BALRAM GARG VS SECURITIES AND EXCHANGE BOARD OF INDIA

BALRAM GARG VS SECURITIES AND EXCHANGE BOARD OF INDIA


Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले


REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7054 OF 2021
BALRAM GARG                  …..APPELLANT
VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA 
……RESPONDENT
WITH
CIVIL APPEAL NO.7590 OF 2021
MS. SHIVANI GUPTA & ORS.           …..APPELLANTS
VERSUS
SECURITIES AND EXCHANGE BOARD OF INDIA 
……RESPONDENT
J U D G M E N T
Vineet Saran, J.
1. The present Civil Appeals arise out of a common judgement and
order   dated   21.10.2021   passed   by   the   Securities   Appellate
Tribunal (for short “SAT”), wherein the Tribunal dismissed the
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Appeals No.375 and 376 of 2021 filed by the Appellants herein
and upheld the order dated 11.05.2021 passed by the Whole Time
Member (for short “WTM”) of Securities and Exchange Board of
India (for short “SEBI”)
2. Brief facts relevant for the purpose of the present appeals are that
P. Chand Jeweller Pvt. Ltd. was incorporated on April 13, 2005
under the Companies Act, 1956 as a Private Limited Company.
However, pursuant to a resolution passed by the shareholders on
July 5, 2011, the company was converted into a Public Limited
Company, following which the name of the company was changed
to “PC Jeweller Ltd.” (for short “PCJ”) and a fresh certificate of
incorporation was issued.
3. The   genesis  of   the   present   dispute   is   rooted  in   the   action   of
Respondent/SEBI   against   the   appellants   vide   an   impounding
order   dated   17.12.2019   and   a   show­cause   notice   dated
24.04.2020. The crux of the allegations of the impounding order
and the show­cause notice are as follows:
i. Padam Chand Gupta (P.C. Gupta) was the Chairman
of   PCJ   during   the   relevant   period   and   was   a
“connected   person”   in   terms   of   Regulation   2(1)(d)(i)
and an “insider” under Regulation 2(1)(g) of the SEBI
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(Prevention of Insider Trading Regulations), 2015 (for
short “PIT Regulations”).
ii. Balram Garg, who is the brother of P.C. Gupta and the
Managing Director of PCJ is also a “connected person”
in terms of Regulation 2(1)(d)(i) and an “insider” under
Regulation 2(1)(g) of the PIT Regulations.
iii. That allegedly, the appellants in C.A. No.7590/2021,
namely, Sachin Gupta, Smt. Shivani Gupta and Amit
Garg   traded   on   the   basis   of   Unpublished   Price
Sensitive   Information   (for   short   “UPSI”)   received   by
them   on   account   of   their   alleged   proximity   to   P.C.
Gupta   and   Balram   Garg   between   the   period   from
01.04.2018 to 31.07.2018.
iv. The above proximity was alleged on the basis of the
fact that Sachin Gupta and Smt. Shivani Gupta are
the   son   and   daughter­in­law   of   Balram   Garg’s
deceased brother late P.C. Gupta. Moreover, Amit Garg
is the son of Amar Garg, who was also the brother of
Balram Garg. It was also alleged that all the appellants
shared the same residence.
4. Balram Garg, the appellant in C.A. No.7054/2021, filed his reply
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(dated 07.08.2020) to the allegations made against him, wherein
he stated the following:
i. That the foundational facts were not there to prove or
raise the alleged presumption. SEBI failed to place on
record any material to prove that the appellants in
C.A. No.7590/2021  were  “connected persons”  to Mr.
Balram   Garg   as   required   by   Regulation   2(1)(d)(ii)(a)
read with Regulation 2(1)(f) of the PIT Regulations, as
none   of   the   appellants   C.A.   No.7590/2021   were
financially   dependent  on  Balram   Garg  or   consulted
Balram   Garg   in   any   decision   related   to   trading   in
securities. Presumption is a rule of evidence which
cannot be drawn unless and until such foundational
facts are proved.
ii. That no material was brought on record to prima facie
show any transfer of information to the appellants in
C.A. No.7590 of 2021
iii. That merely being a family/relative cannot by itself be
a ground for the offence of insider trading, especially
when in furtherance of a family agreement, the family
was   partitioned   in   2011   and   there   had   been   no
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connection between them ever since. 
iv. Moreover,   Sachin   Gupta   resigned   from   the   post   of
President   (Gold   Manufacturing)   held   by   him   in   the
company   on   31.03.2015   pursuant   to   the   family
partition. Since then, neither Sachin Gupta nor his
wife Mrs. Shivani Gupta had anything to do with the
business of the PCJ.
5. After granting an opportunity of personal hearing to the appellant
on 24.12.2020, the Whole Time Member of SEBI passed final
order dated 11.05.2021, imposing a penalty of Rs.20 lakhs on the
Appellants along with restraining the appellants from accessing
the securities market and buying, selling or dealing in securities,
either directly or indirectly, in any manner for a period of 1 year
from the date of the order and also restrained the appellants from
dealing with the scrip of PCJ for a period of 2 years.
6. Aggrieved by the order of the WTM of SEBI, the Appellants filed
appeals   before   the   SAT.     The   Tribunal,   vide   its   common
judgement and order dated 21.10.2021, dismissed the Appeals
preferred by the Appellants and held that:
“Upon   hearing   both   the   sides,   in   our   view,   the
reasoning of the Ld. WTM cannot be faulted with.
The facts as highlighted by the Ld. WTM would
show that though there was a family arrangement
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within the family on two occasions, there was no
estrangement,   as   can   be   seen   from   the   facts
highlighted by the Ld. WTM (supra). Additionally,
in our view, the very fact that appellant Shivani
had   authorized   her   cousin   brother­in­law   i.e.
appellant Amit to trade on her behalf, would belie
the case of the appellants that family settlements
means family estrangement. It cannot be gainsaid
that   the   appellants   are   residing   at   the   same
address   and   even   appellant   Mr.   Balram   Garg’s
address   is   ‘the   front   side’   of   the   premise.   The
trading   pattern   of   the   concerned   appellant   i.e.
withholding of the selling of trade once buy back
talk started within the company and again selling
spree the shares by them once the buy back offer
was made public till the rejection of the proposal by
the State Bank of India was made known to the
public,   would   clearly   show   that   the   concerned
appellants were aware of both the UPSI.
It is true that there is no direct evidence as to who
had disseminated this insider information to the
appellants in Appeal no. 376 of 2021. Late Shri
Padam   Chand   Gupta   was   the   father   of   the
appellant Mr. Sachin Gupta and father­in­law of
the   appellant   Ms.   Shivani   Gupta   and   uncle   of
appellant Mr. Amit Garg. Similarly, appellant Mr.
Balram Garg is the uncle of appellant Mr. Sachin
Gupta and appellant Mr. Amit Garg. All of them
were residing in the same address. Appellant Mr.
Sachin Gupta had financial transactions with the
company of which appellant Mr. Balram Garg was
Managing   Director.   Considering   all   of   the   above
facts, on preponderance of probability, it can very
well be concluded that Late Padam Chand as well
as appellant Mr. Balram disseminated both UPSI to
the appellants in appeal no. 376 of 2021.”
7. Aggrieved by the above order of the SAT dated 21.10.2021, the
appellants   filed   the   present   appeals  (C.A.   No.7054/2021   by
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Balram Garg and  C.A. No.7590/2021 by Mrs. Shivani  Gupta,
Sachin Gupta, Amit Garg and Quick Developers Pvt. Ltd.) under
section 15Z of the Securities and Exchange Board of India Act,
1992.     Since,   P.C.   Gupta   expired   in   January   2019   after   the
notices were issued, hence the case was dropped as against him. 
8. Mr.   Dhruv   Mehta,   learned   Senior   Counsel   for   the   Appellant
Balram Garg (in  C.A. No.7054 of 2021) has submitted that the
WTM has held that the appellants no.1 to 3 in C.A. No.7590 of
2021, namely, Mrs. Shivani Gupta, Sachin Gupta and Amit Garg
(also referred to as Noticee no.1 to 3 in the show­cause notices)
were not  “connected persons”  or  “immediate relatives”  qua the
appellant Balram Garg and that this finding of the WTM has
become final. It was further submitted that the appellant Mr.
Balram Garg was found to have violated only Regulation 3 of PIT
Regulations,   2015   and   that   unlike   Regulation   4(2)   of   PIT
Regulations, there is no provision to raise any presumption under
the said Regulation 3.
9. It was also contented that to prove the violation of Regulation 3 of
PIT Regulations, the burden of proof was on SEBI to establish any
“communication” of UPSI by placing on record cogent evidence
viz. call details, emails, witnesses etc. It was submitted that the
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Respondent in this case has failed to place any such evidence on
record. Moreover, it was submitted that the presumption against
“immediate relative” is provided in the Regulations to ensure that
relatives   who   are   financially   or   otherwise   under   the   complete
control of a connected person are not used for insider trading.
However, in this case, no such possibility existed in relation to the
appellant   Mr.   Balram   Garg   and   the   other   appellants   in   C.A.
No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta and
Amit Garg.
10. The learned Senior Counsel further contented that the reliance of
the   respondent   on   the   transactions   between   appellant   Sachin
Gupta and the Company (PCJ) is against the principles of natural
justice   as   these   allegations   were   not   part   of   the   show   cause
notices. It was also submitted that the name of the appellant
Balram Garg has been used inter­changeably with that of late
P.C.Gupta and there is no material on record for the WTM and the
SAT to arrive at the finding that both late P.C.Gupta and the
appellant Balram Garg communicated the UPSI to the appellants
in C.A. No.7590 of 2021.
11. Mr. V. Giri, learned Senior Counsel for the appellants in C.A.
No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta,
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Amit Garg and Quick Developers Pvt. Ltd., has contended that the
entire case of insider trading is set up against these appellants
only on the basis of the close relationship between the parties.
However, he submitted that the appellants have placed sufficient
material  on  record  to   demonstrate  that  there  was  a  complete
breakdown   of   ties   between   the   parties,   both   at   personal   and
professional level and that the said estrangement was much prior
to the UPSI having coming into existence.
12. The   learned   Senior   Counsel   has   further   contented   that   even
assuming that the appellants have not been able to demonstrate a
complete breakdown of ties between the parties, it was not open
for the SAT to turn the Statute on its head by reversing the
burden of proof on the appellants by conveniently ignoring the
fact   that   the   onus   was   actually   on   SEBI   to   prove   that   the
appellants were in possession or having access to UPSI.
13. It was also contended that the charges against the appellants in
C.A. No.7590 of 2021 have been sustained solely on the basis of
circumstantial evidence viz. trading patterns and timing of trades
by the appellants. Moreover, it was not open to the WTM and SAT
to hold the appellants guilty of the offence of insider trading in the
absence of any other concrete evidence as SEBI failed to produce
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such evidence. The learned Senior Counsel also emphasized on
the fact that the charges against the appellants that they were
“connected persons”  within the meaning of Regulation 2(1)(d) of
the PIT Regulations was expressly rejected by the WTM and that
the   burden   of   proving   that   the   appellants   are  “insiders”  by
invoking Regulation 2(1)(g)(ii) of PIT Regulations was completely
upon the SEBI and that they failed to discharge this burden.
14. Per  contra,   Mr.   Arvind  Datar,   learned   Senior   Counsel   for   the
Respondent has submitted that on April 25, 2018, PCJ initiated
discussions regarding buy­back of fully paid up equity shares. On
10.05.2018,   pursuant   to   the   discussion   and   approval   by   the
Board,   the   company,   after   market   hours,   informed   the   stock
exchange of their offer of buy­back of 1,21,14,285 fully paid up
equity shares of Rs. 10/­ each at a price of Rs. 350/­ per equity
share. As before this date, the information about buy­back was
not disclosed, and since the information pertained to change in
capital structure of the company, this information qualified as
Unpublished Price Sensitive Information­1 (for short “UPSI­1”).
Accordingly, the period from April 25, 2018 to May 10, 2018 has
been taken as the period of UPSI­1.
15. It was further submitted that on July 7, 2018, the lead Banker of
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PCJ, State Bank of India (for short “SBI”), refused to give No
Objection Certificate (for short “NOC”) for the buy­back of equity
shares.   Hence,   on   July   13,2018,   the   Board   approved   the
withdrawal of the buy­back offer and the same was informed to
the Exchanges after market hours. It was submitted that this
information has been considered as Unpublished Price Sensitive
Information­2   (for   short   “UPSI­2”)   as   the   same   was   likely   to
materially affect the price of the shares of the company. Moreover,
the information pertaining to proposed buy­back of equity shares
of the company came into existence on July 7, 2018 and became
public on July 13, 2018. Accordingly, the period from July 7,
2018 to July 13, 2018 has been taken as period of UPSI­2.
16. It has been contended that appellant Balram Garg contravened
Regulation 3(1) of the PIT Regulations and Section 12A(c) of the
SEBI Act,1992, by communicating the UPSI to the appellants in
C.A.   No.7590   of   2021,   by   being   an   “insider”   and   “connected
person” within the meaning of PIT Regulations, and by being privy
to discussions and communications pertaining to buy­back and
withdrawal of equity shares. Additionally, by virtue of being the
Managing   Director   (MD)   of   the   PCJ,   Balram   Garg   was   in
possession of UPSI­1 and UPSI­2.
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17. Mr. Datar has contended that during the period 02.04.2018 to
31.07.2018, trades were executed by Appellants in C.A. No.7590
of 2021 while in possession of UPSI and that they made unlawful
gains and avoided losses. Trades were executed from the trading
account of Mrs. Shivani Gupta from 02.04.2018 and continued till
24.04.2018. No trades were undertaken in May and June 2018
and then sell trades were undertaken from July 6, 2018 till July
13, 2018 i.e. during UPSI­2. Appellant Mrs. Shivani Gupta had
100% concentration in the scrip of PCJ and these trades were
executed by Mrs. Shivani Gupta, Sachin Gupta and Amit Garg,
i.e. Appellant No. 1,2, and 3 respectively in C.A. No.7590 of 2021.
18. The learned Senior Counsel further contented that the Appellant
No. 4 (in C.A. No.7590 of 2021) i.e. Quick Developers Pvt. Ltd,
took short position  on  13.07.2018 i.e. just  before information
pertaining to withdrawal was communicated to the Exchanges. It
is submitted that such short positions were taken in anticipation
of   a   price   fall.   Appellant   Amit   Garg   and   his   wife   are   100%
shareholders of Quick Developers Pvt. Ltd., hence they, through
the trades executed from the account of Quick Developers Pvt.
Ltd., avoided losses and also made profit.
19. In the context of the family settlement, learned Senior Counsel
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has contended that such a settlement, at best, was an internal
division   and   does   not   imply   that   all   ties   between   the   family
members were severed or that relationship of appellant Balram
Garg with appellants in C.A. No.7590 of 2021 was estranged. It
was further argued that the appellants did not cease to have
association with each other, which is established by the following
facts:
i. Sachin Gupta continued to have business transactions
with PCJ. PCJ even paid rent to Sachin Gupta to the
tune of Rs.4 lakhs for Financial Year 2015­16, Rs.77
lakhs for the Financial Year 2016­17 and Rs.78 lakhs
for the financial Year 2017­18.
ii. Sachin Gupta was the nominee of the Demat Account
of late P.C. Gupta and after his death, the holdings of
P.C.   Gupta   in   the   company   were   held   by   Sachin
Gupta.  Hence, it cannot be said that the father and
son relationship was estranged. 
iii. Appellant Balram Garg and the Appellants No. 1,2,
and 3 in C.A. No.7590 of 2021 i.e. Mrs. Shivani Gupta,
Sachin   Gupta   and   Amit   Garg   share   the   same
residential address.
20. Reliance was placed on the SAT order in Utsav Pathak vs. SEBI
14
(order dated 12.07.2020 in Appeal No. 430 of 2019) wherein
the SAT had laid down the following ratio by relying upon the
judgement of this court in SEBI vs. Kishore R. Ajmera [(2016) 6
SCC   368]  and US District Court’s order in  United   States   of
America vs. Raj Rajaratnam and Danielle Chiesi [09 Cr 1184
(RJH)]:
“From   the   aforesaid   foundational   facts,   the
circumstantial evidence or on a preponderance of
probability by a logical process of reasoning from
the   totality   of   the   attending   facts   and
circumstances as stated aforesaid, an irresistible
inference   can   be   drawn   that   the   appellant   had
passed on the price sensitive information regarding
the open offer to the Tippees. Such inference taken
from   the   immediate   and   proximate   facts   and
circumstances   surrounding   the   events   is
reasonable   and   logical   which   any   prudent   man
would arrive at such a conclusion. The Supreme
Court   in   Kanhaiyalal   Patel   (supra)   held   that   an
inferential   conclusion   from   proved   and   admitted
facts would be permissible and legally justified so
long as the same is reasonable.”
The   learned   Senior   Counsel   also   submitted   that   the
abovementioned   proposition   has   been   followed   by   the   SAT   in
Navin Kumar Tayal & Anr. Vs SEBI in order dated 02.08.2021
in Appeal No. 08 of 2018.
21. Mr. Datar concluded his submissions by stating that the close
relationship of the appellants in C.A. No.7590 of 2021 with the
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appellant Balram Garg, especially in view of the trading pattern
makes   it   abundantly   clear   that   the   appellants   Mrs.   Shivani
Gupta, Sachin Gupta and Amit Garg were in possession of UPSI­1
& 2, who could not have got it from anywhere else except Balram
Garg, who by virtue of being the MD of the company, possessed
the crucial UPSI. 
22. For ready reference, the relevant provisions of the concerned Acts
and Regulations are extracted below: 
Section 11(2)(g) of the Securities and Exchange Board of India
Act, 1992
“11. (1) Subject to the provisions of this Act, it shall
be the duty of the Board to protect the interests of
investors   in   securities   and   to   promote   the
development   of,   and   to   regulate   the   securities
market, by such measures as it thinks fit.
(2)   Without   prejudice   to   the   generality   of   the
foregoing   provisions,   the   measures   referred   to
therein may provide for—
(a)...
(b)...
(c)... 
(d)...
(e)...
(f)...
(g) prohibiting insider trading in securities;
(h)…
………….
………….”
Section 11(4) of the Securities and Exchange Board of India
16
Act, 1992
“[(4)  Without prejudice to the provisions contained
in sub­sections (1), (2), (2A) and (3) and section
11B, the Board may, by an order, for reasons to be
recorded in writing, in the interests of investors or
securities   market,   take   any   of   the   following
measures, either pending investigation or inquiry
or on completion of such investigation or inquiry,
namely:—
(a)   suspend   the   trading   of   any   security   in   a
recognised stock exchange;
(b) restrain persons from accessing the securities
market and prohibit any person associated
with   securities   market   to   buy,   sell   or   deal   in
securities;
(c)   suspend   any   office­bearer   of   any   stock
exchange or self­regulatory organisation from
holding such position;
(d) impound and retain the proceeds or securities in
respect   of   any   transaction   which   is   under
investigation;
(e)   attach,   after   passing   of   an   order   on   an
application made for approval by the Judicial
Magistrate of the first class having jurisdiction, for
a  period   not  exceeding  one   month, one   or  more
bank account or accounts of any intermediary or
any person associated with the securities market
in any manner involved in violation of any of the
provisions of this Act, or the rules or the regulations
made thereunder:
Provided  that only the bank account or accounts or
any transaction entered therein, so far as it relates to
the proceeds actually involved in violation of any of the
provisions of this Act, or the rules or the regulations
made thereunder shall be allowed to be attached;
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(f)   direct   any   intermediary   or   any   person
associated   with   the   securities   market   in   any
manner   not   to   dispose   of   or   alienate   an   asset
forming   part   of   any   transaction   which   is   under
investigation:
Provided that the Board may, without prejudice to the
provisions contained in sub­section (2) or sub­section
(2A), take any of the measures specified in clause (d) or
clause (e) or clause (f), in respect of any listed public
company or a public company (not being intermediaries
referred   to   in   section   12)   which   intends   to   get   its
securities   listed   on   any   recognised   stock   exchange
where the Board has reasonable grounds to believe
that   such   company   has   been   indulging   in   insider
trading   or   fraudulent   and   unfair   trade   practices
relating to securities market.
Provided further that the Board shall, either before or
after   passing   such   orders,   give   an   opportunity   of
hearing to such intermediaries or persons concerned.]”
  (emphasis supplied)
Section  12A  of  the  Securities   and  Exchange  Board  of   India
Act, 1992
“Prohibition of manipulative and deceptive devices,
insider   trading   and   substantial   acquisition   of
securities or control.
12A. No person shall directly or indirectly—
(a)   use or employ, in connection with the issue,
purchase   or   sale   of   any   securities   listed   or
proposed   to   be   listed   on   a   recognized   stock
exchange, any manipulative or deceptive device or
contrivance   in   contravention   of   the   provisions   of
this   Act   or   the   rules   or   the   regulations   made
thereunder;
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(b)   employ   any   device,   scheme   or   artifice   to
defraud   in   connection   with   issue   or   dealing   in
securities which are listed or proposed to be listed
on a recognised stock exchange;
(c) engage in any act, practice, course of business
which operates or would operate as fraud or deceit
upon   any   person,   in   connection   with   the   issue,
dealing in securities which are listed or proposed to
be   listed   on   a   recognised   stock   exchange,   in
contravention of the provisions of this Act or the
rules or the regulations made thereunder;
(d)  engage in insider trading;
(e) deal   in   securities   while   in   possession   of
material or non­public information or communicate
such   material   or   non­public   information   to   any
other person, in a manner which is in contravention
of the  provisions  of this  Act or the  rules or the
regulations made thereunder;
(f) acquire   control   of   any   company   or   securities
more than the percentage of equity share capital of
a company whose securities are listed or proposed
to   be   listed   on   a   recognised   stock   exchange   in
contravention of the regulations made under this
Act.]”
(emphasis supplied)
Section  15G  of  the  Securities  and  Exchange  Board  of   India
Act, 1992
“Penalty for insider trading.
15G.If any insider who,—
19
(i) either on his own behalf or on behalf of any
other   person,   deals   in   securities   of   a   body
corporate   listed   on   any   stock   exchange   on   the
basis   of   any   unpublished   price­sensitive
information; or
(ii) communicates any unpublished price­sensitive
information   to   any   person,   with   or   without   his
request for such information except as required in
the ordinary course of business or under any law;
or
(iii) counsels, or procures for any other person to
deal in any securities of any body corporate on the
basis of unpublished price­sensitive information,
shall be liable to a penalty 81[which shall not be less
than ten lakh rupees but which may extend to twentyfive crore rupees or three times the amount of profits
made out of insider trading, whichever is higher].”
  (emphasis supplied)
Securities and Exchange Board of India (Prohibition of Insider
Trading) Regulations, 2015
Definitions.
2. (1) In these regulations, unless the context
otherwise requires, the following words,
expressions and derivations therefrom shall have
the meanings assigned to them as under:–
(a)   “Act” means the Securities and Exchange
Board of India Act, 1992 (15 of 1992);
(b)  “Board” means the Securities and Exchange
Board of India;
(c) “compliance   officer”   means   any   senior
officer,   designated   so   and   reporting   to   the
board of directors or head of the organization
20
in case board is not there, who is financially
literate   and   is   capable   of   appreciating
requirements   for   legal   and   regulatory
compliance under these regulations and
who shall be responsible for compliance of
policies, procedures, maintenance of records,
monitoring   adherence   to   the   rules   for   the
preservation   of   unpublished   price   sensitive
information,   monitoring   of   trades   and   the
implementation of the codes specified in
these regulations under the overall
supervision of the board of directors of the
listed   company   or   the   head   of   an
organization, as the case may be.
(d) "connected person" means,­
(i) any person who is or has during the six
months   prior   to   the   concerned   act   been
associated   with   a   company,   directly   or
indirectly,   in   any   capacity   including   by
reason of frequent communication with its
officers   or   by   being   in   any   contractual,
fiduciary or employment relationship or by
being a director, officer or an employee of
the   company   or   holds   any   position
including   a   professional   or   business
relationship   between   himself   and   the
company   whether   temporary   or
permanent,   that   allows   such   person,
directly   or   indirectly,   access   to
unpublished price sensitive information or
is   reasonably   expected   to   allow   such
access.
(ii) Without prejudice to the generality of
the   foregoing,   the   persons   falling   within
the following categories shall be deemed to
be connected persons unless the contrary
is established, ­
(a)    an   immediate   relative   of   connected
21
persons specified in clause (i); or
(b)        a   holding   company   or   associate
company or subsidiary company; or
(c)     an intermediary as specified in section
12 of the Act or an employee or director
thereof; or
(d)an investment company, trustee company,
asset   management   company   or   an
employee or director thereof; or
(e)         an official of a stock exchange or of
clearing house or corporation; or
(f)          a member of board of trustees of a
mutual fund or a member of the board of
directors   of   the   asset   management
company   of   a   mutual   fund   or   is   an
employee thereof; or
(g)      a member of the board of directors or
an   employee,   of   a   public   financial
institution as defined in section 2 (72) of
the Companies Act, 2013; or
(h)an   official   or   an   employee   of   a   selfregulatory   organization   recognised   or
authorized by the Board; or
(i)        a banker of the company; or
(j)       a concern, firm, trust, Hindu undivided
family, company or association of persons
wherein   a   director   of   a   company  or  his
immediate   relative   or   banker   of   the
company, has more than ten per cent. of
the holding or interest;
NOTE:It is intended that a connected person is
one who has a connection with the company that
is expected to put him in possession of unpublished
price   sensitive information.   Immediate   relatives
and other categories of persons specified above are
also presumed to be connected persons but such a
presumption is a deeming legal fiction and   is
rebuttable. This definition is also intended to bring
into   its   ambit   persons   who   may   not seemingly
22
occupy   any   position   in   a   company   but   are   in
regular  touch  with  the  company and  its  officers
and are involved in the know of the company’s
operations. It is intended to bring within its ambit
those who would have access to or could access
unpublished price sensitive information about any
company or class of companies by virtue of any
connection that would put them in possession of
unpublished price sensitive information.
(e) "generally   available   information"   means
information that is accessible to the public on
a non­discriminatory basis;
NOTE:It   is   intended   to   define   what   constitutes
generally available information so that it is easier
to   crystallize   and   appreciate   what   unpublished
price   sensitive   information   is.   Information
published   on   the   website   of   a   stock   exchange,
would ordinarily be considered generally available.
(f) “immediate relative” means a spouse of a
person,   and   includes   parent,   sibling,   and
child of such person or of the spouse, any of
whom   is   either   dependent   financially   on
such   person,   or   consults   such   person   in
taking   decisions   relating   to   trading   in
securities;
NOTE:It is intended that the immediate relatives of
a   “connected   person”   too   become   connected
persons for purposes of these regulations. Indeed,
this is a rebuttable presumption.
(g) "insider" means any person who is:
(i)  a connected person; or
(ii) in possession of or having access to
unpublished   price   sensitive
information;
NOTE:Since   “generally   available   information”   is
defined, it is intended that anyone in possession of
23
or   having   access   to   unpublished   price   sensitive
information   should   be   considered   an   “insider”
regardless of how one came in possession of or
had   access   to   such   information.   Various
circumstances are provided for such a person to
demonstrate that he has not indulged in insider
trading.   Therefore,   this   definition   is   intended   to
bring within its reach any person who is in receipt
of   or   has   access   to   unpublished   price   sensitive
information. The onus of showing that a certain
person   was   in   possession   of   or   had   access   to
unpublished price sensitive information at the time
of   trading   would,   therefore,   be   on   the   person
leveling the charge after which the person who has
traded when in possession of or having access to
unpublished   price   sensitive   information   may
demonstrate that he was not in such possession or
that he has not traded or or he could not access or
that   his   trading   when   in   possession   of   such
information   was   squarely   covered   by   the
exonerating circumstances.
(h)  "promoter"…………………………………
(i) “securities”………………………………...
(j) “specified”………………………………….
(k)  “takeover regulations” ………………….
(l) "trading"   means   and   includes   subscribing,
buying,   selling,   dealing,   or   agreeing   to
subscribe, buy, sell, deal in any securities,
and "trade" shall be construed accordingly;
    NOTE:Under the parliamentary mandate, since the
Section 12A (e) and Section 15G of the Act employs
the term 'dealing in  securities', it  is  intended to
widely define the term “trading” to include dealing.
Such   a   construction   is   intended   to   curb   the
activities   based   on   unpublished   price   sensitive
information which are strictly not buying, selling or
subscribing,   such   as   pledging   etc   when   in
possession   of   unpublished   price   sensitive
information.
24
(m)“trading day” ……………………………
(n)        "unpublished   price   sensitive
information"  means   any   information,
relating   to   a   company   or   its   securities,
directly   or   indirectly,   that   is   not   generally
available   which   upon   becoming   generally
available,   is   likely   to   materially   affect   the
price of the securities and shall, ordinarily
including   but   not   restricted   to,   information
relating to the following: –
(i) financial results;
(ii) dividends;
(iii) change in capital structure;
(iv) mergers,   de­mergers,   acquisitions,
delistings, disposals and expansion
of   business   and   such   other
transactions;
(v) changes   in   key   managerial
personnel.
(vi) material events in  accordance with
the listing agreement
    NOTE: It is intended that information relating to a
company   or   securities,   that   is   not   generally
available   would   be   unpublished   price   sensitive
information if it is likely to materially affect the
price   upon   coming   into   the   public   domain.   The
types of matters that would ordinarily give rise to
unpublished price sensitive information have been
listed   above   to   give   illustrative   guidance   of
unpublished price sensitive information.
(2)    Words and expressions used and not defined
in these regulations but defined in the Securities
and   Exchange   Board   of   India   Act,   1992   (15   of
1992),   the   Securities   Contracts   (Regulation)   Act,
25
1956 (42 of 1956), the Depositories Act, 1996 (22
of 1996) or the Companies Act, 2013 (18 of 2013)
and rules and regulations made thereunder shall
have the meanings respectively assigned to them
in those legislation.
CHAPTER – II
RESTRICTIONS ON COMMUNICATION AND 
TRADING BY INSIDERS
Communication   or   procurement   of
unpublished price sensitive information.
3. (1)   No   insider   shall   communicate,   provide,   or
allow   access   to   any   unpublished   price   sensitive
information,   relating   to   a   company   or   securities
listed   or   proposed   to   be   listed,   to   any   person
including   other   insiders   except   where   such
communication   is   in   furtherance   of   legitimate
purposes,   performance   of   duties   or   discharge   of
legal obligations.
NOTE:This   provision   is   intended   to   cast   an
obligation   on   all   insiders   who   are   essentially
persons   in   possession   of   unpublished   price
sensitive   information   to   handle   such   information
with care and to deal with the information with
them when transacting their business strictly on a
need­to­know basis. It is also intended to lead to
organisations developing practices based on needto­know principles for treatment of information in
their possession.
(2) No   person   shall   procure   from   or   cause   the
communication by any insider of unpublished price
sensitive   information,   relating   to   a   company   or
securities listed or proposed to be listed, except in
furtherance of legitimate purposes, performance of
duties or discharge of legal obligations.
26
NOTE:This   provision   is   intended   to   impose   a
prohibition on unlawfully procuring possession of
unpublished   price   sensitive   information.
Inducement and procurement of unpublished price
sensitive   information   not   in   furtherance   of   one’s
legitimate   duties   and   discharge   of   obligations
would be illegal under this provision.
(3) Notwithstanding   anything   contained   in   this
regulation,   an   unpublished   price   sensitive
information   may   be   communicated,   provided,
allowed access to or procured, in connection with a
transaction that would:–
(i) entail an obligation to make an open offer
under the takeover regulations where the
board of directors of the 9[listed] company
is of informed opinion that 10[sharing of
such information] is in the best interests of
the company;
NOTE:It is intended to acknowledge the necessity
of communicating, providing, allowing access to or
procuring UPSI for substantial transactions such as
takeovers, mergers   and   acquisitions   involving
trading   in   securities   and   change   of   control   to
assess   a potential   investment. In   an   open   offer
under the takeover regulations, not only would the
same price be made available to all shareholders
of the company but also all information necessary
to enable an informed divestment or retention
decision by the public shareholders is required to
be made available to all shareholders in the letter
of offer under those regulations.
(ii) not attract the obligation to make an open
offer under the  takeover regulations but
where   the   board   of   directors   of   the
27
11[listed] company is of informed opinion
12[that sharing of such information] is in
the best interests of the company and the
information   that   constitute   unpublished
price sensitive information is disseminated
to   be   made   generally   available   at   least
two   trading   days   prior   to   the   proposed
transaction being effected in such form as
the board of directors may determine 13[to
be adequate and fair to cover all relevant
and material facts].
    NOTE:It   is   intended   to   permit   communicating,
providing,   allowing   access   to   or   procuring   UPSI
also in transactions that do not entail an open offer
obligation under the takeover regulations 14[when
authorised by the board of directors if sharing of
such   information]   is   in   the   best   interests   of   the
company. The board of directors, however, would
cause public disclosures of such unpublished price
sensitive   information   well   before   the   proposed
transaction to rule out any information asymmetry
in the market.
(4) For purposes of sub­regulation (3), the board of
directors   shall   require   the   parties   to   execute
agreements   to   contract   confidentiality   and   nondisclosure obligations on the part of such parties
and such parties shall keep information so received
confidential,   except   for   the   purpose   of   subregulation   (3),   and   shall   not   otherwise   trade   in
securities of the company when in possession of
unpublished price sensitive information.
Trading   when   in   possession   of   unpublished
price sensitive information.
4. (1) No insider shall trade in securities that are
listed or proposed to be listed on a stock exchange
when in possession of unpublished price sensitive
28
information:
Provided that the insider may prove his innocence
by demonstrating the circumstances including the
following: –
(i) the  transaction  is  an  off­market  inter­se
transfer between 18[insiders] who were in
possession of the same unpublished price
sensitive   information   without   being   in
breach  of  regulation  3  and  both  parties
had made a conscious and informed trade
decision.
(ii) in the case of non­individual insiders:­
a. the individuals who were in possession
of   such   unpublished   price   sensitive
information   were   different   from   the
individuals   taking   trading   decisions
and such decision­making individuals
were   not   in   possession   of   such
unpublished   price sensitive
information   when   they took   the
decision to trade; and
b. appropriate   and   adequate
arrangements were in place to ensure
that these regulations are not violated
and   no   unpublished   price   sensitive
information was communicated by the
individuals possessing the information
to   the   individuals taking   trading
decisions and there is no evidence of
such   arrangements   having been
breached;
(iii) the   trades   were   pursuant   to   a   trading
plan set up in accordance with regulation
5.
NOTE:  When   a   person   who   has   traded   in
securities has been in possession of unpublished
price   sensitive   information,   his   trades   would   be
29
presumed   to   have   been   motivated   by   the
knowledge and awareness of such information in
his possession. The reasons for which he trades or
the purposes to which he applies the proceeds of
the transactions are not intended to be relevant for
determining   whether   a   person   has   violated   the
regulation.   He   traded   when   in   possession   of
unpublished   price   sensitive   information   is   what
would need to be demonstrated at the outset to
bring a charge. Once this is established, it would
be open to the insider to prove his innocence by
demonstrating the circumstances mentioned in the
proviso, failing which he would have violated the
prohibition.
(2) In the case of connected persons the onus of
establishing, that they were not in possession of
unpublished price sensitive information, shall be on
such connected persons and in other cases, the
onus would be on the Board.
(3) The   Board   may   specify   such   standards   and
requirements, from time to time, as it may deem
necessary for the purpose of these regulations.
23. We have heard learned counsel for the parties at length and have
carefully perused the record.
24. The submission of the Respondent that appellant Balram Garg
contravened Regulation 3(1) of the PIT Regulations and section
12A(c)   of   the   SEBI   Act,   by   communicating   the   UPSI   to   the
appellants   in   C.A.   No.7590   of   2021,   being   an   “insider”   and
“connected person” within the meaning of PIT Regulations is not
worthy of acceptance.  The Securities Appellate Tribunal has erred
in upholding the order of the Whole Time Member of SEBI as it
30
has failed to independently assess the evidence and material on
record while exercising its jurisdiction as the first appellate court.
As reiterated by this Court in a catena of judgements, it is the
duty of the first court of appeal to deal with all the issues and
evidence led by the parties on both, the questions of law as well
as   questions   of   fact   and   then   decide   the   issue   by   providing
adequate reasons for its findings. Unfortunately, the SAT failed to
apply its mind on the issues raised by the parties and routinely
affirmed the findings of the WTM without dealing with the issues
at hand. In this context, this Court has held in H.K.N. Swami v.
Irshad Basith [(2005) 10 SCC 243] that:
“The first appeal has to be decided on facts as well
as on law. In the first appeal parties have the right
to be heard both on questions of law as also on
facts and the first appellate court is required to
address itself to all issues and decide the case by
giving reasons. Unfortunately, the High Court, in
the   present   case   has   not   recorded   any   finding
either   on   facts   or   on   law.   Sitting   as   the   first
appellate court it was the duty of the High Court to
deal with all the issues and the evidence led by the
parties before recording the finding regarding title.”
The above position was reiterated by this Court in  UPSRTC  vs
Mamta [(2016) 4 SCC 172].
25. The SAT again fell in error when in spite of observing that there is
no direct evidence which suggests as to who had disseminated the
31
insider information to the appellants in C.A. No.7590 of 2021, it
concluded on mere “preponderance of probability” that it was late
P.C. Gupta as well as appellant Balram Garg who disseminated
both UPSI to the appellants in C.A. No.7590 of 2021.
26. Importantly, the WTM arrived at the finding that the appellants in
C.A.   No.7590   of   2021,   namely,   Mrs.   Shivani   Gupta,   Sachin
Gupta,   Amit   Garg   and   Quick   Developers   Pvt.   Ltd.   were   not
“connected persons”  qua the appellant Balram Garg. The WTM
held that: 
“I also note that it is not the case in the SCN that
Noticee   no.1,   2   and   3   were   in   any   contractual,
fiduciary   or   employment   relationship   with   the
company,   or   were   the   director   or   officer   of   the
company, during the past 6 months of the alleged
act of insider trading. Noticee No. 1 and 2 seem to
be in the employment of the company but that was
way back in 2015. I also note that the SCN has
also not identified that Noticee no. 1,2,3 or 4 had
any professional or business relationship with the
company, that allows the said Noticees, directly or
indirectly,   access   to   unpublished   price   sensitive
information.   In   view   of   the   above,   I   find   that
Noticee   no.   1,2,3   and   4   cannot   be   treated   as
‘connected persons’ in terms of Reg. 2(1)(d)(i) of PIT
Regulations, 2015.” 
[emphasis supplied]
27. In our opinion, two important findings of the WTM and SAT need
to be re­examined by this Court to adequately decide the present
set of appeals. Firstly, Whether the WTM and SAT rightly rejected
32
the claim of estrangement of the appellants in C.A. No.7590 of
2021, namely, Mrs. Shivani Gupta, Sachin Gupta and Amit Garg?
Secondly, could the aforementioned appellants be rightly held to
be   “insiders”   in   terms   of   Regulation   2(1)(g)(ii)   of   the   PIT
Regulations,   only   and   entirely   on   the   basis   of   circumstantial
evidence?
28. The appellants in C.A. No.7590 of 2021, namely, Mrs. Shivani
Gupta, Sachin Gupta and Amit Garg, claimed before the WTM
and SAT that they were estranged from the family and did not
have the required connection with the appellant Balram Garg,
who was the MD of the PCJ at the relevant time period. However,
we are of the opinion that the WTM and SAT wrongly rejected this
claim   of   the   Appellants   in   C.A.   No.7590   of   2021   without
appreciating the facts and evidence as was produced before them.
The WTM and SAT ought to have appreciated the relevant facts for
ascertaining the true nature of relationship between the parties.
29. To understand the abovementioned relationship, it is pertinent to
note that PCJ was promoted in 2005 by three brothers viz. P.C.
Gupta   [since   deceased],   Amar   Chand   Garg   and   Balram   Garg
(Appellant in C.A. No.7054 of 2021). Subsequently, due to certain
differences, Amar Chand Garg and his branch of the family exited
33
the   Company   by   entering   into   a   family   arrangement   dated
01.07.2011   whereby   their   shareholding   in   the   company   was
reduced to a meagre 0.70%. In September, 2011, Amar Chand
Garg also resigned as the Vice Chairman of the company and
disassociated   himself   from   the   company.   Further,   the   record
reveals that the son of Amar Chand Garg, i.e. Amit Garg (3rd
Appellant in C.A. No.7590 of 2021) was never associated with the
company. On 31.03.2015, on account of certain disputes that had
arisen between Sachin Gupta (2nd  Appellant in C.A. No.7590 of
2021) and his parents P.C. Gupta and Smt. Krishna Devi, Sachin
Gupta, so as to exit the company along with his family, resigned
from   his   position   as   President   (Gold   Manufacturing)   of   the
Company and Mrs. Shivani Gupta (1st Appellant in C.A. No.7590
of 2021 and wife of Sachin Gupta) also resigned from her post of
Senior Assistant Manager, Karol Bagh Store of PCJ. Importantly,
both Sachin Gupta and Smt. Shivani Gupta were, at no point of
time, Directors of PCJ.
30. Subsequently, late P.C. Gupta and his son Sachin Gupta entered
into another family arrangement dated 10.04.2015 whereby P.C.
Gupta and his wife agreed to transfer at least 1,60,00,000 shares
of  the  company  to  Sachin  Gupta  and  his family,  and in  lieu
34
thereof Sachin Gupta and his family agreed not to have any right
whatsoever in the immovable and movable property of P.C. Gupta
and his wife. However, Sachin Gupta and his wife Smt. Shivani
Gupta were permitted to use the property at 1­C, Court Road,
Civil Lines, Delhi for residential purposes only. It is pertinent to
note here that the said plot of land is a large tract of land and
separate   buildings   were   constructed   thereon.   P.C.   Gupta   and
Sachin Gupta, along with their families, resided in separate floors
of   the   same   building,   whereas   Amit   Garg   and   Balram   Garg
resided in separate buildings.
31. Post the agreed transfer of shares by P.C. Gupta and his wife,
Sachin Gupta and his wife Smt. Shivani Gupta  inter alia,  sold
some shares of the company from 02.04.2018 to 13.07.2018. This
aforesaid trade in shares was the subject matter of investigation
by the Respondent/SEBI as it was contented by SEBI that the
abovementioned   trade   was   based   on   UPSI   and   hence   was   in
contravention of SEBI Act and PIT Regulations. The WTM and SAT
erred   in   not   appreciating   the   aforementioned   facts   which
adequately   establish   that   the   there   was   a   breakdown   of   ties
between both the parties, both at personal and professional level,
and that the said estrangement happened much prior to the two
35
UPSI. Hence, we are of the opinion that when the two family
arrangements (dated 01.07.2011 and 10.04.2015) are considered
in their right perspective, it adequately demonstrates that there
was a breakdown of relations between the parties. Additionally,
given the fact that the entire case against the appellants  for the
offence   of   insider   trading   was   based   on   the   nature   of   close
relationship between the parties, once it has been rightly held by
the   WTM   that   the   appellants   are   neither  “connected   persons”
within the meaning of Regulation 2(1)(d) nor “immediate relatives”
within the meaning of Regulation 2(1)(f) of PIT Regulation, the
question   of  ipso   facto  relying   on   the   nature   of   relationship
between the parties to come to the conclusion that they were “in
possession of or having access to UPSI” while trading with the
shares of the company is legally unsustainable. 
32. Moreover, we find merit in the submission of the counsel for the
appellants in C.A. No.7590 of 2021 that even assuming that the
said family arrangements did not result in complete estrangement
of social relations between the parties, the SAT could not, by
virtue of this very fact, discharge SEBI of the onus of proof placed
on them to prove that the Appellants were in possession of UPSI.
In our opinion, the approach adopted by the SAT turns the SEBI
36
Act on its head as it places the burden of proving that there was a
complete breakdown of ties between the parties on the Appellants
in C.A. No.7590 of 2021 while conveniently ignoring the fact that
the onus was actually on SEBI to prove that the appellants were
in possession of or having access to UPSI. The legislative note to
Regulation 2(1)(g) makes the above position of law explicitly clear.
It states that:
“... The onus  of  showing  that  a  certain  person
was   in     possession     of   or     had     access     to
unpublished  price  sensitive  information  at  the
time  of trading would, therefore, be on the person
leveling the charge after which the person who has
traded  when  in  possession  of or  having  access
to unpublished   price   sensitive information may
demonstrate that he was not in such possession or
that he has not traded or he could not access or
that   his   trading   when   in   possession   of   such
information   was   squarely   covered   by   the
exonerating circumstances.” 
33. The second question before us is that could the appellants in C.A.
No.7590 of 2021, be rightly held to be “insiders” in terms of
regulation 2(1)(g)(ii) of the PIT Regulations, only and entirely on
the basis of circumstantial evidence? 
34. In this context, it is important to highlight that the two major
Corporate Announcements, purportedly related to a change in
company’s capital structure, which were:
i. UPSI­1 [Period between 25.04.2018 to 10.05.2018]:
37
The announcement of the Company on 10.05.2018 to
buy   back   up   to   1,21,14,285   fully   paid   up   equity
shares of Rs. 10/­ each at a price of Rs. 350/­ per
equity share.
ii. UPSI­2 [Period between 07.07.2018 to 13.07.2018]:
The announcement of the company withdrawing their
buy­back offer due to non­receipt of NOC from State
Bank of India.
35. After carefully and extensively perusing the records, we have come
to the conclusion that the SAT erred in holding the appellants in
C.A. No.7590 of 2021 to be “insiders” in terms of Regulation 2(1)
(g)(ii) of the PIT Regulations on the basis of their trading pattern
and   their   timing   of   trading   (circumstantial   evidence).   The
reasoning of the SAT is ex facie contrary to the records, as would
be evident from the forthcoming discussion wherein our analysis
of the alleged transactions has been divided into three phases viz.
Phase­I [Period from 02.04.2018 to 24.04.2018], Phase­II [Period
from   22.06.2018   to   06.07.2018]   and   Phase­III   [Period   from
07.07.2018 to 13.07.2018].
36. Phase­I   [02.04.2018   to   24.04.2018   i.e.  Pre   UPSI­1   Period]:
Appellant Mrs. Shivani Gupta sold shares gifted to her by P.C.
Gupta and Smt. Krishna Devi (as part of the family arrangement
38
dated 10.04.2015) for personal and commercial reasons. The said
shares were sold for a price of Rs. 300 per share during the said
period. However, since the price of the shares kept falling, Mrs.
Shivani decided to stop selling shares on 24.04.2018. Further, if
we presume that she had internal knowledge of the company’s
affair   including   the   impending   buy­back   offer,   it   would   be
reasonable to assume that she would not have sold such a large
chunk   of   shares   (74,35,071   shares)   in   the   pre­UPSI­1   period
when the prices of the shares were falling and would have instead
chosen   to   wait   for   the   buy­back   offer.   This   also   assumes
importance since SEBI itself, vide its show­cause notice dated
24.04.2020 had dropped the charges with respect to the UPSI­1
period.   This   would   mean   that   the   notional   loss   purportedly
avoided by appellant Mrs. Shivani Gupta was only for the shares
traded during the UPSI­II Period, and even according to SEBI,
there was no case that she made any money or avoided any loss
by trading in the shares of the company during the UPSI­1 Period.
37. Phase­II   [22.06.2018  to  06.07.2018   i.e.  Pre­  UPSI­II  Period]:
PCJ had requested SBI to issue a NOC for the proposed buy­back
offer on 07.07.2018 and the said request was rejected on the
same day by the SBI. However, even before the said refusal by the
39
SBI, the appellant Mrs. Shivani Gupta had sold 1,00,000 shares
on 06.07.2018 at a much lower price than the price at which the
shares were sold earlier. On the date on which these shares were
sold,   the   UPSI­2   had   not   even   come   into   existence.   If   the
arguments   of   the   respondent   hold   any   water,   the   Appellants
should have waited till UPSI­2 and would only have subsequently
offloaded maximum number of shares during the said period to
avoid any notional loss. However, the records undercut the logic
adopted   by   the   respondent/SEBI   for   the   reason   that   the
appellants were not in possession of the UPSI­2 and hence the
appellants started selling the shares even before the UPSI­2 came
into existence. 
38. Phase­III   [07.07.2018  to  13.07.2018   i.e.  UPSI­II  Period]:  The
Appellant Mrs. Shivani Gupta sold only 15,00,000 shares during
this period as opposed to the 74,35,071 shares that were sold at
an   earlier   point   of   time   (Pre­UPSI­1   Period).   Importantly,
notwithstanding the fact that the appellant Mrs. Shivani Gupta
sold 15,00,000 shares, she continued to hold 12,84,111 shares of
the company, out of the total that were transferred to her by way
of   the   family   arrangement.   These   above   factors   undercut   the
argument of SEBI that the appellants sold huge number of shares
40
during UPSI­2 period because they had the information that once
the information of withdrawal of buy­back offer by PCJ was made
public, the price of the shares would drastically fall. Moreover, the
data reveals that the share price of the PCJ shares consistently
fell   during   the   investigation   period   and   therefore   it   would   be
incorrect   to   say   that   the   price   of   the   shares   fell   only   upon
announcement of the withdrawal of the buyback offer. In fact, the
records reveal that even after the announcement of the buy­back
offer, there was no increase in the share prices of the company.
Resultantly, the appellants stopped selling shares on 13.07.2018
because they believed that the market price continued to fall so
badly that the shares possessed by them were not being valued
accurately   in   the   market.   Hence,   the   appellants   decided   to
constitute to hold their shareholdings.
39. In such view of the matter, we are of the opinion that there is no
correlation between the UPSI and the sale of shares undertaken
by the appellants in C.A. No.7590 of 2021. The said decisions of
selling the shares and the timings thereof were purely a personal
and commercial decision undertaken by them and nothing more
can be read into those decisions. If the appellants did possess the
UPSIs, we are unable to understand that why would the appellant
41
Mrs. Shivani Gupta sell only 15,00,000 shares during this period
as opposed to the 74,35,071 shares that were sold at an earlier
point   of   time   (Pre­UPSI­1   Period)   and   still   continue   to   hold
12,84,111 shares of the company that could have also been sold
along with the 15,00,000 shares that were sold during the UPSI­2
period.
40. We are also of the opinion that in the absence of any material
available on record to show frequent communication between the
parties,   there   could   not   have   been   a   presumption   of
communication   of   UPSI   by   the   appellant   Balram   Garg.   The
trading pattern of the appellants in C.A. No.7590 of 2021 cannot
be the circumstantial evidence to prove the communication of
UPSI by the appellant Balram Garg to the other appellants in C.A.
No.7590 of 2021. It would also be pertinent to note here that
Regulation   3   of   the   PIT   Regulations,   which   deals   with
communication of UPSI, does not create a deeming fiction in law.
Hence,   it   is   only   through   producing   cogent   materials   (letters,
emails, witnesses etc.) that the said communication of UPSI could
be   proved   and   not   by   deeming   the   communication   to   have
happened owing to the alleged proximity between the parties. In
this   context,   even   the   show­cause   notices   do   not   allege   any
42
communication between the Appellant Balram Garg and the other
appellants  in  C.A. No.7590 of 2021. This is  evident  from  the
following extract of the order of the WTM:
“A perusal of the SCNs shows that allegations of
Noticees no. 1 to 4 being connected person under
Regulation 2(1)(d)(i) seems to have been proceeded
on the basis of inference drawn that Noticees no. 1
to   3   being   relatives   of   Late   Shri   Padam   Chand
Gupta   who   was   promotor   and   chairman   of   PC
Jewellers, and Noticee no. 5 who was the MD of PC
Jewellers,   would   be   having   frequent
communication with Late Shri Gupta and Noticee
No. 5. However, here I note that as per Regulation
2(1)(d)(i)   ,   association   by   virtue   of   frequent
communication   with   the   officer   of   the   company
must be arising in the discharge of his/her duty
towards the company.  The SCNs does not allege
that   there   was   any   communication   between
Noticee no. 5 and Noticee no. 1 to 4,  arising out
discharge of any duty owed by Noticee no. 1,2,3 or
4 to the compoany.”      [emphasis
supplied]
41. This Court in  Hanumant   vs.   State  of  Madhya  Pradesh  [AIR
1952 Supreme Court 343] has held that:
“Assuming   that   the   accused   Nargundkar   had
taken the tenders to his house, the prosecution, in
order to bring the guilt home to the accused, has
yet to prove the other facts referred to above. No
direct   evidence   was   adduced   in   proof   of   those
facts. Reliance was placed by the prosecution and
by the courts below on certain circumstances, and
intrinsic   evidence   contained   in   the   impugned
document,   Exhibit   P­3A.  In   dealing   with
circumstantial   evidence   the   rules   specially
applicable to such evidence must be borne in mind.
43
In   such   cases   there   is   always   the   danger   that
conjecture or suspicion may take the place of legal
proof and therefore it is right to recall the warning
addressed by Baron Alderson, to the jury in Reg v.
Hodge ((1838) 2 Lew. 227), where he said :­
"The   mind   was   apt   to   take   a   pleasure   in
adapting   circumstances   to   one   another,   and
even in straining them a little, if need be, to
force   them   to   from   parts   of   one   connected
whole; and the more ingenious the mind of the
individual, the more likely was it, considering
such matters to overreach and mislead itself,
to supply some little link that is wanting, to
take for granted some fact consistent with its
previous   theories   and   necessary   to   render
them complete."
It   is   well   to   remember   that   in   cases   where   the
evidence   in   of   a   circumstantial   nature,   the
circumstances from which the conclusion of guilt is
to be drawn should in the first instance be fully
established, and all the facts so established should
be consistent only with the hypothesis of the guilt
of the accused. Again, the circumstances should be
of   a   conclusive   nature   and   pendency   and   they
should be such as to exclude every hypothesis but
the  one   proposed  to  be   proved.  In   other words,
there must be a chain of evidence so far complete
as   not   to   leave   any   reasonable   ground   for   a
conclusion   consistent   with   the   innocence   of   the
accused   and   it   must   be   such   as   to   show   that
within   all   human   probability   the   act   must   have
been done by the accused. In spite of the forceful
arguments   addressed   to   us   by   the   learned
Advocate­General on behalf of the State we have
not been able to discover any such evidence either
intrinsic within Exhibit P­3A or outside and we are
constrained to observe that the courts below have
just  fallen  into   the  error  against   which  warning
44
was   uttered   by   Baron   Alderson   in   the   above
mentioned case.”   [emphasis supplied]
42. This Court in Chintalapati Srinivasa Raju vs Securities and
Exchange Board of India [(2018) 7 SCC 443] has further held
that:
“Further, under the second part of Regulation 2(e)
(i),   the   connected   person   must   be   “reasonably
expected”   to   have   access   to   unpublished   price
sensitive information.  The expression “reasonably
expected” cannot be a mere ipse dixit – there must
be   material   to   show   that   such   person   can
reasonably   be   so   expected   to   have   access   to
unpublished price sensitive information.
.
.
.
We have already demonstrated that the minority
judgment is much more detailed and correct than
the majority judgment of the Appellant Tribunal.
We accept Shri Singh’s submission that in cases
like the present, a reasonable expectation to be in
the   know   of   things   can   only   be   based   on
reasonable   inferences   drawn   from   foundational
facts.  This   Court   in   SEBI   v.   Kishore   R.   Ajmera,
(2016) 6 SCC 368 at 383, stated:
“26. It is a fundamental principle of law that
proof of an allegation leveled against a person
may   be   in   the   form   of   direct   substantive
evidence or, as in many cases, such proof may
have   to   be   inferred   by   a   logical   process   of
reasoning   from   the   totality   of   the   attending
facts   and   circumstances   surrounding   the
allegations/charges made and leveled. While
direct evidence is a more certain basis to come
to a conclusion, yet, in the absence thereof the
Courts   cannot   be   helpless.   It   is   the   judicial
duty   to   take   note   of   the   immediate   and
45
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.”
We are of the view that from the mere fact that the
appellant promoted two joint venture companies,
one of which ultimately merged with SCSL, and the
fact that he was a co­brother of B. Ramalinga Raju,
without more, cannot be stated to be foundational
facts from which an inference of reasonably being
expected   to   be   in   the   knowledge   of   confidential
information   can   be   formed.  The   fact   that   the
appellant   was  to   be  continued  as   a   director  till
replacement   again   does   not   take   us   anywhere.
Shri Viswanathan has shown us that two other
independent   non­executive   directors   were
appointed   in   his   place   on   and   from   23.1.2003.
What is clear is that the appellant devoted all his
energies to the businesses he was running, on and
after resigning as an executive director of SCSL, as
a result of which the salary he was being paid by
SCSL was discontinued.”
[emphasis supplied]
43. This   Court   has   also   held   in   a   catena   of   cases   that   the
foundational facts must be established before a presumption is
made. In this context, in Seema Silk & Sarees vs. Directorate
of Enforcement [(2008) 5 SCC 580] this Court has held that:
“The presumption raised against the trader is a
rebuttable one. Reverse burden as also statutory
46
presumptions can be raised in several statutes as,
for   example,   the   Negotiable   Instruments   Act,
Prevention   of   Corruption   Act,   TADA,   etc.
Presumption   is   raised   only   when   certain
foundational   facts   are   established   by   the
prosecution.  The accused in such an event would
be entitled to show that he has not violated the
provisions of the Act.” 
In the present case, as rightly argued by the learned counsel of
the appellant, the foundational facts were not proved which could
raise the alleged presumption. SEBI failed to place on record any
material to prove that the appellants in C.A. No.7590/2021 were
“connected persons”  to Balram Garg as required by Regulation
2(1)(d)(ii)(a) read with Regulation 2(1)(f) of the PIT Regulations as
none   of   the   appellants   C.A.   No.7590/2021   were   financially
dependent on  Balram Garg or even alleged to have consulted
Balram Garg in any decision related to trading in securities.
44. In light of the above principles of law laid down by this Court, it
was   imperative   on   the   Respondent/SEBI   to   place   on   record
relevant material to prove that the appellants in C.A. No.7590 of
2021, namely, Mrs. Shivani Gupta, Sachin Gupta, Amit Garg and
Quick Developers Pvt. Ltd. were  “immediate relatives”  who were
“dependent   financially”  on   appellant   Balram   Garg   or  “consult”
Balram Garg in “taking decisions relating to trading in securities”.
47
However, SEBI failed to do so as has been already recorded by the
WTM in its order dated 11.05.2021. The said appellants in C.A.
No.7590   of   2021   were   not  “immediate   relatives”  and   were
completely financially independent of the appellant Balram Garg
and had nothing to do with the said Balram Garg in any decision
making process relating to securities or even otherwise.
45. In the context of appellant no. 4 (in C.A. No.7590 of 2021), namely
Quick Developers Pvt. Ltd., the record clearly reveals that it is
neither   a  “holding   company”  or   an  “associate   company”  or   a
“subsidiary company” of PCJ nor the appellant Balram Garg has
ever been the Director of Quick Developers Pvt. Ltd. Therefore,
Quick Developers Pvt. Ltd. cannot be held to be a  “connected
person” vis­à­vis the appellant Balram Garg.
46. Furthermore, reliance of the Respondent/SEBI on transactions
between appellant Sachin Gupta and PCJ and the subsequent
payments   of   rent   by   PCJ   is   against   the   principles   of   natural
justice as these allegations were not part of the Show  Cause
Notices. To cement this proposition, reference could be made to
Tarlochan Dev Sharma vs State of Punjab [(2001) 6 SCC 260]
wherein this Court has held that:
48
“We are, therefore, clearly of the opinion that not
only the principles of natural justice were violated
by the factum of the impugned order having been
founded on grounds at variance from the one in the
show   cause   notice,   of   which   appellant   was   not
even   made   aware   of   let   alone   provided   an
opportunity to offer his explanation, the allegations
made   against   the   appellant   did   not   even   prima
facie   make   out   a   case   of   abuse   of   powers   of
President.”
[emphasis supplied]
Similar   observations   have   also   been   made   by   this   Court   in
Hindustan Lever Ltd. vs. Director General (Investigation and
Registration) [(2001) 2 SCC 474].
47. Lastly,   we   have   given   our   anxious   consideration   to   the
judgements relied upon by the learned counsel of the Respondent
viz.  SEBI   vs   Kishore   R.   Ajmera   [(2016)   6   SCC   368]  and
Dushyant  N.  Dalal  vs.  SEBI  [(2017)  9  SCC  660].  Suffice it to
hold   that   these   cases   are   distinguishable   on   the   facts   of   the
present case, as the former is not a case of insider trading but
that of Fraudulent/Manipulative Trade Practices; and the latter
case   relates   to   Interests   and   Penalty   rather   than   the   subject
matter   at   hand.     Reliance   placed   on   the   case   of  Kishore   R.
Ajmera (supra)  to show that presumption can be drawn on the
basis of immediate and relevant facts is contrary to law already
49
settled by this Court in the case of Chintalapati Srinivasa Raju
(supra) where it is held that “a reasonable expectation to be in the
know of things can only be based on reasonable inference drawn
from foundational facts”.   It has further been held that merely
because a person was related to the connected person cannot by
itself be a foundational fact to draw an inference. 
48. To conclude, the entire case of the Respondents was premised on
two   important   propositions,   that  firstly,  there   existed   a   close
relationship between the appellants herein; and  secondly, that
based on the circumstantial evidence (trading pattern and timing
of trading), it could be reasonably concluded that the appellants
in C.A. No.7590 of 2021 were “insiders” in terms of Regulation
2(1)(g)(ii) of the PIT Regulations. However, as the discussion above
would reveal, the WTM and SAT wrongly rejected the claim of
estrangement of the Appellants in C.A. No.7590 of 2021, without
appreciating the facts and evidence as was produced before them.
The records and facts adequately establish that the there was a
breakdown   of   ties   between   the   parties,   both   at   personal   and
professional level and that the said estrangement happened much
prior to the two UPSI. Secondly, as has already been discussed,
the SAT erred in holding the appellants in C.A. No.7590 of 2021
50
to   be   “insiders”   in   terms   of   regulation   2(1)(g)(ii)   of   the   PIT
Regulations on the basis of their trading pattern and their timing
of trading (circumstantial evidence). We are of the firm opinion
that there is no correlation between the UPSI and the sale of
shares undertaken by the appellants in C.A. No.7590 of 2021.
Moreover, in the absence of any material available on record to
show frequent communication between the parties, there could
not have been a presumption of communication of UPSI by the
appellant Balram Garg. The trading pattern of the appellants in
C.A. No.7590 of 2021 cannot be the circumstantial evidence to
prove the communication of UPSI by the appellant Balram Garg to
the other appellants in C.A. No.7590 of 2021. There is no material
on record for the WTM and the SAT to arrive at the finding that
both   late   P.C.   Gupta   and   the   appellant   Balram   Garg
communicated the UPSI to the other appellants in C.A. No.7590 of
2021.   The   said   appellants   in   C.A.  No.7590  of   2021   were   not
“immediate relatives” and were completely financially independent
of the appellant Balram Garg and had nothing to do with the him
in   any   decision   making   process   relating   to   securities   or   even
otherwise.   The   submission   of   the   learned   counsel   of   the
respondent   regarding   the   same   residential   address   of   the
51
appellants also falls flat as admittedly the parties were residing in
separate buildings on a large tract of land. Lastly, in our opinion,
the SAT order suffers from non­application of mind and the same
is a mere repetition of facts stated by the WTM. The Appellate
Tribunal was exercising jurisdiction of a First Appellate Court and
was bound to independently assess the evidenced and material on
record, which it evidently failed to do.
49. Accordingly, the appeals are allowed and the impugned judgement
and final orders of WTM and SAT are set aside. The deposits made
by the appellants in both the appeals in terms of the impugned
orders or interim orders of this Court shall be refunded to the
respective appellants. 
50. No orders as to costs. 
………………………..J.
        [VINEET SARAN]
………………….…….J.
                          [ANIRUDDHA BOSE]
  
 New Delhi
 Dated: APRIL 19, 2022

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