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BEFORE THE
SECURITIES APPELLATE TRIBUNAL MUMBAI APPEAL NO.33
OF 2001 Rakesh Agrawal������������������������������������������������������������������� Appellant ����������������������������������� V/s
Securities Exchange Board of
India������������������������ Respondent PRESENTShri Amit DesaiAdvocate Shri Zal T. Andhyarujina Advocate Shri Yash Ashar Advocate Ms. Arati Varma Advocate I/b Amarchand &
Mangaldas & S. A. Shroff & Co.,���������� For
Appellant Shri Rafiq Dada Senior Advocate Shri Kumar Desai Advocate Shri A Patel Advocate I/b. Maneksha & Sethna Shri K.R.C.V. Seshachalam Asstt. Legal Adviser, SEBI�������������������������������������������������� For
Respondent ORDER ����������� Order passed by the Securities and Exchange Board of India, the Respondent herein (SEBI) on 10.6.2001, under sections 11 and 11B of the Securities and Exchange Board of India Act, 1992 (the SEBI Act) read with regulation 11 of the Securities and� Exchange Board of India (Insider Trading) Regulations, 1992 (the SEBI Regulations) against Shri Rakaesh Agrawal, the Appellant herein, is� under challenge� in the present appeal.� By the said order SEBI� had directed that: �Shri
Rakesh Agrawal deposit Rs.34,00,000 with Investor Protection Funds of Stock
Exchange , Mumbai and NSE (in� equal
proportion i.e. Rs.17,00,000 in each exchange) to compensate any investor which
may make any claim subsequently.
Any investor who is aggrieved with sale of shares of ABS Industries to Mr. I.P.
Kedia during September 9, to October 1, 1996 can approach SEBI within 15 days
of this order.� By the same
order SEBI directed to (i) initiate prosecution under section 24 of the SEBI
Act and (ii) adjudication proceedings under section 15I read with section 15 G
of the SEBI Act against the Appellant. ����������� The Appellant is the Managing
Director of ABS Industries Ltd., Vadodara (ABS) a company incorporated� under the Companies Act 1956 (name of the
company has been subsequently changed to Bayer ABS Ltd.).�� The main business of ABS is� manufacture of ABS resins (Acrylonitrile
Butadiene Styrene) and SAN, (Styrene Acrylonitrile resins).� Shares of ABS are listed on Bombay Stock
Exchange National Stock Exchange, Ahmedabad Stock Exchange and Vadodara Stock
Exchange.��� Bayer AG (Bayer) is a
company registered in Germany having many subsidiaries in various parts of the
world.� Bayer took controlling stake in
ABS in October 1996 by acquiring (a)
55,80,000 shares in the allotment made on a preferential
basis� by ABS (@ Rs.70/-) (b)
20% shares from the existing shareholders @ Rs.80/-
per share in a public offer. It has been
stated by SEBI that there were allegations of purchases being made prior to
announcement of Bayer acquiring controlling stake in ABS, on the basis of
inside information.� In that� context investigations were undertaken by
SEBI� to ascertain the truth or otherwise
of those allegations.� SEBI�s
investigation is stated to have revealed that one Mr. I. P. Kedia, brother in
law of the Appellant had� purchased
shares preceding Bayer�s acquisition of ABS and that the said acquisition was
made at the behest of the Appellant and the Appellant� funded the acquisition.� The investigation is also stated to have
revealed that� the shares were acquired
on the basis of the unpublished price sensitive information relating to
impending takeover of� ABS by Bayer,
available to� the Appellant� by virtue of his position as the Managing
Director of ABS and also as the negotiator from the side of ABS, in the
negotiations with Bayer. The findings of the investigation was forwarded to the Appellant asking him to show cause as to why action should not be taken against him for violation of the SEBI Regulations.� The Appellant replied to the notice denying the charges.� SEBI thereafter adjudicated the notice.� SEBI held�� the Appellant guilty of violating the provisions of regulation 3(i) of the SEBI Regulations and passed the impugned order. Shri Amit Desai, learned Counsel appearing for the Appellant argued at length defending the Appellant.� Shri Rafiq Dada, learned Senior Counsel appearing for the Respondent also advanced detailed arguments in support of the Respondent�s order.� Both the parties had referred several authorities � Indian and Foreign -- to support their contentions.� Detailed written submissions have also been filed.� The submissions made by the parties are furnished party wise, herein below: Appellant�s Submissions: ����������� �The Chairman by his order dated 10.6.2001 has
held the Appellant in breach of Regulation 3(i) of the SEBI (Insider Trading)
Regulations, 1992.� In particular the
impugned order has made the following findings:- (a)
the Appellant, being the Managing Director of ABS is a
�connected person� pursuant to Regulation 2(c).�
Further, that the Appellant is an insider within the meaning of
regulation 2(e) of the Regulations; (b)
the Appellant instructed his brother-in-law, Mr.� I. P. Kedia to purchase, 1,82,500 shares of
ABS on the basis of unpublished price sensitive price information that the said
company was to be taken over/merged with Bayer prior to the public announcement
to the NSE, BSE and VSE on October 1, 1996 in this regard; (c)
this purchase was financed by the Appellant; (d)
while holding that there was requirement to establish
�profit� for the purpose of establishing a violation of Regulation 3 read with
Regulation 4 of the SEBI Regulations and accordingly making no specific finding
that the Appellant �� had made any profit
from the said transaction, and further finding that in fact the action of the
Appellant in this regard were beneficial to the Company, the Chairman found the
Appellant in breach of Regulation 3, and in violation of the Regulation,
pursuant to the provisions of Regulation 4 thereof; (e)
while finding that issuance of directions under the
Regulation 11 would be �inoperative and infructuous�� in the facts and circumstances, pursuant to
section 11(1) Read with Section 11 B of the SEBI Act, the Chairman who Suo motu
directed the Appellant to deposit a sum of�
Rs.34,00,000 with the Investor Protection Funds of BSE and NSE to
compensate the investors who may come forward at a later period of time seeking
compensation for the loss incurred by them in selling at price which were lower
than the offer price; While
making the above findings and in particular finding the Appellant in breach of
Regulations 3 and 4 of the SEBI Regulations, the Chairman called upon case law
from the United States of America to explain the Philosophy of Insider trading
and to give conceptual clarity and to reinforce the said order.� The Appellant submitted that the said order
proceeds on a mis-reading of the said U.S. case law. The impugned order directs
the initiation of adjudication proceedings pursuant to Section 15I read with
Section 15G of SEBI Act against the Appellant.�
Further the impugned order holds that this is a fit case for invoking
the provisions of Section 24 of the SEBI Act, which provides for criminal
action against any person in contravention of the provisions of the said Act
and any rules or regulations made thereunder.�
The Appellant denied any violation of the SEBI Regulations and submitted
that the said order should be quashed and/or set aside.� Further that in so far as the said Order
directs the Appellant to pay the said�
sum of � Rs.34,00,000/- by way of
compensation, the said order is ultra vires the provisions of the SEBI
Regulations and the SEBI Act, and illegal.�
Further the impugned order in ordering prosecution should be launched
against the Appellant is illegal and excessive. SEBI had issued a Show Cause
Notice dated June 18, 1999 to the Appellant.�
In response to that the Appellant�
filed a reply dated September 24, 1999.�
Written submissions were also submitted to SEBI on 24.8.1999 pursuant to
receipt of the investigation report under Regulation 9(1) of the said
Regulations.� The Appellant had clearly
explained that there was no violation of the Regulations on his part. Brief facts submitted by the
Appellant:
The Appellant has been the Managing Director of ABS� for more than 25 years.� ABS was incorporated under the� Companies Act, 1956, in the year 1973 in the name of ABS Plastics Limited for the purpose of setting up an ABS manufacturing facility in India. ABS� was managed in a professional manner and the sole motivating criterion of the promoter, the Appellant, has been the growth and reputation of the Company.� The Appellant has always acted with the best interest of the Company in mind.� In the post economic liberalisation, several of the end-user industries of the products manufactured by the company (ABS and SAN resins), including automobiles, consumer durables, telecommunication instruments, were planning to put up facilities in India.� The Appellant was aware of the importance of technological arrangements with foreign companies so as to remain an important market player in the new economic scenario.� In this regard, ABS had serious dialogues with reputed global manufacturers of ABS resin, including Japan Synthetic Rubber (�JSR�) (which was also the Company�s existing technical collaborator), Mitsubishi Rayon, Toyo Engineering, Dow Chemicals, Monsanto Chemicals, etc. since 1994.� There had been several frequent reports and articles in various newspapers and magazines from late 1994, all through 1995 and most� of 1996 that ABS� was seriously contemplating association with a foreign company.� In this context�� paginated index copy of the relevant press clippings filed in the Tribunal was referred to.��� In mid � July 1995, the Company signed a secrecy agreement with Monsanto to explore the possibility of technical/foreign collaboration, while dialogues with other foreign companies continued.� In November 1995, Monsanto�s styrenic business worldwide was taken over by Bayer. As a result of this, the contractual rights and obligations under the secrecy agreement entered into by ABS with Monsanto were transferred to Bayer.� Bayer� approached ABS� in February, 1996 as to the possibility of synergising the technical expertise of both the companies.� The two companies had been in continuous discussions since on this aspect.� In May 1996, the Technical Adviser to the Company and the Appellant had further discussions with Bayer.� The discussion with Bayer� and the Company since early May 1996 were at a preliminary stage with both companies only investigating the possibility of combining their expertise.� However, ABS had kept all its options open in as much as it continued discussions with the other potential collaborators as well.� In the month of July 1996,�� a team from Bayer visited the Company�s plant to conduct a technical evaluation together with a preliminary due diligence.� In September 1996, the Appellant was requested to visit Germany by Bayer on his way back from the� USA, where he had gone with his family for a personal visit.� The Appellant accordingly stopped over in Germany on his way back to India between September 6, 1996 and September 8, 1996 for discussions with Bayer.� This was the first meeting in Germany and there were initial discussions with the senior management and officers of Bayer, after Bayer� had conducted a technical evaluation and due diligence.� During these discussions, Bayer indicated that as per the worldwide policy of Bayer, any joint venture with Bayer� would require that Bayer control 51% in the joint venture company.� This firm pre-condition of Bayer was made known to the Appellant and ABS� for the first time during his visit to Germany.� However, the discussions for the� proposed joint venture were still under way, and the method or modality of the investment by Bayer� had not been initiated. The
pre-condition of Bayer that it always has had a majority stake in any company
to which it licenses its technology is information in the public domain.� In fact it is well known that Bayer has never
licensed any technology in the world where they do not have a majority stake. Subsequently,
the proposal with Bayer� was discussed by
the Board of directors of the Company at its meeting held on September 20,
1996.� The company and Bayer� had merely discussed the viability of a
possible joint venture but not the details thereof.� The Appellant appraised the Board
accordingly.� At that stage, there was no
agreement or understanding between the parties and there was no certainty that
the parties would infact agree to go ahead with the joint venture.� Accordingly the Board authorised the
Appellant to undertake further discussions in the matter.� There was no concrete proposal whatsoever
before the Board on which it could take a decision, at that stage.� The resolutions
passed by the Extraordinary General Meeting were subject to the approval by the
financial institutions.� On September 29,
1996, the Appellant visited Germany again, with a view to obtain a definite
commitment from Bayer� to enter into the
said joint venture/merger and to agree on the terms and conditions on the basis
of which the parties would do so.� The
experts were involved for the first time at this stage to iron out the
methodology and modality of investment.�
Appellant travelled with the Company�s legal counsel� for this purpose. Bayer� had invited their merchant bankers and legal
advisors� to be present at the said
discussions in Germany. This was the first time that the said experts were
involved in the discussions, as it was hoped that the discussions would for the
first time culminate in a definite proposal.�
At the said meetings, several suggestions were made as regards the
modalities of the transaction, including making a preferential allotment to
Bayer� and also a public offer by
Bayer� to the other shareholders of ABS
to purchase their shares under the provisions of the SEBI (Substantial
Acquisition and Takeovers) Regulations, 1994 (the �Takeover Regulations�).� An understanding to proceed with the said
joint venture/merger was arrived at in Germany only on October 1, 1996 for the
first time.� As soon as an understanding
of the transaction was reached, the Bombay Stock Exchange, National Stock
Exchange and Vadodara Stock Exchange were informed (i.e. on October 1, 1996
itself) of the Board Meeting that was going to be convened to discuss and
decide o the raising of further capital through preferential offer, if any. Between
October 2, 1996 and October 3, 1996 the legal consultants of both parties
prepared a share subscription agreement and shareholders agreement detailing
the terms and conditions of the parties to the transaction.� The subscription agreement was entered into
on October 5, 1996.� The said agreement
contained a covenant on the Board of Directors of ABS as well as the Indian
Promoters (being the Appellant) to co-operate with Bayer in enabling it to
acquire 20% additional shares in the public offer.� Further, the acquisition of 51% shares by
Bayer (with 31% being through preferential allotment and 20% being through
public offer) was a condition precedent to the successful completion of the
joint venture/merger, including the execution of the shareholders agreement. On October
5, 1996 the board of directors of Bayer and ABS approved the preferential
allotment of shares to Bayer as also the notice for the extraordinary general
meeting (EGM) of the Company to be convened on October 30, 1996. On October 8,
1996, a public announcement was made in the newspapers by Bayer (and their
merchant bankers) offering to acquire 20% shares of ABS from the existing shareholders
of ABS under the Takeover Regulations at a price of Rs.70/- per share.� In the said public announcement, the
Appellant�s obligation to co-operate with Bayer Industries to acquire 20%
shares from the public was clearly disclosed.�
In the event that Bayer was unable to acquire the said 20% shares under
the public offer, the entire transaction would have become null and void.� Subsequently, the shareholders passed a
special resolution on October 30, 1996 approving the preferential allotment of
shares to Bayer.� At this meeting, UTI
categorically opposed the preferential allotment to be made to the
promoters.� This is recorded in the
minutes of the meeting. In the last
week of December, 1996, owing to considerable pressure from the financial
institutions, Bayer was forced to increase the offer price from Rs.70/- per
share to Rs.80/- per share.� The
announcement to increase in the offer price appeared in the news papers on
December 27, 1996.� However, this
decision was taken by Bayer and its merchant bankers pursuant to their
discussions with the financial institutions.�
The Appellant was not involved in any manner in that decision. The Company
has significantly benefited by the induction of Bayer. All creditors continue
to rate the Company with the highest creditworthiness having the entire loan
repayments and schedules being met in a timely manner.� It has also strengthened the relations with
vendors, suppliers, and employees and also in relation to research and
development. If� the joint venture/merger
was not successful, the Company would have been unable to remain
prosperous.� Therefore, the acquisition
of 51% shares by Bayer was critical to its induction. As regards
the transactions carried� out by Rakesh
Agrawal�s brother-in-law, Shri I. P. Kedia, the position was stated that: (a)
The Appellant has been holding shares in the Company
since its inception.� Neither the
Appellant nor any of his investments companies have ever sold any shares in the
Company (except once in December, 1994).�
The Appellant and his family have constantly held approximately 40%
shares in the Company (till February 1997). (b)
During the period between September 9, 1996 and
October 1, 1996 , the Appellant�s brother-in-law, Shri I. P. Kedia purchased
about 1,82,500 shares in the Company.�
Pursuant thereto the Appellant had informed Shri Kedia that if shares
are offered by any of his relatives or any other person, he can procure shares
on his behalf.� However, at no stage did
the Appellant� express any reason or any
objective thereto for requesting Shri Kedia to purchase the said 1,82,500
shares.� The Appellant did not inform Mr.
I. P. Kedia about any discussion ����������� with Bayer� for any possible joint tie up.� There was never a ����� communication of price sensitive information by the Appellant
to his brother-in-law. (c)
Although during the period between September 9, 1996
and October 1, 1996 the Appellant was conscious of the pre-condition imposed by
Bayer that Bayer would not enter into any transaction unless it was successful
in attaining� 51% shareholding in the
company, the discussions/ negotiations with Bayer, which were not in the
Appellant�s control, were still in progress and not conclusive.� There was no certainty as to whether the
transaction would occur at all and was in the realm of possibility.� The discussions relating to the modalities of
investment had not yet taken place.� It
was only on October 1, 1996 that the basic agreement of the tie-up was
finalised, namely that Bayer� would
participate in ABS through its wholly owned subsidiary in India � M/s. Bayer
Industries Ltd., upon which the stock exchange was immediately informed and a
board meeting was convened to consider the matter. (d)
Shri Kedia continued to acquire shares during the
period between October 1, 1996 and October 7, 1996 at an average price of more
than Rs.70/- per share i.e. after intimation had been given to the stock
exchanges that a Board meeting was going to be convened to discuss and decide
on raising of further capital through preferential offer, if any. (e)
Further, the�
Appellant had instructed Shri Kedia again to purchase further shares
from the market.� In fact, after the
press advertisement on October 8, 1996 1,24,250 shares were purchased at a
price of over Rs.80/-� Therefore, clearly
the shares were acquired only to fulfill the obligation undertaking by the
Appellant to Bayer to ensure that it obtains 51% shares in the Company.� The Appellant did not seek to acquire the
shares in order to make any profit therefrom.�
Bayer�s induction was extremely critical to the Company, and it is only
with this objective in mind, i.e. in order to ensure that Bayer succeeds in
obtaining 51% shares in the Company, that the Appellant requested Shri Kedia to
acquire the shares. The
Principles of Insider Trading
The SEBI� Regulations
on insider trading� seek to prohibit
persons who by virtue of their connection with a company received unpublished
sensitive information from using such information/dealing in the securities of
the company on the basis of such information to make secret profits / person
gains.� SEBI has extensively referred to
the US Law while interpreting the Insider Trading Regulations not only in the
case of the Appellant but also in the case of SEBI Vs. Hindustan Lever Ltd.
Even upon perusal of the High Powered Committee Report, it is apparent that the
Committee has considered the US Law on insider trading.� The jurisprudential principles behind the
prohibition of insider trading were enunciated by the Securities and Exchange
Commission (SEC) in its decision rendered in the matter of Cady Roberts &
Co., on November 8, 1961.(40 SEC 907 1961)�
The SEC while considering Section 1(a) of the Securities & Exchange
Act and Rule 10(b-5) of the Rules thereunder inter alia of particular acts or practices which constitute fraud but
rather we designed to encompass the infinite variety of devices by which undue
advantage may be taken of investors and others.�
The SEC went on to observe that an insider must disclose material
fact known to them by virtue of his position, but which are not known to
persons with whom he deals and which if made known could affect their
investment/judgement.� They also observed
that if the disclosure prior to effecting a purchase or sale of shares could be
improper or unrealistic, the alternative is to forgo the transaction.� The SEC went to observe �Analytically, the obligation rests on two principle elements; 1)
The
existence by a relationship giving access, directly or indirectly, to
information intended to be available only for a corporate purpose and not for the
personal benefit of any one, 2)
Inherent
unfairness involved where the party takes advantages of information knowing it
is� not available to others with whom he
is dealing� It� was this decision which introduces the
�disclose or abstain� rule in securities transactions.� It is submitted that the disclose or abstain
rule is not an absolute rule and there is no contravention of Regulation 3
merely because there may be purchase or sale of securities without a disclosure
by the corporate insider.� The disclose
or abstain rule has been misrepresented to suggest that in law, there is no
absolute obligation or duty to either disclose the material information or to
abstain from dealing the securities. The
aforesaid observations in Cady Roberts�
& Co., clearly indicate that the prohibition on trading on
undisclosed information is only when information is entrusted for a corporate
purpose and should not be used for personal benefit on the principle that there
is inherent unfairness when the party takes advantage of such information
knowing that it is unavailable to others.�
Consequently it is only when the information is being misused for
personal benefit or where a person takes advantage of such information that
there would be a contravention of fiduciary obligation cast upon the corporate
insider who is in possession of the material information.� The decision of the SEC does not suggest that
the information cannot be used even for a corporate purpose.� In fact, the SEC has recognised that if there
are conflicting fiduciary obligations the obligation to the company is
paramount and there is no compulsory bar to the use of such information.� In the context in Cady Roberts at page 11 it
is stated that �even if we assume the
existence of conflicting fiduciary obligations, there can be no doubt which is
primary here.�� Additionally on page
12 the court has considered what fiduciary duty was owed and in this context
stated: ��
In the circumstances, Gintel�s relationship to his customers was such
that he would have a duty not to take a position adverse to them, not to take
secret profits at their expense, not to misrepresent facts to them, and in
general to place their interests ahead of his own.� The
aforesaid decision was considered by the US Supreme Court in Chiarella Vs. United
States (445 US 222) in its decision rendered on March 18, 1980.� The Supreme Court while considering the
argument that there is an absolute duty to �disclose or abstain� and while
dealing with the decision of the SEC, inter alia observed the decision which
solely rested upon its belief that
federal securities laws have �created a system providing equal access to
information necessary for reasoned and intelligent investment decision� id. At
1362.� The use by anyone of material
information not generally available is fraudulent, this theory suggests,
because such information gives certain buyers or sellers an unfair advantage
over less informed buyers and sellers. This reasoning suffers from two defects.� First, not every instance of financial
unfairness constitute fraudulent activity under Section 10(b).� (Santa Fe Industries Inc. Green 430 US 462,
474, 477 (1977).� Second the element
required to make silence fraudulent � a duty to disclose � is absent in this
case.� No duty could raise from the
petitioner�s relationship with the sellers of the target company�s securities,
for petitioner had no prior dealings with them.�
He was not their agent, he was not a fiduciary, he was not a person in
whom the sellers had placed their trust and confidence.� He was in fact a complete (455 US 233)
stranger who dealt with the sellers�
only� through impersonal market
transactions. �.. �As we have
seen, no such evidence emerges� from the
language or legislature history of S.10(b).�
Moreover, neither the Congress nor the Commission ever has adopted a
pairty-of-information rule.� Instead, the
problems caused because by misuse of market information have been addressed by
detailed and sophisticated regulation that recognizes when use of market
information may not harm� operation of
the securities markets�.� The dissent
of Mr. Chief Justice Burger J. of the US Supreme Court also reiterates this
underlined principle.� Burger J. in his
descent, inter alia observed �Finally, it
bear emphasis that this reading of Section 10(b) and Rule 10b-5 would� not threaten legitimate business
practices.� So read, the anti fraud
provisions would not impose duty on a tender offeror to disclose its
acquisition plans during the period in which it �tests the water� prior to
purchasing the full 5% of the target co.�s stock.� Nor would it proscribe �warehousing�.� Likewise, market specialists would not be
subject to a disclosure or refrain requirement in the performance of their
every day (455 US 243) market functions.�
In each of these instances, trading is accomplished on the basis of
material non-public information, but the information has not been unlawfully
converted for personal gain. Justice
Blackmun in his dissent inter alia observes �The duty to abstain or disclose arose, not merely as an incident of
fiduciary responsibility, but as a result of the �inherent unfairness� of
turning secret information to account for personal profit.�� He went on to observe �the concept of �insider� itself has been flexible; wherever
confidential information has been abused prophylaxis has followed. The US
Supreme Court had once again considered the principle of disclose or abstain in
Dirks v. Securities and Exchange
Commission. (463 us 646)� The Supreme
Court in its decision rendered on July 1, 1983, has inter alia, made the
following observations in the context of the arguments of an absolute principle
of disclose or abstain.� �Not all breaches of fiduciary duty in
connection with a securities transaction� however, come within the ambit of
Rule 10(b)-5.� Santa Fe Industries v.
Green 430 US 462, 472, (1977).�� There
must be �manipulation or deception� id, at 473.�
In an insider trading cause this fraud derives from the �inherent
unfairness involved where one takes advantage� of �information intended to be
available only for a corporate purposes and not for the personal benefit of any
one�, In re Merrill Lynch, Pierce, Fenner & Smith 438 SEC 933, 936
(1968).� Thus, an insider will be liable
under Rule 10 b-5� for insider trading
only where he fails to disclose material non-public information before trading
on it and thus make �secret profit� Cady Roberts Supra 916 n.31�.� The Supreme Court went on to observe �Whether disclosure is a breach of duty
depends in large part of the personal benefit the insider receives� as a result of the disclosure.� Absent an improper purpose, there is no
breach of duty to stockholders. Performance of the disclosure.� SEC argues that, if insider trading liability
does not exist when the information is transmitted for a proper purpose, but is
used for trading, it would be a rare situation when the parties could not
fabricate the same ostensibly legitimate business justification for
transmitting the information.� We think
the SEC is unduly concerned.� In
determining whether the insider�s purpose in making a particular disclosure is
fraudulent, the SEC and the Courts are not required to read the parties
mind.� Scienter in some case is relevant
in determining whether the tipper has violated his Cady Roberts duty. N. 23 But
to determine whether the disclosure itself �deceives, manipulates pr defrauds
shareholders. The initial inquiry is whether there has been a breach of duty by
an insider.� This requires courts to
focus on objective criteria, whether the insider receives a direct or indirect
personal benefit from the disclosure, such as a pecuniary gain or a
reputational benefit that will translate into future earnings.�� In the context of the facts of that case,
the Supreme Court went on to observe �As
the facts of this case clearly indicate, the tippers were motivated by the
desire to expose the fraud see supra 648-649.�
In the absence of a breach of duty to shareholders by the insider, there
was no derivative breach by Dirks. ��Blackman J. in his descent in footnote 11
explained requirement of scienter in insider�
trading cases.�� The Court
observed ��.when the disclosure to an
investment banker or some other advisers, however, there is normally no breach
because the insider does� not have
scienter; he does not intend that the insider information be used for trading
purpose to the disadvantage of shareholders.�
Moreover, if the insider in good faith does not believe that information
material or non-public, he lacks the necessary scienter, Earnst & Earnst v.
Hochfelder 425 US, at 197.� In fact, the
scienter requirement functions in part to protect good faith errors by this
type Id, at 211, n.31� In� the context of the facts and circumstances of
the case, and in view of the said legal position it cannot�� by any stretch of imagination have� been said that the Appellant had breached
Regulation 3 and rendered himself liable for penalty.� In this regard, the Appellant submitted that: (a)
There is no allegation or averment that the Appellant
made profit, direct or indirect, as a result of the impugned share transaction; (b)
There is no allegation or averment that the Appellant
undertook the impugned share transaction for the purpose of making any profit; (c)
There is no allegation or averment that the Appellant
has acted in a manner disadvantageous to the shareholders; (d)
There is no allegation or averment that in all, the
actions of the Appellant has caused detriment to the shareholders of the
Company; (e)
The averment in the findings of investigation relied
upon in the Show Cause Notice, issued by the�
Adjudicating Officer, on the basis of directions issued by the Chairman
dated June 21, 2000 (the �Show Cause Notice�) indicates that even according to
the Department, the acquisition of the impugned shares was undertaken with a
view to enable Bayer in reaching its 51% target.� The Show Cause Notice also relied upon the
statement dated April 7, 1996 of the Appellant in support of its
allegations.� In that statement in
response to question 4, the Appellant had inter alia stated �I realized looking into the future that it
was pertinent to our Company to enter into a technological tie-up with any of
these companies for sustained growth and even for survival�� Again in response to a question 4, the
Appellant inter alia stated ��..our share
subscription agreement which was arrived and which was approved by the Board of
Directors and subsequently sent to financial institutions for their approval
had a clear condition that the whole agreement was conditional upon Bayer
acquiring open ����������� ����������� 51%
share in ABS.� It also meant that if they
do not have 51%, the whole agreement
would become null and void.� That was a
very �������� scaring scenario in the
light of the development in industry in the ����������� country,
and particularly the heavy capacity being created in South ���������� East Asia.� (f)
In the inquiry under Regulation 9, the Appellant in
his submission dated August 24, 1999 had further elaborated that in the past
liberalization scenario, the polymer industry was reeling under a negative
bottom line due to lack of demand and loss of margin, and the producers of ABS
resin in the country were suffering heavily.�
It was also pointed out that the other three competitors of ABS viz. (1)
M/s. Rajasthan Polymer & Resin Ltd., (2) M/s. Polychem Ltd., and (3) M/s.
Bhansali Engineering and Polymer Ltd., have suffered significant loss and that
their networth had been wiped out significantly and they were nearly sick
companies for the� past several
years.� It was also pointed that in this
background it was imperative and� in
the� interests of company and its
stakeholders, such as shareholders, lenders, employees, suppliers, etc., that
the company survived.� The only way for
ABS to survive was the introduction of a foreign partner.� Bayer�
was one of the largest and most reputable global conglomerates in this
business and their induction into the company would go a long way in the
survival and growth of the Company. (g)
The Chairman in his decision of 1st June
2001, appreciated the fact that the Company gained substantially from the take
over by Bayer AG, as mentioned in para 14(x) of the Reply.� The Chairman went on to observe �however, there are many advantages (some of
which are listed in para 14 above) which are not possible to quantify in terms
of gain, there is no doubt ABS Industries really gained immensely from the take
over by Bayer AG.� (h)
The Appellant made no profits from ���� the said transactions and did not receive
any personal profits from the ������ same.
The question of the Appellant making a profit was alleged by the Respondents
for the first time during the hearing before the Hon�ble� Tribunal. (i)
All the impugned shares were submitted in the open
offer by Bayer to enable and assist Bayer�
in the acquisition of 51% control over the company. (j)
The Appellant also tendered 9 lakhs and odd shares
from his own promoter quota to enable Bayer�
to acquire 51% on account of shortfall in the target of the open
offer.� Thus not only was there no
personal profit made by the Appellant, but the whole purpose of the impugned
acquisition was a corporate purpose, namely to ensure the induction of Bayer AG
into the Company for the very survival of the company.� This induction, infact, resulted in the
survival of the company in as much as the other three competitors of the
Company named earlier have been ultimately gone under and became sick. The
stakeholders of the Company, including the shareholders, have benefited from
that induction.� Consequently in view of
the law set out above and especially observations of the US Supreme Court in
Dirks Vs, Securities and Exchange Commission it cannot be said that Appellant
has breached his fiduciary duty to the shareholders or misused any information
in his possession and� thereby
contravened regulation 3 and Section 15-G of the SEBI Act and rendered himself
liable for penalties in that regard. The
underlying principle enunciated by the US Supreme Court in the aforementioned
two decisions, which interpreted the decision of the Commission in Cady Roberts
& Co., was reported once again by the US Supreme Court in united State v.
O�Hagan (521 us 642)in its decision rendered on June 25, 1997.� The US Supreme Court while extending the
prohibition of the US Securities Laws from a fiduciary to a person in
possession of information and who misappropriated this information reiterates
the underlying principles of the prohibition on insider trading stated
earlier.� The Court made the following
observations: �9�.two theories are complementary, each addressing
efforts to capitalize on nonpublic�
information through the purchase or sale of the securities.� The classical theory targets a corporate
insider�s breach of duty to shareholders with whom the insider transacts;
the� misappropriation theory outlaws
trading on the basis of non-public information by a corporate �outsider� in
breach of a duty owed not to a trading party, but to the source of the
information.� 11 and 12 The misappropriation theory advanced by the
Government is consistent with Santa Fe Industries Inc Vs. Green 430 US 462, a
decision underscoring that section 10(b) is not an all purpose breach to
fiduciary duty ban; rather it trains on conduct involving manipulation or
deception.� The Court while considering the earlier decisions of the US
Supreme Court in Chiarella and Dirks observed: ���This Court found no obligation, see id.,
at 665 � 667, 103 S.Ct. at 3266 � 3268, and repeated the key point made in
Chiarella; There is no �general duty between all participants in market
transactions to forego action based on material, the non-public information.� Consequently even while continuing with the misappropriation
theory in the context of insider theory the US Supreme Court did not lose sight
of the underlying principles of insider trading and breach of fiduciary duty
which it settled in its earlier decision while dealing with the classical
theory on insider trading. It has been
held by SEBI in several decisions, US Law on insider trading is invaluable in
interpreting the Regulations. Regulation 3 must be interpreted bearing in mind
the underlying principles of insider trading and without losing sight of the
reasons why the obligations for disclosing the information or abstaining from
trading were imposed. The law in
England relating to insider trading is no different.� In Attorney-General�s
Reference (1) of 1988,(1988) IAC 971) Lord Lane while referring to White
Paper on the conduct of a company director (1977) referred to paragraph 22 of
the Paper which is inter alia stated: ��.Public confidence in directors and others
closely associated with companies requires that such people should not use
inside information to further their own interests.� Furthermore, if they were to do so, they
would frequently be in breach of their obligations to the companies, and could
be held to be taking an unfair advantage of the belief with whom they were
dealing�. Lord Lane
then went on to observe: �What is in our view much more significant is obvious
and understandable concern which the Paper shows about the damage to public
confidence which insider dealing with, is likely to cause and the clear
intention to prevent so far as possible what amounts to cheating when those
with inside knowledge use that knowledge to make a profit in their dealing with
others.� This is the reason for the
proposal in paragraph 25 of Paper.� ��.The prosecution will� need to show that the insider knew or had
reasonable grounds to believe that the information was not generally known and
was price sensitive and that he dealt nevertheless.� Also, it will be possible for a person to
offer a defence that his purpose in dealing was not to make a profit or avoid a
loss by the use of his insider information.� An Appeal against the decision of the Court of Appeal was
turned down by the House of Lords. The Hon�ble
Supreme Court of India in K. P. Verghese Vs. Income Tax Officer, Ernakulam
& Another (1981) 3 SCC 173 observed that�
while dealing with interpretation on statutory provisions �The task of interpretation of a statutory
enactment is not a mechanical task.� It
is more than a mere reading of mathematical symbols.� It is an attempt to discover the intent of
the legislature from the language used by it and it must always be remembered
that language is at best an imperfect instrument for the expression of human
thought and as pointed by Lord Denning, it would be idle to expect every
statutory provision to be �drafted with devine prescience and perfect
clarity.� We can do no better than to
repeat the famous words of Judge Learned Hand when he said: ��it is true that the words used, in another literal
sense, are the primary and ordinarily less reliable source of interpreting and
meaning of any writing; be it a statute, a contract or anything else.� But it is one of the surest indexes of a
mature and developed jurisprudence not to make a fortress out of the
dictionary; but to remember that statutes always have some purpose or object to
accomplish, whose sympathetic and imaginative discovery is the surest guide to
their meaning� 6.It is a� well
recognized rule of construction that a statutory provision must be so
construed, if possible, that absurdity and mischief may be avoided.� Considering
the settled principles of interpretation, Regulation 3 must be interpreted
bearing in mind the basic underlying assumption and the intent of the
legislature in introducing such Regulations.�
The Regulations was never intended as an all purpose ban on trading.� Legitimate transactions undertaking to
achieve a corporate purpose or to discharge a fiduciary duty or in the interest
of a body of public shareholders or stakeholders in a company or transactions
in the public interest or transactions undertaken without an intent to make
profit or to gain unlawfully or without a view to misuse information, or the
like, would� not be hit by the
prohibition contained in the Regulations.�
The whole function of the Regulation is to regulate, not to stop
transactions from taking place. Any�
other interpretation will lead to�
stifling the genuine transactions undertaken for legitimate corporate
purpose or the like.� The whole
Regulation is an anti-fraud regulation. The
Regulation was preceded by a High Powered Committee on Stock Exchange Reforms
which in its report has explained insider trading as follows: �Insider trading generally means trading in the shares
of a company by the persons who are in the management of the company or are to
close to them, on the basis of� undisclosed
price sensitive information regarding the working of the company which they
possess but are not available to others.�
Such trading as it involves misuse of confidential information, is
unethical tantamounting to betrayal of fiduciary position of
trust and confidence. The preface
to the draft regulations on insider trading which was circulated to the various
intermediaries associated with the securities market, gives a fair idea of the
rationale for the regulations that: �The smooth operation of the securities market and its
healthy growth and development, depend to a large extent on the quality and
integrity of the market.� Such a market
can alone inspire confidence in investors.�
Factors on which such confidence depend include, among others, the
assurance the market can afford to all investors, that they will be protected
against improper use of inside information.�
Inequitable and unfair practices such as insider trading, market
manipulation and other security frauds affect the integrity, fairness and efficiency
of the securities market, and impair the confidence of investors. Insider trading takes place when insiders or other
persons, who by virtue of their position in office or otherwise, have access to
unpublished price sensitive information relating to the affairs of a company,
and deal in securities of such company or cause the trading of securities while
in possession of such information or communicate such information to others who
use it in connection with the purchase or sale of securities.� Thus, by benefiting certain investors as
compared to others. Insider trading prejudices�
smooth functioning of the securities market and undermines investor�s
confidence.� In the
light of the underlying principles relating to the prohibition of insider
trading as well as the objects and reasons and intention behind the
Regulations, it is abundantly clear that what was intended to be prohibited
under Regulation 3 was the dealing in securities which was with a view to
misuse information for obtaining unfair advantage.� One of the indicia of that unfair advantage
was making of profit.� Consequently if
the dealing in securities was not with a view to misuse the information or gain
unfairly from the use of the information or to use information to make profit,
that dealing in securities was not prohibited or covered by Regulation 3. The
impugned transactions were undertaken by the Appellant in discharge of his
fiduciary obligations as director with a view to save the company and to ensure
its survival as going concern.� The
object of the transaction was clearly bonafide and to achieve the Corporate
purpose.� The Hon�ble Supreme Court of
India in Needle Industries (India) Ltd.
and Ors. Vs. Needle Industries Newey (India) Holders Ltd., & Ors. AIR
1981 SC 129, while dealing with director�s fiduciary obligations and the
discharge of such fiduciary obligations has held as under: �the fact that by the issue of shares the
Directors succeed, also or incidentally, in maintaining their control over the
Company or in newly acquiring it, does not amount to an abuse of their
fiduciary power.� What is considered
objectionable is the use of such powers merely for an extraneous purpose like
maintenance or acquisition of control over the affairs of the Company. Admittedly the intention of the transactions being to ensure
the Bayer acquires 51% and there being no other intentions in undertaking
transactions, none of the indicia set out above has been satisfied. �Such actions are proscribed because the
information is given to such persons, by virtue of their connection with
company, for corporate purposes and not for personal benefit.� Further, that it is inherently unfair for
such �insiders� to personally benefit from the use of such information at the
expense of other shareholders, who are disadvantaged by lack of such
information (Cady Robert & Company 40 SEC 907 1961). Since� the insiders receive unpublished price
sensitive information by virtue of their connection with the company and for
corporate purposes only, such insiders owe a fiduciary duty (or a duty akin to
a fiduciary duty) to the company not to misuse or misappropriate such
information for an unlawful purpose i.e. to make secret profits or personal
gains for themselves. (Chiarella v. US 455 US 222). Such� insiders are therefore either required to
disclose the said unpublished price sensitive
information to other transacting parties or to abstain from acting on the said
information/dealing in such securities altogether.� This requirement has come to be known as the
�disclosure or abstain� rule. To
establish the� offence of insider taking,
it is essential to establish a breach of such duty owed to the company by the
insider.� This necessarily requires some
�manipulation or deception� by the insider (Dirks v. US SEC 403 (646),� that proof of mens rea to manipulate or
deceive is therefore necessary.� The
clearest evidence of the �manipulation� or �deception� being perpetrated by a
corporate insider is when an insider uses the unpublished price sensitive
information to make secret profit/personal gains.� The necessary circumstance for liability is
to ascertain whether the insider has made any secret profits or personal
gains.� If such benefit can be established,
the insider is liable for the offence for insider trading (Dirks v. SEC 406 US
646). The U.S.
Supreme Court,� while considering the
Appeal in the case of Dirks v. SEC, while holding that personal
benefit/personal gains form the basis of liability of insider trading stated: �In some situations the insider will act consistently
with his fiduciary duty to shareholders and yet release of the information may
affect the market.� For example, it may
not be clear � either to the Corporation insider or to the recipient analyst �
whether the information be viewed as material non-public information.� The Corporation Official may mistakenly think
information already has been disclosed or that it is not materially enough to
affect the market.� Whether disclosure is
a breach of the duty therefore depends in large part on the purpose of the disclosure.� This standard was identified by the SEC in
Cady Robert�s purpose of securities laws to eliminate use of the inside
information for personal advantage.� 40
SEC 1912, n d15.seen d 10, supra.� Thus
the test is whether an insider personally will benefit directly or indirectly
from his disclosure.� Absent some
personal gain, there has been no breach of duty to shareholders.� And absent a breach by the insider there is
no derivative breach� The duty to
disclose or abstain is� not an absolute
duty.� When the insider acts / uses
unpublished price sensitive information for a corporate purpose, he is not
subject to such duty.� In any event, the
failure to either to disclose or abstain cannot in such circumstances give rise
to liability.� ( Burger J while dissenting
on the principle established in Chiarella�s case (Supra) Page 13). In US v.
O�Hagan 521 US 642, the US Supreme Court, while holding that liability for
insider trading of a tipper/tippee was also based on the �misappropriation
theory�, reiterated and restated the aforesaid principles on the basis of which
corporate insiders are liable. In the case
of SEC v. David E. Lipson (U.S.Court of appeal (7th circuit) Docket
No.01-1226) it was held that merely because an insider had two purposes further
to which he dealt in securities, one being legitimate, and the other merely for
the purpose of making unlawful gains, the existence of the legitimate purpose
would not �sanitize� the illegitimate one.�
In this case there was a clear benefit by the father in favour of his
son and the Appellant had� not benefited
from the present transaction.� In Lipson
the primary or principal purpose was personal benefit not the corporate purpose
for the benefit of the larger body of shareholders. In the
facts of the matter, both purposes were motivated by the desire to make
personal gains by the diversion of unpublished price sensitive information to
private ends, and not further to any corporate purpose. Lipson�s case does not
in any manner contradict the aforesaid principles on the basis of which
insiders are held liable. The
necessary requirement to successfully establish liability for insider trading
is unlawful conversion of unpublished price sensitive information resulting in
secret profits/ personal gains. The Regulations The� prohibition against Insider Trading in India
is provided for in Regulation 3 of the said Regulations which so far as
relevant, reads : Prohibition on dealing, communicating or counseling on
matters relating to insider trading � 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 on the
basis of any unpublished price sensitive information� Regulation
2(e) defines an insider : �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.� Connected
person is defined by a Regulation 2 (c ): �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 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 an access to unpublished
price sensitive information in relation to that company.� Regulation
2(5) enumerates a class of persons who shall for the purpose of the Regulation
to be regarded to be �deemed connected persons�. The
requirement for establishing a breach of fiduciary duty to successfully make
out a violation of insider trading under Regulation 4 is implicit in the
provisions of Regulation� 3, and
necessarily needs to be read into the same, that this requirement is imported
into R 3, by the use of the defined term �insider�, that� an insider is necessarily a �connected
person� or �a person deemed to be connected� with the company. A �connected
person� is a person who owes the company a fiduciary duty (or a duty akin to a
fiduciary duty) not to misappropriate or to divert unpublished price sensitive
information for the purpose of making secret profits or personal gains as is
apparent from the nature and class of persons enumerated in S. 2( c )
above.�� Section 2( h) (a person deemed
to be connected) is a deeming provision by which the said duty is extended to
the class of persons mentioned therein. Regulation
3 merely aims to prohibit the insider from breaching this duty to the company.� The breach of this duty necessarily involves
an element of �manipulation� or �deceit�, and the making of some secret profits
or personal gain / benefit by the insider. The
predominant purpose of the transaction was the corporate purpose.� The object of the transaction was not to
secure personal benefits or secret profits.�
The position of SEBI that absolute disclosure or complete abstention is
the only option is not tenable.� For
example, SEBI has in fact provided for creeping acquisitions under the Takeover
Regulations, by inter alia promoters and other existing shareholders who would
qualify as insiders under the said Regulations.�
Therefore, it is clear� that
transactions entered into even on the basis of unpublished price sensitive
information would not be in breach of the Regulations if they are undertaken
for a corporate purpose, that any other interpretation of Regulation 3 would
render the same absurd for inter alia the following reasons: a)
All corporate activities on the basis of unpublished price
sensitive information would stand proscribed. b)
Corporate insiders would be subject to a form of
strict liability against dealing in securities even if they act in furtherance
of their duty to the Company. c)
A corporate insider would be liable although he has
committed no breach of his fiduciary duties, to the Company. d)
Promoters cannot consolidate their holdings in their
company subject to limit prescribed by the SEBI (Substantial Acquisition of
Shares and Takeovers) Regulations, 1997, on basis of unpublished price
sensitive information. Chapter III
of the SEBI Regulations on insider trading sets out SEBI�s powers to
investigate into suspected breaches of the said Regulation.� Regulation 5 empowers SEBI to inter alia
investigate and inspect the books of account and other records and documents of
the insider.� Regulation 6 prescribes the
procedure to be followed for the purpose of investigation. Regulation 7 obliges
of the insider to assist the said�
investigation. Regulation 8 provides for the submission of an
investigation report, by the investigating authority to SEBI upon the
conclusion of the investigation. Regulation
9 provides inter alia for the communication of the findings of the
investigation to the insider. Regulation 9 provides that the insider shall be
given an opportunity of being heard before any action is taken by the Board on
such findings.� Further, that upon the
receipt of an explanation, if any, from the insider the Board may take such
measures as it deems fit to protect the interest of the investors and in the
interest of the securities market and for due compliance with the provisions of
the Act, Rules and said Regulations. Regulation
11 provides for the directions that may be given by the Board to the alleged
insider in the course of investigation, and read as under: �11. Directions by the Board On receipt of the explanation, if any, from the
insider under sub-Regulation(2) of Regulation 9, the Board may without prejudice to its right
to initiate criminal prosecution under Section 24 of the Act, give such
directions to protect the interest of the investors and in the� interest of the securities market and for due
compliance with the provisions of the Act, rules made thereunder and these
regulations, as it deems fit for all or any of the following purposes namely:- (a)
directing
the insider not to deal in securities in any particular manner; (b)
prohibiting
the insider from disposing of any of the securities acquired in violation of
these regulations; (c)
restraining
the insider to communicate or counsel any person to deal in securities; Regulation 11 therefore empowers the board to give directions
only for the purposes enumerated therein viz. to prevent the insider from dealing
in securities in any particular manner, to prohibit the insider from disposing
of any securities� acquired in violation
of these Regulations and restraining the insider from communicating or
counseling any other person to deal in securities. Regulation 11 does not
empower the Board to pass any other wider directions.� The power under regulation 11 is only to pass
necessary interim directions for the purpose of preserving the status quo
during or immediately after the investigation. Regulation 11 does not empower
the Board to make any final and/or conclusive determination as to whether the
insider has acted in breach of the Regulations.�
It is for that reason that advisedly the Regulation does not empower the
Board to call for any Documentary evidence or to summon any persons it
considers necessary as witnesses before passing the said directions provided
for therein.� It is significant to note
that in contrast� Section 15-I(Power to
Adjudicate) of the said Act expressly confers upon the Adjudication Officer the
power to summon and enforce the attendance of any person acquainted with the
facts and circumstances of the case to give evidence or to produce any document
which in the opinion of the Adjudicating Officer may be useful for or relevant
to the subject matter of the inquiry. From the scheme of the SEBI Act read with the Regulations it
is apparent that a final and conclusive determination as to whether an insider
has breached the Regulations can only be done by the Adjudicating Officer,
pursuant to the provisions of Sections 15- G, 15-I and 15-J of the said Act and
not by the Board pursuant to Regulation 11. The fact that SEBI, while framing the said Regulations
did� not intend to confer upon the Board
any wider power, is clear� from the
language of the said Regulation 11 which states that the directions pursuant
thereto may be passed �for all or any of the following purposes namely ��.� This language�
be contrasted with language or Regulation 44 of the SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations, 1997 that: �The Board may, in the interests of the securities market, without
prejudice to its right to initiate action including criminal prosecution under
Section 24 of the Act give such directions as it deems fit including; (a)
directing
the person concerned not to further deal in securities; (b)
prohibiting
the person concerned from disposing of any of the securities acquired in
violation of these Regulations; (c)
directing
the person concerned to sell the shares acquired in violation of the� provisions of these Regulations; (d)
taking
action against the person concerned�� From the said Regulation 44, it is clear� that when SEBI intends to confer a wider
power upon itself it uses express language to that effect.� For example under Regulation 44 it has expressly
empowered the board to �give such direction as it deems fit including� for the
purposes enumerated therein below. Regulation 44 of the SEBI Takeover Code
therefore is unlike Regulation 11, being inclusive is merely illustrative of
the various purposes for which the Board may pass directions and not
exhaustive. The� impugned order, in
so far as it purports to make a final and/or conclusive determination of
whether the Appellant has acted in breach of the said Regulation is ultra vires
the said Regulation, and in particular Regulation 11.� The impugned order is illegal and should be� quashed and set aside on this ground alone. Unpublished
price sensitive information: Paragraphs 16 and 17 of the Impugned order: �16. ��� Mr.
Agarwal being a Managing Director of ABS Industries is a �connected person�
under the Regulation 2 ( c ).� He was
also an �insider� under Regulation 2 (e) as he being a person negotiating on
behalf of his company, was in a position to know about the impending tie
up/takeover with/by Bayer Industries. The information about takeover, amalgamation, mergers, etc. is���� a price sensitive information within the
meaning of Regulation 2 (k) (v) of the SEBI (Insider Trading) Regulations, 1992
and this information was not available to sellers and public at large. 17.
The
information about the �takeover� is price sensitive information, this can be
seen from expression �unpublished price sensitive information� which is defined
in Regulation� 2 (k) of the
Regulations.� ����������� This expression reads as under: �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 it published, is likely to materially affect the price
of securities of that company in the markets- (i)
financial
results (both half yearly and annual) of the company (ii)
intended
declaration of dividends (both interim and final); (iii)
issue of
shares by way of public rights, bonus shares (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)
such other
information as may affect the earning of the company; (viii)
any changes
in the policies, plans or operations of the company.� Similarly the fourth paragraph on page five at the Show Cause
Notice reads that: �From the above it is unequivocally clear that it has always
been SEBI�s case that the alleged unpublished price sensitive information on
the basis of which the Appellant is purported to have entered� into the said transaction was information
about the said tie up/take over by Bayer AG�. ����������� Regulation 2
(k) defines the information on the basis of which the insider is prohibited
from dealing in shares to make secret profits or personal gains.� The unpublished information relating to
mergers and takeovers may be construed to be price sensitive.� But all unpublished information regarding
mergers, etc. need not necessarily be price sensitive.� To be price sensitive the information should
be of such quality that it is likely to �materially� affect the price of
securities of the company in the market, that this requirement is inherent in
the concept of price sensitivity.� In
view of the definition in Regulation 2(k), it is only upon crystallization of
the decision of the merger/takeover that the information would be price
sensitive.� At no point of time prior to
1st October, 1996 was the fact of merger / joint venture between the
said companies certain or definite, that this fact became certain and definite
only on 1st October 1996 when the Appellant visited the head
quarters of Bayer AG in Germany. ����������� The lack of
certainty regarding the Company�s� merger
with Bayer�� is apparent from the fact
that between June and September, 1996 merger discussions were in fact
progressing not only with Bayer� but also
with JSR�� Further that, as late as
September 20, 1996, the Board of ABS merely authorized the Appellant to
undertake further discussion with Bayer�
in this regard.� The Appellant
reiterated that at that Board meeting, no concrete proposal whatsoever
regarding the merger was discussed with the Board.� ������ In
fact the minutes of September 20, 1996 meeting did not indicate that any
informal understanding had already been arrived at in this regard, that the
minutes in fact, clearly state that the salient features of the agreement are
in the process of being discussed. ����������� From the
very day i.e. October 1, 1996 when ABS and Bayer� entered into the said share subscription
agreement, the said stock exchanges were informed that a Board Meeting was to
be convened to discuss and decide raising of further capital through a
preferential offer, for the purpose of the said merger/takeover.� Further, it is empirically able to establish
that the general information that the company was merging/entering into a joint
venture with another company and/or Bayer AG was not price sensitive
information and did not materially affect the price of securities of ABS
Industries in the market, e.g. in February 1996, the Express Weekly (Edition of
8th January to 14th January, 1996) carried an article
wherein it was mentioned that ABS Industries was contemplating a tie-up with
Monsanto (subsequently, publicly taken over by the Bayer AG).� On the very ������� next
day after the article was published, the price of ABS�s share ��������� on the Bombay Stock Exchange dropped
to Rs.72.28 from prior high of Rs.84.74 as on 2nd January 1996.� The share price continued to decline and as
at 31st January 1996, stood at Rs.76.80.� Similarly the price of ABS share on the NSE
on 9th January 1996 dropped to Rs.73 from a high of Rs.83 on 1st
January, 1996.� Similarly, when ABS
Industries informed the Stock Exchanges that Board will be meeting to consider
the investment of Bayer� on October 1,
1996 the price of ABS�s share was materially unaffected.� The share opened at a price of ������ Rs.62/- and closed at Rs.64/- on that
very day.� Similarly during ����������� February � March 1995, there were
several reports and press notes ���� appearing
in various capital market related and other newspapers/magazines in regard to
the Katol Plant expansion and ���� other
technical tie-up news.� During this
period the price of ABS Industries share fluctuated between Rs.152.50 on 9th
February 1995 and Rs.136 on March 101, 1995.�
Similarly, on Maya 28, 1996 and June 2, 1996, there was an article in
Business India, discussing the future expansion plans of ABS Industries,
however the prices dropped from Rs.71.78 on 31st May 1996 to
Rs.68.79 on 6th June 1996.�
The Board of Directors on September 20, 1996 ���� declared dividend at the rate of Rs. 3 per share for the year
ended ������� June 30, 1996.� This news did not in any manner affect the
price of ABS.. ����������� Prior to
October 1, 1996, the quality of information regarding the �������� merger / joint venture between ABS� and Bayer�
that ������ was available to the
Appellant, was not appreciably different from the type of information which was
in public domain and which had failed to materially affect the price of ABS�s
shares. Prior to October 1, 1996, he did not possess any price sensitive
information, that prior to October 1, 1996 the fact that ABS Industries was
negotiating with Bayer AG for a possible collaboration was published and/or
generally known� and in the public
domain.� For example in a Article dated
March 20, 1995, the Financial Express
�investor� expressly mentioned that the company is negotiating with Bayer
Germany for possible collaboration in the manufacture of ABS Alloys.� Although it has never been SEBI�s case nor was it a point
even considered by the Chairman in his order, it� was�
argued on behalf of SEBI that the information
regarding Bayer�s said requirement to hold 51% equity of the said company was
the unpublished price sensitive information on the basis of which the Appellant
entered� into the said transactions.� This argument was for the first time taken
during the course of the said hearing and is contrary to the notice issued by
SEBI and the impugned Order, which proceeded on the basis that the information
regarding the take-over/merger was the relevant unpublished price sensitive
information.� It is not open to SEBI to
make the said submission and the same should be struck off from the record of
the proceedings.� If the same is
considered at this stage the same would violate natural justice as the
Appellant has had no opportunity to place on record� and plead that the said information was
neither material nor price sensitive no unpublished.� It was Bayer�s world wide policy that it
required to hold 51% equity of any company it enters into a tie-up/ merger /
take-over with, which fact is widely known, therefore the said information can
not be regarded to be unpublished. Power to
direct disgorgement / compensation The
impugned order directs the Appellant to deposit a sum of Rs.34.00,000/- with
the Investor Protection Funds of BSE and NSE, purportedly to compensate
investors who may come forward at a later period of time seeking compensation
for the alleged loss incurred by them in selling the said shares to I.� P. Kedia at a price lower that the aforesaid
price.� The said direction is in breach
of principles of Natural Justice, unreasonable, arbitrary and ultra vires the
provisions of Regulation 11 and /or Section 11 read with Section 11 B of the
SEBI Act on the ground that:� (i)that no
point of time prior to the impugned order have the Respondent put the Appellant
on notice that any such order was contemplated against him, (ii) in any event,
the Appellant has not been given any opportunity whatsoever to present his case
on the matter of quantification of the purported compensation, payable by him
if any, therefore the impugned order in so far as it directs the Appellant to
pay the said sum of Rs.34,00,000/- purportedly by way of compensation, is in
breach of the principle of Natural Justice, that on this ground alone the
impugned order is liable to be quashed and ���� set
aside.� (iii) further, the impugned
order, in so far as it directs the Appellant to deposit a sum of Rs.17,00,000/-
each with the Investor Protection Fund of both the BSE and NSE is unreasonable
and arbitrary. The said purchases of shares by I. P. Kedia, during the said
period� from the BSE and the NSE were
unequal, that accordingly, ��� even if it
is assumed, that compensation is payable by the Appellant, it is unreasonable
and arbitrary to direct the Appellant to deposit ���� Rs.17,00,000/- each with the Investor Protection Fund of both
the said exchanges,� (iv) that paragraphs
31 and 32 of the impugned order so far as relevant read that: �31� Regulation 11 of SEBI (Insider Trading
Regulations, 1992� empowers SEBI to issue
directions for the purpose of prohibiting the insider from dealing in the
securities, and prohibiting an insider from disposing of the securities
acquired, in violation of ��� the
Regulations.� These securities were given
in the open offer of Bayer Industries by Mr. Kedia and they are no more with
Mr. Kedia. Therefore, issuance of directions under this Regulation would be
inoperative and infructuous. ����������������������� In view of the above,
reliance is now placed on section 11B ���������������� of
the �� SEBI Act which reads as under:- ����������������������� �Save as otherwise
provided in section 11, if after making �������� or
causing to be made an enquiry, the Board is satisfied that it is necessary; (i)
in the interest of investors, or orderly development
of securities market, or; (ii)
to prevent the affairs of any intermediary or other
persons referred to in section 12 being conducted in a manner detrimental to
the interest of investors or securities market; (iii)
to secure the proper management of any such
intermediary or person. ����������� It may issue such directions; (a)
to any person or class of persons referred to in section
12, or associated with the securities marked; or (b)
to any company is respect of matters specified in
section 11A, as may be appropriate in the interests of investors in securities
and the securities market.� ����������� Paragraphs 33, 34 & 35 of the
said notice issued to the Appellant ������� pursuant
to Regulation 9, reads that: �33.����� Section 11B was inserted by the Securities
(Amendment) Laws, 1995.� This provision
of the Act operates independently of and in addition to the regulations.� Besides section 11B being a part of ����������� the SEBI Act, is superior and wider
to the regulations which are � pieces of
subordinate legislation. 34.������ To protect the
interest of investors and integrity of the market it is considered, fit and
proper, in the facts of the case, to issue a direction because SEBI as a
regulatory body would be failing in its duty if it does not take corrective
steps to protect the interest of investors and integrity of the market.� Besides it is also the duty of SEBI to ensure
that the transactions in the securities market are carried out in a fair and
transparent manner and there is a level playing field for the investors
transacting in the securities market.� In
this case it has been concluded that shares were purchased by Mr. Agrawal in
the name of Mr. Kedia on the basis of unpublished price sensitive
information.� Mr. Agrawal, thus, acquired
the shares in violation of the Regulation of the Act. 35.������ In view of the
aforesaid, I, D.R. Mehta, under the provisions of section 11(1) read with
section 11B hereby direct Mr. Rakesh Agarwal to deposit a sum of ����������� Rs.34,00,000/-
with investor protection fund of BSE and NSE to compensate the investors who
may come forward at a later period of time seeking compensation for the loss
incurred by them in selling at a price which was lower than the offer price.� It is thus clear� that the impugned order has proceeded on the basis that Regulation 11 merely empowers SEBI to issue directions for the purposes enumerated therein and in the present facts and circumstances of the matter passing such directions would in the opinion of the Board result in the same being inoperative and infructuous.�� Accordingly, the impugned order purports to direct the Appellant to deposit the said sum of Rs.34,00,000/- purportedly by way of compensation, pursuant to the provisions of Section 11 B� of the said Act. It is well established in law that, any pecuniary burden sought to be imposed by the legislature upon citizens, must be expressly� for� in� the� concerned Act/ Regulation.� Section 11 B of the said Act does not contain any such specific provision.� The only specific provision pursuant to which a pecuniary burden may be imposed upon a person in breach of the said Regulations is section 15G of the said Act, pursuant to which powers are only exercisable by the Adjudicating Officer.� The Board does not have any power to direct the Appellant to pay the said amount by way of compensation, pursuant to Section 11 B of the said Act. Accordingly, that the impugned order in so far as is does so, is ultra vires the provisions of the said Act, and liable to be struck down.� ����������� It was urged on behalf of the Respondents, that the Board had inherent powers under Section 11B of the said Act to issue all necessary directions in the interest of the investors, and the orderly development of the securities market.� In this regard the Respondents sought to rely upon the judgement and order of the Hon�ble Bombay High Court in the matter of B.P. Plc v. SEBI (SEBI Appeal No.10 of 2001 in Appeal no.37 of 2001) dated May 2, 2002 by which the Hon�ble Bombay High Court upheld SEBI�s directions to the Appellants therein to pay interest to the aggrieved investors.� This judgment and order is clearly distinguishable from the facts and circumstances of the present matter.� In B.P. Plc�s case it was held that SEBI has the power to direct the payment of interest to aggrieved investors on a conjoint reading of the provisions of the said Regulation 44 and Section 11B of the said Act.� Regulation 44 confers wide powers upon the board which include �taking action against the person concerned�, in the interest of the securities market, that it is due to these wide powers conferred by Regulation 44 that it was held that SEBI has the power to award interest to the aggrieved investors.� ����������� It was also argued on behalf of SEBI that the power to direct disgorgement of alleged profits, to aggrieved investors is an equitable power which vests in SEBI, and that such a� direction of disgorgement is compensatory in nature.� It is well established that equitable powers can only be exercised by courts and not any quasi-judicial tribunals/ bodies.� Accordingly, SEBI does not have the power to direct disgorgement of any alleged profits.� Further, the disgorgement of alleged profits is always directed as a measure of deterrence and not compensation.� (SEC V. Maurice Rind 991F. 2d 1486, SEC v. Manor Nursing Centers 458 f 2d 1082 (2nd circuit 1972)).� Directions of disgorgement are therefore penal in nature, and accordingly can not be passed pursuant to Section 11 B of the said Act, under which only remedial directions may be passed. (Sterlite Industries v. SEBI, BPL v. SEBI, Videocon V. SEBI).� ����������� It was further argued on behalf of the Respondent that if the power to direct disgorgement of alleged profits is not read into Section 11B of the SEBI Act, pursuant to Section 20A of the SEBI Act no civil court would have jurisdiction to award such compensation, as its jurisdiction in this regard would be barred, this submission is incorrect and proceeds on a misreading of the said Section 20A, that Section 20 A bars the Civil Court Jurisdiction only ������ in respect of matters in which the Board is empowered by or under the said Act to pass orders.� SEBI does not have the equitable power to direct disgorgement of any alleged profits and therefore the jurisdiction of the Civil Court is preserved in this regard, that it is always open to any aggrieved investors to seek disgorgement of any alleged profits, made in breach of the said Regulation, by using the process of a Civil Court.� It is clear that the impugned order proceeds on the basis that the Board� has no power under the said Regulation 11 to direct any person in breach of the said Regulations to compensate the persons aggrieved.� Despite this, during the course of the hearing before the Tribunal it was argued on behalf of the Respondent that the impugned direction of deposit purportedly to compensate any aggrieved, investors who may come forward in the future was made pursuant to the said Regulation 11.� This submission is contrary to the record as aforesaid, and should accordingly be struck out.� ����������� Regulation 11 merely empowers the Board to pass certain interim directions, for the purpose of maintaining the states quo during the course of the investigation and/or, immediately thereafter upon receipt of the said investigative report.� Further, that the directions which may be passed pursuant to Regulation 11 are limited to the purposes enumerated therein, which do not include compensating any aggrieved parties.� Further that the said Regulation 11 does not empower the Board to arrive at any final and/or conclusive determination as to whether any person has acted in breach of the said Regulations for reasons more particularly stated above.� Such final and conclusive determination can only be made by the Adjudicating Officer, pursuant to the powers conferred upon him by sections 15-G, 15-I and 15-J of the said Act or pursuant to a prosecution initiated by the Board pursuant to Section 24 of the said Act.� Therefore there is no question of any award of compensation being made by the Board pursuant to Regulation 11.� No aggrieved party has come forward till date, despite the fact that the impugned order is dated June 10, 2001 and was widely available and publicized shortly thereafter, that there appear to be no aggrieved persons, to compensate, that this being the case, the said directions to deposit Rs. 34,00,000/- is in the nature of penalty.� ���������� It is well established in law that power exercisable pursuant to Section 11 B of the said Act is purely remedial in nature, and that no penal orders can be passed pursuant thereto. [Sterlite Industries v. SEBI, BPL v. SEBI Appeal Nos. 14/2001 to 19/2001, Videocon v. SEBI 23/2001 to 26/2001] and accordingly the impugned direction is ultra vires the provisions of the SEBI Act, illegal and liable to be struck down. Imposition of
penalty The
direction to deposit the said sum of� Rs.
34,00,000/- is in the nature of a penalty.�
Even if it is assumed that the Appellant has committed a breach of the
Regulations by instructing the said I.P.Kedia to purchase the said shares
between September 9, 1996 and October 1, 1996, the breach is merely a technical
or venial breach.� Further, and in any
event the Appellant submits that he had a bona fide belief that he had not
acted in breach of the Regulations.� ������ It is well established in law that the
deciding authority should exercise his discretion and decline to impose a
penalty in such cases.� In Hindustan
Steel Limited v. State of Orissa [1970(1) SCR 753], the Hon�ble Supreme Court
in this regard stated: �The
discretion to impose a penalty must be exercised judicially.� A penalty will ordinarily be imposed in cases
where the party acts deliberately in defiance of law, or is guilty of
contumacious or dishonest conduct, or acts in conscious disregard of its
obligation; but not, in cases where there is a technical or venial breach of
the provisions of the Act or where the breach flows from a bonafide belief that
the offender is not liable to act in the manner prescribed by the statute.� ����������� This principle has been followed in
Akbar Badruddin Jiwani v. Collector of Customs [1990 (47) E.L.T. 161(SC)],
Merck Spares v. Collector of Excise & Customs,
[1983 ELT 1261], New Delhi, Shama Engine Values Ltd. Bombay v. Collector of Customs,
Bombay [1984 (18) ELT 533] and Madhusudan Gordhandas & Co. v. Collector of
Customs, Bombay [1987 (29) ELT 904].� ������ There is in fact no such findings
whatsoever on this point by the investigating officer or in the impugned
order.� ������� The
investors have not incurred any loss by the said transactions.� � Furthermore
the said transactions by ensuring the investment of Bayer AG into ABS
Industries has ensured the survival and profitability of the company, which in
the long run has benefited general body of shareholders, � therefore this accusation by SEBI at this
stage of the proceedings has no ���������� basis
in fact.����� Specific allegations of
profit/personal benefit The
impugned order at paragraph 20 stated: �It was
contended that in the absence of any evidence that acquisition was for trading
purpose, i.e. the process of buying and selling with intent to make profit,
there cannot be violation or contravention of the insider trading
Regulations.� The contention is not
acceptable as the word used in the Regulations is �dealing in securities�.� This expression is defined in Regulation 2(d)
which reads as �dealing in securities means and act of buying, selling or
agreeing to buy, sell or deal in any securities by any person either as
principle or gent�.� Thus, mere act of
buying is covered under the Regulation.� ����������� From paragraph 20 it is clear� that the impugned order proceeds on the basis
that profit is not an essential ����������� ingredient
for the purpose of establishing a breach of the said Regulations.� Therefore the impugned order fails to make
any finding whatsoever with regard to any alleged profit made by the
Appellant.� Despite this in the course of
the hearing before the Tribunal it was for the first time submitted on behalf
of the Respondent that the Appellant had made a profit by entering into the
said transactions through the said I.P.Kedia.��
Further, that ���� the profit
amounted to Rs.34,00,000/- , being the sum which the impugned order directed
the Appellant to deposit with the BSE and NSE as aforesaid.� That in light of paragraph 20 of the impugned
order and the fact that the said order fails to make any finding whatsoever on
any alleged profit made by him, that the said submissions is contrary to and
inconsistent with the impugned order,�
that it is pertinent to note that even the said investigation report did
not make any findings whatsoever in this ����������� regard.
It is not open to the Respondents to make this submission for the first time
before the Tribunal. ����������� The charge that the Appellant made
profit by instructing the said I.P.Kedia to enter into the said transactions
denied.� The Appellant�s sole intention
in entering into the said transaction was to ensure the entry of Bayer AG into
the said company.� It was also argued on
behalf of the Respondents that the Appellant has secured certain personal
benefit by entering into the said transactions, that these submissions were
also taken for the first time during the course of the said arguments in
appeal. Further, that these submissions are inconsistent and contrary to the
view taken in the impugned order has pointed above that these submissions be
striked up. ����������� Referring
to the Respondent�s argument� that by
securing the entry of Bayer� by entering
into the said transactions through I.P.Kedia the Appellant secured for himself
Management control over the newly formed joint venture company,� the Appellant submitted that he did not enter
into the said transaction with a view to gain any such personal benefit, that
his sole objective in entering into the said transactions was to benefit the
said company by ensuring the entry of Bayer.�
The Shareholders Agreement dated 27th February 1997 between
Bayer India Ltd. and the Appellant, belies any such suggestion that the
Appellant has retained Management control over the newly formed joint venture
company.� Clause 2(Board structure) and
in particular Clause 2.1 thereof provides that so long as Bayer owns not less
than 50.9% of the equity shares in joint venture company the board of directors
shall always be in odd number and that Bayer shall have the right to
appoint/designate majority of the directors on the Board.� Further, that at present the Board of
directors was to consist of the total number of nine directors out of which
Bayer was entitled to appoint and nominate the majority number of directors
i.e. five ����������� directors on the
Board.� Clause 2.2 further provides that
as long as ������ the Appellant owns not
less than the minimum required shares of the said joint venture company, he
would be entitled to appoint and nominate only four directors, which
appointments include the nominees of Financial Institutions.� Further, that in case the Financial
Institutions decide to appoint more than two nominee directors, Bayer would
also have the right to appoint additional directors in order to maintain its majority
on the Board.� From the said Clause 2.1
and 2.2, it is abundantly clear that the Management control of the resultant
joint venture company does not vest with the Appellant, and in fact vests with
Bayer.� Clause 3 (Management) and in
particular Clause 3.3. thereof expressly provides that although the Appellant
was continued as managing director of the resultant joint venture company till
1998 and thereafter till 2003, and as such was in charge of the day to day
management of the resultant joint venture this power was subject to the
superintendence, control and direction of the Board of directors of the said
joint venture company, which as stated above was in the control of Bayer. ����������� Clause 5 (Voting Rights) and in
particular Clause 5.2 thereof provides that so long as the Appellant holds the
minimum require shares of the joint venture company all special resolutions of
the ��������� said joint venture company
will require the affirmative vote of the Appellant, that Clause 5.2 of the said
Agreement merely confers upon the Appellant a veto right in respect of any
special resolution, that no Management control is conferred upon the ������ Appellant by the said Agreement.� The Appellants position under ������ the said Shareholders Agreement to
influence the affairs of the company is far weaker, in comparison to his
earlier position in the �� said company
where he was in completer Management control of ����������� the same,� that the
Appellant has not in any way secured any ���� personal
benefit by instructing the said I.P. Kedia to enter into the ��� said transaction. ����������� It was also
argued on behalf of the Respondent that by instructing �������� the said I. P. Kedia to enter into the said transaction, and
by using those shares to ensure the entry of Bayer, into the said company, the
Appellant benefited as he did not have to offer his own shares to Bayer, to
ensure its entry.� Accordingly, it was
argued that the Appellant was able to retain his minimum required shareholding
under the said Shareholders Agreement.�
The Appellant did not instruct the said I.P. Kedia to enter into the
said transactions for the reason alleged.�
At the time of instructing I.P.Kedia to enter into the said
transactions, as mentioned above, the said merger/takeover was merely in the
realm of possibility and was not in any manner definite or certain.� This being the case the Appellant was not
even aware that there might be any requirement in the future to hold a certain
minimum number of shares.� In any event,
that there was no agreement whatsoever between the parties at that time, of any
minimum shareholding which would be required to be held by the Appellant, that
therefore no such motivation prompted him to instruct the said I.P. Kedia to
enter into the said transactions.� The
Appellant� denied such intention.� In fact ultimately the Appellant was
constrained to put in his own shares to ensure the success of the open offer
and the Appellant consequently was unable to hold the quantity of shares as
contemplated in the original draft shareholders agreement.� Infact the financial institutions opposed ���������� allotment of any additional shares to
the Appellant as originally contemplated.�
Consequently, in fact the Appellant has personally suffered in the
process of ensuring the successful entry of Bayer into ABS. ����������� It� is�
incorrect� that� the�
Appellant� made� any�
profit/personal� benefit � by entering into the said transactions through
the said I.P. Kedia.� The Appellant has
not contravened Regulation 3 of the SEBI�
Regulations as alleged and the impugned order is accordingly liable to
be set aside. The Respondent�s submissions
This is a
case which essentially deals with violations of the SEBI Insider Trading
Regulations by the Appellant.� The facts
relating to acquisition of shares are not seriously disputed by the Appellant.� The Appellant has only argued that purchase
of shares was not done on the basis of price sensitive information and in any
event the said purchases were not effected on the basis of unpublished price
sensitive information.� The Appellant has
further contended that the purchase of shares even if held to have been made on
the basis of unpublished price sensitive information, or otherwise the same
having been done for corporate benefit only and not for any personal gain, the
Appellant has not committed any breach of the Insider Trading Regulations.� The following facts were stated: In August
1996 the price of the shares in ABS� was
around Rs.48/- which reached around Rs.82/- by October 1996.� The show cause notice has alleged that the
Appellant had financed the purchase of the shares of ABS through his
brother-in-law Mr.I.P.Kedia during the period August 1996 to October 1996, on
the basis of insider information available with the Appellant relating to the
merger of ABS with Bayer.� The� order passed by SEBI relates however, only to
1,82,500 shares which were purchased during the period 9th September
to 8th October 1996 i.e. after the Appellant returned to India from
Germany after having concluded an agreement with Bayer and the date of the open
offer to be made by Bayer respectively.�
Between July --September 1995 ABS held discussions with Monsanto
Chemicals to explore the possibility of technical/financial collaborations with
ABS.� ABS was also holding similar
discussions with JSR., Mitsubishi Rayon and Toyo Engineering.� In January 1996 Bayer� made a global public announcement that Bayer
AG had taken over the styrenics business of Monsanto worldwide with effect from
November 1995.� In February 1996� Bayer�
approached ABS for a possible tie-up.�
In May 1996 Bayer held discussions with ABS and sent a questionnaire
seeking various details relevant to the discussions.� On 28th June, 1996 Board of ABS
considered the prospects of foreign collaboration.� In July, 1996 Bayer team visited ABS for
technical and financial evaluation of ABS and asked for further details which
were furnished by ABS.� On 5th and
6th September 1996� Appellant
visited Germany and held meetings with Bayer�s officials and concluded an �in
principle� agreement whereunder interalia Bayer insisted that Bayer wanted to have
a majority stake of 51% but that and the Appellant was to continue in
management and in control of the merged company etc.� On 8th September 1996 Appellant
returned to India from Germany.� On 20th
September 1996 the Board of ABS was informed of the Appellant�s visit to
Germany and the minutes recorded the salient features of the agreement that
were discussed with Bayer.� From the
available facts nothing has happened between the 8th and 20th
of September 1996; therefore it can safely be concluded that the �in principle�
agreement was arrived at on the 5th and 6th of September
1996.� On 29th September, 1996
the Appellant once again visited Germany alongwith his legal advisors and the
Merchant Banker and the legal advisors for Bayer in India.� On 2nd and 3rd October,
1996 Legal consultants of both companies worked out a draft subscription
agreement and shareholders agreement setting out the terms and conditions and
obligations of the respective parties.�
These agreements were approved by the respective Board of Directors of
ABS and Bayer respectively on 5th October 1996.� On 8th October, 1996 Bayer made an
open offer for purchase of 20% shares of ABS at Rs.70/- per share, which was
raised to Rs.80/- per share on 26th December 1996. On 30th
October, 1996 ABS held an Extra Ordinary General Meeting� at which resolutions are passed inter alia
for allotting to Bayer 55,80,000 equity shares and the Appellant 4,20,000
shares on preferential basis @ Rs.70/- per share.� Between 9th September and 8th
October 1996 the Appellant himself and through his investment companies Tash
Investment Pvt. Ltd and Geet Ganga Leasing and Finance Co. Ltd. provided a sum
of Rs.1.15 Crores., Rs.1.50 Crores and Rs.30 lakhs respectively to Mr. Kedia
for financing purchase of shares of ABS by Mr. Kedia.� Mr. Kedia had himself invested Rs one to two
lakhs only for purchase of ABS shares. ����������� During the course of
inquiry/investigation, the Appellant had tried to distance himself
from the purchases made by Kedia but had thereafter admitted having instructed
Mr. Kedia to purchase shares of ABS and having provided him the necessary funds
for the same.� The Appellant however has
stated in his reply to the Show Cause Notice that he never informed Mr. Kedia
the reasons for the purchase.� This fact
itself is sufficient to show that the Appellant was aware that the said
information relating to the merger with Bayer was unpublished price sensitive
information and the argument now put forwarded by the Appellant is clearly an
afterthought and cannot be accepted. ����������� The Appellant has alleged that he
purchased shares of ABS and financed the purchases of ABS shares by Kedia only
for the purpose of ensuring that Bayer�s pre-condition for the proposed merger
that Bayer control 51% of the share capital of ABS was met.� The Appellant has contended that the shares
were purchased in order to ensure that if there was a short-fall in the public
offer and Bayer�s were unable to obtain the requisite 20% at the public offer,
the shares purchased at his instance could be tendered at the public offer to
make up the short-fall if any.� The
Appellant has submitted that all this was only done not for any personal gain
but to ensure that Bayers obtain 51% of the share capital of ABS and that if
Bayer did not get the said 51%, the joint venture or merger would have fallen
through and it was in the interest� of
ABS that the joint venture with Bayer goes through. ����������� The entire basis of the Appellant�s
argument is based on a totally incorrect principle and is clearly an after
thought.� Shares of ABS were being freely
traded at stock exchanges.� The purchases
effected by Kedia clearly demonstrated that shares of ABS were available for
purchase in the market even at prices well below the open offer price of
Rs.70/-� It is incorrectly sought to be
suggested that whilst the sellers were ready and willing to sell their shares
to Kedia, they would have been unwilling to sell their shares to Bayer at a
public offer.� There is nothing in the
submission made by the Appellant to substantiate this incorrect premise.� It is therefore clear that Bayer would have
been able to obtain the necessary 20% at the open offer and there is no
material available on record to suggest anything to the contrary.� As per the agreements
disclosed by the Appellant, he was only required to co-operate with Bayer in
the public offer, such co-operation can never extend to or justify acting
contrary to law.� In this context
referred to Caddy Robert�s case. ����������� Under the Insider Regulations,
profit element is not an ingredient of the offence of insider trading.� The Appellant has admitted that the price at
which the shares were purchased during the said period was between Rs.59/- and
Rs.62/-.� The entire
1,82,500 shares were offered in the open offer to Bayer at the rate of Rs.80/-
per share.� SEBI has taken the average
cost of purchase during the said period at Rs.61.50 per share and accordingly
has arrived at the profit made on sale of the said shares to Bayer at the open
offer at Rs.34,00,000/-�� During the
course of inquiry the Appellant was shown the basis of computation and had not
disputed the same.� Therefore there is no
substance in the Appellant�s contention that the Appellant has not made any
personal gain.� From the chart submitted
by the Respondent during the course of arguments, it is clear that the
Appellant had made a profit of Rs.34 lakhs on the 1,82,500 shares purchased
during the period 9th September to 8th October 1996.� Apart form the aforesaid the Appellant was to
continue as Managing Director of ABS Industries Ltd and have management and
control of ABS Industries Ltd even after merger with Bayer, where Bayer held
51% of the share capital of the merged entity. ����������� Further it is clear that inspite of
the fact that Bayer held 51% of the share capital of the merged entity no
special resolution could be passed without the consent of the Appellant, as the
Appellant was required to hold a minimum of 26%.� Further from the facts and documents
disclosed by the Appellant it is clear that the Appellant�s purchases were not
necessarily only for the purpose of ensuring that the joint venture was a
success but to ensure that the Appellant�s holding was not diluted as he was
required to maintain the 26% shares in the merged entity.� The said purchases were therefore also for
personal gain. i.e. to enable him to maintain his shareholding in the merged
entity @26%. The SEBI Act, 1992:- ����������� Under the provisions of Section
11(2)(g) SEBI is to prevent insider trading and take such measures to protect
the interest of investors as insider trading is per se a wrong and is
prohibited.� Insider Trading:- ����������� Insider Trading may be described as
trading which is based on an imbalance of information resulting in one party to
the transaction having advantage over the other party� by reason of his having unpublished price
sensitive information. ����������� According to the Respondent the
growth of the securities market depends on investor�s confidence in the
fairness of the securities market which can only be achieved by ensuring that
the securities markets operate freely and fairly with all participants having
equal access to all information so that they can make informed investment
decisions. It cannot
be disputed that: i.
the Appellant as Managing Director of ABS was an
insider ii.
the Appellant had unpublished price sensitive
information. iii.
at the relevant time i.e. between 9th
September and 8th October 1996 the Appellant had financed Mr. Kedia
and directed him to purchase shares of ABS on the basis of the aforesaid price
sensitive information.� The Appellant is
therefore guilty of having breached Regulation 3. It is clear
from the bare reading of Regulation 3 that the prohibition of insider trading
by an insider is an absolute offence and that benefit or gain� is not an ingredient of the offence. The SEBI (Insider Trading)
Regulations, 1992 The
relevant provisions of SEBI (Insider Trading) Regulations, 1992 are:- Regulation
2(c) �connected
persons� 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 the company by virtue of sub clause (10) of Section 307 of the 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.� Regulation
2(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�: The
definition of insider covers within it�s scope connected person and deemed
connected person as defined in Regulation 2(c) and 2(h) respectively.� The Appellant being the Managing Director of
ABS Industries Limited (ABS) at all relevant times falls squarely within the
definition of �connected persons� and �Insider� as defined in Regulation 2(c)
and 2(e) above respectively. Regulation
2(h) 2(h)����� �person is deemed to be a connected
person� if such person � (i) is a
company under the same management or group or any subsidiary company
thereof� within the meaning of
sub-section (1B) of section 370, or sub-section (11) of section 372, of the
Companies Act, 1956 (1 of 1956) or sub-clause (g) of section 2 of the
Monopolies and Restrictive Trade Practices Act,�
1969 (54 of 1969) as the case may be; or (ii)� is an official or a member of a stock
exchange or of a clearing house of that stock exchange, or a dealer in
securities within the meaning of clause (c) of section 2, and section 17 of the
Securities Contracts (Regulation) Act, 1956 respectively or any
employee of such member or dealer of a stock exchange; (iii)� is a merchant banker, share transfer agent,
registrar to an issue, debenture trustee, broker, portfolio managed, investment
advisor, sub-broker, Investment Company or an employee thereof, or, is a member
of the 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 who
has a fiduciary relationship with the company. (iv)� is a member of the Board of Directors, or an
employee, of a� public financial institution
as defined in section 4A of the Companies Act, 1956; or (v)� is an official or an employee of a self
regulatory organisation recognised or authorised by the Board of a regulatory
body; or (vi)� is a relative of any of the aforementioned
persons; (vii)� is a banker of the company; Regulation
2(i) 2(i)� �relative� means a person, as defined in
section 6 of the Companies Act, 1956 (1 of the 1956); Regulation
2(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 and final) ����������� (iii)� issue of shares byway of public right bonus
etc. ����������� (iv)�
any major expansion plans or execution of new projects ����������� (v)�
amalgamation, mergers and takeovers ����������� (vi)�
disposal of whole or substantially the whole of the undertaking ����������� (vii) �such other information as may be affect the
earnings of the company ����������� (viii)� any changes in policies plans or operations
of the company. ����������� Information gained relating to issue
of shares by way of preferential allotment (Regulation 2(k) and relating to
amalgamation, mergers, and takeovers (Regulation 2(k)(v)) are undoubtedly
�price sensitive information.� Regulation
3 �3.� prohibition on dealing, communication or
counseling on matters relating to insider trading; No insider shall- (i)� either on his own behalf or on behalf of any
other person deal in securities of a company listed on any stock exchange on
the basis of any unpublished price sensitive
information. (ii)� Communicate 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)� counsel or procure any other person to deal
in securities of any company on the basis of unpublished price sensitive
information.� Regulation
4: 4.� Violation of provisions relating to insider
trading:- Any insider
who deals in securities or communicates any information or counsels any person
dealing in securities in contravention of the provisions of Regulation 3 shall
be guilty of insider trading. Regulation
9: Communication of findings and measures that may be taken by the Board to
protect the interest of investors and the interest of the securities market.. 9.� Communication of findings, etc- (1) The Board
shall after consideration of the investigation report communicate its findings
to the insider and he shall be given an opportunity of being heard before any
action is taken by the Board on the findings of the investigating authority. Regulation
11 Directions by the Board 11.� Directions by the Board.- On receipt of the
explanation, if any, from the insider under sub-regulation (2) of Regulation 9,
the Board may without prejudice to its right to initiate criminal prosecution
under section 24 of the Act, give such directions to protect
the interest of investors and in the interest of the securities market and for
due compliance with the provisions of the Act, rules made thereunder and these
Regulations, as it deems fit for all or any of the following purposes, namely:- (a)� directing the insider not to deal in
securities in any particular manner; (b)
prohibiting the insider from disposing of any of the securities acquired
in����� violation of these regulations; (c)� restraining the insider to communicate or
counsel any person to deal in securities. The
Appellant has not seriously disputed that information relating to the issue of shares by
preferential allotment (Regulation 2(k)(iii) and information relating to
mergers Regulation 2(k)(v) are price sensitive information.� Merely to reinforce the point that
information relating to mergers is unpublished price sensitive information,
SEBI in the impugned order has cited the following judgements of the U.S.
Courts. 1.� Basic Incorporated 484 US� page 224. 2.� TCS Industries Inc. Vs. Northway 426 US 449. ����� With� reference�
to� the� Appellant�s�
objection that the information relating to the ����� merger with Bayers
was not an unpublished price sensitive information, the Appellant had referred
to articles published in various newspapers and magazines.� SEBI in the impugned order at pages 70 to 74
had effectively dealt with the same.�
Even the Appellant himself had treated the said information as
confidential and the Appellant had not even disclosed the same to his own brother-in-law,
whom he had instructed and put in funds for the purpose for purchasing shares
of ABS.� This itself proves that the said
information was unpublished price sensitive information and the Appellants
arguments to the contrary cannot be and ought not to accepted. Insider Trading in the United States of America. ����� The Insider
trading law in the USA is part of the general law relating to fraud.� Under the federal system prevailing in the
USA there were state laws known as �blue sky� laws which contained anti-fraud
provisions which are used to deal with Insider trading. �Rule 10b-5- Employment of manipulative and deceptive Devices ����� It shall be
unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce, or of the mails or of any facility of
any national securities exchange, {445 U.S.226} ����� (a)� To employ any device, scheme, or artifice to
defraud, ����� (b)� To make any unture statement of a material
fact or to omit to state a material fact necessary in order to make the
statements made, in the light of the circumstances under which they were made,
not misleading, or ����� (c)� To engage in any act, practice, or course of
business which operates or would operate as a fraud or deceit upon any person,
in connection with the purchase or sale of any security.� ����������� The said Rule is merely an enabling
provision not intended to deal with the problem of Insider trading.� It prohibits the use of manipulative or
deceptive devices in relation to purchase and sale of securities on the stock
market.� The rule itself makes no
reference to insider trading let alone gives a definition of it.� The provision is clearly
aimed at fraud in the traditional sense and finds its UK equivalent in Section
47 of The Financial Services Act, 1986.�
It came to be applied to insider trading by Courts, through private
litigation and then by the SEC in 1960 as part of SEC enforcement policy on
insider trading.� In the USA since the
law governing insider trading is part of the general law of fraud, mens rea,
motive, intention to make a profit, who is an insider, duty of an insider and
outsider etc. are relevant and are required to be established before a charge
of insider trading can be made and/or said to have been proved. ����������� In UK pursuant to the European
Communities Directive on Insider Dealing (18th November, 1989) the
Criminal Justices Act, 1993 was enacted.�
Chapter V of that Act contains provisions which repeals the Company
Securities (Insider Dealing) Act, 1985, under which Insider trading became an
offence for the first time in UK in 1980.�
The provisions under the Criminal Justice Act, 1993 are very different
from the SEBI Act and Regulations.�
Therefore reference to USA and UK judgements must be read in the context
of the USA and UK law�s relating to insider trading.� Concepts and developments in Insider trading
law by judge made law in the USA and UK have also to be considered with
reference to the existing legislation relating to insider trading in the USA
and UK and those concepts and developments cannot be imported into the Indian
legislation relating to insider trading which is a well defined and self
contained code.� Under
Regulation 2(k) of the Insider Regulations what is meant by Unpublished Price
Sensitive Information is clearly defined.�
The 3 Judgements of the U.S. Courts referred to in this regard in of the
impugned order are only to re-inforce the fact that information about merger is
Price Sensitive Information and has been consistently recognised as such all
over the world and especially in the U.S.A. where the law of insider trading is
the most developed. It was
submitted that in the Impugned Order SEBI has merely cited the classic
statement of the law relevant to insider trading as was very eloquently set out
in the case of SEC Vs. Texas Gulf Sulphur Co.(410 F 2d.848) that � Anyone in
possession of material insider information must either disclose it to the
investing public or, if he is disabled from disclosing it in order to protect a
corporate confidence, or if he chooses not to do so, must, abstain from trading
in or recommending the securities concerned while such insider information
remains undisclosed.� ����������� The statement quoted in the Impugned
Order from the Judgement of the U.S. Court in Shapiro v/s. Merrill Lynch (495 5
F 2d.235) i.e. �disclose or abstain� theory has been enforced by stating that
this �is to protect the investing public in to secure fair dealing in the
securities market by promoting full disclosure of insider information so that
an informed judgment can be made by all the investors� was quoted merely to
reinforce the point. ����������� In the Impugned Order the Judgement
in the case of U.S. V/s. O�Hagan 138 L.E. d.2d 724 had been cited merely to
record the fact that the U.S. Supreme Court had endorsed the �Misappropriation
theory�, in relation to insider trading. ����������� The Judgement in the case of Kohler
Vs. Kohler was cited only to show that under U.S. law fiduciary relationship
between the insider and the outsider were elements required to be
approved.� The judgment in the case of
Speed Vs. Trans American
Corp. (99 F. Supp.808) was cited because of the similarity of facts as is
apparent from the quoted passage �It is unlawful for an insider, such as
majority stockholder, to purchase the stock of minority stockholders without
disclosing material facts affecting the value of the stock, known to the
selling minority stockholders, which information would have affected the
judgment of the sellers.� ����������� During the course of arguments SEBI
cited judgement in the case of SEC v/s David E. Lispon (U.S. court of Appeal (7th
Circuit) Docket No.01 -1226) to illustrate the point that in USA even though
benefit/ motive is required to be proved in order to make out the charge of insider trading and that insider trading for a legitimate purpose may be defence to the charge of insider trading, the U.S. Court nevertheless held, �if the existence of an alternative legitimate purpose were a defence to a charge of insider trading, any insider who wanted to be able to engage in such trading with impunity would establish an estate plan that required him to trade in his company�s stock from time to time.� He could then trade on the basis of inside information yet defend on the ground that he was also trading in implementation of his estate plan.� He would be doing both.� Yet even to regard the good and the bad purpose as alternative is to sugar coat the pill.� In the case just put, the insider would be using insider information to implement his estate plan more effectively.� He would be like someone who robbed a bank with the intention of giving the money to charity.� The noble end would not immunize the ignoble means of achieving that end from legal punishment�.� This case was specially cited to meet the Appellants argument in defence that since the Appellant had traded on the basis of insider information but had done so for a corporate benefit he had not committed a breach of the Regulations. ����������� The Judgement of the U.S. Supreme
Court in the case of Dirks Vs. SEC reported in 463 U.S. 646 is totally
inappropriate as it was a tipper-tippee� case, whereas the present case is one
of an insider himself trading on the basis of the Unpublished Price Sensitive
Information, and the concept of gain is irrelevant to the offence of insider
trading under the SEBI Act and the Regulations.�
Dealing in securities as defined under Regulation 2(d) i.e. the mere act
of buying/selling or agreeing to
buy/sell or deal in any security by any person as principal/agent on basis of
Unpublished Price Sensitive Information is covered and is made an offence under
Regulation 3.� Profit motive is therefore
not an ingredient of the offence. During the
course of Arguments, SEBI had relied upon the U.S. decision in the matter of
Cady Roberts & Co., (1961 SEC LEXIS 385; 40 SEC 907) only because Cady
Roberts has been considered as the classic case illustrating the proposition �
�Disclose or abstain�.� The said
judgement was also cited to illustrate and meet the Appellant�s case of
conflicting fiduciary duties, as the said case had held that even conflicting
fiduciary duties, would not justify actions contrary to law.� It was contended by the Appellant that the
purchase of shares of ABS made on the basis of Unpublished Price Sensitive
Information was done, in pursuance of the Agreement with Bayer where by the
Appellant was required to co-operate with Bayer say that Bayer obtained 51% of
the Capital of ABS.� Such corporation
could not extend to the Appellant committing breach of the insider trading
regulations in order to ensure that Bayer got 51% of the equity share capital
of ABS. Chiarella
V. United States 445 U.S. 222 cited by the Appellant was a case whether an
outsider, i.e. a printer could be held guilty of Insider trading under the U.S.
legislation relating to Insider trading since the facts of that case bear no
resemblance to the facts with which we are concerned in the present appeal, the
said judgement has no relevance.� It was
on the basis of this judgment that it was sough to be agued that legitimate
corporate purpose was an exemption to the rule prohibiting insider
trading.� But under the Indian
legislation relating to insider trading no such exemption can be carved out
even on the basis of a purposive interpretation.� The Regulations are clear and explicit and do
not require any interpretation aids in understanding its meaning/purpose and
intent.� The said judgment was really a
case where incorrect instructions had been given to the jury which was the
basis of the decision and if correct instructions had been given to the jury
what the decision� would have been, has
expressly been left open.� Attorney
General�s Reference- 1988 1 A.C. 971 case cited by the Appellant has no
relevance in the present context.� The
issue in that matter, related to the construction of the word
�Obtained�, in Section 1(3) of the Companies Securities (Insider Dealing) Act
1985.� In the present Appeal, there
cannot be any dispute that the Appellant was an insider at the appropriate time
and that by reason of his possession he had Price Sensitive Information. The
Appellant also relied on the above Judgement of the erstwhile Appellate
Authority, in Hinudstan Lever Ltd. vs. Securities & Exchange Board of India
1998 SCL 311 which was at that time the Central Government.� The Appellate Authority held, that there was
no power to invoke the provisions of Section 11(1) read with Section 11B of the
Act, for the purpose of imposing an Order directing compensation to be paid to
the UTI, this is evident from Para 23 of the Order whereby the Appellate
Authority held inter alia that the general powers of the Act could not be used
and that only the powers under Section 15G of the Act, could be invoked.� The Appellate Authority also held that an
Order directing prosecution, should be based on conclusive determination of all
aspects of insider trading and on specific justification in terms of the
gravity of the offence.� The Respondent
have filed a Writ Petition against the Order of the Appellate Authority in the
above matter.� The Hon�ble Bombay High
court, has not only stayed the Order but also stayed the following part of the
judgment �an
order of prosecution should be based on conclusive determination of all aspects
of insider trading and on specific justification in terms of the gravity of the
offence� and �SEBI
has chosen not to use this specific provision for imposing a penalty but has
instead decided to use omnibus powers under Section 11 and 11B to adjudicate
for awarding compensation.� We are of the
view that it is a settled principle of law that for imposing a pecuniary burden,
there must be specific provisions in law and there should be specific
Regulations for giving an opportunity to the affected person to present its
(his) case before any burden can be imposed on it by an authority like
SEBI.� Use of omnibus powers for imposing
pecuniary burden cannot be the intent of law.� ����������� No reliance can be placed on the
Judgement of the Appellate Authority to urge that powers under Section 11(1)
and 11B cannot be exercised.� The
Respondent� submitted that an Order for prosecution need not be
based on a conclusive determination as held by the Appropriate Authority as
this portion of the Judgement has been separately stayed by the Hon�ble Bombay
High Court. ����������� SEBI in its Order, and its Counsel
in the course of argument have taken aid of judgements of the U.S. Courts only
for the purpose of enforcing well established principles relating to Insider
trading which are enshrined as a part of the Regulations and not on the basis
that U.S. law relating to Insider trading is in any way similar to or in para
materia with the Indian Regulations relating to insider trading. With
reference to SEBI�s power to pass directions to disgorge profit made pursuant
to insider trading, it was submitted that under Section 11(2) (g) of the SEBI
Act, SEBI is empowered to prevent insider trading by taking such measures to
protect interests of investors.� The term
�such measures� is very wide and is not couched with any
conditions/restrictions.� Regulation 9(2)
also empowers SEBI to call upon the Insider who has been found guilty of
committing breach of regulations 3 and 4 to take such measures as SEBI may deem
fit to protect interest of investors and the integrity of the securities market
and for due compliance with the provisions of the Act/Rules made thereunder and
the Regulations. ����������� SEBI�s power under Regulation 9(2)
is also very wide and is not couched with any restrictions or conditions.� Regulation 11 refers to Regulation 9(2) and
empowers SEBI to give such directions, ��.. to protect interest of investors,
and in the interest of the securities market���.� The powers under Regulation 11� are also very wide and are not couched with
any conditions/restrictions, the directions set out in Regulation 11(a)(b) and
(c) can therefore only be illustrative, in spite of the use of the word
�namely�.� Unless the provision is so
interpreted, it would impose a restriction on the powers of SEBI to give
directions, when the operative part of the section contains no restriction on
the power of SEBI to pass orders in the interest of investors and the
securities market.� On a proper and
purposive interpretation of Section 11(2)(g) read with Regulation 9(2) and
Regulation 11, it� is clear that SEBI has the
power to� order� a person found guilty of Insider trading
under Regulations 3 and 4 and to whom directions under Regulations� 11(a)(b) and (c) are applicable and pass
direction to call upon the insider to take such measures including inter alia
to disgorge profits made as a result of insider trading.� In this context Hon�ble Bombay High Courts
decision in� (Shirish Finance &
Investment (P) Ltd. V. Sreenivasulu Reddy (2002) 35 SCL 27 (Bom) at para 59.
page 89) was referred to.� SEBI had
directed the Appellants to disgorge the profits of Rs.34,00,000/- made as a
result of Insider trading done by the Appellants on the basis of Unpublished
Price Sensitive Information relating to the merger with Bayer.� The Appellant was aware as to how the amount
of Rs.34,00,000/- was computed and the said computation was never disputed by
the Appellant.� SEBI� had cited the case of SEC V/s. David E.
Lipson as an example that disgorging of profits is one of the various orders
that a court may pass in a matter�
relating to Insider trading.� The
Order passed by SEBI to disgorge the profits is compensatory and remedial in
nature and not penal.� It was submitted
that any order passed by SEBI would, when looked at from the view point of the
person against whom the order is passed would always be seen as a punishment
and therefore penal.� In order to
ascertain whether an order passed is remedial/compensatory/ penal, the order
itself has to be looked at.� The
Appellant as a result of Insider trading has made a profit as stated
earlier.� The Appellant therefore cannot
be allowed to retain such ill-gotten gains, and in the circumstances SEBI by
the said impugned order has directed the Appellant to disgorge the ill-gotten
gains and pay it into the two Investor protection funds, which will be utilized
to compensate Investors who had sold their shares to the Appellant acting
through Mr. Kedia.� Suitable orders to
that effect can be passed to identify such sellers.� In any event even if such sellers cannot be
identified or do not come forward to receive the compensation the amount having
been deposited with the Investor protection fund of NSE and BSE will be put to
use for the general benefit of Investors, that in the circumstances the
Impugned Order is clearly remedial/compensatory in nature and is not a penal
order.� The two
Judgements of the United States Courts cited by the Appellant are not insider trading cases though they relate to orders passed to disgorge profits.� In USA there does not appear to be any investor protection fund as there exists in India.� Even otherwise in fact and law the cases cited are not applicable to the facts of the present case or the Indian law. Tribunal�s findings: ����������� I have carefully considered the
detailed submissions and the material available on record.� I have also perused the authorities cited by
the Counsel for the parties. ����������� The charge against the Appellant is
that of violating the SEBI Regulations on insider trading.� Though much has been said in the order about
the acquisition of shares by Mr.Kedia on behalf of the Appellant, ultimately it
has boiled down to the purchase of�
only� 1,82,500 shares by Shri
Kedia during the period September 9, 1996 1st October, 1996.� Both the parties have chronicled the sequence
of developments preceding the acquisition�
of shares of� ABS by Bayer.� I do not consider it necessary to repeat the
same and further burden� this order.� From the particulars furnished by the
parties, it appears to me that�� ABS was
considering to diversify its product range.�
For� the purpose it was considering
proposals from overseas companies from the beginning of 1995.�� It�
was in July 1995 ABS signed a secrecy agreement with Monsanto Chemicals
to explore the possibility of technical/financial collaboration.�� At that time also ABS was exploring the� possibilities with a Japanese company.� But negotiations are negotiations.� Negotiations may sometimes fail.� It may some times fructify.� Till the negotiations are concluded, and a
decision is taken, it is not possible to conclude the ultimate result of the
negotiations.� But some times half way
through a shrewd negotiator would be in a position to see the would be outcome
of the negotiation. ABS�s negotiations/discussions with the overseas parties is
in no way different. The Appellant had stated that it had in fact signed a
secrecy agreement with Monsanto Chemicals in July 1995 to explore the
possibility of technical/financial collaboration and ABS & Monsanto were
discussing the possibility of tie up during the period July � September 1995
and in 1995 Bayer acquired the styrene business of Monsanto Chemicals
worldwide.� According to the Appellant,
consequently the rights and obligations under the secrecy agreement between ABS
and Monsanto were transferred to Bayer.�
I have noted that a secrecy agreement to explore the possibility
of technical/financial collaboration, can not be viewed as a� decision as such by Monsanto to takeover
ABS.� It, as the Appellant rightly stated
was only for exploring the possibility.�
The fact that Bayer came in place of Monsanto on its takeover by
Bayer does not change the nature of the�
undertaking.� The Appellant has
stated in its Appeal Memorandum that in February Bayer approached ABS to
discuss the possibility �of an
association between ABS and Bayer.� This
also indicates that the matter was not crystallized then, but was in a fluid
stage.� From the sequence of developments
chronicled by the Appellant in his memorandum of appeal it appears that the
discussions were going on and on from February, 1996 followed by supply of
various details to Bayer.� It is seen
from the records that even though the Board of Directors of ABS considered the
prospects of foreign collaboration in their meeting held� on 28.6.1996 they desired to examine the
matter further.� It� was on 5th �6th
September, 1996 the Appellant held discussions with Bayer� in Germany regarding the possible joint
venture.� He returned to India on
8.9.1996.� He appraised the Board of
Directors of ABS of the developments with reference to his discussion with
Bayer.� It is also noted that on 29th
September 1996 to October, 1996� the
Appellant visited Bayer�s office in Germany�
along with legal Counsel to �work out legal modalities�.� Bayer�s legal advisers and merchant bankers
were also present in the said meeting and in these meetings all modalities,
valuations and offer price were finalised, subject to Board approvals.� According to the Appellant on 1.10.1996 �a
commercial understanding to proceed with the transaction was arrived in
Germany.�� It was only at this stage that
the transaction as well as the terms thereof acquired certainty.�� It seems that the meetings of legal advisers
and merchant banker of� ABS and Bayer was
held only to �work out legal
formalities� in pursuance of the discussion the Appellant had with Bayer people
in Germany on 5/6th September, 1996.�
If there was no clear understanding and any decision about the nature of
association of Bayer with ABS there was no question of working out legal
formalities.� Meeting held during
September 29 to 3rd October, 1996 was only to complete� the modalities/formalities with reference to
the decision arrived at in the meeting the Appellant had with� Bayer people on 5/6th September,
1996.� It appears that it was in the said
meeting it was decided that Bayer would require 51% holding in ABS and that
�they were ready to concede the day to day management/minority protection
rights and several other concessions. �In this context it is� noted�
that the Appellant returned to India on 8th September, 1996
after the said meeting.� It is noted from
the Appellant�s statement recorded� by
SEBI on 26.5.1998 that the Appellant had furnished details wherein he had
stated that he had given loans amounting to Rs.1.5 crores from his own account
between 12.9.96 to 28.9.96 to Shri I. P. Kedia.�
He had admitted that on 18.9.96 when he lent Rs.35 lakhs to Shri Kedia
he knew that Shri Kedia was purchasing shares of ABS.� According to him �At that point of time, we
were only contemplating to have further discussions with Bayer and one cannot
say that there was certainty of these discussions culminating into joint
venture.�� However I do agree that there was
a probability of having joint venture with Bayer�.� The�
Appellant�s following statements also�
need be noted: �The
agreement reached with Bayer clearly stipulates that the same would be binding
only if Bayer acquires 51%.� This is
reflected both in the shareholders agreement and the share subscription
agreement���.� �There was
ample reason to believe that if Bayer did not have eventually 51% we had no
agreement.� This situation would have
been extremely damaging for the future of our company.� Hypothetically, I may have offered more
shares from my investment companies to meet the short fall as long as I was
doing so with the confines of the law�. �You will
observe that the structure that was worked out for equity holding and
approved� by the Boards indicated 51% equity
holding by Bayer and 26% equity by me.�
Any sale of shares from me or my companies would have brought my equity
holding below 26%, the situation I wanted to avoid particularly in the context
of the agreement that I was to continue in the identical management capacity. �As
mentioned earlier, I wanted to get as many shares for completing 51% for Bayer
for the success of the arrangement. It appears
that the Appellant was frantic to ensure that Bayer�s holding in ABS reaches
51% and he had even directed Mr.Kedia to purchase 1,24,250 shares at the� rate of�
Rs.82/- on 8th October, 1996 after publication of public
announcement, by way of negotiated deal.�
To a question �when it can be said the general public came to know about
strategic alliance between Bayer Industries and ABS Industries ? � The first
news item appear to be carried� out in
the second week of October, 1996 by various financial dailies."� The
Appellant�s answer was that �The information on the strategic alliance with
Bayer was first given out by way of communique to Bombay Stock
Exchange/NSE on 1st of October, 1996 indicating that in the
Board meeting of 5th October a preferential allotment to M/s. Bayer
Industries may be discussed.�� This
statement from the Appellant confirms that till 1.10.96 arrangement with Bayer
was an unpublished price sensitive information.�� To another question the Appellant had
stated: �I would
like to state that when I instructed Mr. Kedia between 9th September
to 1st October 1996, date of intimation to Stock Exchange to
purchase the shares of ABS Industries Ltd., I did not think even in my wildest
imagination that I was committing any offence of any nature.� My action was prompted by my focus on
acquiring as many shares from the market without disturbing the prices or violating
any law, so as to complete 51% shares for Bayer which was a condition precedent
to our possible joint venture with Bayer.�
My further instructions to purchase the shares on 8th October
was also for fulfilling this motive.� We
were getting continuous information on daily basis from the Registered Lead
Manager about the extent of the shares being offered in the public offer.� As on 1st January 1997 only
1,10,295 shares were offered as per the available information through the Lead
Manager/Registrar.� Upon getting
information from financial institutions about their offering of the shares in
the public offer and from the information available from various centers it was
deduced that there could be a shortfall of approximately 9,50,000 shares.� I deposited 9,33,250 shares on� 3rd January, 1997 to make the
offer successful.� Bayer eventually got
33,83,000 odd shares which mad the holding of Bayer in the company at
50.97%.� Bayer in any case could not have
exceeded 51% because of the FIPB and other approvals.� ����������������������������������� In the deposition made� by the Appellant on 7.4.98, before SEBI officials he had stated� that �in the year 1995 the Co. started having serious dialogues with three cos. I.E. JSR our existing collaborator, Mitsubishi corpn. and Monsanto from USA.� Since Monsanto�s Technology was preferred the co. entered into a secrecy agreement with Monsanto in July 1995 to explore the possibilities of a technology tie up.� While the discussion with Monsanto was going on in November 1995 Monsanto sold their worldwide styrene business including ABS/SAN Resins to M/s. Bayer AG.� The deal was completed by the end of 1995.� In February/March the co. once again started with JSR Mitsubishi and explored the possibilities once again from GE and DOW.� M/s.GE Plastics and Dow Plastics both denied out request since they did not want to licence technology.� GE Plastics however announced to enter India through collaboration with IPCL or by themselves.� Then Bayer AG approached us because of our secrecy agreement and history of Monsanto.� The co. was keeping all its option open upto June 1996.� Having independent discussion with all these cos.� M/s. Bayer AG was known to have the best technology specially after acquired from Monsanto Styrene business. It was discussed in the board meeting of 28.6 to explore the possibilities further and accordingly a team, from Bayer� AG was allowed to visit in the first week of July 1996 to have Technological evaluation alongwith preliminary due diligence which was to be carried out by M/s. C.S. First Boston, USA on their behalf and part of their team.� The information required by them have been given to the visiting team.� Since the second half of July and August are traditionally holiday period in Europe, it was indicated that we could have further discussion some where in September, 1996�. To a
question as to �Have you or any of your Pvt. Limited Cos. given any loan to
Shri Ishwar Kedia?� If yes, who
negotiated this loan and what was the terms and conditions� the Appellant�s
answer was �When I returned
from my trip from USA and Germany around 8/9/96 I learnt that Mr. IP Kedia
telephoned my accountant Mr. S.R.Patel who is in my office handling my
files.� Mr. Patel informed me that Mr. IP
Kedia is in urgent need of around Rs.10 lacs.�
I told him to organise this money from Bank of Baroda against the FDR
Deposit of my brother.� The money was
organised on my instruction from BOB and the money was sent to Mr. Ishwar
Kedia.� After couple of days there was a
fresh need of money from Mr. IP Kedia and Mr. Patel came and talked to me.� I told to organise the same but then I got in
touch with Mr. Kedia at his residence.� I
enquired Mr. Kedia why he needed this money.�
Mr. Kedia informed that he bought some ABS Shares and therefore he
needed this money as a temporary loan.� I
dissuaded him from entering into any purchase and sale of shares not only of
ABS but of any company.� After couple
of� days again there was a demand of
money and I spoke to him then.� He then
explained to me that since I had purchased around 50000 shares of my relatives
even at Rs.68/-, he told me that there was a possibility of getting more shares
from my relatives.� I was conscious at
that time of my discussions with Bayer, who had very clearly in no uncertain
terms indicated that any possible joint venture could not be without Bayer
getting 51% equity.� Since there were so
many Indian companies� interested and
were wanting to have an agreement with Bayer for producing ABS Resins there was
need of urgency of taking decision.� Co.
like Reliance had also initiated discussion with Bayer for a joint tie up on
the same project.� I therefore realized
that it was critically important for me to ensure that Bayer get 51% shares
which means getting as many share from the market should the discussions eventually
result into joint venture with Bayer.�
Discussion about this matter was going to take place on the Board
meeting on 20th Sept.� But
Bayer would not consider any proposal unless they were guaranteed for 51%
equity into the Co.� I therefore told Mr.Kedia
that if the shares are offered by my relatives or for that matter anybody he
can procure on my behalf and I will finance the purchase.� I had expressly informed him that the
purchases should not be in a manner, to have any undue price rise or undue
movement.� I had told him to purchase the
shares as long as offered in the natural course at the prevailing market
price.� While I was instructing Mr.Kedia
I considered it to be a natural process.�
In my wildest imagination also I could never have thought that I was
committing any crime or offense.� The
figure of 51% for Bayer was important for me and all the while I was thinking
that should this discussion result into joint venture how to muster up this 51%
of share by Bayer.� The share holding
pattern of 12 crores equity was that I was holding, 30% institutions were
holding, around 25% my relations and friends were holding, 10% and balance was
held by the public.� I thought without
creating any unnatural movement in the market either in price or sentiment if I
could muster up some shares it would eventually help me reaching 51% target for
Bayer as and when required.� There was no intention at any point of time
to make any financial gain out of such transaction.� After our discussion in the Board meeting on
20th Sept.� Board gave
direction to proceed to have negotiation with Bayer and we left to Germany for
such discussions around 29th Sept.�
From the time I gave instruction to Mr.Kedia to purchase such share
until the date of public announcement he had procured on my behalf roughly more
than 2 lacs shares. I categorically confirm that I had not informed Mr. IP
Kedia about any discussion with Bayer AG for any possible joint tie up.� As a matter of fact on the morning of 8th
Oct. he was angry with me for not informing him earlier.� Later on at 11.00 a.m. he called me and told
on telephone that� a lot of shares 1 lacs
� 120000 at a price of around Rs.81/- was available.� By this time he had procured roughly about
225000 shares and I sensed a good opportunity of procuring 1 lacs � 120000
share even though the price was over Rs.80/-, I directed him to purchase on my
behalf because it would have helped me achieve the objective of acquiring as
many shares possible in natural course for meeting 51% target.� The capital because of preferential allotment
was deemed to have raisen to around Rs.18 crores.� Bayer industries was required to get around
36 lac shares from the market to complete their 51%.� Our share subscription agreement which was
arrived and which was approved by the directors and subsequently sent to
Financial� Institutions for their
approvals.� The whole agreement was
conditional upon Bayer acquiring upon 51% share in ABS.� It also meant that if they did not have
51%� eventually, the whole agreement
would become null and void.� That was
very scaring scenario in the light of developments in the industry in the
country and particular heavy capacity being created in South East Asia.� I also
directed Mr.Kedia later on to purchase shares again in natural course further
about 50000 shares were procured.� In all
roughly 180000 shares were purchased by him on my behalf after the public
announcement, to meet target� was still
herculian.� We approached all Fin.
Instns. which were holding shares and eventually got their consent to offer
their shares into the public offer.� The
Fin. Instns.� realizing the necessity of
joint venture with Bayer helped by offering part of their equities in the public
offer.� As on last date there was still
short fall of 933250 shares.� I was left
with no option but to offer my shares from my investment co. i.e. Tash
Investment Co. to complete the transaction to get Bayer 50.97%.�� The shareholders agreement was subsequently
signed amending 51% figure to 50.97%.� I
never wanted to dilute my holding in the Co.�
Since by virtue of the agreement I still continued to hold the
management and managing directorship for next 7/10 years and all the advantages
which I was enjoying before the joint venture.�
The agreement stipulated that the technology would be available free but
no German would come to manage affairs of the Co.� The agreement also had stipulated giving me
minority protection in the form of around 26% voting rights.� Even in case at a future date if with the
equity expansion, my equity was diluted to much lower level.� The only condition was that I had to maintain
my shareholding as on the date they acquired �.. .��� It was therefore important for me not to
dilute my shareholding but to get as much shares from the market in the natural
course and accordingly with the best of the intention I had borrowed money from
I-Sec at 27%.� I had also borrowed money
ranging 25-29% to finance these purchase.�
I once again would like to reiterate that I had no intention to make any
money out of it.� Only condition
paramount in my mind was that Bayer gets 51% for the success of the discussion
leading to possible joint venture.� At
any point of time I had no knowledge of committing any offense.� The share subscription agreement which were
approved by the Board and also sent to financial institutions and our
communications to the Fin Instns requesting their approvals will amply support
my above submissions�.��������������������������� On a perusal of the material available on record it is clear that the Appellant was frantic to bring in Bayer and that since Bayer�s entry was subject to the condition that it would associate with ABS only if it� held 51% in the capital of ABS this 51% procurement was required to be organised.� The Appellant in that process did not want to bring down his holding below 26%.� The importance of the magical figure of 26% is that a person holding 26% capital has the power to Veto down certain major decisions of the company by defeating the special resolution proposed for such purpose.� So the Appellant was in a peculiar situation.� On one side the desire to bring in Bayer so as to improve the activities of ABS and at the same time to preserve his strategic voting strength in the company.� It is in this context one has to see the funding for purchase of shares and acquisition of shares by Shri I.P. Kedia.� Shri Kedia is� Appellant�s brother in law.� It appears that the Appellant �was almost certain of the negotiation with Bayer concluding favourably after his meeting with Bayer people in Germany in May 1996. On 28.8.1996 �Board of ABS considered prospects of foreign collaboration and expressed desire to look further into�� Thereafter things moved really fast.� In the first week of July, 1996 technical team from Bayer visits India for financial evaluation of ABS.� On July 12 ABS sent the details to Bayer with respect to value of shares of ABS from 1993, on 22.7.1996 Bayer asks for details of ABS�s assets and this was promptly furnished, on 26.7.1996 ABS informs Bayer about the commissioning of SAN Plant.� Thereafter on 5th /6th September, 1996� the Appellant visits Germany and discusses the matter.� The speed with which things moved thereafter need be noted.�� On� 8th he returned to India from Germany; reports the matter to the Board of Directors on 20.9.96, on 29.9.96 Appellant visits Germany with legal adviser to work out legal formalities, discussion continues upto 3.10.1996.� On� 3.10.1996 a formal share subscription and shareholders agreements were entered into.� Board of ABS approves the agreement on 5.10.1996.� It is to be noted that the Appellant has admitted that the public came to know of the �deal� only on 1.10.96� on ABS informing the stock exchanges about the matter. ����������� I have perused all the press clippings/reports filed by the Appellant in support of his version that the information relating to acquisition of ABS by Bayer was not an unpublished information.� But I do not find any one of those clippings/reports supporting the Appellant�s version.� The sensitive information is the specific fact that Bayer was entering into ABS by acquiring51% of its capital.� This specific information is the price sensitive information, which I do not find having been disclosed in any of those press cuttings/reports.� The fact that ABS was negotiating with few companies to bring in a partner was there since 1995.� But specific details were not known to the public till 1.10.1996 i.e. the date on which the Stock Exchanges were informed.� ����������� SEBI is mandated to protect the interests of investors and promote the development of and to regulate the securities market.� For the purpose SEBI is empowered to take suitable measures.� In Section 11 of the SEBI Act, the� powers and functions of SEBI have been specified.� In terms of clause (g) of sub section (2) of section 11, SEBI is empowered to take measures for �prohibitting insider trading in securities�.� SEBI in exercise of its regulation making power available under section 30 of the SEBI Act has notified on 19.11.1992 Securities and Exchange Board of India (Insider Trading) Regulations, 1992 (the SEBI Regulations).� This regulation has been substantially modified vide amendments made in the year 2002.� The applicable regulation to the present case is the unamended regulation as it was the one in position at the time of the alleged transactions � relating to the year 1996. ����������� Before proceeding further in the
matter it is considered necessary to briefly discuss the conceptual aspect of
insider trading.�� Healthy growth and
development of securities market, depends to a large extent on the quality and
integrity of the market. Transparency in transaction is very important. Such a
market can alone inspire the confidence of investors.� Factors on which this confidence depends
include, among others, the assurance the market can afford to all investors,
that they are placed on an equal footing and will be protected against improper
use of inside information.� Inequitable
and unfair trade practice such as insider trading affect the integrity and
fairness of the securities market and impairs the confidence of the
investors.� It is to remedy the malady of
insider trading in securities, the Insider Regulations� was notified�
by SEBI,� which provide for
various measures. ����������� Insider dealing is understood
broadly to cover situations where a person buys or sells securities when he,
but not the other party to the transaction, is in possession of confidential
information which affects the value to be placed on those securities.� Furthermore
the confidential information in question will generally be in his possession
because of some connection which he has with the company whose securities are
to be dealt on (e.g.� he may be a
director, employee or professional adviser of that company) or because some one
in such a position has provided him directly or indirectly (para � 2 of the
White Paper on Conduct of Company Directors 1977 (Comnd 7037 )(UK). ����������� High Powered Committee on Stock
Exchange Reforms (1985) in its report submitted to the Ministry of Finance,
Govt. of India had explained the concept of Insider Trading.� According to the said report �Insider
trading� generally means trading in the shares of a company� who are in the management of the company or
are close to them, on the basis of undisclosed price sensitive information
regarding the working of the company, which they possess but is not available
to others.� Insiders or persons connected
with companies are in a position to take advantage of confidential, price
sensitive information before it becomes public and thereby make speculative
profits for themselves to the detriment of uninformed public investors.� An insider coming in possession of inside
information in relation to a company with whom he is connected which will have
a material effect on the market price of the company�s securities will be tempted
to take advantage of such inside unpublished�
price sensitive information before it became public and make profit by
buying the securities if the information is likely to lead to a rise in price
and selling the shares already held if the information is likely to cause a
fall in the price of such securities.� By
virtue of the confidential information, the insider gains an unfair secret
advantage which will benefit him at the expense of the person he deals with�.� The
rationale behind the prohibition on insider trading, as Lord Lane puts it �is
the obvious and understandable concern�about the damage to public confidence
which insider dealing is likely to cause and the clear intention to prevent so
far as possible what amounts to cheating when those with inside knowledge use
that knowledge to make a profit in their dealing with others�� (Attorney General�s Reference No.1 of 1988
(1988) BCC 765 affirmed by the House of Lords as reported at (1989) BCC 625.� The objective of the Insider Regulation
framed by SEBI is to ensure that all persons in the market are placed on an
equal footing � provides a level playing field. As stated
earlier the charge against the Appellant is that he has violated regulation
3(i)of the SEBI Regulations.� In this
context it is necessary to know what is this regulation 3(i) allegedly violated
by the Appellant.� SEBI Regulations on
insider trading�� in terms of number of
clauses is a short one which contains 12 clauses spread out in three chapters �
Chapters I, II and III.� Chapter I, as
usual is on preliminary matters such as Short title, commencement and
definitions.�� Chapter II is on
prohibition on dealing, communicating or counselling on matters relating to
insider trading.� It is� under this chapter regulation 3(i)comes.� Since this is the core chapter I propose to
extract the same for reference purpose.� 3.
No insider shall (i)
either on his own behalf or on behalf of any other
person, deal in securities of a company listed on any stock exchange on the
basis of any unpublished price sensitive information; or (ii)
communicate 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)
counsel or procure any other person to deal in
securities of any company on the basis of unpublished price sensitive
information. 4.
Violation of provisions relating to insider trading. Any
insider who deals in securities or communicates any information or counsels any
person dealing in securities in contravention of the provisions of regulation 3
shall be guilty of insider trading. Chapter III
is on investigation.� It provides
for� investigation by SEBI, procedure to
be followed for investigation, obligation of insider on investigation by the
Board, submission of report to the Board by the investigating authority, nature
of follow up of the investigation report etc.�
Power to issue directions in appropriate cases has also been stated� under this chapter.� Apart from the power to appoint investigating
authority, SEBI, under this Chapter is empowered to appoint a qualified auditor
to investigate into the books of account or the affairs of the insider.�� Appeal provisions against SEBI�s orders has
also been provided under this�
chapter�� Chapter III by and large
is on procedural aspects.�� Chapter II is
the �charging� chapter.�� Back to
Chapter II.� As stated earlier the
Appellant has been found guilty of indulging in dealing in securities
prohibitted by�� regulation 3(i)thereby
attracting the provisions of regulation 4.�
We have seen the provisions of the said regulation.� Regulation 3 is not only on dealing or
trading in securities.� There are three
prohibitions.� These are with respect to
(i)dealing (ii) communication and (iii) counselling.� In other words an insider in possession of
price sensitive information is prohibitted from doing these three things with
regard to concerned securities.� We are
here concerned on the applicability of clause (i) of regulation 3.��� The person who is prohibitted is
�insider�.� What is prohibitted is
dealing in listed securities on the basis of any unpublished price sensitive
information.� Expressions �insider�,
�dealing in securities��
�unpublished� price sensitive
information� etc. have been defined� in
regulation 2 of� the SEBI� Regulations as follows: 2(d)
�dealing in securities means an act of buying, selling or agreeing to buy, sell
or deal in any securities by any person either as principal or agent�.� This
definition covers transactions which normally take place.� 2(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.� It is clear
from the definition that a person to be considered as insider should be one who
is or was actually connected with the company or deemed to have been connected
with the company.� 2nd limb is
that by virtue of such connection the person is reasonably expected to have
access to unpublished price sensitive information or has received or has had
access to such unpublished price sensitive information.� The expression security has not been�� defined in the SEBI Regulation and therefore
the meaning assigned to in the Securities Contracts (Regulation) Act has to be
accepted. The
definition of the expression securities under the said Act include �shares,
scrips, stocks, bonds, debentures, debenture stocks or other marketable
securities of a like nature in or of any incorporated company or other body
corporate.�� The security involved in the
instant case is the� shares of a public company
viz ABS Industries Ltd., (ABS)� It� is not disputed.� The fact that the shares of ABS are listed on
stock exchanges is also not in dispute.�
Therefore, the subject share is covered under regulation 3(i).� The regulation 3 (i) has referred to �persons
connected with the company� and �persons deemed to have been connected.�� Both these type of persons have been defined
in the regulation 2( c) and 2(h) as follows: ����������� 2 (c ) �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 an access to unpublished� price
sensitive information in relation to that company; 2(h)
�person is deemed to be a connected person�, if such person � (i)
is a company under the same management or group, or
any subsidiary company thereof within the meaning of sub-section (1B) of
section 370, or sub-section (11) of section 372, of the Companies Act, 1956 (1
of 1956) , or sub-clause (g) of section 2 of the Monopolies and Restrictive
Trade Practices Act, 1969 (54 of 1969), as the case may be; or (ii)
is an official or a member of a stock exchange or of a
clearing house of that stock exchange, or a dealer in securities within ����������� the meaning of clause (c ) of
section 2, and section 17 of the ���� Securities
Contracts� (Regulation) Act, 1956 (42 of
1956), ��������� respectively, or any
employee of such member or dealer of a ��� stock
exchange; (iii)
is a merchant banker, share transfer agent, registrar
to an issue, debenture trustee, broker, portfolio manager, Investment Advisor,
sub-broker, Investment Company or an employee thereof, or, is a member of the
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 who has a
fiduciary relationship with the company; (iv)
is a member of the Board of Directors, or an employee,
of a public financial institution as defined in section 4A of the Companies
Act, 1956; (v)
is an official or an employee of a Self-regulatory
Organisation recognised or authorised by the Board or a regulatory� body; (vi)
is a relative of any of the aforementioned persons; or (vii)
is a banker of the company; Trading in
the shares of a listed company by an insider is not prohibitted. �Prohibition is only on trading on the basis of
any unpublished price sensitive information.�
What is unpublished price sensitive information has been defined in
regulation 2(k). Regulation
2(k) is extracted below: (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)
such other information as may affect the earnings of
the company; (viii)
any changes in policies, plans or operations of the
company; Any
information, in order that it is unpublished price sensitive information must
be related to any of the specified matters.�
Whether any information is price sensitive, not withstanding that it
relates to one or more of the specified matters will always be a question of
fact to be answered having regard to the facts and� circumstances in each case.� The information must, however relate to one
or more of the matters enumerated in the definition.� Further more, the information must be such that
it is not generally known or published by the company and it is likely to� materially affect the price of the company�s
securities. ����������� It is� in the light of the legal position explained
above, the question as to whether the Appellant has violated or not the
provisions� of regulation 3(i) of the
SEBI Regulations, need be considered. ����������� The
Appellant, admittedly is� the Managing
Director of ABS.� It is also on record
that he was privy to the discussions with Bayer in the matter of Bayer
acquiring shares of� ABS, eventually
leading to ABS�s merger with Bayer.�
Since, by virtue of his position in ABS, and his role in the active
transactions it can be easily concluded that he had access to the information
relating to the entry of Bayer in ABS. Therefore, he can be safely considered
as insider.� The Appellant has not
denied� SEBI�s finding that he is an
insider.� The dispute is as to whether
the material information� was an
unpublished price sensitive information.�
����������� The Appellant�s claim is that he had
acted in the� interest of ABS.� According to him the company has benefitted
by the induction of Bayer. He has stated that all creditors continue to rate
the company with the highest credit worthiness having the entire loan
repayments and schedules being met in �a
timely manner, that it has also strengthened the relations with vendors,
suppliers and employees and also in relation to research and development.� According to the Appellant, if the joint
venture/merger with Bayer had not fructified, the company would have been
unable to remain prosperous and therefore, the acquisition of 51% shares by
Bayer was critical to its induction. ����������� According to the Appellant at the
relevant� period the polymer industry was
reeling under a negative bottom line due to lack of demand and loss of margin
and most of the producers of ABS had suffered significant loss and that their
networth had been wiped� out
significantly and they were sick companies for the past several years.� (by way illustration� names of three companies were cited).� It was also��
stated that in this back ground of industry scenario it was� imperative and in the� interest of the company and its shareholders,
employees,� suppliers etc. that the
company survived.� The only way according
to the Appellant for the company to survive was the induction of a foreign
partner.� Bayer being one of the largest
and most reputed global conglomerates in this�
business,� their induction into
the company was considered necessary for the survival of the company.� The fact that ABS gained substantially from
the take over by Bayer, has been admitted�
by the Respondent also as could be seen from its observation� in the order that �there is no doubt ABS
Industries really gained immensely from the takeover of Bayer AG.� ����������� The Appellant has not denied the fact of acquiring shares through his brother in law in the days preceding the acquisition of ABS�s shares by Bayer.� But his reasoning is that at the relevant time, the information relating to Bayer entry was already in the public domain.� �The�
Appellant�s version that he had also tendered 9 lakh and� odd shares from his own promoter quota to
enable Bayer� to acquire� 51%on account of short fall in the target of
the open offer, requires to be�
noted.� The cold response from the
public share holders to the Bayer�s offer has been stated by the Appellant� in his deposition before the SEBI officer
that �Even after making considerable efforts, the shares� obtained�
by Bayer upto 20th September (December ?) were not even
5%� The merchant bankers of Bayer
Industries M/s. DSP Merril Lynch were in active discussions with financial
institutions particularly UTI and LIC which had a large chunk of shares for
offloading the shares into a public offer.�
I believe after such communication they must have advised Bayer to
revise the� offer price to Rs.80/- by 25th
of December just 5 days of closure to get the shares from financial
institutions and the success of the offer.�
UTI and LIC did offer a large chunk of shares at Rs.80/- which confirms
my belief. �However, I had no role to pay
in the revision of the price since it was purely the matter between� the merchant bankers of Bayer Industries and
themselves.�� It is in the context of
the� said uncertainty, and in his anxiety
to make some way or other to bring into a reality the induction of Bayer to
ABS, the Appellant has stated that �I wanted to get as many shares for
completing 51% for Bayer for the success of the arrangement.� I therefore authorised Mr. I. P. Kedia even
to buy at around Rs.81/- since there was bulk lot of 1,20,000 shares even if it
meant a certain financial loss.��� It is
noted that this purchase was made after publication of the public announcement
by Bayer to acquire 20% of ABS�s shares at the�
rate of Rs.70/-� This is
indicative of the Appellant�s commitment to see that Bayer comes in as a joint
partner for the benefit of ABS.� There
is� no denial of the fact that the shares
tendered by Mr. Kedia in the public offer made by Bayer was at a price higher
than the price at which those shares were purchased .� There is no reason to believe that the
Appellant was aware that the initial price of Rs.70/- offered by Bayer would be
raised to Rs.80/- subsequently.� On a
perusal of the material available on record, there is every reason to believe
that the Appellant was keen to bring in Bayer as a partner and for that purpose
he had to ensure that� Bayer�s
requirement of its holding 51%� capital
of ABS is met with.� To me it appears
that it� was with this target in mind the
Appellant had purchased the shares in September 1996. ����������� It is crystal clear that Mr. Kedia
had purchased 1,82,000 shares at the behest of the Appellant� with the funds provided by the Appellant and
therefore it could be viewed as a dealing by the Appellant.� There can not�
be any doubt� as to whether the
Appellant is an insider or not.� By
virtue of his position in the company (Managing Director) and the role played
by him in the acquisition process, he can be safely considered as an
insider.� Even though the Appellant had
produced a large number of press cuttings/reports to show that� Bayer joining as a partner to improve the
efficiency of ABS, in my view none of these statements/reports has given any
specific� indication as to� the entry of Bayer as a 51% partner.� In terms of regulation 3 (k) the information
relating to� the matters or of concern in
respect of the matters stated therein (which clearly covers amalgamation
mergers and takeovers)to� not to be
considered as unpublished price sensitive information, it should be shown that
it was generally known or published by such company for general
information.� It is on record that the
company furnished the� information only
on 1.10.1996 i.e. the date on which the subject matter of the agenda of the
Board meeting of ABS to be held on 5.10.1996.�
There is nothing on record to show that ABS had published the
information for general information at any time except notifying the stock
exchanges preceding the acquisition of ABS by Bayer.� It is to be noted that the nature of Bayer
association, the extent of its involvement, its financial stake in the company
etc. are of considerable importance from the point of view of other� investors. None of the press cuttings/reports
produced by the Appellant gives any specific indication of Bayer�s entry as a
51% stake holder.� There is nothing on
record to show that the relevant information was �generally known� as� has been claimed by the Appellant. Thus the
charge that the Appellant, an insider, on the basis of the unpublished price
sensitive information� purchased the shares of�
ABS, remains established.� But in
my opinion the purchase of shares in the light of the facts and circumstances
as stated, can not be considered to be in violation of the SEBI Regulation so
as to be proceeded against the Appellant. While
making the finding that the Appellant is in breach of Regulation 3 and 4 of the
said Regulations the Respondent� has
relied upon case laws from the United States of America to �explain the
philosophy of insider trading and to give a conceptual clarity and to reinforce
the said order�.� According to the
Appellant the impugned� order proceeds on
a misreading of the US case law. The Appellant had submitted that since� the Respondent has extensively referred to
the US law while interpreting the SEBI Regulations on insider trading not only
in the case of the Appellant but also in the case of Hindustan Lever, decided
earlier, it is apparent that the Respondent has considered the US law on
insider trading and based� on its� understanding/misunderstanding of the US law
on insider trading the order has been passed.�
But it is noted that the Respondent has not decided the matter as per
the provisions of the US law.� The Respondent
has taken aid of the judgements of the US Courts only for the purpose of
enforcing well established principles relating to insider trading which are
enshrined as a part of the SEBI Regulations and�
not on the basis of US law.�� US
law relating to insider� trading is� not similar to or in paramateria with the
SEBI Regulations relating to insider trading.�
It is to be noted that the insider trading law in the United States of
America is part of the general law relating to fraud.� Anti fraud provisions in the laws are used to
deal with insider trading in the USA. The
reference in the American cases to rule 10 b-5 is to be noted.� Rule 10 b-5 is on Employment of manipulative
and deceptive devices.�� According to the
said Rule 10b-5: �It shall
be unlawful for any person, directly or indirectly, by the use of� any means or instrumentality of interstate
commerce or the mails of any facility of any national securities exchange (445
US 226) (a)
to employ any device, scheme, or artifice to defraud (b)
to make any untrue statement of a material fact or to
omit to state a material fact necessary in order to make the statements made,
in the light of the circumstances� under
which they were made, not misleading, or (c)
to engage in any act, practice or course of business
which operates or would operate as a fraud or deceit upon any person, in
connection with the� purchase or sale of
any security.� The� provision is clearly aimed at curbing
fraud.� So is� the�
case in UK. In my� view reference to USA and UK judgements must
be read in the context of the USA and UK law and these concepts and� principles cannot be imported� into the SEBI Regulations on insider trading
which is a separate code by itself.� In
my view US/UK� law relating to insider trading
is not similar to or para materia with SEBI Regulations.� Therefore, I do not consider it necessary to
consider various decision of USA/UK courts cited by the Counsel for the
parties. ����������� The whole idea behind prohibitting
insider trading as stated earlier is to ensure that� persons�
by virtue of their position in the company and based� on the confidential information available to
them by virtue of their position in the company do not gain an unfair advantage
which will benefit them at the expense of the persons they deal with.� What is being aimed at� by the regulation is to prevent insiders
taking unfair advantage over other shareholders. SEBI�s argument is that
regulations 3 & 4 of the SEBI Regulations do not require anything else to
be proved to proceed against the person except that the person is an insider
and that he had dealt with in the securities on the basis of the� unpublished price sensitive information� According to the Respondent under the SEBI
Regulations� profit element is not an
ingredient of the offence of insider trading.�
SEBI had� submitted that from a
bare reading of regulation 3 it is��
clear �that prohibition of insider
trading by an insider is an absolute offence and that benefit or gain is not an
ingredient of the offence.� It is
difficult to accept the version of SEBI.�
Once� SEBI�s view is accepted the
very purpose of imposing� prohibition
on� insider dealing in the securities on
the basis of the unpublished price sensitive information would become
meaningless.� If an insider, based on the
unpublished price sensitive information deals in securities for no advantage to
him, over others, how it can be said to be against the� interest of investors.� In my view taking into consideration the very
objective of the SEBI Regulations prohibiting the insider trading, the intention/motive
of the insider has to be taken cognizance of.�
It is true that the regulation does not specifically bring in mens rea
as�� an ingredient of insider trading.
But that does not mean that the motive need be ignored.� In this context I would like to refer to
the� discussion on mens rea in the Law
Lexicon by Shri Venkatramaiya � ����������� �Mens rea � There is a presumption
that in any statutory� crime the common
law, mental element, mens rea, �is
an essential ingredient.� A crime� may or may not contain an express definition
of the necessary state of mind.�� A
statute may require a specific intention, malice, knowledge, willfulness or
recklessness.� On the other hand it may
be silent as to any requirement of mens rea and�
in such a case in order to determine whether or� not mens rea is an essential element of the
offence, it is necessary to look at the objects and terms of the statute ����������� It has always been a principle of
the common law that means rea is an essential element in the commission of any
criminal offence against the common law.�
In the case of statutory offences it depends on the effect of the
statute�.. There is a presumption that mens rea is an essential ingredient in a
statutory offence, but this presumption is liable to be displaced either by
the words of the statute creating the offence or by the subject matter with
which it deals (State of Maharashtra V Mayer Hans George AIR 1956 SC 722 AT PG.
728) ����������� It is to be noted that as per the
SEBI Act insider trading is a statutory�
offence.� In this context it is
also to be� noted that the persons
violating the provisions of SEBI Act, rules and regulations are liable to
criminal prosecution.� The penalty for
violation of the provisions of SEBI Act, rules and regulations has been
provided in Section 24 of the SEBI Act.�
As per the said Section 24 the offender �shall be punishable with
imprisonment for a term which may extend to ten years or with fine, which
may extend to twenty five crore rupees �or with both�.�
This penalty is the revised one brought in vide amendment effected to
the SEBI Act on 29.10.2002.� Prior to the
said amendment the person found guilty of an offence �was punishable with
imprisonment for a term which shall not be less than one month but which may
extend to three years or with fine which shall not be less than two thousand
rupees but which may extend to ten� thousand
rupees or with both.�� Further in terms
of section 15G of SEBI Act persons indulging in insider trading are liable to a
monetary penalty not exceeding twenty-five crore rupees� or three times the amount of profits
made� out of insider trading whichever is
higher (prior to the amendment to the section on 29.10.2002 the maximum penalty
leviable was rupees five lakhs).�
The� monetary penalty provided in
section 15G is� in the case of
adjudication of the offences by an adjudicating officer appointed by SEBI.� Penalty provided in section 24 is �without
prejudice to any award of penalty by the adjudicating officer under the Act.� It is an
accepted fact that the practice of insider trading requires to be checked and
those who indulge in insider trading should be severely dealt� with by awarding harsh penalties, as� insider trading is outright cheating and� not compatible with fair market transactions.� Considering the gravity of the offence, the
legislature has provided� for heavy� penalty vide section 15G and section 24.� The fact that section 24 covers all types of
offences does not mean that insider trading is a minor offence and therefore
penalty leviable will be small for proven charge of insider trading.� So looking from the gravity of the charge and
penal consequences that could visit the insider for indulging in insider
trading, it is difficult to accept the proposition that the intention/motive of
the person indulging in insider trading is irrelevant.� It is true that� regulations 3 and 4 per se� are pure vanila sections without specific
mention of the requirement of the motive or intention.� But these regulation, if read with the
objective of prohibitting the insider trading makes clear that motive is built
in and the insider trading without establishing the motive factor is not
punishable.� What is sought to be
prohibitted is gaining unfair advantage by the insider by� indulging in insider trading.� In my view if it is established that the
person who had indulged in insider trading had�
no intention of gaining any unfair advantage, the charge of insider
trading warranting penalty can not be sustained against him. ����������� In the instant case it is clear that
the Appellant was frantically trying to get a joint venture partner to
strengthen the company, when the particular industry was facing problems.� The�
partner was Bayer.� It put stiff
condition of holding 51% capital in the company.� The Appellant�s intention in acquiring the
share was to facilitate the entry of Bayer for the betterment of the company and its other
shareholders, employees etc.� The object
was not to gain unfair personal gain.� It
is true that in the process the shares which he purchased at a lower price
fetched a higher price when offered in the public offer.� But this gain was only incidental, and
certainly not by cheating others.� If the
Appellant�s intention was to make money in the process, he could have cornered
much more shares and profitted considerably.�
His bonafide is evident from the fact that he had instructed Mr. Kedia
to� buy even 1,20,000 shares @ Rs.80/-
when the public offer response was not that warm, so as to meet the deficiency,
if any, in obtaining� 20% shares by Bayer
in the public offer.. ����������� From the facts of the case, it is
clear that the Appellant was acting in the interest of the company and to
protect the interest of the company shares were purchased and, therefore the
Appellant can not be considered to have violated the prohibition contained in
regulation 3(i).� The fact that the
Appellant in the process of tendering the shares in the public offer, tendered
the shares at a price higher than the rate at which he� purchased the same can not be viewed as an
action to gain unfair advantage over other shareholders.� The gain was incidental to the main� objective of enhancing the interest of
ABS.� He�
was already in management of the control of the company. It is too
presumptuous to say that he had traded in the securities to protect his� interest.�
He has not retained his managerial position at the cost of any other
person. In the
totality of the facts and circumstances and in view of the� underlying objective of the insider trading
regulation, I am not inclined to agree with the finding that the Appellant is
guilty of indulging in insider trading as alleged by the Respondent.� Since there is no evidence to show that he
had gained unfair advantage over other shareholders the direction to deposit
Rs.34 lakhs to compensate any investor who seeks compensation as a result of
the sale of shares of ABS to Shri I. P. Kedia during September 9 to October 1,
1996 is untenable. ����������� On a query from the Tribunal, during
the appellate proceedings, the Appellant had stated that not even a single
shareholder had come forward seeking compensation even after one year from the
date of the order.� It can not be that
the investors were� unaware of� SEBI�s order.�
The reason obviously is that no shareholder felt that he has been
wronged.� This also helps to support the
view that the Appellant had not gained
any undue advantage at the cost of other shareholders as a result of the share
dealing under reference. ����������� It is also seen from the show cause
notice that SEBI had not asked the Appellant to show cause as to why he should
not be directed to compensate the shareholders from whom shares were purchased
in the relevant period.� Since it was not
a matter addressed� in the show cause
notice the Appellant could� not put forth
its view.� The compensation� amount, it seems was arbitrarily
calculated.� The order directing the
Appellants to deposit Rs.34,00,000 in the Investor protection Fund to
compensate the shareholders is, therefore in violation of the� principles of natural justice. ����������� In any case
as stated in this order since the Respondent has not made out a case to hold
the� Appellant guilty of indulging in
insider trading no action is called for under section 11, 11B of the Act read
with regulation 11 of the SEBI Regulations�
on insider trading.� Therefore,
that part of the order directing �Rakesh Agrwal to deposit a sum of
Rs.34,00,000/- with Investor Protection fund of BSE and NSE to compensate the
investors who may come forward at a later period of time seeking compensation
for the loss incurred by them in selling at a price higher than the offer
price� can not be sustained.� The
said� part of the order is set aside. SEBI has
power to order adjudication under section 15 G and launch prosecution under
section 24.� In case the Appellant is
aggrieved by the order of the adjudicating officer or the decision of the
competent court in the criminal complaint, the Appellant is not short of
appellate remedies.� This Tribunal, is of
the view that it is� beyond its
jurisdiction to issue any order setting aside the Respondent�s direction to
launch prosecution and initiate adjudication against the Appellant.� No order on that part of the order directing
adjudication/launching prosecution. ����������� Appeal, allowed in the above lines. ����������������������������������������������������������������������� Sd/- (C.ACHUTHAN)
PRESIDING OFFICER Place: Mumbai Date:November�� 3 , 2003. ����������� |
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