BEFORE THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Order Reserved on : 31.10.2023

Date of Decision : 06.11.2023

Misc. Application No. 1638 of 2022

And
Appeal No. 709 of 2022

1. Prakash C. Kanugo
302, 3rd Floor, Tardeo Tower,
Pandit Madan Mohan Malviya Road,
Near A.C. Market,
Mumbai – 400 034.

2. Prakash Steelage Limited

101, 1st Floor,
Shatrunjay Apartment,
26, Sindhi Lane,
Nanubhai Desai Road,
Mumbai – 400 004. …Appellants

Versus

Securities and Exchange Board of India,

SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051. …Respondent

AND
Misc. Application No. 1639 of 2022
And
Appeal No. 710 of 2022
Palak Kohli Kochhar
159/1, Gokul Bldg.,
Sher-e-Punjab CHS,
Mahakali Caves Road,
Andheri (East),
Mumbai – 400 093. …Appellant
 2

Versus

Securities and Exchange Board of India,

SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051. …Respondent

Mr. Prakash Shah, Advocate with Mr. Meit Shah, Authorised

Representative i/b Prakash Shah and Associates for the
Appellants.

Mr. Suraj Chaudhary, Advocate with Ms. Nidhi Singh,

Ms. Deepti Mohan, Mr. Nishin Shrikhande, Ms. Komal Shah,
Mr. Harish Ballani, Ms. Hubab Sayyed and Ms. Nidhi Faganiya,
Advocates i/b Vidhii Partners for the Respondent.

CORAM : Justice Tarun Agarwala, Presiding Officer

Ms. Meera Swarup, Technical Member

Per : Justice Tarun Agarwala, Presiding Officer

1. There is a delay in the filing of the appeals. For the

reasons stated in the applications, the delay is condoned. The

applications are allowed.

2. Noticee nos. 1, 3 and 4 have challenged the order of the

Adjudicating Officer (‘AO’ for short) of the Securities and

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Exchange Board of India (‘SEBI’ for short) dated July 29, 2022

through two different appeals questioning the imposition of

penalty. Noticee no.1 who is the Managing Director has been

imposed a penalty of Rs. 17 lakh, noticee no. 3 which is the

Company has been imposed a penalty of Rs. 1 lakh and noticee

no. 4 who is the Compliance Officer has been imposed a penalty

of Rs. 1 lakh.

3. The facts leading to the filing of the present appeal is, that

the Show Cause Notice (SCN) alleged that noticee no. 1, being

the Managing Director of Prakash Steelage Ltd. (‘PSL’ for

short) noticee no. 3, was an insider and was in possession of

Unpublished Price Sensitive Information (‘UPSI’ for short)

relating to the financial results of PSL for the period ended

March 31, 2016 and had transferred 25,00,000 shares of PSL to

noticee no. 2. It was alleged that though the shares were

transferred on March 31, 2016 the consideration was received

only on March 30, 2017 and April 11, 2017 after a gap of

almost one year. It was also alleged that noticee no. 1 failed to

make necessary disclosures under Regulation 7(2)(a) of the

SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT

Regulations’ for short). It was also alleged that noticee no. 3

also failed to make necessary disclosures to the Stock Exchange

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under Regulation 7(2)(b) of the PIT Regulations and that

noticee no. 4 being the Company Secretary and Compliance

Officer of the Company failed to discharge her responsibility as

Compliance Officer. Accordingly, a show cause notice dated

April 05, 2022 was issued to show cause as to why an enquiry

should not be initiated and why a penalty should not be

imposed.

4. The AO after considering the material evidence on record

held that there was no delay in the initiation of the proceedings.

The AO held that the investigation for insider trading involved a

very complex and lengthy procedure and huge amount of

transactions was required to be examined which required extra

diligence and effort. It was also stated that the process of

investigation in such cases are complex and involved collection

of data, examining that data and appreciation of evidence which

took time. It was further held that there is no limitation

prescribed under SEBI Act, 1992 for initiating proceeding for

violation of securities laws and therefore there is no delay in the

initiation of the proceedings.

5. The AO found that the UPSI period was from March 15,

2016 to May 30, 2016. The financial results were being

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prepared and noticee no. 1, being the Managing Director was in

possession of UPSI. The AO found that the noticee no. 1 is an

insider under the PIT Regulations and that he had traded on

May 4, 2016 transferring 25,00,000 shares to noticee no. 2

while in possession of UPSI and therefore violated Section

12(A)(d) & (e) of the SEBI Act read with Regulation 4(1) and

Regulation 7(2)(a) of the PIT Regulations. The AO found that

the disclosure made by noticee no. 1 on May 9, 2016 to the

Stock Exchange as well as to the Company under Regulation

31(1) and 31(2) of the SEBI (Substantial Acquisition of Shares

and Takeovers) Regulations, 2011 (‘SAST Regulations’ for

short) was not applicable in as much as the disclosure was

required to be made under Regulation 7(2)(a) of the PIT

Regulations.

6. Similarly, the AO came to the conclusion that the

Company, noticee no. 3 and the Compliance Officer, noticee no.

4 made wrong disclosures on May 9, 2016 under Regulation 31

of the SAST Regulations whereas they were required to be

make the disclosure under Regulation 7(2)(a) of the PIT

Regulations. The AO accordingly held that since there was

violation of PIT Regulations and necessary disclosure had not

been made and that the noticee no. 1 had traded while in
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possession of UPSI. The AO accordingly imposed penalties

upon noticee nos. 1, 3 and 4.

7. We have heard Shri Prakash Shah, the learned counsel

with Shri Meit Shah, Authorised Representative for the

appellants and Shri Suraj Chaudhary, the learned counsel with

Ms. Nidhi Singh, Ms. Deepti Mohan, Shri Nishin Shrikhande,

Ms. Komal Shah, Shri Harish Ballani, Ms. Hubab Sayyed and

Ms. Nidhi Faganiya, the learned counsel for the respondent.

8. The AO in paragraph 30 had referred the UPSI period

from April 15, 2016 to May 30, 2016. How has he arrived at

this period is not known. There is no discussion as to why the

starting period of UPSI has been taken to be April 15, 2016.

Presumably, the AO may have been influenced by the

chronology of events relating to financial results for the quarter

ended March 31, 2016 as depicted in the chart in paragraph 27

of the impugned order which states that finalization of accounts

internally started from April 15, 2016 to April 30, 2016. In our

view April 15, 2016 cannot be made the starting point of UPSI

as there is nothing on record to indicate that UPSI came into

existence on April 15, 2016. The chart in paragraph 27 only

depicts that the finalization of the accounting started internally

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with effect from April 15, 2016. It does not show that UPSI

came into existence on that day itself. Item no. 2 indicates that

the statutory audit commenced from May 3, 2016. Even this

does not indicate that UPSI came into existence on May 3,

2016. Item no. 3 of this chart indicates that the draft financial

accounts was submitted to the management on May 18, 2016. In

the absence of any other details, we are of the opinion that the

price sensitive information, if any, with regard to the financial

results came into existence for the first time on May 18, 2016

when the draft financial accounts was submitted to the

management. We also notice that the AO in paragraph 30 has

itself held that there is a strong presumption that the transfer of

shares by noticee no. 1 on May 4, 2016 was made on the basis

of UPSI. This clearly indicates that even the AO was not sure of

the UPSI period.

9. The noticee no. 1, being the Managing Director was a Key

Managerial Personnel (KMP) and therefore was an insider

under Regulation 2(g) of the PIT Regulations. However, the

evidence that has come shows that the noticee no. 1 traded on

May 4, 2016 on which date there was no UPSI in existence.

Therefore the trade on May 4, 2016 was not on the basis of

being in possession of a UPSI nor was it based on he being an

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insider. Thus the finding of the AO that the noticee no. 1 had

traded while in possession of UPSI on May 4, 2016 is patently

erroneous.

10. According to the show cause notice, noticee no. 1 was

required to make necessary disclosure of the transfer under

Regulation 7(2)(a) of the PIT Regulations whereas the

contention of the noticee no. 1 is, that he had only encumbered

his shares to noticee no. 2 and necessary disclosure of

encumbered shares was made under Regulation 31 of the SAST

Regulations on May 9, 2016. It was stated that under Regulation

31(3) of the SAST Regulations the disclosure was required to be

made within seven days which the noticee no. 1 had made

within the stipulated period.

11. The arguments of the appellants appears to be attractive

but we find that this submission cannot be accepted as we find

that there is a letter dated May 4, 2016 issued by noticee no. 1 to

noticee no. 2 intimating them that pursuant to the transfer of the

shares noticee no. 2 becomes the absolute owner and that

noticee no. 2 is free to sell the same. In view of this letter

addressed to noticee no. 2 which is not disputed by noticee

no. 1 we are of the view that noticee no. 1 had made wrong
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disclosure for vested reasons to the Company and to the Stock

Exchange on May 9, 2016 whereas the said noticee was

required to make the appropriate disclosure under Regulation

7(2)(a) of the PIT Regulations. Admittedly, no disclosure was

made under Regulation 7(2)(a) of the PIT Regulations, even

though a wrong disclosure was made under Regulation 31 of the

SAST Regulations.

12. The Company made the disclosure under Regulation 31 on

May 9, 2016 on the basis of the letter given by the Managing

Director. Noticee no. 4 also made the necessary compliance.

The finding that the Company and the Compliance Officer were

required to go into the nitty-gritty of the said transaction

undertaken by noticee no. 1 and therefore noticee no. 4 did not

exercise due care in performing her duties is patently erroneous.

When the Managing Director makes a disclosure to the

Company, the Compliance Officer forwards the said disclosure

to the Stock Exchange under the relevant Regulations. It is not

necessary for the Company or the Compliance Officer to go into

the correctness of the transaction and verify as to whether the

transactions had actually been done or not. In our view no

violation has been committed by the Company, noticee no. 3

and by the Compliance Officer, noticee no. 4.

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13. Admittedly, for reasons best known, the noticee no. 1

made a wrong disclosure under Regulation 31 of the SAST

Regulations whereas requisite disclosure was required to be

made under Regulation 7(2)(a) of the PIT Regulations for which

appropriate penalty could be imposed. The penalty for failure to

furnish information is under Section 15A(b) of the SEBI Act

wherein the penalty from Rs. 1 lakh to a maximum of Rs. 1

crore could be imposed.

14. Since we have held that noticee no. 1 has not traded while

in possession of UPSI the minimum penalty imposed under 15G

is not applicable.

15. In view of the aforesaid, considering the false disclosure

made by noticee no. 1 under Regulation 31 of the SAST

Regulations instead of disclosing under Regulation 7(2)(a) of

the PIT Regulations we are of the opinion that substantial

justice would be done if a penalty of Rs. 5 lakh is imposed.

16. In view of the aforesaid the appeal of noticee no. 1 is

partly allowed. The violation for non-disclosure of Regulation

7(2)(a) of the PIT Regulations is affirmed. The penalty of Rs. 17

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lakh is reduced to Rs. 5 lakh. The order imposing penalty

against the Company, noticee no. 3 and the Compliance Officer,

noticee no. 4 are set aside. Their appeals are allowed with no

order as costs.

Justice Tarun Agarwala

Presiding Officer

Ms. Meera Swarup

Technical Member

06.11.2023 MADHUKAR Digitally signed by

MADHUKAR
SHAMRAO
SHAMRAO BHALBAR
msb BHALBAR Date: 2023.11.06
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