[SECURITIES APPELLATE TRIBUNAL, 31 Jan 2012]
Securities Exchange Board of India – Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, 3(i) and 4 – Insider Trader – Unpublished price – Sensitive information – Penalty – Sustainability.
The Appellant was guilty of ‘insider trading’ and the Board held appellant guilty of violating regulations 3(i) and 4 of SEBI and imposed a monetary penalty of Rs. 8 lakhs. The Board held that appellant being wife of promoter was deemed to be connected person with company and its directors who had access to unpublished price sensitive information and hence an insider issued and issued a show cause notice. The Appellant denied the allegation. After considering the reply of the appellant and granting personal hearing, the adjudicating officer found the appellant guilty, and by impugned order imposed penalty.
The Appellant by the instant appeal contended that her husband ceased to be promoter of company and was only a shareholder of company and had no information about day to day working of company, therefore, appellant cannot be said to be a person ‘deemed to be a connected person’. The Respondent contended that the appellant had traded while in possession of unpublished price sensitive information as such order of adjudicating officer needs to be upheld.
Whether orders of Adjudicating Officer in holding appellant guilty of insider trading is sustainable? Disclosure was made by company to stock exchange that due to family arrangement, husband of appellant, had relinquished his interest in company as promoter. It was also a matter of record that appellant used to trade regularly in shares of company and her trades were genuine transactions carried out by her in normal course of business. SC was inclined to accept that where an entity is privy to unpublished price sensitive information it will tend to purchase shares and not sell shares prior to unpublished price sensitive information becoming public if information is positive. The Declaration of financial results, dividend and bonus were positive information but appellant not only bought but also sold shares not only during period when price sensitive information was unpublished but also prior to and after information becoming public. Person who is in possession of unpublished price sensitive information which, on becoming public is likely to cause a positive impact on price of scrip, would only buy shares and would not sell shares before unpublished price sensitive information becomes public and would immediately offload shares post information becoming public. The Trading pattern of appellant, as shown, does not lead to conclude that appellant’s trades were induced by unpublished price sensitive information – Appeal allowed