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3. SCSL was originally incorporated as a private limited company with two shareholders, namely, B. Ramalinga Raju and D.V. Satyanarayana Raju on 24.6.1987. These two gentlemen were the original promoters of this company. The appellant, who was an executive director of this company from 1993 onwards, was confined to operating a joint venture company of SCSL, namely, Satyam Enterprise Solutions Private Limited (SES). The appellant stated that he was never involved in the day to day affairs of SCSL. In the said joint venture company, 80% shareholding was held by SCSL and the appellant held the remaining 20% shares. SES merged into SCSL pursuant to a scheme of arrangement, approved by the Andhra Pradesh High Court in 1999, as a result of which the appellant was issued 8,00,000 equity shares of SCSL. Later in the same year, SCSL declared a bonus, thereby doubling the number of shares held by the appellant to 16,00,000 equity shares of SCSL. On 7.8.2000, SCSL announced a stock split by which the face value of the shares was reduced from Rs.10/- to Rs.2/- as a result of which every shareholder got an additional five shares of Rs.2/- for each share of Rs.10/- held by them. Consequently, the shareholding of the appellant increased to 76,50,000 equity shares of SCSL. The first time that unpublished price sensitive information (hereinafter referred to as “UPSI”) came into existence so far as SCSL is concerned is stated to be on 31.3.2001. It is pertinent to note that as on this date, as has been stated hereinabove, the appellant was a non-executive director of the said company. Various annual reports from 2000 till 2003 disclosed B. Ramalinga Raju and B. Rama Raju as promoters of SCSL, but not the appellant. The appellant sold his shares in SCSL from 22.2.2001 to December, 2008. Ultimately, by a show cause notice dated 19.6.2009, after referring to the said letter dated 7.1.2009 by the Chairman of SCSL, it was stated that as the appellant was a promoter and director of SCSL, he was liable as an “insider”, having knowledge of UPSI, as a result of which he stood to gain by selling shares which he owned at an inflated value. The appellant replied to the show cause notice, taking detailed factual grounds as well as grounds in law, stating that he could not be said to be an “insider” as defined by the SEBI (Prohibition of Insider Trading Regulations), 1992 (hereinafter referred to as the “1992 Regulations”). By an order dated 10.9.2015, the Whole Time Member of the SEBI, after extracting relevant sections of the SEBI Act, 1992 and the relevant regulations referred to in the show cause notice, held that given Annexure 15 to the show cause notice, the appellant being a promoter was not the only ground of violation of the 1992 Regulations, but being a director of SCSL and co-brother of B. Ramalinga Raju would also rope the appellant in. After referring to Regulations 2(c) and 2(e) of the 1992 Regulations, the Whole Time Member held that being a director of SCSL, the appellant was a “connected person” under Regulation 2(c) and, therefore, an “insider” under Regulation 2(e). The Whole Time Member went on to hold that the fact that the books of accounts of SCSL were fabricated and manipulated since 2001 remains within the knowledge and possession of “insiders” who were reasonably expected to have access to them. When it was sought to be contended that the Special Court, Enforcement Directorate and Serious Frauds Investigation Office (SFIO) have given findings that only B. Ramalinga Raju and his cohorts were involved in the manipulations of accounts of SCSL, and had hidden the same from and deceived the rest of the board of directors, the Whole Time Member stated that SEBI’s investigation is independent and separate from that of other investigation agencies, and that since the appellant was part of the board of directors and declared as a promoter in disclosures filed by SCSL with stock exchanges, and being a co-brother of B. Ramalinga Raju, he was, therefore, closely connected with SCSL and its Chairman and “could have in all probability known about affairs of Satyam Computers including the claimed wrong disclosure of him being a promoter”. It is important to note that it was held that the appellant had no role in the fraud committed by B. Ramalinga Raju and his cohorts. It was then held that the appellant was barred from accessing the securities market for a period of 7 years. Further, the appellant was to disgorge the amount mentioned against his name, which is an amount of Rs. 136.64 crores, for the entirety of the period till he sold his shares i.e. upto December, 2008.

4. An appeal to the Appellate Tribunal was largely dismissed by the majority judgment. The majority judgment held that it would not be necessary to decide whether the appellant was a promoter of SCSL. It further went on to construe Regulation 2(e) of the 1992 Regulations stating that it would be enough that the appellant was a director until January, 2003, which is after the date of occurrence of UPSI, which took place on and from 31.3.2001. Since there is no real difference between an executive and a non-executive director, he would reasonably be expected to know about the fraud and manipulation by the Chairman and his cohorts, as he was closely connected to the same, being his co-brother. The majority went on to hold that 71% of the shares were sold in 2003 itself, and the fact that the appellant was not mentioned in the charge sheet filed by the CBI and was not responsible for the fraud would make no difference. Even the SFIO’s report, which stated that only B. Ramalinga Raju and his cohorts were responsible for the fraud, and that they actually duped the board of directors of SCSL, would make no difference as the appellant being an “insider” had sold shares of SCSL when in possession of UPSI and made profits in violation of the 1992 Regulations. It was held by the majority judgment of the Appellate Tribunal that given Annexure 15 to the show cause notice, the appellant being a promoter was not the only ground of violation of the 1992 Regulations, but being a director of SCSL and co-brother of Ramalinga Raju would also rope the appellant in. However, the appellant was given relief to the extent that under the Explanation to Regulation 2(e) of the 1992 Regulations, the appellant could only be held liable for a period of six months beyond his resignation as a director i.e. upto July, 2003. A remand order, therefore, was made to assess the quantum of unlawful gains that the appellant had made upto July, 2003.

5. Shri K.V. Viswanathan, learned senior counsel appearing on behalf of the present appellant, has argued that the basis of the show cause notice is that the appellant as a promoter made illegal gains contrary to the 1992 Regulations. Once it is demonstrated that he is not a promoter, the findings of the Whole Time Member and the majority view of the Appellate Tribunal must be set aside as they go beyond the show cause notice. He further argued that a fundamental error made by the Whole Time Member as well as the majority judgment of the Appellate Tribunal is in the construction of Regulation 2(e)(i) of the 1992 Regulations, in that an insider is defined as a “connected person” and a person who is reasonably expected to have access to unpublished price sensitive information by virtue of such connection. The second part of the definition after the word “and” has been ignored by both authorities and they are, therefore, wrong in their construction of Regulation 2(e)(i) of the 1992 Regulations. Otherwise also, according to the learned senior counsel, even assuming that the appellant was an insider, Regulation 3(i) would, in any case, not be attracted in the facts of the present case as the appellant was neither in possession of nor acted on the basis of any unpublished price sensitive information. According to the learned senior counsel, the Whole Time Member’s order suffered from pre-determinational bias, inasmuch as he had by an earlier order, which related to B. Ramalinga Raju and his cohorts, found against the appellant without the appellant being a party to the earlier decision and without hearing him. Further, according to the learned senior counsel, the impugned judgments erred in ignoring very important findings of the Special Court, the charge sheet of the CBI and the SFIO’s report. He relied very heavily on the minority judgment of the Appellate Tribunal which went into great detail on facts and ultimately exonerated his client.

36.Shri C.U. Singh, learned senior counsel appearing on behalf of the SEBI, drew our attention to Section 246 of the Companies Act, 1956 and stated that the SFIO’s report was a report given under the investigatory powers conferred by Section 235 of the said Act. Section 246 of the Companies Act, 1956 makes it clear that such report may be received as evidence in other cases. Shri Singh, apart from justifying the majority judgment of the Appellate Tribunal in the case of this appellant, also read to us extracts from the SFIO’s report and from the judgment of the Special Court, Hyderabad to show that the appellant was hand in glove with B. Ramalinga Raju and his other brother, B. Rama Raju in the fraud committed on the public from 2001 onwards. He, therefore, submitted that so far as this appellant was concerned, we should uphold the majority judgment of the Appellate Tribunal.