Securities Appellate Tribunal
Shashikant Dalmia vs Sebi on 22 May, 2024
BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Order Reserved on: 01.05.2024
Date of Decision : 22.05.2024
Appeal No. 411 of 2023
Shashikant Dalmia
202, Woodland Apartment,
Upper Govind Nagar,
Malad East,
Mumbai - 400 097. ..... Appellant
Versus
Securities and Exchange Board of India
SEB Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai - 400 051. ...Respondent
Mr. Kunal Katariya, Advocate with Mr. Sahebrao Wamanrao Buktare, Ms. Ashmita Goradia, Advocates and Mr. Shardul Shah, CA i/b Shah & Ramaiya for the Appellant. Mr. Sumit Rai, Advocate with Mr. Pratham Masurekar, Mr. Nishit Dhruva, Ms. Rasika Ghate, Ms. Shefali Shankar, Advocates i/b MDP & Partners for the Respondent. CORAM : Justice P.S. Dinesh Kumar, Presiding Officer Ms. Meera Swarup, Technical Member Dr. Dheeraj Bhatnagar, Technical Member Per : Ms. Meera Swarup, Technical Member This appeal has been filed by Sh. Shashikant Dalmia (Appellant) against the impugned order dated January 13, 2 2023 issued by Securities and Exchange Board of India („SEBI‟ for short) (Respondent) holding the Appellant guilty of violating the provisions of SEBI Act, 1992 and SEBI (Prohibition of Insider Trading) Regulations, 2015 („PIT Regulations‟ for short) and thereby levying a penalty of Rs. 12 lakhs under Section 15G of the SEBI Act, 1992.
2. The facts of the case are that the Appellant was working as General Manager (Finance and Accounts) in the Manchar factory of Parag Milk Foods Limited (the Company) from April 11, 2016 to August 6, 2019. He was reporting to the Chief Financial Officers of the Company based in the Corporate Office, Mumbai. The Company was in the process of expanding its business by acquiring Danone‟s manufacturing facility in Sonipat since January 23, 2018. The corporate announcement to this effect was made on April 19, 2018. The Respondent alleged that this was an Unpublished Price Sensitive Information (UPSI) and the UPSI period was from January 23, 2018 to April 18, 201. The Appellant who was in possession of this UPSI traded in the Company‟s share on April 18, 2022 by purchasing 5000 units of the Company‟s shares. The Appellant sold these shares on May 14, 2018 and earned a profit of Rs. 145, 875/-. Further, the Appellant, 3 despite being one of the designated person declared by the Company, did not take pre-clearance for the trading on April 18, 2018 from the Compliance Officer as per the Company‟s policy on PIT.
3. Show Cause Notice was issued on October 6, 2022 to the Appellant alleging violation of Section 12A(d) and 12A(c) of the SEBI Act, Regulation 4(1) read with Regulation 4(2) of the PIT Regulations and Clause -6 of Schedule - B read with Regulation 9(1) of PIT Regulations. The Appellant replied to the SCN vide letter dated November 9, 2022 and also availed of the opportunity of personal hearing on November 24, 2022.
4. We have heard Shri Kunal Katariya with Shri Sahebrao Wamanrao Buktare, Ms. Ashmita Goradia, learned counsel and Shri Shardul Shah, CA for the Appellant and Shri Sumit Rai with Shri Pratham Masurekar, Shri Nishit Dhruva, Ms. Rasika Ghate and Ms. Shefali Shankar, learned counsel for the Respondent.
5. The counsel for the Appellant argued that the Appellant was based at Manchar Factory of the Company while the decision / discussions regarding the acquisition of Danone‟s Plant took place at the corporate office. The Appellant‟s role was confined to accounts operation and coordination with 4 Audit, thus, he was not aware of the alleged UPSI. The Company in its submissions to SEBI vide its email dated December 2, 2021 specifically stated that the Appellant was not directly involved in the Danone transaction. Appellant was asked to make a plan to pay and to release a payment of Rs. 1.51 crore to Danone on January 29 and January 30, 2018, however, no details of the purpose of the payment were shared with the Appellant. Though the Appellant was in receipt of agenda of the Board meeting scheduled on February 2, 2018, the agenda did not include any item related to acquisition of Danone. The minutes of the meeting were not shared by the Company with him. Even as per the tabular sequence of events during the UPSI period as mentioned in the impugned order, the Appellant‟s involvement in any matter related to the acquisition could not be made out. The Respondent has held the Appellant guilty erroneously on two grounds. Firstly, he was in possession of UPSI on the basis of two email of CFO directing him to make plan to pay and to release payment to Danone and secondly as he was directly reporting to the CFO who was involved in the Danone acquisition process he must also be aware of the Danone transaction. The emails were simply direction to pay with no indication regarding the purpose of the payment as the 5 payment were to be made through the Bank located in Manchar. The CFO was based in Mumbai where the acquisition related discussions took place and there is no evidence to indicate that CFO kept the Appellant informed of the same.
6. The Counsel for the Appellant further stated that the Appellant was a regular trader in the equity market and used to trade on the basis of recommendations made by his broker as well as those received on Whatsapp Group. He had traded at least 12 - 13 times in the shares of the Company along with trades in the shares of other companies. The Company‟s shares purchased on April 18, 2018 were in ordinary course as he was not in possession of any UPSI and even after opening of the trading window the Appellant held on to the shares. He disposed some of the shares in May 2018 and the remaining in June 2018. Thus, as the Appellant was never in possession of UPSI, he is not an insider as per the definition under PIT Regulations and cannot be alleged to have engaged in insider trading. The penalty imposed is disproportionate considering that he made a notional profit of Rs. 145,275/- and that there is no allegation of loss caused to any investor or that of violation being of repetitive nature.
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7. The learned Senior Counsel for the Appellant placed reliance on the decision of this Tribunal in Appeal no. 80 of 2009 dated November 19, 2009 in the matter of Dilip S. Pendse vs SEBI wherein this Tribunal held that the charge of insider trading is one of the most serious charges in relation to the securities market and having regard to the gravity of this wrong doing, higher must be the preponderance of probabilities in establishing the same. In the present case the respondent have depended upon the e-mails of CFO directing the Appellant to release payment to Danone without disclosing any reasons and therefore the evidence is not of the degree of probability necessary to establish such a serious charge. They further placed reliance on the Hon‟ble Supreme Court‟s decision in the matter of Balram Garg vs SEBI [(2022) 9 SCC 425] wherein the Hon‟ble Supreme Court held that its only through producing cogent materials that the said communication of UPSI could be proved and not by deeming proximity between the parties. Just because the Appellant was reporting directly to the CFO who was in the team of processing the acquisition, it cannot be presumed that the Appellant was in possession of UPSI. Regarding the imposition of penalty the Senior Counsel for Appellant placed 7 reliance on Hon‟ble Supreme Court‟s decision in the matter of Hindustan Steel Ltd vs State of Orissa [(1969) 2 SCC 627] and this Tribunal‟s decision dated August 2, 2019 in the matter of P.G. Electroplast Ltd. & Ors. vs. SEBI, Appeal No. 281 of 2017 to state that even if minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bone fide belief that the offender is not liable to act in the manner prescribed by the statute.
8. On the other hand, the Counsel for the Respondent argued that the Impugned Order has been issued after considering all the facts and circumstances of the case. The Appellant was occupying a senior position as General Manager - Finance and Accounts and reporting directly to the CFO. Available records indicate that the transfer of Rs. 1.51 crore to Danone on January 30, 2018 was executed by the Appellant on the direction of the CFO as an Earnest Money Deposit (EMD). The fact that the payment was released as an EMD is indicative of the acquisition process and it can be inferred that the Appellant was aware of the said acquisition 8 transaction. The Compliance Officer of the Company vide their reply dated February 11, 2021 stated that the Appellant was not directly involved in the transaction or in communications with Danone team however this does not mean that the Appellant was neither aware of or in possession of UPSI pertaining to the Danone transaction. Further, the Appellant received the minutes of the Board Meetings dated February 8, 2018 as the Company vide its email dated December 2, 2021 submitted a list of persons with whom agenda / minutes of the meeting were shared wherein the Board of Directors authorized to go ahead with the transaction to acquire Danone plant. The Company itself vide its letter dated February 11, 2021 had informed the Respondent that the Appellant was having access to and was in possession of the UPSI.
9. Admittedly, the Appellant bought 5000 shares of the Company on April 18, 2018. The Agreement to Sale and Escrow Agreement were executed on the same day. The Company made the public announcement regarding the acquisition on April 19, 2018. The learned Counsel for Respondent stated that the Appellant was aware about the acquisition, he bought shares on the previous day as the 9 information was a positive one. Though the Appellant contended that he traded in the Company‟s shares on the recommendation of his broker, however, the scrip of the Company was not in the list of recommendations made by the broker. The Appellant has not been able to substantiate his claim that he received the recommendation on Whatsapp. The Appellant earned a profit after he sold the shares on May 14, 2018 and the trading pattern of the Appellant is evident of the fact that he was aware of the acquisition by the Company of the Danone plant.
10. The Counsel for the Respondent further stated that the Appellant was one of the recipients of the email from Compliance Officer regarding closure of trading window as he was a designated person. However, in defiance of the Company‟s policy which required pre-clearance from the Compliance Officer for trading in any scrip with a value of Rs. 5 lakh or more, the Appellant did not obtain pre-clearance though he traded in the scrip of the Company with a value of approximately Rs. 13 lakh. Thus, the impugned order does not suffer from any infirmity and has been passed after due consideration of all facts, submissions and material on record and the penalty imposed is minimum under the statute. 10
11. Having heard the learned counsel for the appellant and the respondent and taking into account the material on record we are of the opinion that the Appellant was in possession of the UPSI pertaining to the transaction of acquiring the Danone plant. CFO‟s email directing the Appellant to release a payment of Rs. 1.5 crore to Danone on January 30, 2018 clearly indicates that the payment was in respect of EMD. The Appellant was holding a senior position in the Company and could not have executed such a payment without being aware that the EMD payment was being made to Danone as part of the process of acquisition. Further, in our view, the Appellant has not been able to substantiate that the trading done by him on April 18, 2018 was on the basis of recommendation received from his broker.
12. We agree with the Respondent that although the Appellant was not directly involved in the Danone transaction or in communication with Danone team it cannot be inferred that the Appellant was neither aware of or nor in possession of UPSI pertaining to Danone transaction. In our view the reliance placed by the Appellant in Balram Garg (supra) and Dilip Pendse (supra) is misplaced and there is sufficient 11 evidence to indicate that the Appellant traded in the Company‟s share while in possession of UPSI.
13. However, considering that the Appellant has earned a profit of Rs. 145, 875/- and that Adjudicating Officer has not imposed separate penalties for violation of provisions of Section 12A(d) and 12A(e) of SEBI Act read with Regulation 4(2) of PIT Regulations and Clause 6 of Schedule B ("Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders") read with Regulation 9(1) of PIT Regulations and Section 12A(e) of SEBI Act, ends of justice would be served if the minimum penalty of Rs. 10 lakh under Section 15G of SEBI Act and which is more than six times of the profit made by the Appellant is imposed on the Appellant. Accordingly, the penalty of Rs. 12 lakh is reduced to Rs. 10 lakh. The appeal is partly allowed.
Justice P.S. Dinesh Kumar Presiding Officer Ms. Meera Swarup Technical Member Dr. Dheeraj Bhatnagar Technical Member 22.05.2024 MADHUKAR Digitally signed by MADHUKAR SHAMRAO msb SHAMRAO BHALBAR BHALBAR Date: 2024.05.22 16:29:43 +05'30'