In this instance, the Supreme Court overturned SEBI and SAT rulings that found the managing director of PC Jewellers and a few of his family guilty of breaking the rules against insider trading.
The SEBI had fined the appellants Rs. 20 lakh and barred them for a year from entering the securities market or engaging in direct or indirect trading in securities. Additionally, for a period of two years, SEBI prohibited the appellants from dealing with the scripts of their business.
In the instant case titled Balram Garg v. Securities and Exchange Board of India, the issue raised for clarification before the Apex Court was:
Whether the SAT was allowed to pronounce the judgement?
With regard to this issue, on appeal, the Apex Court noted that the SAT was acting in a First Appellate Court's capacity and was required to independently evaluate the material in the record and the evidence, which it plainly did not do.
According to Regulation 3 of the SEBI(Prohibition of Insider Trading) Regulations, 2015, the charge of insider trading by communicating unpublished price sensitive information by an insider to other insiders or any other persons must be established by adequate material on record and cannot be established from only circumstantial evidence of share trading timing or pattern. The SAT was expected to independently analyse the information in the record and the evidence because it was operating in the capacity of a First Appellate Court, something that was obviously not done, the Apex Court stated on appeal.
The SEBI(Prohibition of Insider Trading) Regulations, 2015, Regulation 3, states that the charge of insider trading by communicating unpublished price sensitive information by an insider to other insiders or any other persons must be established by adequate material on record and cannot be established from only circumstantial evidence of share trading timing or pattern.
The Court categorically stated that,
"It is intended to acknowledge the necessity of communicating, providing, allowing access to or procuring UPSI for substantial transactions such as takeovers, mergers and acquisitions involving trading in securities and change of control to assess a potential investment. In an open offer under the takeover regulations, not only would the same price be made available to all shareholders of the company but also all information necessary to enable an informed divestment or retention decision by the public shareholders is required to be made available to all shareholders in the letter of offer under those regulations".