two promoters.
In this case, one cannot distinguish between the
company and its promoter because the very identity of
POMPL for availing services has arisen out of the
connection that existed between the two promoters.
Thus, in the facts and circumstances of the case it can be
reasonably presumed that the UPSI regarding Slump
sale was passed on to the Khwaja group by none other
than Palem S. Reddy."
31. He further submitted that merely the pattern of trading of
Khwaja group in PTL was held to be having distinct likelihood of the
trades based on the communication of UPSI to them.
32. On the other hand, Mr. Pradeep Sancheti, the learned senior
counsel for the respondent SEBI submitted that the facts as
enumerated (supra) would show that the appellant Ameen Khwaja
had close relationship with Mr. Palem Reddy. Both of them were
common promoter, director of PMOPL and this PMOPL was
rendering services to the company PTL wherein Mr. Palem Reddy
was managing director. He further highlighted the facts that the
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relationship was so thick that after the UPSI period PMOPL got
merged into PTL. Further, according to him, the trading pattern of
appellant nos. 2 to 6 as detailed (supra) would show that in this
illiquid stock which valued for Rs. 15/-, these appellants without
having any earlier experience in trading, invested Rs. 49 lacs to
purchase those shares. He, therefore, submitted that respondent
SEBI had, on preponderance of probability established that appellant
Ameen Khwaja "can reasonably be expected to have an access to
UPSI in relation to the company". Consequently, his close relatives
appellant nos. 2 to 6 who resides with him have traded in the scrip of
the company in the fashion as detailed (supra) and, therefore, the
same principle applies to them. He additionally relied on the ratio in
the judgment of Top Class Capital Markets Pvt. Ltd. vs. SEBI in
Appeal no. 31 of 2020 and Appeal no. 23 of 2021 decided by this
Tribunal on March 8, 2022 and in the case of Gagan Rastogi &
Ors. vs. SEBI Appeal no. 91 of 2015 and 219 of 2015 decided by
this Tribunal on July 12, 2019.
33. Upon hearing both the sides, in our view, the case essentially
rests on its own facts to find out as to whether it can be reasonably
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expected from the material on record on preponderance of
probability that the appellant Ameen Khwaja had access to UPSI.
34. The burden of proof of having reasonable expectation of
having access to the UPSI is initially no doubt on respondent SEBI.
Once the respondent SEBI place material/probabilities then onus to
prove shifts to the other side i.e. the appellants to prove otherwise.
Since, admittedly, respondent SEBI is required to establish the facts
on preponderance of probability and not beyond reasonable doubt,
the similar standard of proof would apply to the appellants to shift
the onus.
35. Respondent SEBI besides the facts as detailed (supra) had also
added one probability in the proceedings. It was alleged in the show
cause notice that appellant nos. 2 to 6 had no known source of
income to buy the shares. The appellants however on the basis of
copies of the registered sale deed were able to show that during the
same period the respective appellants had sold certain common
immovable property and from the proceeds of the same the shares
were purchased.
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36. As regards the other probabilities, however, the case of the
respondent SEBI remained firm. Those probabilities as detailed
earlier can be summarized as under to find out as to whether there is
preponderance of probabilities i.e majority of the probabilities to
conclude that it is reasonably expected that the appellants had access
to the UPSI.
37. Appellant Ameen Khwaja and Mr. Palem Reddy, were
promoters as well as co-directors of PMOPL. This PMOPL during
the relevant period provided search engine services to the company
PTL in which Mr. Palem Reddy was managing director. Besides this
soon after the UPSI, PMOPL and PWSPL wherein three appellants
were directors merged into PTL. All these factors would lead to
establish on preponderance of probabilities that PMOPL of which the
appellant Ameen Khwaja was promoter director had professional and
business relationship with the company PTL.
Besides this professional and business relationship, personal
relationship between these two personalities can also be inferred
from the facts of these close business relations.
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38. Further, the conduct of appellant nos. 2 to 6 would also show
that they purchased in otherwise abnormal manner the illiquid scrips
of the company PTL. The appellants had no earlier experience of
trading in shares still they purchased substantive shares of the
company PTL. They were not able to show as to what was the
rationale in purchasing these illiquid shares. They eat, drink and
sleep under the common roof with the appellant no. 1 Ameen
Khwaja. If all these facts are taken into consideration it can very
well be concluded on preponderance of probabilities, that respondent
SEBI was able to show that it is reasonable to expect that appellant
nos. 2 to 6 traded in the shares of the company PTL when in
possession of UPSI.
39. In the case of Chintalapati Raju, the facts highlighted above
in paragraph nos. 24 would show that except the facts that
Chintalapati Raju was co-brother of B. Ramalinga Raju and that he
was non-executive director of the said company SCSL, there were
numerous facts countering these probabilities which were pointing
towards the improbability that Chintalapati Raju had access to UPSI
through B. Ramalinga Raju.
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40. In the case of Balram Garg cited (supra), also there were
facts countering such expectations. There was disruption in the joint
family in view of two partitions / family settlements, the parties
residing separate from each other and further trading pattern of
Shivani Gupta was running counter to the probabilities of having
UPSI with her. Highlighting those facts, the Hon'ble Supreme Court
of India upheld the case of Balram Garg and Shivani Gupta and
others.
41. In the facts and circumstances of the present case however as
detailed (supra), we find that the respondent SEBI was able to show
on preponderance of probabilities that appellant Ameen Khwaja and
consequently other appellants are reasonably expected to have an
access to UPSI in relation to the PTL.
42. In the result, the following order :
ORDER
43. Both the appeals are hereby dismissed without any order as to costs.
2744. 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 Technical Member RAJALA Digitally signed 15.06.2022 by RAJALAKSHMI KSHMI HDate:
NAIR 2022.06.22 PTM H NAIR 11:28:11 +05'30'