Harish K. Vaid v. Adjudicating Officer, Securities And Exchange Board Of India

BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Appeal No. 63 of 2012 Date of decision: 03.10.2012 Mr. Harish K Vaid C-1/1172, Vasant Kunj, New Delhi 110070. 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 This order will dispose of two appeals no. 61 and 63 of 2012 which arise out of common order passed by the Securities and Exchange Board of India (for short the Board). Appeal no. 63 of 2012 is filed by Mr. Harish K. Vaid who is Company Secretary and Compliance Officer of Jaiprakash Associates Limited (the company). Appeal No. 61 of 2012 has been filed by Harish K. Vaid, HUF of which Harish K. Vaid is the Karta. These appeals are filed against the order dated January 5, 2012 passed by the adjudicating officer of the Board holding Mr. Harish K. Vaid guilty of violating regulations 3(ii) and 4 of the regulations and Harish K. Vaid, HUF of violating regulations 3(i), (ii) and 4 of the regulations and imposing a penalty of ` 10 lacs on each under section 15G of the Act.

2. The facts of the case, in brief, are that the Board carried out investigations in the trading of the scrip of the company during the period September 29, 2008 to October 27, 2008. Harish K. Vaid, Senior President (Corporate Affairs) and Company Secretary is a connected person within the meaning of regulation 2(c) and hence an insider within the meaning of regulation 2(e) of the regulations. He is also Karta of Harish K. Vaid, HUF. The company received trial balances for the quarter ending September 30, 2008 from its various units in the first week of October 2008. Thereafter, the company made an announcement to the stock exchange on October 11, 2008 that in the Board meeting scheduled to be held on October 21, 2008, issues relating to the unaudited financial results for the quarter ending September 30, 2008, interim dividend for the years 2008-09 and the rights issue will be considered. The trading window of the company was closed on October 11, 2008 as required under the code of conduct. It is alleged that the appellant, being an insider was in possession of the UPSI relating to financial results of the company for the quarter ending September 30, 2008. He bought 500 shares of the company on October 15, 2008 and sold 500 shares on October 16, 2008, while in possession of UPSI. This trading was done by Harish K. Vaid, HUF when Harish K. Vaid was in possession of UPSI on 15th and 16th October 2008. After holding an inquiry in which appellant was afforded opportunity to present his case, the adjudicating officer passed the impugned order. Hence this appeal.

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. 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, 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 relating to trial balances, declaration of dividend etc. is price sensitive information within the meaning of regulation 2(ha) of the Regulations. As per companys own admission, the trading window was closed from October 11, 2008 and the designated employees of the company were prohibited from trading in the scrip of the company. The information relating to declaration of dividend, quarterly financial results etc. was USPI during the period 11th October to 21st October 2008.

4. The findings recorded by us in the case of Mr. Manoj Gaur (supra) equally apply to the facts in the case of the appellants. The only issue that remains to be decided in these appeals is whether Harish K. Vaid was in possession of UPSI and whether the trading done by Harish K. Vaid, HUF is based on the UPSI in possession of Harish K. Vaid. It was argued on behalf of the appellant that Harish K. Vaid, HUF is financially independent and employs its own funds in the trading in the scrip and that the orders placed on behalf of the HUF were placed in the ordinary course of business. The HUF was holding 2675 shares of the company at the relevant time and the quantum of shares which are subject matter of alleged insider trading on the basis of UPSI is mere 1000 shares (500 shares bought and 500 shares sold). The profits booked out of the alleged trades are insignificantly small amounting to ` 2,216/- only. Keeping in view the quantity, it is highly improbable that the trading was done on the basis of UPSI. These submissions of the appellants did not find favour with the adjudicating officer on the ground that the trading was done during the period when UPSI was in existence and Mr. Harish K. Vaid being an insider was privy to the UPSI. While quantity traded and the profit made are not substantial, the fact remains that it was done when the appellants were in possession of UPSI. Mr. Harish K. Vaid, being the Compliance Officer of the company was supposed to act carefully as he is fully aware of the rules, his position in the company and the provisions of the code of conduct prescribed for the employees.

5. After hearing the learned counsel for the parties and perusing the record, we are inclined to agree with the view taken by the adjudicating officer. The purpose of insider trading regulations is to prohibit trading by which an insider gets advantage by virtue of his access to price sensitive information. The quantum of trading done or the profits earned become immaterial. The case of the appellant, who is a Company Secretary and a designated employee of the company, has to be viewed differently as compared to case of a person who is neither an employee of the company nor involved in its day to day affairs. Further, Harish K. Vaid is the Karta of Harish K. Vaid, HUF and is responsible for all acts of the HUF. When trading is done during the existence of UPSI, the presumption is that it is on the basis of UPSI. The appellants have not placed any material on record to rebut this presumption. We, therefore, cannot find any fault with the findings arrived at by the adjudicating officer.

6. It was then argued by the learned counsel for the appellants that keeping in view the quantum of shares purchased, the penalty 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 provisions of Section 15J of the Act regarding factors to be taken into account while adjudging the quantum of penalty, he has not applied them correctly to the facts of the case. 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 the Company Secretary and Compliance Officer of the company who was involved in the finalization of quarterly financial results and was fully aware of the regulatory framework and code of conduct of the company. Under such circumstances, when there is a total prohibition on an insider to deal in the shares of the company while in possession of UPSI, the quantity of shares traded by him becomes 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, whichever is higher. Section 15HB of the Act prescribes a penalty which may extend to one crore rupees. However, the adjudicating officer has imposed a penalty of ` 10 lacs only on each of the violators. 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 appeals fail and the same are 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