REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

Civil Appeal No.563 of 2020

SECURITIES AND EXCHANGE BOARD OF INDIA ...APPELLANT(S)

VERSUS

ABHIJIT RAJAN ...RESPONDENT(S)

JUDGMENT

V. Ramasubramanian

1. The Securities and Exchange Board of India has come up with the

above appeal, challenging an Order of the Securities Appellate Tribunal,

by which the Order of its Whole Time Member (for short “WTM”)

directing the respondent to disgorge the amount of unlawful gains made

by him, was set aside.

2. We have heard Mr. Arvind P. Datar, learned senior counsel for the
Signature Not Verified

appellant and Mr. Somasekhar Sundaresan, learned counsel appearing

Digitally signed by
DEEPAK SINGH
Date: 2022.09.19
16:39:22 IST
Reason:

1
for the respondent.

3. The background facts leading to the above appeal are as follows:

(i) The respondent herein was the Chairman and

Managing Director of a company by name Gammon
Infrastructure Projects Limited (hereinafter referred to
as “GIPL”) till September 20, 2013. Thereafter, he
ceased to be the Chairman Managing Director, but
continued to be a Director of the Company.
(ii) In the year 2012 GIPL was awarded a contract by
National Highways Authority of India. The total cost of
the project was Rs.1648 crores. For the execution of
the project, GIPL set up a special purpose vehicle
called Vijayawada Gundugolanu Road Project Private
Limited (“VGRPPL”).
(iii) Similarly, another company by name Simplex
Infrastructure Limited (SIL) was awarded a contract by
NHAI in Jharkhand and West Bengal and the total cost
of the project was Rs.940 crores. For the execution of
the project, SIL set up a special purpose vehicle called
Maa Durga Expressways Private Limited (MDEPL).
(iv) GIPL entered into two shareholders agreements with
SIL. Under these agreements, GIPL was to invest in
MDEPL and SIL was to invest in VGRPPL for their

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 respective projects. The mutual investments were to be
tuned in such a manner that GIPL and SIL would hold
49% equity interest in each other’s projects.
(v) However, on 9.08.2013 the Board of Directors of GIPL
passed a resolution authorizing the termination of both
shareholders agreements.
(vi) On 22.8.2013, the respondent sold about 144 lakhs
shares (approx.) held by him in GIPL, for an aggregate
value of approximately Rs.10.28 crores.
(vii) On 30.08.2013 GIPL made a disclosure to the National
Stock exchange of India and BSE regarding the
termination of two shareholders agreements.
(viii) On 20.09.2013 the respondent resigned from the post
of Chairman and Managing Director of GIPL.
(ix) Pursuant to an input received from the National Stock
Exchange, about the aforesaid transaction and the
possibility of the trading having taken place on the
basis of unpublished price sensitive information, SEBI
conducted a preliminary enquiry. After completion of
the preliminary enquiry, SEBI passed an ex­parte
interim order on 17.07.2014 holding prima facie that
the respondent violated the provisions of Section
12A(d) and (e) of The Securities and Exchange Board of
India Act, 1992 (hereinafter referred to as “SEBI Act,

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 1992”) and consequently restraining the respondent
from buying, selling or dealing in securities and
accessing the security markets directly or indirectly.
This ex­parte interim order was also confirmed by a
confirmatory order dated 23.03.2015, passed after
providing an opportunity of hearing to the respondent.
The appeal filed by the respondent against the said
confirmatory order was dismissed as withdrawn on
4.02.2016.
(x) In the interregnum, SEBI completed the investigation
and issued certain directions on 21.03.2016, followed
by a show cause notice dated 29.03.2016. The show
cause notice was addressed not only to the respondent
herein, but also to another Company by name
Consolidated Infrastructure Company Private Limited
and two of its Directors. The noticees filed their replies
and after giving an opportunity of hearing to the
noticees, the WTM passed an Order dated 13.07.2016.
By the said order the WTM held the respondent herein
guilty of insider trading and hence liable to disgorge
the amount of unlawful gains made by him to the tune
of Rs.1.09 crores. The show cause notices issued to the
others, namely, Consolidated Infrastructure Company
Private Limited and its Directors were closed without

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 any directions, on the ground that no case was made
out against them.
(xi) Challenging the said order of the WTM, the respondent
filed a statutory appeal before the Securities Appellate
Tribunal. The appeal was allowed by the Tribunal by
an Order dated 08.11.2019 and it is against the said
order that SEBI has come up with the above appeal.

4. The reasons for the Securities Appellate Tribunal allowing the

appeal of the respondent are three­fold, namely, (i) that the information

regarding the termination of the two shareholders agreements, was not

actually a price sensitive information, since the investment of GIPL in

Simplex Project, to the tune of Rs. 4.9 crores constituted only 0.05% of

GIPL’s order book value at the end of August, 2013 and only 0.7% of its

turnover for the financial year; (ii) that in any case the respondent was

in dire need to sell the shares at that time for the purpose of CDR

(Corporate Debt Restructuring) package and hence he cannot be said to

have indulged in trading on the basis of information within his

knowledge; and (iii) that there was no reason why SEBI did not take into

account the last trade price of 03.09.2013, but chose the price as on

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04.09.2013.

5. Assailing the order of the Securities Appellate Tribunal, it is argued

by Mr. Arvind P. Datar, learned senior counsel for the appellant:­

(a) that proportionality is a dangerous and subjective

ground in matters involving insider trading, especially
since one­third of the total number of directors of a
listed company are independent directors and even
transactions involving thousands of crores might be a
minor proportion to the turnover, if the company is very
large in size;
(b) that Regulations 3 and 4 contain an absolute prohibition
against insider trading and such a statutory prohibition
cannot be diluted by arguing that the total value of the
contracts terminated by the company was just a minor
percentage of the order book value and the total
turnover of the company;
(c) that in any case the total value of the contracts
terminated on both sides was nearly Rs.2600 crores
(Rs.1648 crores + 940 crores) and hence the information
relating to the termination of the contracts was definitely
likely to materially affect the price of the securities of the
company under Regulation 2(ha);
(d) That Explanation (vi) under Section 2(ha) which speaks

6
 about “significant changes in policies, plans or operations
of the company” cannot limit the scope of the main part
of the definition and in this case as a matter of fact the
price of the share dropped in just one day and the
respondent avoided a loss of Rs.85 lakhs;
(e) that the de minimis syndicate has no application to
insider trading, as it introduces an element of
subjectivity;
(f) that bona fide intentions or grounds of necessity, such
as those pleaded in this case, cannot frustrate the object
of strict ban on insider trading, especially when the
expression “lawful excuse” as used in about 88 Central
Statutes to justify non­compliance, is conspicuously
absent in the Statute on hand;
(g) that in any case, SEBI took note of the situation in
which the respondent was placed, warranting the
necessity to sell the shares and hence confined the final
order only to disgorgement, which is merely in the
nature of restitutionary relief;
(h) that the intimation regarding the termination of the
contracts was given to the Bombay Stock Exchange at
1.05 p.m. and to NSE at 2.40 p.m. on 03.09.2013 and
the trading concluded at 3:30 p.m. and hence the
adoption of the closing price on 03.09.2013 would not

7
 correctly determine either the gains made or the losses
averted; and
(i) that therefore, the question of SEBI taking the closing
price as on 03.09.2013 did not arise.

6. Responding to the above submissions made on behalf of the

appellant, Mr. Somasekhar Sundaresan, learned counsel for the

respondent raised the following contentions:­

(a) that the primary object of Insider Trading Regulations

anywhere in the world is to prohibit an insider from
taking advantage of asymmetrical access to unpublished
price sensitive information over others who do not have
such access;
(b) that the question whether an information is price
sensitive or not, would depend upon its potency to
materially impact, upon publication, the price of the
securities;
(c) that therefore by its very nature, it is barely a question
of fact or at the most, a mixed question of fact and law
which will not fall within the scope of Section 15Z of
SEBI Act, 1992 warranting interference by this Court;
(d) that one of the key factors which the Courts take into
account while interpreting the circumstances revolving

8
 around transactions such as the one in question, is the
purpose for which the transaction was effected;
(e) that apart from looking into the purpose of the
transaction, Courts have also taken into account other
circumstances such as the scale of the transaction,
pattern of trading and honesty in responses during the
proceedings as is evident from the decisions in
(i) Chintalapati Raju vs. SEBI;1 (ii) Rajiv Gandhi
vs. SEBI;2 (iii) Miller vs. Pezzani3; and (iv) SEBI vs.

Kanaiyalal Baldevbhai Patel4;

(f) that in the case on hand, the information in question,
namely, the termination of the Agreements actually
resulted in GIPL gaining total control of a larger project
worth Rs.1648 crores and that in other words what was
lost by the termination was far lesser than what was
gained and hence the information relating to the
termination of the Agreements was actually a favourable
and not adverse information;
(g) that as seen from SEBI’s own computation, the value of
the contract terminated was just 3.1% to 4.1% and
hence it cannot be reasonably expected to have a

1 (2018) 7 SCC 443

2 (Appeal No.50/2007 decided by the Ld. SAT on 09.05.2008) – (Civil Appeal 5302 of 2008 against this order was dismissed)
3 (A decision of the US Court of Appeals)-the US Supreme Court refused to entertain a challenge to it
4 (2017) 15 SCC 1

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 material impact on the market price of the shares of
GIPL;
(h) that GIPL’s investments in the project of SIL
represented 0.05% of GIPL’s order book and 0.7% of its
turnover;
(i) that a project with a small percentage of the order book
and a miniscule percentage of the turnover cannot ipso
facto become material for information about it to become
UPSI;
(j) that on facts, the shares sold by the respondent on
22.08.2013 constituted 0.99% of the share capital of
GIPL;
(k) that what was sold by the respondent was 70% of his
total shareholding in GIPL and the sale was not an
isolated one but coupled with the sale of multiple other
assets to raise money to fund promoters’ contribution to
the CDR package of Gammon India Limited, the listed
parent company of GIPL;
(l) that the failure of the respondent to meet the obligation
towards CDR package would have led to GIL filing for
bankruptcy;
(m) that every penny of the sale proceeds of the shares, was
transferred by the respondent towards the
implementation of CDR package and hence it is a

10
 misconception to think that he made unlawful gains
that ought to be disgorged;
(n) that SEBI itself has accepted the fact that the sale
proceeds were used for funding the CDR package;
(o) that SEBI itself exonerated the co­noticee, namely,
Consolidated Infrastructure Company Private Limited,
on the ground that its sale of shares was on account of a
pressing need to meet a margin shortfall to its stock
broker;
(p) that SEBI thus applied two different yardsticks, one in
respect of the respondent and another in respect of the
co­noticee in the very same proceeding, which
necessitated interference by the Tribunal; and
(q) that therefore the present appeal does not raise a
substantial question of law and that in any case the
order of the Appellate Tribunal does not call for any
interference.

7. From the rival contentions, we think that the questions arising for

our determination can be formulated as follows:

(i) whether the information regarding the decision of the

Board of Directors of GIPL to terminate the aforesaid two
contracts can be characterized as “price sensitive information”

11
 within the meaning of Section 2(ha) of the Securities and
Exchange Board of India (Prohibition of Insider Trading)
Regulations 1992, (hereinafter referred to as the ‘Regulations’);
(ii) whether the sale by the respondent of the equity shares
held by him in GIPL, under peculiar and compelling
circumstances in which he was placed, would fall within the
mischief of ‘insider trading’ in terms of Regulation 3(i) read
with Regulation 4 of the Regulations;
(iii) whether SEBI should have taken into account the last
trade price of the day on which information was disclosed
instead of the trade price of the next day;
Question Nos.1 & 2

8. Before we proceed to analyze the points, we must note that this is

an appeal under Section 15Z of SEBI Act, 1992 and we are concerned in

such appeals with “any question of law arising out of the order of the

Tribunal”. The focus of Section 15Z is on ‘any question of law’ and not

‘any substantial question of law’. Keeping this in mind, we shall now

proceed further.

9. The SEBI Act, 1992 is intended, as seen from its preamble, “to

provide for the establishment of a Board to protect the interests of

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investors in securities and to promote the development of and to regulate

the securities market”. As a matter of fact, the Securities and Exchange

Board of India was established even before the Act was enacted. Since

the Board was already in place, the Parliament enacted the Act with a

view among other things, to vest SEBI with statutory powers.

10. In exercise of the powers conferred by Section 30 of the Act, the

Board issued a set of Regulations known as “Securities and Exchange

Board of India (Prohibition of Insider Trading) Regulations, 1992”, with

the previous approval of the Central Government. Regulation 2(ha) of

these Regulations defines the expression “price sensitive information” as

follows:­

“2(ha) “price sensitive information” means any information

which relates directly or indirectly to a company and which if
published is likely to materially affect the price of securities
of company.
Explanation.—The following shall be deemed to be price
sensitive information :­
(i) periodical financial results of the company;
(ii) intended declaration of dividends (both interim and
final);
(iii) issue of securities or buy­back of securities;
(iv) any major expansion plans or execution of new
projects.
(v) amalgamation, mergers or takeovers;
(vi) disposal of the whole or substantial part of the

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 undertaking;
(vii) and significant changes in policies, plans or operations
of the company.”

11. Regulation 2 (k) defines the expression “unpublished” as follows:

“Unpublished” means information which is not published by

the company or its agents and is not specific in nature.

Explanation.– Speculative reports in print or electronic media

shall not be considered as published information.”

12. Regulation 3 imposes a prohibition on dealing, communicating or

counseling on matters relating to insider trading. It reads as follows:­

“3. No insider shall –

(i) either on his own behalf or on behalf of any other
person, deal in securities of a company listed on any
stock exchange when in possession of any
unpublished price sensitive information; or
(ii) communicate or counsel or procure directly or
indirectly any unpublished price sensitive
information to any person who while in possession
of such unpublished price sensitive information
shall not deal in securities :

Provided that nothing contained above shall be applicable

to any communication required in the ordinary course of
business or profession or employment or under any law.”

13. Regulation 4 declares the circumstances under which a person

shall be held guilty of insider trading. It reads as follows:­

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 “4. Any insider who deals in securities in contravention of
the provisions of regulation 3 or 3A shall be guilty of insider
trading.”

14. Interestingly, the Regulations do not define the words, “insider

trading”. But Regulation 4 declares a person guilty of insider trading if,

(i) he happens to be an insider; and (ii) if he deals in securities in

contravention of Regulation 3.

15. The word “insider” is defined in Regulation 2(e) as follows:­

“(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.

16. The words “dealing in securities” is defined in Regulation 2(d) as

follows:­

“(d) “dealing in securities” means an act of subscribing,

buying, selling or agreeing to subscribe, buy, sell or deal in
any securities by any person either as principal or agent.”

17. We may note at this stage that the Regulations underwent

sweeping changes through SEBI (Insider Trading) (Amendment)

Regulations 2002, w.e.f. 20.02.2002. Prior to the amendment made in

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the year 2002, the words, “unpublished price sensitive information” were

defined through a single definition clause, namely Regulation 2(k) as

follows:­

“2(k) Unpublished price sensitive information means any

information which related to the following matters or is of
concern, directly or indirectly, to a company, and is not
generally known or published by such company for general
information, but which if published or known, is likely to
materially affect the price of securities of that company in
the market –

(i) financial results (both half­yearly and annual) of the

company;
(ii) intended declaration of dividend (both interim/final);
(iii) issue of shares by way of public rights, bonus etc.;
(iv) any major expansion plans or execution of new
projects;
(v) amalgamations, mergers and takeovers;
(vi) disposal of the whole or substantially the whole of the
undertaking;
(vii) such other information as may affect the earnings of
the company.”

18. But under the Amendment Regulations, 2002, the word,

“unpublished” alone is defined in Regulation 2(k) and the rest of the

words “price sensitive information” is defined in Regulation 2(ha).

19. The important modifications brought forth under the Amendment

Regulations of 2002 to the definition of what is unpublished price

sensitive information are two­fold namely, (i) that the definition of words

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unpublished is expanded; and (ii) that even significant changes in

policies, plans and operations of the company are brought within the

definition of the expression “price sensitive information”, through a

deeming provision in the Explanation under Regulation 2(ha).

20. Therefore in view of the Regulations discussed above, a person can

be held guilty of violating Regulation 3, only if the following conditions

are satisfied:­

(i) He must be an insider within the meaning of the word

“insider”, under Regulation 2(e), by virtue of his past or
present connection or deemed connection with the company
and he is also reasonably expected either to have had access
to UPSI or has received such information;
(ii) The information that such a person received or has had
access or reasonably expected to have had access should be
unpublished, in the sense that it was not published by the
company or its agent or though published, it was not specific
in nature;
(iii) Such unpublished information should fall within the
definition of the expression “price sensitive information” within
the meaning of Section 2(ha) of the Regulations; and
(iv) He must have indulged in trading, either by dealing in

17
 securities of the company or in communicating or counseling
or procuring directly or indirectly any such information to any
person.

21. In other words, to find out if a person is guilty of violation of

Regulation 3, the Court should address itself to the following questions

namely, (i) is he an insider?; (ii) did he possess or have access to any

information relating to the company?; (iii) whether such information

was price sensitive?; (iv) whether the information was unpublished?;

and (v) whether he dealt in securities by subscribing, buying, selling or

agreeing to do any of these things in any securities?

22. Before we proceed to find an answer to the above questions in the

context of the present appeal we must take note of one important fact

namely, that the price sensitivity of an information has a correlation

directly to the materiality of the impact that it can have on the price of

the securities of the company. An information may materially affect the

price of the security of a company either positively or negatively. The

impact may be beneficial or adverse. The information should have the

potential either to catapult the price of the securities of the company to

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a higher level or to make it plunge. The effect can be bullish or bearish.

But the effect should be material and not completely insignificant.

23. Keeping the above parameters in mind if we come to the facts of

the case on hand, it will be clear, (i) that the respondent was certainly

an insider, as he was a Chairman and Managing Director of GIPL till

20.09.2013 and was a party to the resolution of the Board of Directors

passed on 09.08.2013 authorising the termination of the shareholders’

Agreements; (ii) that the information relating to the termination of both

the shareholders’ Agreements that the respondent had, would certainly

fall under the category of “significant changes in policies, plans or

operations of the Company” under Regulation 2(ha)(vii); (iii) that the

respondent dealt in securities by selling 144 lakhs of shares on

22.08.2013, which was a month before his resignation as Chairman and

Managing Director; and (iv) that the termination of the shareholders’

Agreements on 09.08.2013 was disclosed to the NSE and BSE on

30.08.2013, after the sale of the shares, which made the information

relating to the termination of the Agreements unpublished as on the

19
date of the sale.

24. Therefore, it may appear at first blush, that the respondent, who

was an insider and who possessed information which was both

unpublished and price sensitive, was guilty of the charge of insider

trading as he undoubtedly dealt in securities.

25. But the catch lies in understanding the true scope of Explanation

(vii) under Regulation 2(ha). As we have seen earlier, the main part of

Regulation 2(ha) defines “price sensitive information” to mean any

information, which relates directly or indirectly to a company and which

if published is likely to materially affect the price of securities of a

company. The Explanation under Regulation 2(ha) creates a deeming

fiction and it makes 7 items of information listed thereunder as price

sensitive information.

26. It may be interesting to note that out of the 7 items of information

listed under the Explanation, all the others except Item No.(vii) are likely

to have an impact directly upon the financial strength of the company.

Item No.(vii) stands apart, in that it is very broad and general in nature.

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While nothing more is required to show that the information listed in

Items (i) to (vi) of the Explanation under Regulation 2(ha) is likely to

materially affect the price of securities of a company, the same is not the

case insofar as the information in Item No.(vii) is concerned. In other

words, the likelihood of the price of the securities getting materially

affected, is inherent in Items (i) to (vi) namely,

“(i) periodical financial results of the company;

(ii) intended declaration of dividends (both interim and
final);
(iii) issue of securities or buy­back of securities;
(iv) any major expansion plans or execution of new
projects.
(v) amalgamation, mergers or takeovers;
(vi) disposal of the whole or substantial part of the
undertaking;”

But such is not the case with the information in Item No.(vii).

27. Therefore, while dealing with a case falling under Explanation (vii)

of Regulation 2(ha), one may have to see whether there was any

likelihood of the said information materially affecting the price of the

securities of the company. Additionally, the activity in which the insider

was involved also determines his culpability for violation of Regulation

3. For instance, the sale by a person in possession of price sensitive

information, at a time when the price is likely to take a plunge, will

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certainly be an attempt at taking advantage of or encashing the

information. Similarly the purchase by a person in possession of UPSI

at a time when the price of the security is about to skyrocket, will

certainly be an attempt to take advantage.

28. But the above logic cannot be applied to cases which fall on the

opposite side of the spectrum. For instance, the sale by a person at a

time when the price of the securities is likely to shoot up on account of

price sensitive information coming into the public domain or the

purchase by a person at a time when the price of the shares is likely to

go downward due to price sensitive information getting published,

cannot come under the category of insider trading. While it is true that

the actual gaining of profit or sufferance of loss in the transaction, may

not provide an escape route for an insider against the charge of violation

of Regulation 3, one cannot ignore normal human conduct. If a person

enters into a transaction which is surely likely to result in loss, he

cannot be accused of insider trading. In other words, the actual gain or

loss is immaterial, but the motive for making a gain is essential.

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29. The words, “likely to materially affect the price” appearing in the

main part of Regulation 2(ha) gain significance for the simple reason

that profit motive, if not actual profit should be the motivating factor for

a person to indulge in insider trading. This is why the information in

Item No.(vii) of the Explanation under Regulation 2(ha) may have to be

examined with reference to the words “likely to materially affect the

price”. Keeping this in mind let us now come back to the facts of the

case.

30. GIPL was awarded a contract for the execution of a project, whose

total cost was admittedly Rs. 1648 crores. SIL was awarded a contract

for a project whose cost was Rs. 940 crores. Both GIPL and SIL created

Special Purpose Vehicles and then they entered into two shareholders

Agreements. Under these Agreements, GIPL and SIL will have to make

investments in the Special Purpose Vehicles created by each other, in

such a manner that each of them will hold 49% equity interest in the

other's project.

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31. It means that GIPL could have acquired 49% equity interest in the

project worth Rs. 940 crores and SIL would have acquired 49% equity

interest in a project worth Rs. 1648 crore.

32. In arithmetical terms, the acquisition by GIPL, of an equity

interest in SIL’s project was worth Rs. 460 crores approximately.

Similarly, the acquisition by SIL, of the equity interest in GIPL's

project was worth Rs. 807.52 crores. Therefore, the cancellation of the

shareholders Agreements resulted in GIPL gaining very hugely in

terms of order book value. In such circumstances an ordinary man of

prudence would expect an increase in the value of the shares of GIPL

and would wait for the market trend to show itself up, if he actually

desired to indulge in insider trading. But the respondent did not wait

for the information about the market trend, after the information

became public. The reason given by him, which is also accepted by

the WTM and the Tribunal is that he had to dispose of his shares as

well as certain other properties for the purpose of honouring a CDR

package. It is on record that if the CDR package had not gone

24
through successfully, the parent company of GIPL namely, Gammon

India Ltd., could have gone for bankruptcy.

33. Therefore, the Tribunal was right in thinking that the

respondent had no motive or intention to make undeserved gains by

encashing on the unpublished price sensitive information that he

possessed.

34. As a matter of fact, the Tribunal found that the closing price of

shares rose, after the disclosure of the information. This shows that

the unpublished price sensitive information was such that it was

likely to be more beneficial to the shareholders, after the disclosure

was made. Any person desirous of indulging in insider trading, would

have waited till the information went public, to sell his holdings. The

respondent did not do this, obviously on account of a pressing

necessity.

35. We agree with the contention of Shri Arvind P. Datar, learned

senior counsel for the appellant, that the allegation of insider trading

cannot be measured in terms of the value of the contracts terminated

and the percentage of shares sold and that the theory of

25
proportionality cannot be applied in such cases. The magnitude of

what an insider did, in relation to the size of the company, may not

have a bearing upon the question whether someone indulged in

insider trading or not. But what is sought to be encashed by the

insider should be an information which if published is likely to

materially affect the price of the securities of the company.

36. The contention of Shri Arvind P. Datar, learned senior counsel,

that the total value of the contracts terminated on both sides was

nearly Rs.2600/­ crores (Rs.1648 crores + Rs.940 crores) and that

therefore the information relating to the termination of the contracts

was surely likely to materially affect the price of the securities of the

company, is unsustainable for the simple reason that the net effect of

the termination of both the contracts, for GIPL was a positive

advantage of about Rs.800 crores. We have already provided in

paragraph 32 above, the simple arithmetics of the whole transaction,

which put GIPL in a more advantageous position after the termination

of the contract.

26
37. It is true that the de minimis Rule has no application to insider

trading, as it introduces an element of subjectivity. This is why we

have not gone on the basis that GIPL’s investments in the project of

SIL represented 0.05% of GIPL’s order book value and 0.7% of its

turnover. We have gone on the basis that the termination of both the

contracts put GIPL in a more advantageous position, in which one

would have expected the price of the securities to soar. The normal

human conduct would be to wait for this event to happen. This event

could have happened only after the publication of the information in

question. The fact that the respondent did not wait to take advantage

of the situation, convinces us that his intention was not to indulge in

insider trading.

38. Shri Arvind P. Datar, learned senior counsel is right in pointing

out that in as many as 88 Central Statutes, the expression “lawful

excuse” is used as a justification for non­compliance. But the same is

not used in SEBI Act, 1992 or the Regulations issued thereunder.

Therefore, we have not tested the conduct of the respondent solely on

the argument of necessity. But we have taken note of the admitted

27
position that the respondent had to save the parent company going

bankrupt, by selling his stock, at a time when he had every reason to

wait for the information regarding the termination of the contracts to

go public. This is not a case where the respondent has come up with

an excuse to justify his action that was intended to give him a

financial advantage. This is a case where a man of ordinary prudence

would have expected the price of the shares to go up, after the

information became public, due to the impact that the information

was likely to have on the turnover/net worth of the company.

39. The contention of the appellant that SEBI took note of the situation

in which the respondent was placed and the dire need that he had to

sell the shares and that therefore SEBI confined the final order only to

disgorgement, is neither here nor there. This argument is actually an

argument of convenience. It so happened in this case that according to

SEBI the closing price of the stock on 03.09.2013 showed favourable

position for the respondent and SEBI was able to calculate as though

the respondent made a profit. But if a company is likely to gain

strength by making a significant change in its policy, the price of its

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securities is likely to shoot up. Despite such a natural phenomena, if a

person sells his stocks without waiting for the market trend to show up,

it can only be taken as a sale, devoid of any desire to make unlawful

gains, even if it cannot be termed as a distress sale.

40. In SEBI vs. Kishore R. Ajmera5, this Court was concerned with

the question as to what is the degree of proof required to hold a broker

liable for fraudulent/manipulative practices under SEBI (Prohibition of

Fraudulent and Unfair Trade Practices relating to Securities Market)

Regulations, 2003 as well as the Conduct Regulations of 1992. After

taking note of the fact that SEBI Act and the Regulations framed

thereunder are intended to protect the interest of investors and that the

provisions of the Act and the Regulations have to be understood and

interpreted in that light, this Court held in Para 26 as follows:­

“It is the judicial duty to take note of the immediate

and proximate facts and circumstances surrounding
the events on which the charges/allegations are
founded and to reach what would appear to the Court
to be a reasonable conclusion therefrom. The test
would always be that what inferential process that a
reasonable/prudent man would adopt to arrive at a
conclusion.”

5 (2016) 6 SCC 368

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41. While dealing with yet another case arising out of allegations of

violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices

relating to Securities Market) Regulations, 2003, this Court held in

Kanaiyalal Baldevbhai Patel (Supra) (para­58) that the volume, the

nature of the trading and the timing of the transactions may have to be

taken into account to find out whether there was an attempt at

encashing the benefit of the information that the insider was in

possession. It is no doubt true that the Court clarified in paragraph 62

of its decision in Kanaiyalal Baldevbhai Patel (supra) that mens rea is

not an indispensable requirement to attract the rigor of FUTP

Regulations, 2003. This Court held that the correct test is one of

preponderance of probabilities.

42. But an attempt by the insider to encash the benefit of the

information is not exactly the same as mens rea. Therefore, the Court

can always test whether the act of the insider in dealing with the

securities, was an attempt to take advantage of or encash the benefit of

the information in his possession. This is the test we have applied to

the case on hand.

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43. In Chintalapati Srinivasa Raju (supra), this Court approved the

minority judgment of the Securities Appellate Tribunal (in para 20),

which took note of the compelling circumstances under which the

individual was selling shares. The fact that this has been taken note of

by WTM as a mitigating factor, while passing a mere restitutionary

order, does not take away the validity of the defence taken by the

respondent.

44. Therefore, we are of the view on Question No.1 that the information

regarding the termination of the two contracts can be characterised as

price sensitive information, in that it was likely to place the existing

shareholders in an advantageous position, once the information came

into the public domain. In such circumstances, our answer to

Question No.2 would be that the sale by the respondent, of the shares

held by him in GIPL would not fall within the mischief of insider trading,

as it was somewhat similar to a distress sale, made before the

information could have a positive impact on the price of the shares.

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45. In view of our answers to Question Nos. 1 and 2, we are of the view

that there is no necessity to go into Question No.3. Our answers to

Question Nos. 1 and 2 are sufficient to hold that the impugned order of

the Tribunal does not call for any interference. Therefore, the appeal is

dismissed. There will be no order as to costs.

…..…………....................J.
(Indira Banerjee)

.…..………......................J
(V. Ramasubramanian)
NEW DELHI
SEPTEMBER 19, 2022

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