- Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) has initiated adjudication proceedings under Section 151 read with Section 15G and Section 15A of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the 'SEBI Act'), in respect of the violations alleged to have been committed by Shri Rajiv B Gandhi, Smt. Sandhya R. Gandhi and Ms. Amishi B Gandhi (hereinafter commonly referred to as the ‘noticees’) on account of their alleged dealings in the scrip of Wockhardt Ltd on the basis of unpublished price sensitive information. Further it is also alleged that the noticees failed to provide necessary information to SEBI and also failed to comply with the summons issued by SEBI requiring their presence before the investigating authority.
- It is alleged that at the relevant point of time Shri. Rajiv Gandhi was the Company Secretary and Chief Financial Officer (CFO) of the company and has had access to the price sensitive information pertaining to the financial position of the company. Smt. Sandhya R Gandhi is stated to be the wife of Shri. Rajiv Gandhi and Ms. Amishi Gandhi is stated to be the sister of Shri. Rajiv Gandhi. It is alleged the noticees had engaged in insider trading in the scrip of Wockhardt Ltd. on the basis of unpublished price sensitive information pertaining to the financial positon of the company and thereby violated the provisions of SEBI (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred as Insider Trading Regulations) which makes the noticees liable to the penalty under section 15G of the SEBI Act. It is further alleged that the noticees failed to furnish necessary information to the investigating authority of SEBI and on account of such failure, the noticees are liable to the penalty under section 15A(a) of the SEBI Act.
NOTICE AND REPLY
- A notice no. A&E/BS/51851/2005 dated October 17, 2005 was issued to the noticees in terms of Rule 4 of Securities and Exchange Board of India (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 (hereinafter referred to as the "Rules") requiring them to show cause as to why an inquiry should not be held for the violations alleged to have been committed by the noticees.
- The noticees vide their letter dated November 22, 2005 submitted their reply to the show cause notice. Considering the reply submitted by noticees, it was decided to conduct an inquiry in the matter and the noticees were advised to attend the hearing on December 8, 2005. Shri Joby Mathew of J Sagar Associates Advocates & Solicitors and Shri Vijay R Khetan, General Manager Finance & Company Secretary of Wockhardt Ltd. attended the hearing as authorized representatives of the noticees and made interalia the following submissions :
-
- There is no violation of Section 15 A (a) of the SEBI Act since the noticees have furnished the information sought by SEBI vide their letter dated August 5, 2002. There is no information that remains to be furnished by the noticees to SEBI.
- Ms. Sandhya R. Gandhi and Ms. Amishi B Gandhi are not insiders as defined under Regulation 2(e) of Insider Trading Regulations. The said persons are not connected persons as defined under Regulation 2(c) of the Insider Trading Regulations nor they deemed connected persons as defined under Regulation 2(h) of the Insider Trading Regulations. The notices against them may be accordingly discharged.
- SEBI had issued two show cause notices to the noticees alleging violation of the insider trading regulations. The first notice was dated October 14, 2003 and the second was dated May 6, 2005. The first show cause notice included trades done by the noticees during the months of July and December 1999 and these trades were considered as insider trades. The noticees submitted their reply to the first show cause notice vide their letter dated November 24, 2003. The second show cause notice in Paragraph 2 has considered the said reply and given the noticees the benefit of doubt in respect of the trades in the months of July and December 1999. However, in the present show cause notice dated October 17, 2005, the trades of July and December 1999 have been included. In view of the benefit of doubt given by SEBI, it is requested that the trade in the months of July and December 1999 may not be considered as insider trades in the present proceedings.
- The trades by the noticees were done in the course of normal Investments and were not based on any unpublished price sensitive information. In respect of the trades on 21st and 22nd of January, 1999 and 16th February, 1999, we submit that the results for the quarter ended December 1998 which were allegedly the basis for the trades should have been compared with the results for the quarter ended December 1997 and not to the quarter ended September 1998. Such a comparison would forecast an increase in the price rather than a decrease. If the noticees were trading on such a forecast they would purchase rather than sell shares. In fact on the days mentioned herein before, the noticees have sold shares. Therefore, the said trades cannot be said to have been based on information that would be available only to them and not to the public.
- In respect of the trades executed in April 1999, we submit that the assumption that the securities market would react negatively to an announcement of demerger is erroneous. We have mentioned the case of M/s. Larsen & Toubro Limited in this connection in our reply. The notice of demerger would show that the company was very positive regarding the market reaction to the demerger and if the noticees were trading on the basis of such positive outlook they would have purchased rather than sold the shares.
- In respect of the shares during the period July 1999 - October 1999, we would like to submit that the decision of the company to issue a circular resolution calling for the Annual General Meeting to approve the draft scheme of demerger could not be termed as price sensitive information. Further, the approval to the draft scheme of demerger was only a formality and the demerger itself had been announced in April 1999.
- We submit that the trades done by the noticees could not be said to have been based on any unpublished price sensitive information. In respect of the trades during the months of November and December 1999, the same are said to have been based on the news regarding the proposed acquisition of Sidmark Laboratories Inc., USA. The said deal was only at a very preliminary negotiating stage and could not by any stretch of imagination be considered as even possible. The company had also issued a clarification in this regard upon directions of the Bombay Stock Exchange Limited. We submit that the trades by the noticees could not have been based on the remote possibility of even the preliminary negotiations succeeding and therefore these may not be considered as insider trades. In respect of the interim dividends declared by the company, we submit that these did not differ from the pattern of interim dividends announced by the company for the previous years. Since there was no material change in the dividend being announced, such information could not have impacted the price and did not do so. Therefore, it cannot be said that the noticees traded on the basis of price sensitive information if at all, it is assumed that the trades were done based on the information relating to the dividends.
- No undue advantage was gained by the noticees at the expense of other shareholders and no prejudice or loss has been caused to the shareholders of the company because of the trades by the noticees. Therefore, we request that the charges against us may be dropped and the present show cause notice may be discharged accordingly.
CONSIDERATION OF EVIDENCE AND FINDINGS
- It is alleged that SEBI had issued notices / summons dated July 5, 2002, July 19, 2002, July 25, 2002, July 29, 2002, October 17, 2002, October 29, 2002 and December 3, 2002 to Shri. Rajiv B Gandhi. Further, SEBI had issued notices dated July 5, 2002, July 19, 2002, July 29,2002, October 17, 2002, October 29,2002, December 3,2002 and December 4,2002 to Smt. Sandhya R Gandhi and notices dated July 5, 2002, July 19, 2002, July 25, 2002, October 17, 2002, October 29,2002, December 3,2002 and December 4,2002 to Ms. Amishi B Gandhi. The notices required certain information from the noticees. Further the noticees were also required to be present before the investigating authority. It is alleged that the noticees failed to appear before the investigating authority as required in the said notices / summons and also failed to produce the documents and information sought by SEBI.
- It is noted from the perusal of the Annexure A of the reply by the noticees that the following details were sought from the noticees and their response to notices are also stated below :
|
No.
|
Summons/ Letter Date from SEBI
|
Date fixed in the summons for appearance/providing information
|
Information asked for
|
Reply/appearance by Noticees
|
|
1.
|
July 5, 02
|
Information to be provided on July 15, 2002
Personal appearance not required
|
Details of trades done in Wockhardt Ltd. From 1.1.97 to 31.12.99 and copies of bank account statements highlighting the debit and credits for the said trades
|
Extension for 3 to 4 weeks for providing the required information sought vide letter dated July 15, 2002 on the grounds that the information required was old
|
|
2.
|
July 19, 02
|
Details required under summons at S. No.1 above required to be submitted by July 25, 02
|
Same as 1 above
|
Vide letter dated July 22, 2002 Rajiv Gandhi informed SEBI as to the extension sought vide letter dated 15th July 2002.
|
|
3.
|
July 29, 02
|
Details required under Summons at S.No.1 above required to be submitted by August 6, 2002
|
Same as 1 above
|
Vide letter dated August 5, 2002 The noticees submitted the required details
|
|
4.
|
October 17, 2002
|
Appearance required on October 24, 2002
|
|
Rajiv Gandhi, vide his letter dated October 22, 2002, informed SEBI that the date for his appearance and that of Sandhya Gandhi and Amishi Gandhi be extended to any date after November 15, 2002
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|
5.
|
October 29, 2002
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Appearance required on November 20, 2002
|
|
No appearance due to urgent travel to Ahmedabad to attend to Rajiv Gandhi’s ailing father in law under foreseen circumstances
|
|
6.
|
December 3, 2002
|
Summons not received
|
|
7.
|
December 4, 2002
|
Summons not received
|
- As can be seen from the above details in respect of the first notice dated 5.7.2002, the noticees sought time to submit the details and the details were submitted subsequently vide their letter dated August 5, 2002. Hence it is noted that there was considerable delay in submission of information. With regard to non appearance before the investigating authority, the noticees had submitted that the same was on account of reasons beyond their control such as illness of Shri.Rajiv Gandhi’s father in law. With regard to the subsequent summons, the noticees have stated that they did not receive the same. As proof of service of the said summons is not seen on record, in the facts and circumstances of the case, it cannot be concluded that the noticees failed to comply with the summons so as to make them liable for penalty under Section 15A(a) of the SEBI Act.
- With regard to the allegation of insider trading in the scrip of Wockhardt Ltd on the basis of unpublished price sensitive information regarding the financial position of the company it is noted that Shri Rajiv B Gandhi was the Company Secretary and Chief Financial Officer (CFO) of Wockhardt Ltd. and had access price sensitive information pertaining to financial position of the company.
- The provisions of Regulation 2(e) of the Insider Trading Regulations at the relevant point of time defined the term ‘insider’ in the following manner :
“2. In these regulations, unless the context otherwise requires :—
(e) “insider” means any person who, is or was connected with the company or is deemed to have been connected with the company, and who is reasonably expected to have access by virtue of such connection to unpublished price sensitive information in respect of securities of the company, or who has received or has had access to such unpublished price sensitive information;”
Further, Regulation 2(c) reads as under:
Connected person means “any person who
i) is a director , as defined in clause (13) of section 2 of the Companies Act, 1956 (1 of 1956), of a company, or is deemed to be a director of that company by virtue of sub-clause (10) of section 307 of that Act;
or
ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company and who may reasonably be expected to have access to unpublished price sensitive information in relation to that company.
- On account of his connection with the company as the company secretary and chief financial officer, Shri. Rajiv Gandhi can be regarded as an insider within the meaning of regulation 2(e) of the Insider Trading Regulations. As stated before, Smt. Sandhya R Gandhi is the wife of Shri. Rajiv Gandhi and Ms.Amishi B Gandhi is stated to be his sister. In this regard, it has to be determined whether they were in receipt of any unpublished price sensitive information and dealt in the shares of the company on basis of such unpublished price sensitive information. As per the above definition of insider, any person who had received the information or has had access to unpublished price sensitive information is also regarded as an insider.
- Regulation 3 of the Insider Trading Regulations as existed on the date of the impugned transactions provided the following :
“No insider shall-
(i) either on his own or on behalf of any other person, deal in securities of a company listed on any stock exchange on the basis of any unpublished price sensitive information ; or
(ii) communicate, 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:
- Unpublished price sensitive information is defined in Regulation 2(k) which was substituted by the SEBI (Insider Trading) (Amendment) Regulations, 2002, w.e.f. 20-2-2002. Prior to its substitution, clause (k) read as under :
‘(k) “unpublished price sensitive information” means any information which relates 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 half-yearly and annual) of the company;
(ii) intended declaration of dividends (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) amalgamation, mergers and takeovers;
(vi) disposal of the whole or substantially the whole of the undertaking;
(vii) the information as may affect the earnings of the company;
(viii) Changes in policies, plans or operations of the company
As can be seen from the above definition, any information pertaining to earnings of the companies is regarded as price sensitive information.
- In this regard, it is stated that Wockhardt Ltd. had a board meeting on 21.1.99 at 5.00 p.m. for consideration of quarterly results for the quarter ended December 1998. Shri Rajiv Gandhi as CFO of the company was responsible for finalization of the results of the company and in this regard, all the accounts pertaining to the performance of the company were available to him. The results for the quarter ended December 1998 showed a negative performance over the previous quarter. The results were declared on 22.1.1999. Hence the information was made public only on 22.1.1999. The results for the quarter ended December 1998 and the previous quarter are the following:
|
|
Sept 98 (Rs. in million)
|
Dec 98 (Rs. in million)
|
Fall over the previous quarter(%)
|
|
Gross Profit
|
263
|
218
|
17
|
|
PBT
|
245
|
166
|
32
|
|
PAT
|
234
|
155
|
34
|
- As can be seen from the above details, the quarter ended December, 1998 showed a negative performance over the previous quarter indicating that the price of the scrip could be expected to fall once the results are declared. It is alleged that the noticees had sold 3600 shares on 21.1.1999 (before the board meeting) and on 22.1. 1999 (in the first half hour before the market could react to the news) on the basis of unpublished price sensitive information. Subsequently, after the financial results were published the prices fell down to RS. 306 and exact quantity of 3600 shares which was sold earlier was purchased by the noticees on 16.2.1999. The details of the transactions are the following :
|
Date
|
Client
|
Sale
|
Purchase
|
Rate
|
|
21.1.99
|
Amishi
|
600
|
-
|
365
|
|
22.1.99
|
Amishi
|
1000
|
-
|
371
|
|
16.2.99
|
Amishi
|
-
|
1600
|
306
|
|
21.1.99
|
Sandhya
|
1500
|
-
|
367
|
|
22.1.99
|
Sandhya
|
500
|
-
|
376
|
|
16.2.99
|
Sandhya
|
-
|
2000
|
306
|
- In this regard the noticees have submitted that even if it is assumed that that these trades were executed keeping in mind any anticipated price movement in the company's scrip upon declaration of the results for the quarter ended December 1998, the noticees could have anticipated an increase in the price of the scrip as opposed to decrease and therefore acquired the shares of the company instead of selling it. This is due to the fact that the profits for the quarter ended December 1998 were in fact higher than the profits for the quarter ended December 1997.
- As can be seen from the above contentions, the objection raised by the noticees is that they could have anticipated an increase in the price of the scrip and therefore acquired the shares instead of selling it. On the basis of the facts available on record it is seen that the results of the quarter ended December 1998 showed a negative performance over the previous quarter. It is the contention of the notices that the results should be compared to the corresponding quarter of the previous year and not with the preceding quarter of the same year. This argument is not tenable as the investment/ disinvestment decisions are normally taken on the basis of the financial situation of a company. Further as can be seen from the transactions executed by Smt. Sandhya Gandhi and Ms. Amishi Gandhi, sale transactions were executed on 21.1.99 and 22.1.99. The prices at which the shares were sold varied between Rs.365 to Rs.376. All such transactions were executed on 21.1.99 i.e. on the day the board meeting was being conducted and on the very next day morning i.e. on 22.1.99 before the market could actually react to the news.
- The dates of the said transactions, its timings, quantity etc., have not been disputed by the noticees. Further, the reasons for execution of the transactions on the said dates are not explained by the noticees. Further, being the company secretary and the chief financial officer, Shri. Rajiv Gandhi had access to such information and the same has not been disputed by Shri. Rajiv Gandhi. As the said trades were executed by Ms. Amishi Gandhi and Smt. Sandhya Gandhi, it is evident from the circumstances that they were aware of the information pertaining to the financial position of the company. Further, the same is also corroborated by the fact that they sold 1600 shares and 2000 shares respectively on the said dates, and same quantity of shares were purchased by them on 16.2.99 at a lower rate.
- The facts as narrated above indicate that the purpose for executing such transactions was to sell the shares before the market could react to the financial results of the company which indicated a negative growth. Hence the purpose is seen to be to avoid loss due to erosion in the value of shares due to negative performance of the company compared to the previous quarter. This fact is also evident and corroborated by the fact that exact quantity of shares were purchased by the noticees subsequently on 16.2.99 at the rate Rs. 306 which is much lower than the average of the selling price Rs.365 per share received by the noticees. Hence by buying the said shares subsequently at a lower price, Ms. Amishi Gandhi and Smt. Sandhya Gandhi could make a profit of Rs.96,487/- and Rs.1,20,905/- respectively. In aggregate the profit from the said transactions is Rs.2,17,392/-. As stated before, facts of the case and attendant circumstances indicate that Ms. Amishi Gandhi and Smt. Sandhya Gandhi were in receipt of the unpublished price sensitive information regarding the fall in the earnings of the company and Shri. Rajiv Gandhi being their close relative, circumstantial evidence indicate that Shri.Rajiv Gandhi communicated the said information to them and on the basis of which the said sale transactions were executed by them. On the basis of the above facts it is concluded that by executing the above sale transactions on the basis of unpublished price sensitive information, the noticees had violated the provisions of Regulation 3 of the Insider Trading Regulations.
Transactions in April 1999.
- It is further alleged that Wockhardt Ltd. had a board meeting on 22.4. 99 for consideration of un-audited results for quarter ended 31.3.99. The results for the quarter ended March 1999 showed a negative performance over the previous quarter. The board also considered a proposal to restructure the company through de-merger. It is alleged that the noticees had access to the above price sensitive information and based on the said information, the noticees executed the following transactions in the scrip.
|
Date
|
Client
|
Sale
|
Purchase
|
Rate
|
|
21.4.99
|
Amishi
|
2300
|
-
|
342-355
|
|
22.4.99
|
Amishi
|
1200
|
-
|
363-369
|
|
23.4.99
|
Amishi
|
-
|
3500
|
321-329
|
|
1.4.99
|
Sandhya
|
2000
|
-
|
384
|
|
6.4.99
|
Sandhya
|
-
|
2000
|
352
|
- In respect of the above transactions the noticees have submitted that the notice proceeds on an erroneous presumption that the market would react negatively to the announcement of a demerger and that in anticipation of such negative reaction, the noticees sold shares of the company on 22nd April 1999. The noticees also submitted that the company vide press release dated 22nd April 1999 informed that the purpose of the demerger was to create two companies within the same group, one focusing on its pharmaceuticals business and the other on all 'Wockhardt Businesses' and no market would be expected to react negatively to a corporate announcement of this nature.
- In respect of the above contentions raised by the noticees, it is pertinent to note that 2300 shares were sold by Ms. Amishi Gandhi on 21.4.1999 during the time slot 10:16 am to 11:28 a.m. within a price range of Rs.342/- to Rs.355/-. The consideration received for the sale is Rs.873000/-. Further 1200 shares were sold on 22.4.1999 between the time slot 11:33 - 11:49 am within a price range of Rs.363/- to Rs.369/-. The consideration received for the said transactions is Rs.4,39,150/-. It is pertinent to note that on the very next day i.e on 23.4.1999, 3500 shares were purchased by Ms. Amishi Gandhi, at a price range of Rs.321/- to Rs.329/- and the consideration paid for the purchase is Rs.11,33,660/-. These transactions clearly indicate that in respect of the said transactions alone, Ms. Amishi Gandhi gained a profit of Rs.1,05,563/-
- The dates and the timings of the transactions are not disputed by the noticees. Hence by buying the said shares subsequently at a lower price, the noticees could make a profit of Rs.105563/-. As stated in the preceding paragraphs, as in the case of the transactions executed in January 1999, no plausible explanation has been provided by the notices for executing the trades on the said dates. Circumstantial evidence indicate that Shri. Rajiv Gandhi communicated the information that the quarter ended March 1999 showed a negative performance to Ms. Amishi Gandhi and on the basis of which, the said sale transactions were executed by them. Considering the above facts it is concluded that by executing the above sale transactions on the basis of unpublished price sensitive information, the noticees had violated the provisions of Regulation 3 of the Insider Trading Regulations..
- Though it is seen that Smt. Sandhya Gandhi also executed some transactions on 1.4.99 and 6.4.99 which are alleged to be based on certain material events happened during the time, the evidence available do not directly lead to the conclusion that the same were on the basis of unpublished price sensitive information. The material events such as on 30.3.99, the directors informed of the board meeting scheduled on 22.4.99, in the facts and circumstances of the case, cannot be regarded as unpublished price sensitive information which influenced the said transactions executed on 1.4.99 and 6.4.99.
- Though it appears that the noticees had executed many transactions during July 1999 and December 1999, it is pertinent to note that in respect of the said transactions, SEBI had accepted the contentions of the noticees and considering the said submissions of the notices it is appropriate that same consideration is given to such transactions in the present adjudication proceedings.
- On 18.8.99, the company issued circular resolution for calling AGM on 28.9.99 for approving a scheme of arrangement for demerger. The company had a board meeting on 18.10.99 where unaudited results for quarter ended 30.9.99 was approved. The results for the quarter ended September 1999 showed a positive performance over the previous quarter. It is alleged that the noticees had the above price sensitive information prior to the board meeting and based on the said information, the noticees executed the following trades in the scrip:
|
Date
|
Sale
|
Purchase
|
Rate (Rs.)
|
|
11.8.99
|
-
|
1000
|
368-370
|
|
11.8.99
|
-
|
700
|
369-370
|
|
18.8.99
|
700
|
-
|
542
|
|
27.9.99
|
-
|
1000
|
645
|
|
14.10.99
|
-
|
2000
|
757-760
|
|
18.10.99
|
-
|
1000
|
749-750
|
- ln this regard, the noticees have submitted that demerger was already announced in April 1999. Events such as approval of the demerger by the Board are merely procedural steps to implement the demerger known to the investing public. Financial results of the company over a period of five years from 1998 to 2003 shows that the company prices are at peak during October. Had the intention of the noticees been to take any advantage of these price movements, it would not have bought shares of the company at peak prices during October 1999.
- In respect of the above transactions, the transactions executed in August 1999 is on the basis of material events such as the event on 12.8.99 when the Honourable Bombay High Court ordered a meeting of shareholders to consider and approve the scheme of de-merger, and notice on 18.8.99 calling AGM on 28.9.99 for approving scheme of arrangement for the de-merger. The said events may have influenced the investment decisions of the noticees however in the facts and circumstances of the case and on the basis of the evidence available on record and particularly in the context of the present case, information pertaining to said events cannot be termed as unpublished price sensitive information. Hence in respect of the transactions executed by the noticees in August 1999, the same cannot be considered to be in violation of the provisions of the Insider Trading Regulations.
- It is noted that certain transactions were executed by Shri. Rajiv Gandhi on 14.10.99 and 18.10.1999, it is pertinent to note that the performance of the company in respect of the quarter ended September 1999 was to be placed before the Board in the meeting scheduled at 12 noon on 18.10.1999. In his official capacity, Shri. Rajiv Gandhi had access to the accounts of the company. This fact has not been denied by Shri. Rajiv Gandhi. The results for the quarter ended September 1999 vis- a- vis the previous two quarters is the following:
|
|
March 1999
|
June 1999
|
September 1999
|
Rise over the previous quarter(%)
|
|
Gross Profit
|
159
|
159
|
392
|
140
|
|
PBT
|
78
|
120
|
350
|
191
|
|
PAT
|
78
|
120
|
340
|
180
|
- As can be seen from the above details, there has been a substantial jump in the profits of the company for the quarter ended September 1999. While analyzing the trades executed by the noticees during the period, it is noted that on 14.10.99 Smt. Sandhya Gandhi purchased 2000 shares within a price range of Rs.757-760 for a consideration of Rs. 1737660/-. Subsequently, on the date of the board meeting, Smt. Sandhya is alleged to have purchased 1000 shares within a price range of Rs.749 to Rs.750/-. The said purchase was made at around 10:17 a.m just before the board meeting. These facts are not disputed by Smt. Sandhya Gandhi. Further, no proper explanation has been provided for execution of the transactions before the board meeting. On account of the positive performance of the company during that period, one can reasonably expect that the price of the shares are bound to increase when the results are published. These circumstances clearly indicate that the said trades are executed as per the advice of Shri. Rajiv Gandhi on the basis of unpublished price sensitive information pertaining to the higher earnings of the company. In view of the same it is concluded that Shri. Rajiv Gandhi and Smt. Sandhya Gandhi violated the provisions of Regulation 3 of the Insider Trading Regulations.
- The instances cited above clearly indicate that in his official capacity Shri.Rajiv Gandhi had access to price sensitive information pertaining to the financial position and earnings of the company and on the basis of the said information many transactions were executed by the noticees as narrated above. In view of the same, it is concluded that the noticees violated the provisions of Regulation 3 of SEBI (Insider Trading) Regulations which provides that no insider shall 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 communicate, 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. The above violations attract the penalty under Section 15G of the SEBI Act.
- In this regard, It is pertinent to refer to the order of the Hon’ble Securities Appellate Tribunal in Appeal No.151/2004 in the matter of Rameshchandra Mansukhani NRI vs SEBI, wherein the Honourable Tribunal held that the penalty existing on the date of commission of the violation should be imposed and not enhanced penalty which came into being by way of subsequent amendment. The order passed by the Honourable Tribunal is relied upon in this case.
- In this regard, Section 15G of the SEBI Act as it stood at the time of commission of the violations by the noticees provided the following :
“If any insider who (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 price sensitive information; or (ii) communicates any unpublished price- sensitive 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 price-sensitive information, shall be liable to a penalty not exceeding Rs.Five Lakh.
Hence the violations committed by the noticees attract the penalty mentioned above.
- The provisions of Section 15J of the SEBI Act, 1992 and Rule 5 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 require that while adjudging the quantum of penalty, the adjudicating officer shall have due regard to the following factors namely:
-
- The amount of disproportionate gain or unfair advantage wherever quantifiable, made as a result of default
- The amount of loss caused to an investor or group of investors as a result of the default
- The repetitive nature of default
- With regard to the above factors to be considered while determining the quantum of penalty, it is noted that no quantifiable figures are available to ascertain the exact loss to the investors or gain to the noticees. It is noted that the noticees were engaged in insider trading on many occasions. Further, executing trades in the manner as stated above is detrimental to the interests of the investors and poses serious threat to the securities market. Hence taking into account the mandate of Section 15G of the SEBI Act as it stood at the time the violations were committed by the noticees, and considering the facts and circumstances of the case, I am of the view that the violations committed by the noticees have to be viewed seriously and attract the maximum penalty prescribed by the statute.
ORDER
- In view of the violation of Regulation 3 of the SEBI (Prohibition of Insider Trading) Regulations, 1992 committed by Shri.Rajiv R Gandhi, Smt. Sandhya R Gandhi and Ms. Amishi Gandhi, as stated above, in exercise of the powers conferred under Section15 I and Section 15 G of the SEBI Act, 1992, read with Rule 5 of SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules 1995, I, impose a penalty of Rs.5,00,000/- (Rupees Five Lakhs) each on Shri Rajiv R Gandhi, Smt.Sandhya R Gandhi and Ms. Amishi Gandhi.
- The penalties shall be paid by way of demand drafts drawn in favour of “SEBI – Penalties Remittable to Government of India” payable at Mumbai within 45 days of receipt of this order. The said demand drafts shall be forwarded to Chief General Manager, Investigation Department – ID1, Securities and Exchange Board of India, Plot No.C4-A, “G” Block, Bandra Kurla Complex, Bandra (East), Mumbai 400 051.
- In terms of the provisions of Rule 6 of the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995 copies of this order are sent to Shri Rajiv R Gandhi, Smt. Sandhya R Gandhi, Ms.Amishi Gandhi, and to Securities and Exchange Board of India.