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Brief facts submitted by the Appellant:

9. The Appellant has been the Managing Director of ABS for more than 25 years. ABS was incorporated under the Companies Act, 1956, in the year 1973 in the name of ABS Plastics Limited for the purpose of setting up an ABS manufacturing facility in India. ABS was managed in a professional manner and the sole motivating criterion of the promoter, the Appellant, has been the growth and reputation of the Company. The Appellant has always acted with the best interest of the Company in mind. In the post economic liberalisation, several of the end-user industries of the products manufactured by the company (ABS and SAN resins), including automobiles, consumer durables, telecommunication instruments, were planning to put up facilities in India. The Appellant was aware of the importance of technological arrangements with foreign companies so as to remain an important market player in the new economic scenario. In this regard, ABS had serious dialogues with reputed global manufacturers of ABS resin, including Japan Synthetic Rubber ("JSR") (which was also the Company's existing technical collaborator), Mitsubishi Rayon, Toyo Engineering, Dow Chemicals, Monsanto Chemicals, etc. since 1994. There had been several frequent reports and articles in various newspapers and magazines from late 1994, all through 1995 and most of 1996 that ABS was seriously contemplating association with a foreign company. In this context paginated index copy of the relevant press clippings filed in the Tribunal was referred to. In mid - July 1995, the Company signed a secrecy agreement with Monsanto to explore the possibility of technical/foreign collaboration, while dialogues with other foreign companies continued. In November 1995, Monsanto's styrenic business worldwide was taken over by Bayer. As a result of this, the contractual rights and obligations under the secrecy agreement entered into by ABS with Monsanto were transferred to Bayer. Bayer approached ABS in February, 1996 as to the possibility of synergising the technical expertise of both the companies. The two companies had been in continuous discussions since on this aspect. In May 1996, the Technical Adviser to the Company and the Appellant had further discussions with Bayer. The discussion with Bayer and the Company since early May 1996 were at a preliminary stage with both companies only investigating the possibility of combining their expertise. However, ABS had kept all its options open in as much as it continued discussions with the other potential collaborators as well. In the month of July 1996, a team from Bayer visited the Company's plant to conduct a technical evaluation together with a preliminary due diligence. In September 1996, the Appellant was requested to visit Germany by Bayer on his way back from the USA, where he had gone with his family for a personal visit. The Appellant accordingly stopped over in Germany on his way back to India between September 6, 1996 and September 8, 1996 for discussions with Bayer. This was the first meeting in Germany and there were initial discussions with the senior management and officers of Bayer, after Bayer had conducted a technical evaluation and due diligence. During these discussions, Bayer indicated that as per the worldwide policy of Bayer, any joint venture with Bayer would require that Bayer control 51% in the joint venture company. This firm pre-condition of Bayer was made known to the Appellant and ABS for the first time during his visit to Germany. However, the discussions for the proposed joint venture were still under way, and the method or modality of the investment by Bayer had not been initiated.

The following facts were stated:

In August 1996 the price of the shares in ABS was around Rs.48/- which reached around Rs.82/- by October 1996. The show cause notice has alleged that the Appellant had financed the purchase of the shares of ABS through his brother-in-law Mr.I.P.Kedia during the period August 1996 to October 1996, on the basis of insider information available with the Appellant relating to the merger of ABS with Bayer. The order passed by SEBI relates however, only to 1,82,500 shares which were purchased during the period 9th September to 8th October 1996 i.e. after the Appellant returned to India from Germany after having concluded an agreement with Bayer and the date of the open offer to be made by Bayer respectively. Between July --September 1995 ABS held discussions with Monsanto Chemicals to explore the possibility of technical/financial collaborations with ABS. ABS was also holding similar discussions with JSR., Mitsubishi Rayon and Toyo Engineering. In January 1996 Bayer made a global public announcement that Bayer AG had taken over the styrenics business of Monsanto worldwide with effect from November 1995. In February 1996 Bayer approached ABS for a possible tie-up. In May 1996 Bayer held discussions with ABS and sent a questionnaire seeking various details relevant to the discussions. On 28th June, 1996 Board of ABS considered the prospects of foreign collaboration. In July, 1996 Bayer team visited ABS for technical and financial evaluation of ABS and asked for further details which were furnished by ABS. On 5th and 6th September 1996 Appellant visited Germany and held meetings with Bayer's officials and concluded an "in principle" agreement whereunder interalia Bayer insisted that Bayer wanted to have a majority stake of 51% but that and the Appellant was to continue in management and in control of the merged company etc. On 8th September 1996 Appellant returned to India from Germany. On 20th September 1996 the Board of ABS was informed of the Appellant's visit to Germany and the minutes recorded the salient features of the agreement that were discussed with Bayer. From the available facts nothing has happened between the 8th and 20th of September 1996; therefore it can safely be concluded that the "in principle" agreement was arrived at on the 5th and 6th of September 1996. On 29th September, 1996 the Appellant once again visited Germany alongwith his legal advisors and the Merchant Banker and the legal advisors for Bayer in India. On 2nd and 3rd October, 1996 Legal consultants of both companies worked out a draft subscription agreement and shareholders agreement setting out the terms and conditions and obligations of the respective parties. These agreements were approved by the respective Board of Directors of ABS and Bayer respectively on 5th October 1996. On 8th October, 1996 Bayer made an open offer for purchase of 20% shares of ABS at Rs.70/- per share, which was raised to Rs.80/- per share on 26th December 1996.

119. The charge against the Appellant is that of violating the SEBI Regulations on insider trading. Though much has been said in the order about the acquisition of shares by Mr.Kedia on behalf of the Appellant, ultimately it has boiled down to the purchase of only 1,82,500 shares by Shri Kedia during the period September 9, 1996 1st October, 1996. Both the parties have chronicled the sequence of developments preceding the acquisition of shares of ABS by Bayer. I do not consider it necessary to repeat the same and further burden this order. From the particulars furnished by the parties, it appears to me that ABS was considering to diversify its product range. For the purpose it was considering proposals from overseas companies from the beginning of 1995. It was in July 1995 ABS signed a secrecy agreement with Monsanto Chemicals to explore the possibility of technical/financial collaboration. At that time also ABS was exploring the possibilities with a Japanese company. But negotiations are negotiations. Negotiations may sometimes fail. It may some times fructify. Till the negotiations are concluded, and a decision is taken, it is not possible to conclude the ultimate result of the negotiations. But some times half way through a shrewd negotiator would be in a position to see the would be outcome of the negotiation. ABS's negotiations/discussions with the overseas parties is in no way different. The Appellant had stated that it had in fact signed a secrecy agreement with Monsanto Chemicals in July 1995 to explore the possibility of technical/financial collaboration and ABS & Monsanto were discussing the possibility of tie up during the period July - September 1995 and in 1995 Bayer acquired the styrene business of Monsanto Chemicals worldwide. According to the Appellant, consequently the rights and obligations under the secrecy agreement between ABS and Monsanto were transferred to Bayer. I have noted that a secrecy agreement to explore the possibility of technical/financial collaboration, can not be viewed as a decision as such by Monsanto to takeover ABS. It, as the Appellant rightly stated was only for exploring the possibility. The fact that Bayer came in place of Monsanto on its takeover by Bayer does not change the nature of the undertaking. The Appellant has stated in its Appeal Memorandum that in February Bayer approached ABS to discuss the possibility of an association between ABS and Bayer. This also indicates that the matter was not crystallized then, but was in a fluid stage. From the sequence of developments chronicled by the Appellant in his memorandum of appeal it appears that the discussions were going on and on from February, 1996 followed by supply of various details to Bayer. It is seen from the records that even though the Board of Directors of ABS considered the prospects of foreign collaboration in their meeting held on 28.6.1996 they desired to examine the matter further. It was on 5th -6th September, 1996 the Appellant held discussions with Bayer in Germany regarding the possible joint venture. He returned to India on 8.9.1996. He appraised the Board of Directors of ABS of the developments with reference to his discussion with Bayer. It is also noted that on 29th September 1996 to October, 1996 the Appellant visited Bayer's office in Germany along with legal Counsel to "work out legal modalities". Bayer's legal advisers and merchant bankers were also present in the said meeting and in these meetings all modalities, valuations and offer price were finalised, subject to Board approvals. According to the Appellant on 1.10.1996 "a commercial understanding to proceed with the transaction was arrived in Germany. It was only at this stage that the transaction as well as the terms thereof acquired certainty." It seems that the meetings of legal advisers and merchant banker of ABS and Bayer was held only to "work out legal formalities" in pursuance of the discussion the Appellant had with Bayer people in Germany on 5/6th September, 1996. If there was no clear understanding and any decision about the nature of association of Bayer with ABS there was no question of working out legal formalities. Meeting held during September 29 to 3rd October, 1996 was only to complete the modalities/formalities with reference to the decision arrived at in the meeting the Appellant had with Bayer people on 5/6th September, 1996. It appears that it was in the said meeting it was decided that Bayer would require 51% holding in ABS and that "they were ready to concede the day to day management/minority protection rights and several other concessions. In this context it is noted that the Appellant returned to India on 8th September, 1996 after the said meeting. It is noted from the Appellant's statement recorded by SEBI on 26.5.1998 that the Appellant had furnished details wherein he had stated that he had given loans amounting to Rs.1.5 crores from his own account between 12.9.96 to 28.9.96 to Shri I. P. Kedia. He had admitted that on 18.9.96 when he lent Rs.35 lakhs to Shri Kedia he knew that Shri Kedia was purchasing shares of ABS. According to him "At that point of time, we were only contemplating to have further discussions with Bayer and one cannot say that there was certainty of these discussions culminating into joint venture. However I do agree that there was a probability of having joint venture with Bayer". The Appellant's following statements also need be noted:

122. To a question as to "Have you or any of your Pvt. Limited Cos. given any loan to Shri Ishwar Kedia? If yes, who negotiated this loan and what was the terms and conditions" the Appellant's answer was "When I returned from my trip from USA and Germany around 8/9/96 I learnt that Mr. IP Kedia telephoned my accountant Mr. S.R.Patel who is in my office handling my files. Mr. Patel informed me that Mr. IP Kedia is in urgent need of around Rs.10 lacs. I told him to organise this money from Bank of Baroda against the FDR Deposit of my brother. The money was organised on my instruction from BOB and the money was sent to Mr. Ishwar Kedia. After couple of days there was a fresh need of money from Mr. IP Kedia and Mr. Patel came and talked to me. I told to organise the same but then I got in touch with Mr. Kedia at his residence. I enquired Mr. Kedia why he needed this money. Mr. Kedia informed that he bought some ABS Shares and therefore he needed this money as a temporary loan. I dissuaded him from entering into any purchase and sale of shares not only of ABS but of any company. After couple of days again there was a demand of money and I spoke to him then. He then explained to me that since I had purchased around 50000 shares of my relatives even at Rs.68/-, he told me that there was a possibility of getting more shares from my relatives. I was conscious at that time of my discussions with Bayer, who had very clearly in no uncertain terms indicated that any possible joint venture could not be without Bayer getting 51% equity. Since there were so many Indian companies interested and were wanting to have an agreement with Bayer for producing ABS Resins there was need of urgency of taking decision. Co. like Reliance had also initiated discussion with Bayer for a joint tie up on the same project. I therefore realized that it was critically important for me to ensure that Bayer get 51% shares which means getting as many share from the market should the discussions eventually result into joint venture with Bayer. Discussion about this matter was going to take place on the Board meeting on 20th Sept. But Bayer would not consider any proposal unless they were guaranteed for 51% equity into the Co. I therefore told Mr.Kedia that if the shares are offered by my relatives or for that matter anybody he can procure on my behalf and I will finance the purchase. I had expressly informed him that the purchases should not be in a manner, to have any undue price rise or undue movement. I had told him to purchase the shares as long as offered in the natural course at the prevailing market price. While I was instructing Mr.Kedia I considered it to be a natural process. In my wildest imagination also I could never have thought that I was committing any crime or offense. The figure of 51% for Bayer was important for me and all the while I was thinking that should this discussion result into joint venture how to muster up this 51% of share by Bayer. The share holding pattern of 12 crores equity was that I was holding, 30% institutions were holding, around 25% my relations and friends were holding, 10% and balance was held by the public. I thought without creating any unnatural movement in the market either in price or sentiment if I could muster up some shares it would eventually help me reaching 51% target for Bayer as and when required. There was no intention at any point of time to make any financial gain out of such transaction. After our discussion in the Board meeting on 20th Sept. Board gave direction to proceed to have negotiation with Bayer and we left to Germany for such discussions around 29th Sept. From the time I gave instruction to Mr.Kedia to purchase such share until the date of public announcement he had procured on my behalf roughly more than 2 lacs shares. I categorically confirm that I had not informed Mr. IP Kedia about any discussion with Bayer AG for any possible joint tie up. As a matter of fact on the morning of 8th Oct. he was angry with me for not informing him earlier. Later on at 11.00 a.m. he called me and told on telephone that a lot of shares 1 lacs - 120000 at a price of around Rs.81/- was available. By this time he had procured roughly about 225000 shares and I sensed a good opportunity of procuring 1 lacs - 120000 share even though the price was over Rs.80/-, I directed him to purchase on my behalf because it would have helped me achieve the objective of acquiring as many shares possible in natural course for meeting 51% target. The capital because of preferential allotment was deemed to have raisen to around Rs.18 crores. Bayer industries was required to get around 36 lac shares from the market to complete their 51%. Our share subscription agreement which was arrived and which was approved by the directors and subsequently sent to Financial Institutions for their approvals. The whole agreement was conditional upon Bayer acquiring upon 51% share in ABS. It also meant that if they did not have 51% eventually, the whole agreement would become null and void. That was very scaring scenario in the light of developments in the industry in the country and particular heavy capacity being created in South East Asia.