The Securities and Exchange Board of India (Sebi) moved the Supreme Court last week seeking a review of the apex court’s ruling in the PC Jewellers insider-trading case in April.
SEBI and the Securities Appellate Tribunal (SAT) took the view that the common address could be construed as “preponderance of probability” that price-sensitive information could be shared among parties. However, in April, a two-judge bench of the Supreme Court ruled that both SEBI and SAT had erred since they did not take into account family disputes.
The court had rejected the capital markets regulator’s decision that estranged family members of a promoter – if they share the same residential address – must be considered connected persons under the insider-trading rules. The case pertains to the promoter family of PC Jewellers.
SEBI and the Securities Appellate Tribunal (SAT) took the view that the common address could be construed as “preponderance of probability” that price-sensitive information could be shared among parties.
However, in April, a two-judge bench of the Supreme Court ruled that both SEBI and SAT had erred since they did not take into account family disputes.
SEBI didn’t respond to queries.
“The judgement was expected to have a broader impact on the insider trading rules, since it would set a precedent,” said a securities lawyer. “There is also concern on SEBI’s side – if the judgement holds up, it may provide a loophole for perpetrators in the future.”
According to various court documents, PC Jewellers (PCJ) was founded by brothers PC Gupta, Amar Chand Garg and Balram Garg. In 2011, the family of Amar Chand Garg broke ties with PCJ and reduced its stake to 0.7%. In 2015, due to a family dispute, PC Gupta’s son Sachin Gupta and daughter-in-law Shivani Gupta broke away from the business, relinquishing their roles in PCJ. However, as a settlement, they received 16 million shares of PCJ from founder PC Gupta. Even after the split, all the family members lived in various buildings on the same plot of land.
On April 25, 2018, PCJ’s board initiated discussions on a share buyback from public investors; the proposal got board approval on May 10. Since the proposal was not disclosed to investors until May 10, news of the buyback was unpublished price sensitive information (UPSI) under insider-trading rules. On July 7, 2018, the lead banker refused to give a no-objection certificate for the buyback and hence PCJ was forced to announce its withdrawal on July 13. Between July 7 and July 13 any tips on the withdrawal were deemed to be UPSI.
Source : The Economic Times
