Supreme Court of India (SC), dismisses SEBI appeal in a matter pertaining to alleged Insider Trading (IT) by erstwhile Chairman & MD of GIPL.
In brief, GIPL had entered into certain Shareholders Agreements in 2012. The same were subsequently terminated by the board of directors of GIPL on August 03, 2013 and disclosed on the stock exchanges on August 30, 2013. Abhijit Rajan sold certain shares on August 22, 2013.
Based on the above, SEBI in 2014 passed an ad interim ex parte order in respect of Abhijit Rajan followed by a confirmatory order in 2015 and the final order in 2016 wherein he was directed to disgorge a sum of INR 1.09 crores. Thereafter, in 2019, the SAT set aside the order of SEBI.
Before the SC, SEBI argued that proportionality of a transaction vis-à-vis the company turnover is subjective and cannot be taken into account for matters pertaining to IT. Further, bona fide intentions to trade cannot frustrate the object of strict ban on IT.
The SC noted the 2002 amendment to the IT regulations of 1992 and specifically the separate definitions of “unpublished” and “price sensitive information”, which included “significant changes in policies, plans or operations of the company” as sub clause (vii) of the definition.
The SC observed that the price sensitivity of information has a correlation to the impact that it can have on the price of the securities of a company and that to determine price sensitivity, information should be material and not completely insignificant. Further, that sub clause (vii) was broad and general in nature.
The SC observed that while actual (or lack of) profit made or loss avoided cannot be an escape route for an insider against a charge, one cannot ignore normal human conduct. Further explaining that actual gain or loss is immaterial but motive for making a gain is essential. A court can always test whether the act was an attempt to take advantage of or encash the benefit of information in possession.
The SC concluded that while the information of termination of Shareholders Agreements was price sensitive information, the sale of shares by the respondent (before the information could make a positive impact on the shares) would not fall under IT.
The above decision comes only days after SEBI approached the Supreme Court seeking a review of its decision in Balram Garg v. SEBI (one may read more about the said decision at: https://lnkd.in/dGbcXjpT).
The latest judgement is a landmark one and is going to impact even the 2015 regulations which holds the field today.
