BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

                               Appeal No. 65 of 2012 

                                        Date of decision: 03.10.2012 

Mr. S. D. Nailwal
75, Sreshtha Vihar,
Delhi 110092.

         ……Appellant 

Versus

The Adjudicating Officer,
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G Block,
Bandra Kurla Complex, Bandra (East),
Mumbai – 400 051.

  …… Respondent 

Mr. Vinay Chauhan, Advocate with Mr . Anant Upadhyay, Advocate for the
Appellant.
Mr. Mihir Mody, Advocate with Mr. Mobin Shaikh, Advocate for the Respondent.
CORAM : P. K. Malhotra, Member & Presiding Officer ( Offg .)
S. S. N. Moorthy, Member

Per : P. K. Malhotra
The short question that arises for our c onsideration in this appeal is whether
the appellant has indulged in insider trading and violated regulations 3(i) and 4 of the
Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations,
1992 (for short the regulations) read w ith Clause 3.2.2 and 3.2.5 of the code of
conduct as specified in Part A of Schedule I of the said regulations.

2. The appellant is a whole time director of the Jaiprakash Associates Limited
   (the company). The Securities and Exchange Board of India (for short the Board)
   conducted investigations into the trading in the scrip of the company during the
   period September 29, 2008 to October 27, 2008. It was found that the appellant was 2
   involved in the consolidation of quarterly financial results for the quarter ending
   September 30, 2008. The appellant was also involved in the preparation of agenda
   for the Board’s meeting to consider quarterly financial results, proposed interim
   dividend and the rights issue. It is allege d that while the appellant was in possession
   of Unpublished Price Sensitive Informati on (UPSI) relating to quarterly financial
   results of the company for the quarter ending September 30, 2008, he had traded in
   the scrip of the company by taking advantages of the UPSI. It is further alleged that
   the appellant had traded in the scrip of the company during the period when the
   trading window was closed. A show cause notice date d March 22, 2011 was issued
   to the appellant asking him to show cause as to why an enquiry should not be held
   against him and penalty imposed for the alle ged violations. The appellant denied the
   charges. A personal hearing was also granted and after considering the submissions
   made by the appellant, he was found guilty of the aforesaid violations and a penalty
   of 10 lacs was imposed under Section 15G of the Securities and Exchange Board of India Act, 1992 (the Act) for violating provi sions of regulations 3(i) and 4 of the regulations and 10 lacs under Section 15HB of the Act for violating provisions of
   regulation 12(1) read with Clause 3.2.2 a nd 3.2.5 of the code of conduct specified
   under Part A of Schedule I of the regulati ons. Aggrieved by the aforesaid order the
   present appeal has been preferred.
3. The Board had initiated action against six entities, namely, Mr. Manoj Gaur,
   Executive Chairman of the company, Mrs. Urvashi Gaur, his wife, Mr. Sameer Gaur,
   brother of Mr. Manoj Gaur, Mr. Harish K. Vaid, Company Secretary and Compliance
   Officer of the company, Harish K. Vaid HUF and Mr. S. D. Nailwal, Whole Time
   Director of the company, the appellant in the present appeal. While dealing with the
   appeal of Mr. Manoj Gaur (Appeal No. 64 of 2012), we have passed a separate order
   today in which we have held that the trial balances for the quarter ending September
   30, 2008 considered by the company on October 11, 2008 fall within the meaning of
   “any information relating to the financial results of the company” which is known
   only to a few persons of the company and is not in public domain. Such information 3
   relating to the trial balances, declaration of dividend etc. is price sensitive information
   within the meaning of regul ation 2(ha) of the Regulatio ns. As per company’s own
   admission, the trading window was closed on October 11, 2008 and the designated
   employees of the company were prohibited from trading in the scrip of the company.
   The findings recorded by us to this effect in the case of Mr. Manoj Gaur (supra)
   equally apply to the facts in the case of the appellant.
4. The only issue that remains to be decide d in this appeal is , being an insider,
   whether the appellant has traded in the sc rip of the company while in the possession
   of UPSI or during the period when the trad ing window was closed. It is a matter of
   record that the appellant had bought 1000 shares on October 13, 2008. This date falls
   within the period when the trading window was closed. The only defense offered by
   the appellant is that by his letter dated May 9, 2011, he had requested his broker to
   buy 5000 shares of the company on his behalf during the week starting from October
   6, 2008. Accordingly, the broker bought 1000 shares on October 6, 2008 and 2000
   shares on October 7, 2008. When enquiries were made from the broker on October
   13, 2008 about the balance 2000 shares, the broker, not aware of the window closure,
   purchased 1000 shares on the same day. Th is explanation has not been accepted by
   the adjudicating officer observing that the appellant had actually traded during the
   period when the trading window was closed and the appellant was also in possession
   of UPSI. Keeping in view the position of the appellant in the company and his
   fiduciary duty towards the company and its shareholders, we see no reason to
   disagree with the findings of the adj udicating officer. The broker may not be
   knowing about the closure of the trading window but the appellant, being the whole
   time director of the company, was aware of the closure of the trading window. If his
   order remained unexecuted, it was his duty to inform the broker not to purchase
   shares on his behalf during the closure of the trading window. As per appellant’s
   own admission, enquiries were made from the broker on October 13, 2008 about the
   purchase of shares of the company on his beha lf. It was expected that the appellant
   should have stopped his broke r on October 13, 2008 from buying further shares on 4
   his behalf which he failed to do. Ther efore, we cannot find any fault with the
   findings arrived at by the adjudicating officer. The appellant was also involved in the
   finalization of quarterly financial results, interim dividends and rights issue. The
   appellant himself has submitted in his reply to the Board that he was associated with
   the consolidation of qua rterly financial results. Ther efore, we cannot find any fault
   with the findings of the adjudicating offi cer that the appellant was in possession of
   UPSI and while in possession of UPSI he traded in the scrip of the company and
   violated the provision of regulations 3(i) and 4 of the Regulations.
5. It was then argued by the learned couns el for the appellant that keeping in
   view the quantum of shares purchased pe nalty imposed by the Board is excessive.
   The appellant has not derived any benefit as there was no sale of shares based on
   UPSI. The adjudicating officer, while imposing the penalty, although noted the
   provisions of Section 15J of the Act regarding factors to be taken into account while
   adjudging the quantum of pena lty, he has not applied them correctly to the facts of
   the case. The adjudicating officer has not given any weightage to the fact that the
   order was placed by the appellant with his broker much before the UPSI came into
   existence and that the order was executed by the broker. We have given our
   thoughtful consideration to this aspect and are unable to accept the argument of the
   learned counsel for the appellant. The evil of insider trading is well recognized. The
   purpose of the insider trading regulations is to prohibit trading to which an insider
   gets advantage by virtue of his access to price sensitive information. The appellant is
   a whole time director of the company w ho was involved in the finalization of
   quarterly financial results and was fully aw are of the regulatory framework and code
   of conduct of the company. Under such circumstances, when there is a total
   prohibition on an insider to d eal in the shares of the company when in possession of
   UPSI, the quantity of shares traded beco mes immaterial. Section 15G of the Act
   prescribes the penalty of twenty-five crore rupees or three times the amount of profit
   made out of the insider trading, whicheve r is higher. Sec tion 15HB of the Act
   prescribes a penalty which may extend to one crore rupees. However, the 5
   adjudicating officer has imposed a total penalty of ` 10 lacs for each of the violations.
   In the facts and circumstances of the case, we are not inclined to interfere even with
   the quantum of penalty imposed.
   In the result, the appeal fails and the same is dismissed with no order as to
   costs. Sd/-
   P. K. Malhotra
   Member &
   Presiding Officer ( Offg .)
   Sd/-
   S. S. N. Moorthy
   Member
   03.10.2012
   Prepared and Compared by
   ptm