PC Jewellers is first generation business started by PC Gupta and Balram Garg. The Hon’ble Supreme court was hearing appeals by PC Jeweller’s Balram Garg and three others—Sachin Gupta, Shivani Gupta and Amit Garg on the issue of insider trading. To understand the issue, Sachin and Shivani are the son and daughter-in-law of Balram’s deceased brother PC Gupta, while Amit is Balram’s nephew. The alleged insiders are members of a promoter family of PC Jeweller Limited. While Mr. P.C. Gupta was the chairman of the company, his brother Mr. Balram Garg is the managing director of the company. The allegation is that three individuals, being Mr. Sachin Gupta (son of Mr. P.C. Gupta), Mrs. Shivani Gupta (daughter-in-law of Mr. P.C. Gupta) and Mr. Amit Garg (nephew of Mr. P.C. Gupta and Mr. Balram Garg) had engaged in trades involving the shares of PC Jewellers, either directly or through their holding company while in possession of unpublished price sensitive information (UPSI).
The UPSI relates to the information relating to the announcement by the company of a buyback of securities and, second, the information relating to a subsequent termination of the buyback transaction due to the failure to receive the consent of the lenders. The individuals were fined Rs 20 lakh, restrained from accessing the securities market for one year, and have been barred from trading in shares of PC Jewellers for two years. On appeal, the Securities Appellate Tribunal largely agreed with SEBI. It noted that there was no direct evidence of who had disseminated UPSI. But on preponderance of probability it concluded that it were the late PC Gupta, the company’s chairman at the time, and Balram Garg who had disseminated UPSI to the three individuals.
Reg. 2(1)(n) the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“PIT Regulations”) defines UPSI which means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities.
In May last year, the Securities and Exchange Board of India found Balram Garg guilty of communicating UPSI to the three individuals, Sachin, Shivani and Amit were found guilty of trading on the basis of that. The top court examined two conclusions by SEBI:
- There existed a close relationship between the appellants and
- Possession of unpublished price-sensitive information.
Based on circumstantial evidence—trading pattern and timing of trading—it could reasonably be concluded that Shivani, Sachin and Amit were “insiders” in terms of SEBI (Prohibition of Insider Trading) Regulations, The apex court examined the settlement agreements cited by the parties and observed that: Amit Garg was never associated with the company. His father Amar Chand Garg dissociated himself from the company in September 2011. Sachin and Shivani Gupta were never directors of PC Jeweller and had resigned from their roles in 2015. PC Gupta and his wife had agreed to transfer 1,60,000. The judgment has the effect of limiting the ability of SEBI to rely on circumstantial evidence and thereby enhancing its evidentiary burden.
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