SEBI rightly imposed penalty and punishment on appellant who were in possession of UPSI traded in abnormal manner: SAT

Case Details: Ameen Khwaja v. Securities and Exchange Board of India - [2022] 144 taxmann.com 199 (SAT-Mumbai)

Judiciary and Counsel Details

• • Justice Tarun Agarwala, Presiding Officer, M.T. Joshi, Judicial Member
    & Ms Meera Swarup, Technical Member
  • Kunal Kataria, Ankur Loona, Ms Aparna Wagle & Ms Siddhi Somani, Advs. for the Appellant.
  • Pradeep Sancheti, Sr. Adv., Abhiraj Arora, Ms Anshu Mehta, Shourya Tanay & Harshvardhan Nankani, Advs. for the Respondent.

Facts of the Case

In the instant case, the appellant was having Unpublished Price Sensitive Information (UPSI) concerning a company (PTL), he imparted the said information of the PTL to other appellants who traded in the stock of the company when in possession of said UPSI. The show cause notice covered two UPSIs. However, allegations against present appellants were restricted to first UPSI in respect of slump sale of the software solution business of the company.

During such period, appellants were trading on the basis of the information received by them. One of the appellants was the co-director-promoter of the POMPL, along with another promoter and managing director of the PTL. Based on these connections, The SEBI alleged that the appellant could be reasonably inferred to have the first UPSI with him which he parted with his other near relatives i.e., rest of the appellants and they ultimately traded when in possession of the said UPSI.

The appellants denied the allegations. The appellant AK denied that it had any knowledge of UPSI or that the appellants traded when in possession of the UPSI supplied by him. The Adjudicating Officer of SEBI, however did not agree with the submissions. The SEBI found that appellants had allegedly violated the provisions of the SEBI Act, 1992 and SEBI (PIT) Regulations, 1992. Against which appellant preferred an appeal to Hon’ble Securities Appellate Tribunal (SAT).

SAT Held

Hon’ble SAT observed that some of the appellants were promoters as well as co-directors of POMPL. This POMPL during the relevant period provided search engine services to the company PTL. Besides this soon after the UPSI, POMPL and PWSPL wherein three appellants were directors merged into PTL.

Further, the conduct of the appellants was also showing that they purchased in otherwise abnormal manner the illiquid scrips of the company PTL. The appellants had no earlier experience of trading in shares still they purchased substantive shares of the company PTL.

Hon’ble SAT held that from the facts and circumstances of the present case, it was found that the respondent SEBI was able to show on preponderance of probabilities that appellant and consequently other appellants are reasonably expected to have an access to UPSI in relation to the PTL. In the result, both the appeals were dismissed without any order as to costs.

List of Cases Referred to

• • Chintalapati Srinivasa Raju v. SEBI [2018] 93 taxmann.com 202/148 SCL 1/AIR 2018 SC 2411 (para 24)
  • Balram Garg v. SEBI [2022] 137 taxmann.com 305/172 SCL 296 (SC) (para 24)
  • TOP Class Capital Markets (P.) Ltd. v. SEBI [2022] 138 taxmann.com 157 (SAT – Mum.) (para 32)
  • Gagan Rastogi v. SEBI [2019] 109 taxmann.com 492/156 SCL 330 (SAT) (para 32).