Companies are consciously working to protect employee privacy while also safeguarding personal information. Nevertheless, innovative methods like end-to-end encrypted software are the newest attire of insiders. These days, messaging services frequently use encryption, which makes it difficult to track down the source of information leaks. In an interesting recent development, the Hon'ble Securities Appellate Tribunal examined the boundary between confidential information and publicly available market data and how WhatsApp's end-to-end encryption spared the company from the severe fines imposed in the case of Shruti Vohra vs. Securities and Exchange Board of India (SEBI)
In the instant case titled Shruti Vohra vs. Securities and Exchange Board of India. The issues raised for clarification before the Securities Appellate Tribunal was:
If a "forwarded as received" WhatsApp message about a company's quarterly financial results were sent out to a group, closely matching the relevant statistics, soon after the company had finished internally reviewing the financial results and before the company in question published or disclosed them, would this constitute unpublished price-sensitive information under the terms of the SEBI (Prohibition of Insider Trading) Regulations, 2015?
With regard to this issue, The Adjudicating Officer (AO) gave an affirmative response to the query and assessed the appellants an Rs. 15,00,000 fine. The AO concluded that the message contained unpublished price-sensitive information since it contained financial results information and closely matched the financial outcomes that were later published. On appeal, the SAT observed that no information could be recovered by the respondent SEBI to find out the source of information from the financial team, legal team or audit team of the respective companies. The impugned order shows that the learned AO has expressed the inability in this regard.
The definitions of ‘Unpublished price sensitive information and ‘insider’ would show that generally, available information would not be unpublished price-sensitive information. Leaving aside the AO's justification, the SAT maintained that the information could only be branded as unpublished price-sensitive information if the recipient was aware that it was such. Although a person's state of mind, knowledge can be demonstrated by the preponderance of the evidence in the surrounding circumstances. Except for the potential situations listed by the adjudicating officer, there are no further circumstances in the current case. The Adjudicating Officer only considered two elements when deciding to label the material as unpublished price-sensitive information: the close proximity of the time and the similarity of the information.
SAT referred to a prior ruling in Samir Arora v. SEBI. In that instance, the Tribunal had rejected SEBI's claims that there was no requirement for a connection between the individual purportedly in possession of the alleged unpublished price-sensitive information and the potential source of the information.
The Court categorically stated that,
“Information constitutes UPSI only when the person getting such information was aware that such information was unpublished, and price-sensitive in nature"