1

REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.7054 OF 2021

BALRAM GARG                  …..APPELLANT

VERSUS

SECURITIES AND EXCHANGE BOARD OF INDIA 
……RESPONDENT

WITH

CIVIL APPEAL NO.7590 OF 2021

MS. SHIVANI GUPTA & ORS.           …..APPELLANTS

VERSUS

SECURITIES AND EXCHANGE BOARD OF INDIA 
……RESPONDENT

J U D G M E N T

Vineet Saran, J.

1. The present Civil Appeals arise out of a common judgement and
Signature Not Verified

Digitally signed by
Rachna
Date: 2022.04.19
16:04:08 IST
Reason:

order   dated   21.10.2021   passed   by   the   Securities   Appellate

Tribunal   (for   short   “SAT”),   wherein   the   Tribunal   dismissed   the

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Appeals No.375 and 376 of 2021 filed by the Appellants herein

and upheld the order dated 11.05.2021 passed by the Whole Time

Member  (for  short  “WTM”) of Securities and Exchange Board of

India (for short “SEBI”)

2. Brief facts relevant for the purpose of the present appeals are that

P. Chand Jeweller Pvt. Ltd. was incorporated on April 13, 2005

under the Companies Act, 1956 as a Private Limited Company.

However, pursuant to a resolution passed by the shareholders on

July 5, 2011, the company was converted into a Public Limited

Company, following which the name of the company was changed

to   “PC   Jeweller   Ltd.”  (for  short “PCJ”) and a fresh  certificate of

incorporation was issued.

3. The   genesis   of   the   present   dispute   is   rooted   in   the   action   of

Respondent/SEBI   against   the   appellants   vide   an   impounding

order   dated   17.12.2019   and   a   show­cause   notice   dated

24.04.2020. The crux of the allegations of the impounding order

and the show­cause notice are as follows:

i. Padam Chand Gupta (P.C. Gupta) was the Chairman

of   PCJ   during   the   relevant   period   and   was   a

“connected   person”   in   terms   of   Regulation   2(1)(d)(i)

and an “insider” under Regulation 2(1)(g) of the SEBI
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(Prevention of Insider Trading Regulations), 2015 (for

short “PIT Regulations”).

ii. Balram Garg, who is the brother of P.C. Gupta and the

Managing Director of PCJ is also a “connected person”

in terms of Regulation 2(1)(d)(i) and an “insider” under

Regulation 2(1)(g) of the PIT Regulations.

iii. That allegedly, the appellants in C.A. No.7590/2021,

namely,  Sachin Gupta, Smt. Shivani Gupta and Amit

Garg   traded   on   the   basis   of   Unpublished   Price

Sensitive   Information   (for   short   “UPSI”)   received   by

them   on   account   of   their   alleged   proximity   to   P.C.

Gupta   and   Balram   Garg   between   the   period   from

01.04.2018 to 31.07.2018.

iv. The   above   proximity   was  alleged  on  the   basis  of  the

fact   that   Sachin   Gupta   and   Smt.   Shivani   Gupta   are

the   son   and   daughter­in­law   of   Balram   Garg’s

deceased brother late P.C. Gupta. Moreover, Amit Garg

is the son of Amar Garg, who was also the brother of

Balram Garg. It was also alleged that all the appellants

shared the same residence.

4. Balram Garg, the appellant in C.A. No.7054/2021, filed his reply
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(dated 07.08.2020) to the allegations made against him, wherein

he stated the following:

i. That the foundational facts were not there to prove or

raise the alleged presumption. SEBI failed to place on

record   any   material   to   prove   that   the   appellants   in

C.A.   No.7590/2021  were  “connected   persons”  to   Mr.

Balram   Garg   as   required   by   Regulation   2(1)(d)(ii)(a)

read with Regulation 2(1)(f) of the PIT Regulations, as

none   of   the   appellants   C.A.   No.7590/2021   were

financially   dependent   on  Balram   Garg   or   consulted

Balram   Garg   in   any   decision   related   to   trading   in

securities.   Presumption   is   a   rule   of   evidence   which

cannot be drawn unless and until such foundational

facts are proved.

ii. That no material was brought on record to prima facie

show any transfer of information to the appellants in

C.A. No.7590 of 2021

iii. That merely being a family/relative cannot by itself be

a ground for the offence of insider trading, especially

when in furtherance of a family agreement, the family

was   partitioned   in   2011   and   there   had   been   no

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connection between them ever since. 

iv. Moreover,   Sachin   Gupta   resigned   from   the   post   of

President   (Gold   Manufacturing)   held   by   him   in   the

company   on   31.03.2015   pursuant   to   the   family

partition.   Since   then,   neither   Sachin   Gupta   nor   his

wife Mrs. Shivani Gupta had anything to do with the

business of the PCJ.

5. After granting an opportunity of personal hearing to the appellant

on   24.12.2020,   the   Whole   Time   Member   of   SEBI   passed   final

order dated 11.05.2021, imposing a penalty of Rs.20 lakhs on the

Appellants   along   with  restraining   the  appellants  from  accessing

the securities market and buying, selling or dealing in securities,

either directly or indirectly, in any manner for a period of 1 year

from the date of the order and also restrained the appellants from

dealing with the scrip of PCJ for a period of 2 years.

6. Aggrieved by the order of the WTM of SEBI, the Appellants filed

appeals   before   the   SAT.     The   Tribunal,   vide   its   common

judgement   and   order   dated   21.10.2021,   dismissed   the   Appeals

preferred by the Appellants and held that:

“Upon   hearing   both   the   sides,   in   our   view,   the

reasoning of the Ld. WTM cannot be faulted with.
The   facts   as   highlighted   by   the   Ld.   WTM   would
show that though there was a family arrangement
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within the family on two occasions, there was no
estrangement,   as   can   be   seen   from   the   facts
highlighted by the Ld. WTM (supra). Additionally,
in   our   view,   the   very   fact   that   appellant   Shivani
had   authorized   her   cousin   brother­in­law   i.e.
appellant Amit to trade on her behalf, would belie
the case of the appellants that family settlements
means family estrangement. It cannot be gainsaid
that   the   appellants   are   residing   at   the   same
address   and   even   appellant   Mr.   Balram   Garg’s
address   is   ‘the   front   side’   of   the   premise.   The
trading   pattern   of   the   concerned   appellant   i.e.
withholding of the selling of trade once buy back
talk started within the company and again selling
spree the shares by them once the buy back offer
was made public till the rejection of the proposal by
the State Bank of India was made known to the
public,   would   clearly   show   that   the   concerned
appellants were aware of both the UPSI.

It is true that there is no direct evidence as to who
had   disseminated   this   insider   information   to   the
appellants   in   Appeal   no.   376   of   2021.   Late   Shri
Padam   Chand   Gupta   was   the   father   of   the
appellant   Mr.   Sachin   Gupta   and   father­in­law   of
the   appellant   Ms.   Shivani   Gupta   and   uncle   of
appellant   Mr.   Amit   Garg.   Similarly,   appellant   Mr.
Balram Garg is the uncle of appellant Mr. Sachin
Gupta   and   appellant   Mr.   Amit   Garg.   All   of   them
were residing in the same address. Appellant Mr.
Sachin Gupta had financial transactions with the
company of which appellant Mr. Balram Garg was
Managing   Director.   Considering   all   of   the   above
facts, on preponderance of probability, it can very
well be concluded that Late Padam Chand as well
as appellant Mr. Balram disseminated both UPSI to
the appellants in appeal no. 376 of 2021.”

7. Aggrieved by  the  above order  of the SAT dated 21.10.2021, the

appellants   filed   the   present   appeals  (C.A.   No.7054/2021   by

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Balram   Garg   and   C.A.   No.7590/2021   by   Mrs.   Shivani   Gupta,

Sachin Gupta, Amit Garg and Quick Developers Pvt. Ltd.) under

section 15Z of the Securities and Exchange Board of India Act,

1992.     Since,   P.C.   Gupta   expired   in   January   2019   after   the

notices were issued, hence the case was dropped as against him. 

8. Mr.   Dhruv   Mehta,   learned   Senior   Counsel   for   the   Appellant

Balram   Garg   (in  C.A.  No.7054  of 2021)  has submitted that the

WTM has held that the appellants no.1 to 3 in C.A. No.7590 of

2021, namely, Mrs. Shivani Gupta, Sachin Gupta and Amit Garg

(also referred to as Noticee no.1 to 3 in the show­cause notices)

were   not  “connected   persons”  or  “immediate   relatives”  qua   the

appellant   Balram   Garg   and   that   this   finding   of   the   WTM   has

become   final.   It   was   further   submitted   that   the   appellant   Mr.

Balram Garg was found to have violated only Regulation 3 of PIT

Regulations,   2015   and   that   unlike   Regulation   4(2)   of   PIT

Regulations, there is no provision to raise any presumption under

the said Regulation 3.

9. It was also contented that to prove the violation of Regulation 3 of

PIT Regulations, the burden of proof was on SEBI to establish any

“communication”   of   UPSI   by   placing   on   record   cogent   evidence

viz. call details, emails, witnesses etc. It was submitted that the
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Respondent in this case has failed to place any such evidence on

record. Moreover, it was submitted that the presumption against

“immediate relative” is provided in the Regulations to ensure that

relatives   who   are   financially   or   otherwise   under   the   complete

control   of   a   connected  person   are   not  used   for   insider   trading.

However, in this case, no such possibility existed in relation to the

appellant   Mr.   Balram   Garg   and   the   other   appellants   in   C.A.

No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta and

Amit Garg.

10. The learned Senior Counsel further contented that the reliance of

the   respondent   on   the   transactions   between   appellant   Sachin

Gupta and the Company (PCJ) is against the principles of natural

justice   as   these   allegations   were   not   part   of   the   show   cause

notices.   It   was   also   submitted   that   the   name   of   the   appellant

Balram   Garg   has   been   used   inter­changeably   with   that   of   late

P.C.Gupta and there is no material on record for the WTM and the

SAT   to   arrive   at   the   finding   that   both   late   P.C.Gupta   and   the

appellant Balram Garg communicated the UPSI to the appellants

in C.A. No.7590 of 2021.

11. Mr.   V.   Giri,   learned   Senior   Counsel   for   the   appellants   in   C.A.

No.7590   of   2021,   namely,   Mrs.   Shivani   Gupta,   Sachin   Gupta,

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Amit Garg and Quick Developers Pvt. Ltd., has contended that the

entire case of insider trading is set up against these appellants

only   on  the  basis   of   the close relationship  between  the parties.

However, he submitted that the appellants have placed sufficient

material   on   record   to   demonstrate   that   there   was   a   complete

breakdown   of   ties   between   the   parties,   both   at   personal   and

professional level and that the said estrangement was much prior

to the UPSI having coming into existence.

12. The   learned   Senior   Counsel   has   further   contented   that   even

assuming that the appellants have not been able to demonstrate a

complete breakdown of ties between the parties, it was not open

for   the   SAT   to   turn   the   Statute   on   its   head   by   reversing   the

burden   of   proof   on   the   appellants   by   conveniently   ignoring   the

fact   that   the   onus   was   actually   on   SEBI   to   prove   that   the

appellants were in possession or having access to UPSI.

13. It was also contended that the charges against the appellants in

C.A. No.7590 of 2021 have been sustained solely on the basis of

circumstantial evidence viz. trading patterns and timing of trades

by the appellants. Moreover, it was not open to the WTM and SAT

to hold the appellants guilty of the offence of insider trading in the

absence of any other concrete evidence as SEBI failed to produce
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such  evidence.  The   learned Senior  Counsel also emphasized on

the   fact   that   the   charges against   the  appellants  that   they   were

“connected  persons”  within  the  meaning  of  Regulation  2(1)(d)  of

the PIT Regulations was expressly rejected by the WTM and that

the   burden   of   proving   that   the   appellants   are  “insiders”  by

invoking   Regulation  2(1)(g)(ii) of PIT Regulations  was completely

upon the SEBI and that they failed to discharge this burden.

14. Per   contra,   Mr.   Arvind   Datar,   learned   Senior   Counsel   for   the

Respondent has submitted that on April 25, 2018, PCJ initiated

discussions regarding buy­back of fully paid up equity shares. On

10.05.2018,   pursuant   to   the   discussion   and   approval   by   the

Board,   the   company,   after   market   hours,   informed   the   stock

exchange of their offer of buy­back of 1,21,14,285 fully paid up

equity shares of Rs. 10/­ each at a price of Rs. 350/­ per equity

share. As before this date, the information about buy­back was

not disclosed, and since the information pertained to change in

capital   structure   of   the   company,   this   information   qualified   as

Unpublished   Price   Sensitive   Information­1   (for   short   “UPSI­1”).

Accordingly, the period from April 25, 2018 to May 10, 2018 has

been taken as the period of UPSI­1.

15. It was further submitted that on July 7, 2018, the lead Banker of
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PCJ,   State   Bank   of   India   (for   short   “SBI”),   refused   to   give   No

Objection Certificate (for short “NOC”) for the buy­back of equity

shares.   Hence,   on   July   13,2018,   the   Board   approved   the

withdrawal of the buy­back offer and the same was informed to

the   Exchanges   after   market   hours.   It   was   submitted   that   this

information has been considered as Unpublished Price Sensitive

Information­2   (for   short   “UPSI­2”)   as   the   same   was   likely   to

materially affect the price of the shares of the company. Moreover,

the information pertaining to proposed buy­back of equity shares

of the company came into existence on July 7, 2018 and became

public   on   July   13,   2018.   Accordingly,   the   period   from   July   7,

2018 to July 13, 2018 has been taken as period of UPSI­2.

16. It  has   been  contended that  appellant  Balram   Garg  contravened

Regulation 3(1) of the PIT Regulations and Section 12A(c) of the

SEBI Act,1992, by communicating the UPSI to the appellants in

C.A.   No.7590   of   2021,   by   being   an   “insider”   and   “connected

person” within the meaning of PIT Regulations, and by being privy

to discussions and communications pertaining to buy­back and

withdrawal of equity shares. Additionally, by virtue of being the

Managing   Director   (MD)   of   the   PCJ,   Balram   Garg   was   in

possession of UPSI­1 and UPSI­2.
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17. Mr.   Datar   has   contended   that   during   the   period   02.04.2018   to

31.07.2018, trades were executed by Appellants in C.A. No.7590

of 2021 while in possession of UPSI and that they made unlawful

gains and avoided losses. Trades were executed from the trading

account of Mrs. Shivani Gupta from 02.04.2018 and continued till

24.04.2018. No trades were undertaken in May and June 2018

and then sell trades were undertaken from July 6, 2018 till July

13, 2018  i.e.  during  UPSI­2. Appellant Mrs. Shivani Gupta had

100%   concentration   in   the   scrip   of   PCJ   and   these   trades   were

executed by Mrs. Shivani Gupta, Sachin Gupta and Amit Garg,

i.e. Appellant No. 1,2, and 3 respectively in C.A. No.7590 of 2021.

18. The learned Senior Counsel further contented that the Appellant

No.   4   (in  C.A.   No.7590 of 2021) i.e. Quick Developers Pvt. Ltd,

took   short   position   on   13.07.2018   i.e.   just   before   information

pertaining to withdrawal was communicated to the Exchanges. It

is submitted that such short positions were taken in anticipation

of   a   price   fall.   Appellant   Amit   Garg   and   his   wife   are   100%

shareholders of Quick Developers Pvt. Ltd., hence they, through

the   trades   executed   from   the   account   of   Quick   Developers   Pvt.

Ltd., avoided losses and also made profit.

19. In   the   context   of   the   family   settlement,   learned   Senior   Counsel

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has contended that such a settlement, at best, was an internal

division   and   does   not   imply   that   all   ties   between   the   family

members   were   severed  or   that   relationship   of   appellant   Balram

Garg with appellants in C.A. No.7590 of 2021 was estranged. It

was   further   argued   that   the   appellants   did   not   cease   to   have

association with each other, which is established by the following

facts:
i. Sachin Gupta continued to have business transactions

with PCJ. PCJ even paid rent to Sachin Gupta to the

tune of Rs.4 lakhs for Financial Year 2015­16, Rs.77

lakhs for the Financial Year 2016­17 and Rs.78 lakhs

for the financial Year 2017­18.

ii. Sachin Gupta was the nominee of the Demat Account

of late P.C. Gupta and after his death, the holdings of

P.C.   Gupta   in   the   company   were   held   by   Sachin

Gupta.   Hence, it cannot be said that the father and

son relationship was estranged. 

iii. Appellant   Balram   Garg   and   the   Appellants   No.   1,2,

and 3 in C.A. No.7590 of 2021 i.e. Mrs. Shivani Gupta,

Sachin   Gupta   and   Amit   Garg   share   the   same

residential address.

20. Reliance was placed on the SAT order in Utsav Pathak vs. SEBI
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(order dated 12.07.2020 in Appeal No. 430 of 2019) wherein

the   SAT   had   laid   down   the   following   ratio   by   relying   upon   the

judgement of this court in SEBI vs. Kishore R. Ajmera [(2016) 6

SCC   368]  and   US   District   Court’s   order   in  United   States   of

America vs. Raj Rajaratnam and Danielle Chiesi [09 Cr 1184

(RJH)]:

“From   the   aforesaid   foundational   facts,   the

circumstantial evidence  or on a preponderance of
probability by a logical process of reasoning from
the   totality   of   the   attending   facts   and
circumstances   as   stated   aforesaid,   an   irresistible
inference   can   be   drawn   that   the   appellant   had
passed on the price sensitive information regarding
the open offer to the Tippees. Such inference taken
from   the   immediate   and   proximate   facts   and
circumstances   surrounding   the   events   is
reasonable   and   logical   which   any   prudent   man
would   arrive   at   such   a   conclusion.   The   Supreme
Court   in   Kanhaiyalal   Patel   (supra)   held   that   an
inferential   conclusion   from   proved   and   admitted
facts would be permissible and legally justified so
long as the same is reasonable.”

The   learned   Senior   Counsel   also   submitted   that   the

abovementioned   proposition   has   been   followed   by   the   SAT   in

Navin Kumar Tayal & Anr. Vs SEBI in order dated 02.08.2021

in Appeal No. 08 of 2018.

21. Mr.   Datar   concluded   his   submissions   by   stating   that   the   close

relationship of the appellants in C.A. No.7590 of 2021 with the
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appellant Balram Garg, especially in view of the trading pattern

makes   it   abundantly   clear   that   the   appellants   Mrs.   Shivani

Gupta, Sachin Gupta and Amit Garg were in possession of UPSI­1

& 2, who could not have got it from anywhere else except Balram

Garg, who by virtue of being the MD of the company, possessed

the crucial UPSI. 

22. For ready reference, the relevant provisions of the concerned Acts

and Regulations are extracted below: 

Section 11(2)(g) of the Securities and Exchange Board of India

Act, 1992

“11. (1) Subject to the provisions of this Act, it shall
be the duty of the Board to protect the interests of
investors   in   securities   and   to   promote   the
development   of,   and   to   regulate   the   securities
market, by such measures as it thinks fit.

(2)   Without   prejudice   to   the   generality   of   the

foregoing   provisions,   the   measures   referred   to
therein may provide for—
(a)...
(b)...
(c)... 
(d)...
(e)...
(f)...
(g) prohibiting insider trading in securities;
(h)…
………….
………….”

Section 11(4) of the Securities and Exchange Board of India
 16

Act, 1992

“[(4)  Without prejudice to the provisions contained
in   sub­sections   (1),   (2),   (2A)   and   (3)   and   section
11B, the Board may, by an order, for reasons to be
recorded in writing, in the interests of investors or
securities   market,   take   any   of   the   following
measures,   either   pending   investigation   or   inquiry
or   on   completion   of   such   investigation   or   inquiry,
namely:—
(a)   suspend   the   trading   of   any   security   in   a
recognised stock exchange;

(b)   restrain   persons   from   accessing   the   securities

market and prohibit any person associated
with   securities   market   to   buy,   sell   or   deal   in
securities;

(c)   suspend   any   office­bearer   of   any   stock

exchange or self­regulatory organisation from
holding such position;

(d) impound and retain the proceeds or securities in
respect   of   any   transaction   which   is   under
investigation;

(e)   attach,   after   passing   of   an   order   on   an

application made for approval by the Judicial
Magistrate of the first class having jurisdiction, for
a   period   not   exceeding   one   month,   one   or   more
bank  account  or  accounts   of   any  intermediary  or
any person associated with the securities market
in any manner involved in violation of any of the
provisions of this Act, or the rules or the regulations
made thereunder:

Provided  that   only   the   bank   account   or   accounts   or

any transaction entered therein, so far as it relates to
the proceeds actually involved in violation of any of the
provisions   of   this   Act,   or   the   rules   or   the   regulations
made thereunder shall be allowed to be attached;
 17

(f)   direct   any   intermediary   or   any   person

associated   with   the   securities   market   in   any
manner   not   to   dispose   of   or   alienate   an   asset
forming   part   of   any   transaction   which   is   under
investigation:

Provided that the Board may, without prejudice to the
provisions   contained   in   sub­section   (2)   or   sub­section
(2A), take any of the measures specified in clause (d) or
clause (e) or clause (f), in respect of any listed public
company or a public company (not being intermediaries
referred   to   in   section   12)   which   intends   to   get   its
securities   listed   on   any   recognised   stock   exchange
where   the   Board   has   reasonable   grounds   to   believe
that   such   company   has   been   indulging   in   insider
trading   or   fraudulent   and   unfair   trade   practices
relating to securities market.

Provided further that the Board shall, either before or
after   passing   such   orders,   give   an   opportunity   of
hearing to such intermediaries or persons concerned.]”
  (emphasis supplied)

Section   12A   of   the   Securities   and   Exchange   Board   of   India

Act, 1992

“Prohibition of manipulative and deceptive devices,
insider   trading   and   substantial   acquisition   of
securities or control.

12A. No person shall directly or indirectly—

(a)   use   or   employ,   in   connection   with   the   issue,

purchase   or   sale   of   any   securities   listed   or
proposed   to   be   listed   on   a   recognized   stock
exchange, any manipulative or deceptive device or
contrivance   in   contravention   of   the   provisions   of
this   Act   or   the   rules   or   the   regulations   made
thereunder;
 18

(b)  employ   any   device,   scheme   or   artifice   to

defraud   in   connection   with   issue   or   dealing   in
securities which are listed or proposed to be listed
on a recognised stock exchange;

(c) engage in any act, practice, course of business
which operates or would operate as fraud or deceit
upon   any   person,   in   connection   with   the   issue,
dealing in securities which are listed or proposed to
be   listed   on   a   recognised   stock   exchange,   in
contravention   of   the   provisions   of   this   Act   or   the
rules or the regulations made thereunder;

(d)  engage in insider trading;

(e) deal   in   securities   while   in   possession   of

material or non­public information or communicate
such   material   or   non­public   information   to   any
other person, in a manner which is in contravention
of   the   provisions   of   this   Act   or   the   rules   or   the
regulations made thereunder;

(f) acquire   control   of   any   company   or   securities

more than the percentage of equity share capital of
a company whose securities are listed or proposed
to   be   listed   on   a   recognised   stock   exchange   in
contravention   of   the   regulations   made   under   this
Act.]”  
(emphasis supplied)

Section   15G   of   the   Securities   and   Exchange   Board   of  India

Act, 1992

“Penalty for insider trading.
 
15G.If any insider who,—
 19

(i)   either   on   his   own   behalf   or   on   behalf   of   any

other   person,   deals   in   securities   of   a   body
corporate   listed   on   any   stock   exchange   on   the
basis   of   any   unpublished   price­sensitive
information; or

(ii)   communicates   any   unpublished   price­sensitive

information   to   any   person,   with   or   without   his
request for such information except as required in
the ordinary course of business or under any law;
or

(iii)   counsels,   or  procures   for   any  other  person  to

deal in any securities of any body corporate on the
basis of unpublished price­sensitive information,
shall be liable to a penalty 81[which shall not be less
than ten lakh rupees but which may extend to twenty­
five crore rupees or three times the amount of profits
made out of insider trading, whichever is higher].”
  (emphasis supplied)

Securities and Exchange Board of India (Prohibition of Insider

Trading) Regulations, 2015

Definitions.

2. (1) In  these  regulations,  unless  the  context

otherwise  requires,  the  following  words,
expressions  and  derivations   therefrom  shall   have
the meanings assigned to them as under:–
(a)   “Act”  means  the  Securities  and  Exchange
Board of India Act, 1992 (15 of 1992);

(b)  “Board” means the Securities and Exchange
Board of India;

(c) “compliance   officer”   means   any   senior

officer,   designated   so   and   reporting   to   the
board of directors or head of the organization
 20

in case board is not there,  who  is financially

literate   and   is   capable   of   appreciating
requirements   for   legal   and   regulatory
compliance  under  these  regulations  and
who  shall  be  responsible  for  compliance  of
policies, procedures, maintenance of records,
monitoring   adherence   to   the   rules   for   the
preservation   of   unpublished   price   sensitive
information,   monitoring   of   trades   and   the
implementation  of  the  codes  specified  in
these  regulations  under  the  overall
supervision  of   the   board   of   directors   of   the
listed   company   or   the   head   of   an
organization, as the case may be.

(d)  "connected person" means,­
(i) any person who is or has during the six
months   prior   to   the   concerned   act   been
associated   with   a   company,   directly   or
indirectly,   in   any   capacity   including   by
reason of frequent communication with its
officers   or   by   being   in   any   contractual,
fiduciary or employment relationship or by
being a director, officer or an employee of
the   company   or   holds   any   position
including   a   professional   or   business
relationship   between   himself   and   the
company   whether   temporary   or
permanent,   that   allows   such   person,
directly   or   indirectly,   access   to
unpublished price sensitive information or
is   reasonably   expected   to   allow   such
access.

(ii) Without prejudice to the generality of
the   foregoing,   the   persons   falling   within
the following categories shall be deemed to
be connected persons unless the contrary
is established, ­

(a)     an   immediate   relative   of   connected

 21

persons specified in clause (i); or
(b)        a   holding   company   or   associate
company or subsidiary company; or
(c)      an intermediary as specified in section
12   of   the   Act   or   an   employee   or   director
thereof; or
(d)an investment company, trustee company,
asset   management   company   or   an
employee or director thereof; or
(e)          an official of a stock exchange or of
clearing house or corporation; or
(f)           a   member   of   board   of   trustees   of   a
mutual fund or a member of the board of
directors   of   the   asset   management
company   of   a   mutual   fund   or   is   an
employee thereof; or
(g)         a member of the board of directors or
an   employee,   of   a   public   financial
institution as  defined   in section 2 (72)  of
the Companies Act, 2013; or
(h)an   official   or   an   employee   of   a   self­
regulatory   organization   recognised   or
authorized by the Board; or
(i)        a banker of the company; or
(j)       a concern, firm, trust, Hindu undivided
family, company or association of persons
wherein   a   director   of   a   company   or   his
immediate   relative   or   banker   of   the
company, has more than ten per cent. of
the holding or interest;

NOTE:It  is  intended  that  a  connected  person  is

one  who  has  a  connection  with the company that
is expected to put him in possession of unpublished
price   sensitive  information.   Immediate   relatives
and other categories of persons specified above are
also presumed to be connected persons but such a
presumption  is  a  deeming  legal  fiction  and   is
rebuttable. This definition is also intended to bring
into   its   ambit   persons   who   may   not  seemingly
 22

occupy   any   position   in   a   company   but   are   in

regular   touch   with   the   company  and   its   officers
and   are   involved   in   the   know   of  the   company’s
operations. It is intended  to bring within its ambit
those  who  would  have  access  to  or could  access
unpublished  price sensitive information about any
company   or   class   of   companies   by   virtue   of   any
connection  that   would  put   them  in   possession   of
unpublished price sensitive information.

(e) "generally   available   information"   means

information that is accessible to the public on
a non­discriminatory basis;

NOTE:It   is   intended   to   define   what   constitutes

generally available information so that it is easier
to   crystallize   and   appreciate   what   unpublished
price   sensitive   information   is.   Information
published   on   the   website   of   a   stock   exchange,
would ordinarily be considered generally available.

(f) “immediate relative” means a spouse of a
person,   and   includes   parent,   sibling,   and
child of such person or of the spouse, any of
whom   is   either   dependent   financially   on
such   person,   or   consults   such   person   in
taking   decisions   relating   to   trading   in
securities;
NOTE:It is intended that the immediate relatives of
a   “connected   person”   too   become   connected
persons for purposes of these regulations. Indeed,
this is a rebuttable presumption.

(g) "insider" means any person who is:
(i)  a connected person; or
(ii) in possession of or having access to
unpublished   price   sensitive
information;

NOTE:Since   “generally   available   information”   is

defined, it is intended that anyone in possession of
 23

or   having   access   to   unpublished   price   sensitive

information   should   be   considered   an   “insider”
regardless   of   how   one   came   in   possession   of   or
had   access   to   such   information.   Various
circumstances   are   provided   for   such   a   person   to
demonstrate   that   he   has   not   indulged   in   insider
trading.   Therefore,   this   definition   is   intended   to
bring within its reach any person who is in receipt
of   or   has   access   to   unpublished   price   sensitive
information.   The   onus   of   showing   that   a   certain
person   was   in   possession   of   or   had   access   to
unpublished price sensitive information at the time
of   trading   would,   therefore,   be   on   the   person
leveling the charge after which the person who has
traded when in possession of or having access to
unpublished   price   sensitive   information   may
demonstrate that he was not in such possession or
that he has not traded or or he could not access or
that   his   trading   when   in   possession   of   such
information   was   squarely   covered   by   the
exonerating circumstances.

(h)  "promoter"…………………………………
(i) “securities”………………………………...
(j) “specified”………………………………….
(k)  “takeover regulations” ………………….
(l) "trading"   means   and   includes   subscribing,
buying,   selling,   dealing,   or   agreeing   to
subscribe,   buy,   sell,   deal   in   any   securities,
and "trade" shall be construed accordingly;

 NOTE: Under the parliamentary mandate, since the
Section 12A (e) and Section 15G of the Act employs
the   term   'dealing   in   securities',   it   is   intended   to
widely define the term “trading” to include dealing.
Such   a   construction   is   intended   to   curb   the
activities   based   on   unpublished   price   sensitive
information which are strictly not buying, selling or
subscribing,   such   as   pledging   etc   when   in
possession   of   unpublished   price   sensitive
information.
 24

(m) “trading day” ……………………………
(n)        "unpublished   price   sensitive
information"  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   and   shall,   ordinarily
including   but   not   restricted   to,   information
relating to the following: –

(i) financial results;
(ii) dividends;
(iii) change in capital structure;
(iv) mergers,   de­mergers,   acquisitions,
delistings,   disposals   and   expansion
of   business   and   such   other
transactions;
(v) changes   in   key   managerial
personnel.
(vi) material   events   in   accordance   with
the listing agreement

 NOTE:  It is intended that information relating to a
company   or   securities,   that   is   not   generally
available   would   be   unpublished   price   sensitive
information   if   it   is   likely   to   materially   affect   the
price   upon   coming   into   the   public   domain.   The
types of matters that would ordinarily give rise to
unpublished price sensitive information have been
listed   above   to   give   illustrative   guidance   of
unpublished price sensitive information.

(2)    Words and expressions used and not defined
in   these   regulations   but   defined   in   the   Securities
and   Exchange   Board   of   India   Act,   1992   (15   of
1992),   the   Securities   Contracts   (Regulation)   Act,
 25

1956 (42 of 1956), the Depositories Act, 1996 (22
of 1996) or the Companies Act, 2013 (18 of 2013)
and rules and regulations made thereunder shall
have the meanings respectively assigned to them
in those legislation.

CHAPTER – II

RESTRICTIONS ON COMMUNICATION AND 
TRADING BY INSIDERS

Communication   or   procurement   of
unpublished price sensitive information.

3. (1)   No   insider   shall   communicate,   provide,   or

allow   access   to   any   unpublished   price   sensitive
information,   relating   to   a   company   or   securities
listed   or   proposed   to   be   listed,   to   any   person
including   other   insiders   except   where   such
communication   is   in   furtherance   of   legitimate
purposes,   performance   of   duties   or   discharge   of
legal obligations.

NOTE:This   provision   is   intended   to   cast   an

obligation   on   all   insiders   who   are   essentially
persons   in   possession   of   unpublished   price
sensitive   information   to   handle   such   information
with   care   and   to   deal   with   the   information   with
them when transacting their business strictly on a
need­to­know basis. It is also intended to lead to
organisations developing practices based on need­
to­know   principles   for   treatment   of   information   in
their possession.

(2) No   person   shall   procure   from   or   cause   the

communication by any insider of unpublished price
sensitive   information,   relating   to   a   company   or
securities listed or proposed to be listed, except in
furtherance of legitimate purposes, performance of
duties or discharge of legal obligations.
 26

NOTE:This   provision   is   intended   to   impose   a

prohibition   on   unlawfully   procuring   possession   of
unpublished   price   sensitive   information.
Inducement and procurement of unpublished price
sensitive   information   not   in   furtherance   of   one’s
legitimate   duties   and   discharge   of   obligations
would be illegal under this provision.

(3) Notwithstanding   anything   contained   in   this

regulation,   an   unpublished   price   sensitive
information   may   be   communicated,   provided,
allowed access to or procured, in connection with a
transaction that would:–

(i) entail an obligation to make an open offer
under the takeover regulations where the
board of directors of the 9[listed] company
is   of   informed   opinion   that   10[sharing   of
such information] is in the best interests of
the company;

NOTE: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.

(ii) not attract the obligation to make an open
offer   under   the   takeover   regulations   but
where   the   board   of   directors   of   the
 27

11[listed] company is of informed opinion
12[that sharing of such information] is in
the best interests of the company and the
information   that   constitute   unpublished
price sensitive information is disseminated
to   be   made   generally   available   at   least
two   trading   days   prior   to   the   proposed
transaction being effected in such form as
the board of directors may determine 13[to
be adequate and fair to cover all relevant
and material facts].

 NOTE: It   is   intended   to   permit   communicating,

providing,   allowing   access   to   or   procuring   UPSI
also in transactions that do not entail an open offer
obligation under the takeover regulations 14[when
authorised by the board of directors if sharing of
such   information]   is   in   the   best   interests   of   the
company. The board of directors, however, would
cause public disclosures of such unpublished price
sensitive   information   well   before   the   proposed
transaction to rule out any information asymmetry
in the market.

(4) For purposes of sub­regulation (3), the board of
directors   shall   require   the   parties   to   execute
agreements   to   contract   confidentiality   and   non­
disclosure   obligations   on  the  part  of  such  parties
and such parties shall keep information so received
confidential,   except   for   the   purpose   of   sub­
regulation   (3),   and   shall   not   otherwise   trade   in
securities   of   the   company   when   in   possession   of
unpublished price sensitive information.

Trading   when   in   possession   of   unpublished

price sensitive information.
4. (1) No insider shall trade in securities that are
listed or proposed to be listed on a stock exchange
when in possession of unpublished price sensitive
 28

information:

Provided that the insider may prove his innocence
by demonstrating the circumstances including the
following: –
(i) the   transaction   is   an   off­market   inter­se
transfer between 18[insiders] who were in
possession of the same unpublished price
sensitive   information   without   being   in
breach   of   regulation   3   and   both   parties
had made a conscious and informed trade
decision.
(ii) in the case of non­individual insiders:­

a. the individuals who were in possession
of   such   unpublished   price   sensitive
information   were   different   from   the
individuals   taking   trading   decisions
and   such  decision­making   individuals
were   not   in   possession   of   such
unpublished   price  sensitive
information   when   they  took   the
decision to trade; and

b. appropriate   and   adequate

arrangements were in place to ensure
that these  regulations are not violated
and   no   unpublished   price   sensitive
information was  communicated by the
individuals possessing the information
to   the   individuals  taking   trading
decisions   and   there   is   no   evidence   of
such   arrangements   having  been
breached;
(iii) the   trades   were   pursuant   to   a   trading
plan set up in accordance with regulation
5.

NOTE:  When   a   person   who   has   traded   in

securities   has  been  in possession  of   unpublished
price   sensitive   information,   his   trades   would   be
 29

presumed   to   have   been   motivated   by   the

knowledge and awareness of such information in
his possession. The reasons for which he trades or
the purposes to which he applies the proceeds of
the transactions are not intended to be relevant for
determining   whether   a   person   has   violated   the
regulation.   He   traded   when   in   possession   of
unpublished   price   sensitive   information   is   what
would   need   to   be   demonstrated   at   the   outset   to
bring a charge. Once this is established, it would
be   open   to   the   insider   to   prove   his   innocence   by
demonstrating the circumstances mentioned in the
proviso, failing which he would have violated the
prohibition.

(2)   In   the   case   of   connected   persons   the   onus   of

establishing,   that   they   were   not   in   possession   of
unpublished price sensitive information, shall be on
such   connected   persons   and   in   other   cases,   the
onus would be on the Board.

(3) The   Board   may   specify   such   standards   and

requirements,   from   time   to   time,   as   it   may   deem
necessary for the purpose of these regulations.

23. We have heard learned counsel for the parties at length and have

carefully perused the record.

24. The   submission   of   the   Respondent   that   appellant   Balram   Garg

contravened   Regulation   3(1)   of   the   PIT   Regulations   and   section

12A(c)   of   the   SEBI   Act,   by   communicating   the   UPSI   to   the

appellants   in   C.A.   No.7590   of   2021,   being   an   “insider”   and

“connected person” within the meaning of PIT Regulations is not

worthy of acceptance.  The Securities Appellate Tribunal has erred

in upholding the order of the Whole Time Member of SEBI as it
 30

has failed to independently assess the evidence and material on

record while exercising its jurisdiction as the first appellate court.

As reiterated by this  Court in a catena of judgements, it is the

duty of the first court of appeal to deal with all the issues and

evidence led by the parties on both, the questions of law as well

as   questions   of   fact   and   then   decide   the   issue   by   providing

adequate reasons for its findings. Unfortunately, the SAT failed to

apply its mind on the issues raised by the parties and routinely

affirmed the findings of the WTM without dealing with the issues

at hand. In this context, this Court has held in H.K.N. Swami v.

Irshad Basith [(2005) 10 SCC 243] that:

“The first appeal has to be decided on facts as well
as on law. In the first appeal parties have the right
to  be   heard   both on questions   of   law as  also   on
facts   and   the   first   appellate   court   is   required   to
address itself to all issues and decide the case by
giving   reasons.   Unfortunately,   the   High   Court,   in
the   present   case   has   not   recorded   any   finding
either   on   facts   or   on   law.   Sitting   as   the   first
appellate court it was the duty of the High Court to
deal with all the issues and the evidence led by the
parties before recording the finding regarding title.”

The   above   position  was reiterated by  this  Court in  UPSRTC  vs

Mamta [(2016) 4 SCC 172].

25. The SAT again fell in error when in spite of observing that there is

no direct evidence which suggests as to who had disseminated the
 31

insider information to the appellants in C.A. No.7590 of 2021, it

concluded on mere “preponderance of probability” that it was late

P.C. Gupta as well as appellant Balram Garg who disseminated

both UPSI to the appellants in C.A. No.7590 of 2021.

26. Importantly, the WTM arrived at the finding that the appellants in

C.A.   No.7590   of   2021,   namely,   Mrs.   Shivani   Gupta,   Sachin

Gupta,   Amit   Garg   and   Quick   Developers   Pvt.   Ltd.   were   not

“connected   persons”  qua   the   appellant   Balram   Garg.   The   WTM

held that: 

“I also note that it is not the case in the SCN that
Noticee   no.1,   2   and   3   were   in   any   contractual,
fiduciary   or   employment   relationship   with   the
company,   or   were   the   director   or   officer   of   the
company, during the past 6 months of the alleged
act of insider trading. Noticee No. 1 and 2 seem to
be in the employment of the company but that was
way back in 2015. I also note that  the SCN has
also not identified that Noticee no. 1,2,3 or 4 had
any professional or business relationship with the
company, that allows the said Noticees, directly or
indirectly,   access   to   unpublished   price   sensitive
information.   In   view   of   the   above,   I   find   that
Noticee   no.   1,2,3   and   4   cannot   be   treated   as
‘connected persons’ in terms of Reg. 2(1)(d)(i) of PIT
Regulations, 2015.” 
[emphasis supplied]

27. In our opinion, two important findings of the WTM and SAT need

to be re­examined by this Court to adequately decide the present

set of appeals. Firstly, Whether the WTM and SAT rightly rejected
 32

the   claim   of   estrangement  of  the   appellants  in  C.A.  No.7590  of

2021, namely, Mrs. Shivani Gupta, Sachin Gupta and Amit Garg?

Secondly, could the aforementioned appellants be rightly held to

be   “insiders”   in   terms   of   Regulation   2(1)(g)(ii)   of   the   PIT

Regulations,   only   and   entirely   on   the   basis   of   circumstantial

evidence?

28. The   appellants   in   C.A.   No.7590   of   2021,   namely,   Mrs.   Shivani

Gupta,   Sachin   Gupta   and   Amit   Garg,   claimed   before   the   WTM

and   SAT   that   they   were estranged  from  the family   and did not

have   the   required   connection   with   the   appellant   Balram   Garg,

who was the MD of the PCJ at the relevant time period. However,

we are of the opinion that the WTM and SAT wrongly rejected this

claim   of   the   Appellants   in   C.A.   No.7590   of   2021   without

appreciating the facts and evidence as was produced before them.

The WTM and SAT ought to have appreciated the relevant facts for

ascertaining the true nature of relationship between the parties.

29. To understand the abovementioned relationship, it is pertinent to

note that PCJ was promoted in 2005 by three brothers viz. P.C.

Gupta   [since   deceased],   Amar   Chand   Garg   and   Balram   Garg

(Appellant in C.A. No.7054 of 2021). Subsequently, due to certain

differences, Amar Chand Garg and his branch of the family exited
 33

the   Company   by   entering   into   a   family   arrangement   dated

01.07.2011   whereby   their   shareholding   in   the   company   was

reduced   to   a   meagre   0.70%.   In   September,   2011,   Amar   Chand

Garg   also   resigned   as   the   Vice   Chairman   of   the   company   and

disassociated   himself   from   the   company.   Further,   the   record

reveals   that   the   son   of   Amar   Chand   Garg,   i.e.   Amit   Garg   (3 rd

Appellant in C.A. No.7590 of 2021) was never associated with the

company. On 31.03.2015, on account of certain disputes that had

arisen   between   Sachin  Gupta  (2nd  Appellant  in   C.A.  No.7590  of

2021) and his parents P.C. Gupta and Smt. Krishna Devi, Sachin

Gupta, so as to exit the company along with his family, resigned

from   his   position   as   President   (Gold   Manufacturing)   of   the

Company and Mrs. Shivani Gupta (1st  Appellant in C.A. No.7590

of 2021 and wife of Sachin Gupta) also resigned from her post of

Senior Assistant Manager, Karol Bagh Store of PCJ. Importantly,

both Sachin Gupta and Smt. Shivani Gupta were, at no point of

time, Directors of PCJ.

30. Subsequently, late P.C. Gupta and his son Sachin Gupta entered

into another family arrangement dated 10.04.2015 whereby P.C.

Gupta and his wife agreed to transfer at least 1,60,00,000 shares

of   the   company   to   Sachin   Gupta   and   his   family,   and   in   lieu

 34

thereof Sachin Gupta and his family agreed not to have any right

whatsoever in the immovable and movable property of P.C. Gupta

and his wife. However, Sachin Gupta and his wife Smt. Shivani

Gupta   were   permitted   to   use   the   property   at   1­C,   Court   Road,

Civil Lines, Delhi for residential purposes only. It is pertinent to

note here that the said plot of land is a large tract of land and

separate   buildings   were   constructed   thereon.   P.C.   Gupta   and

Sachin Gupta, along with their families, resided in separate floors

of   the   same   building,   whereas   Amit   Garg   and   Balram   Garg

resided in separate buildings.

31. Post   the   agreed   transfer   of   shares   by  P.C.   Gupta  and   his   wife,

Sachin   Gupta   and   his   wife   Smt.   Shivani   Gupta  inter   alia,  sold

some shares of the company from 02.04.2018 to 13.07.2018. This

aforesaid trade in shares was the subject matter of investigation

by   the   Respondent/SEBI   as  it   was  contented   by   SEBI   that   the

abovementioned   trade   was   based   on   UPSI   and   hence   was   in

contravention of SEBI Act and PIT Regulations. The WTM and SAT

erred   in   not   appreciating   the   aforementioned   facts   which

adequately   establish   that   the   there   was   a   breakdown   of   ties

between both the parties, both at personal and professional level,

and that the said estrangement happened much prior to the two
 35

UPSI.   Hence,   we   are   of   the   opinion   that   when   the   two   family

arrangements (dated 01.07.2011 and 10.04.2015) are considered

in their right perspective, it adequately demonstrates that there

was   a  breakdown  of  relations between the parties. Additionally,

given the fact that the entire case against the appellants  for the

offence   of   insider   trading   was   based   on   the   nature   of   close

relationship between the parties, once it has been rightly held by

the   WTM   that   the   appellants   are   neither  “connected   persons”

within the meaning of Regulation 2(1)(d) nor “immediate relatives”

within   the   meaning   of   Regulation   2(1)(f)   of   PIT   Regulation,   the

question   of  ipso   facto  relying   on   the   nature   of   relationship

between the parties to come to the conclusion that they were “in

possession   of   or   having   access   to   UPSI”   while   trading   with   the

shares of the company is legally unsustainable. 

32. Moreover, we find merit in the submission of the counsel for the

appellants in C.A. No.7590 of 2021 that even assuming that the

said family arrangements did not result in complete estrangement

of   social   relations   between   the   parties,   the   SAT   could   not,   by

virtue of this very fact, discharge SEBI of the onus of proof placed

on them to prove that the Appellants were in possession of UPSI.

In our opinion, the approach adopted by the SAT turns the SEBI
 36

Act on its head as it places the burden of proving that there was a

complete breakdown of ties between the parties on the Appellants

in C.A. No.7590 of 2021 while conveniently ignoring the fact that

the onus was actually on SEBI to prove that the appellants were

in possession of or having access to UPSI. The legislative note to

Regulation 2(1)(g) makes the above position of law explicitly clear.

It states that:

“... The onus  of  showing  that  a  certain  person
was   in     possession     of   or     had     access     to
unpublished   price   sensitive   information   at   the
time  of trading would, therefore, be on the person
leveling the charge after which the person who has
traded  when  in  possession  of or  having  access
to   unpublished     price     sensitive   information   may
demonstrate that he was not in such possession or
that he has not traded or he could not access or
that   his   trading   when   in   possession   of   such
information   was   squarely   covered   by   the
exonerating circumstances.” 

33. The second question before us is that could the appellants in C.A.

No.7590   of   2021,   be   rightly   held   to   be   “insiders”   in   terms   of

regulation 2(1)(g)(ii) of the PIT Regulations, only and entirely on

the basis of circumstantial evidence? 

34. In   this   context,   it   is   important   to   highlight   that   the   two   major

Corporate   Announcements,   purportedly   related   to   a   change   in

company’s capital structure, which were:

i. UPSI­1 [Period between 25.04.2018 to 10.05.2018]:
 37

The announcement of the Company on 10.05.2018 to

buy   back   up   to   1,21,14,285   fully   paid   up   equity

shares   of   Rs.   10/­   each   at   a   price   of   Rs.   350/­   per

equity share.
ii. UPSI­2 [Period between 07.07.2018 to 13.07.2018]:

The announcement of the company withdrawing their

buy­back offer due to non­receipt of NOC from State

Bank of India.

35. After carefully and extensively perusing the records, we have come

to the conclusion that the SAT erred in holding the appellants in

C.A. No.7590 of 2021 to be “insiders” in terms of Regulation 2(1)

(g)(ii) of the PIT Regulations on the basis of their trading pattern

and   their   timing   of   trading   (circumstantial   evidence).   The

reasoning of the SAT is ex facie contrary to the records, as would

be evident from the forthcoming discussion wherein our analysis

of the alleged transactions has been divided into three phases viz.

Phase­I [Period from 02.04.2018 to 24.04.2018], Phase­II [Period

from   22.06.2018   to   06.07.2018]   and   Phase­III   [Period   from

07.07.2018 to 13.07.2018].

36. Phase­I   [02.04.2018   to   24.04.2018   i.e.  Pre   UPSI­1   Period]:

Appellant   Mrs.   Shivani   Gupta  sold  shares  gifted  to   her  by   P.C.

Gupta and Smt. Krishna Devi (as part of the family arrangement
 38

dated 10.04.2015) for personal and commercial reasons. The said

shares were sold for a price of Rs. 300 per share during the said

period. However, since the price of the shares kept falling, Mrs.

Shivani decided to stop selling shares on 24.04.2018. Further, if

we   presume   that   she   had   internal   knowledge   of   the   company’s

affair   including   the   impending   buy­back   offer,   it   would   be

reasonable to assume that she would not have sold such a large

chunk   of   shares   (74,35,071   shares)   in   the   pre­UPSI­1   period

when the prices of the shares were falling and would have instead

chosen   to   wait   for   the   buy­back   offer.   This   also   assumes

importance   since   SEBI   itself,   vide   its   show­cause   notice   dated

24.04.2020 had dropped the charges with respect to the UPSI­1

period.   This   would   mean   that   the   notional   loss   purportedly

avoided by appellant Mrs. Shivani Gupta was only for the shares

traded   during   the   UPSI­II   Period,   and   even   according   to   SEBI,

there was no case that she made any money or avoided any loss

by trading in the shares of the company during the UPSI­1 Period.

37. Phase­II  [22.06.2018  to  06.07.2018  i.e.  Pre­  UPSI­II  Period]:

PCJ had requested SBI to issue a NOC for the proposed buy­back

offer   on   07.07.2018   and   the   said   request   was   rejected   on   the

same day by the SBI. However, even before the said refusal by the
 39

SBI, the appellant Mrs. Shivani Gupta had sold 1,00,000 shares

on 06.07.2018 at a much lower price than the price at which the

shares were sold earlier. On the date on which these shares were

sold,   the   UPSI­2   had   not   even   come   into   existence.   If   the

arguments   of   the   respondent   hold   any   water,   the   Appellants

should have waited till UPSI­2 and would only have subsequently

offloaded maximum number of shares during the said period to

avoid any notional loss. However, the records undercut the logic

adopted   by   the   respondent/SEBI   for   the   reason   that   the

appellants   were   not  in possession of the UPSI­2 and hence the

appellants started selling the shares even before the UPSI­2 came

into existence. 

38. Phase­III [07.07.2018 to 13.07.2018 i.e.  UPSI­II Period]:  The

Appellant Mrs. Shivani Gupta sold only 15,00,000 shares during

this period as opposed to the 74,35,071 shares that were sold at

an   earlier   point   of   time   (Pre­UPSI­1   Period).   Importantly,

notwithstanding   the   fact that the appellant Mrs. Shivani  Gupta

sold 15,00,000 shares, she continued to hold 12,84,111 shares of

the company, out of the total that were transferred to her by way

of   the   family   arrangement.   These   above   factors   undercut   the

argument of SEBI that the appellants sold huge number of shares
 40

during UPSI­2 period because they had the information that once

the information of withdrawal of buy­back offer by PCJ was made

public, the price of the shares would drastically fall. Moreover, the

data reveals that the share price of the PCJ shares consistently

fell   during   the   investigation   period   and   therefore   it   would   be

incorrect   to   say   that   the   price   of   the   shares   fell   only   upon

announcement of the withdrawal of the buyback offer. In fact, the

records reveal that even after the announcement of the buy­back

offer, there was no increase in the share prices of the company.

Resultantly, the appellants stopped selling shares on 13.07.2018

because they believed that the market price continued to fall so

badly that the shares possessed by them were not being valued

accurately   in   the   market.   Hence,   the   appellants   decided   to

constitute to hold their shareholdings.

39. In such view of the matter, we are of the opinion that there is no

correlation between the UPSI and the sale of shares undertaken

by the appellants in C.A. No.7590 of 2021. The said decisions of

selling the shares and the timings thereof were purely a personal

and commercial decision undertaken by them and nothing more

can be read into those decisions. If the appellants did possess the

UPSIs, we are unable to understand that why would the appellant
 41

Mrs. Shivani Gupta sell only 15,00,000 shares during this period

as opposed to the 74,35,071 shares that were sold at an earlier

point   of   time   (Pre­UPSI­1   Period)   and   still   continue   to   hold

12,84,111 shares of the company that could have also been sold

along with the 15,00,000 shares that were sold during the UPSI­2

period.

40. We   are   also  of   the   opinion  that  in  the absence  of any   material

available on record to show frequent communication between the

parties,   there   could   not   have   been   a   presumption   of

communication   of   UPSI   by   the   appellant   Balram   Garg.   The

trading pattern of the appellants in C.A. No.7590 of 2021 cannot

be   the   circumstantial   evidence   to   prove   the   communication   of

UPSI by the appellant Balram Garg to the other appellants in C.A.

No.7590   of   2021.   It   would   also   be   pertinent   to   note   here   that

Regulation   3   of   the   PIT   Regulations,   which   deals   with

communication of UPSI, does not create a deeming fiction in law.

Hence,   it   is   only   through   producing   cogent   materials   (letters,

emails, witnesses etc.) that the said communication of UPSI could

be   proved   and   not   by   deeming   the   communication   to   have

happened owing to the alleged proximity between the parties. In

this   context,   even   the   show­cause   notices   do   not   allege   any

 42

communication between the Appellant Balram Garg and the other

appellants   in   C.A.   No.7590   of   2021.   This   is   evident   from   the

following extract of the order of the WTM:

“A perusal of the SCNs shows that allegations of
Noticees no. 1 to 4 being connected person under
Regulation 2(1)(d)(i) seems to have been proceeded
on the basis of inference drawn that Noticees no. 1
to   3   being   relatives   of   Late   Shri   Padam   Chand
Gupta   who   was   promotor   and   chairman   of   PC
Jewellers, and Noticee no. 5 who was the MD of PC
Jewellers,   would   be   having   frequent
communication   with   Late   Shri   Gupta   and   Noticee
No. 5. However, here I note that as per Regulation
2(1)(d)(i)   ,   association   by   virtue   of   frequent
communication   with   the   officer   of   the   company
must   be   arising   in   the   discharge   of   his/her   duty
towards   the   company.  The   SCNs   does   not   allege
that   there   was   any   communication   between
Noticee   no.   5   and   Noticee   no.   1   to   4,  arising   out
discharge of any duty owed by Noticee no. 1,2,3 or
4 to the compoany.”      [emphasis
supplied]

41. This   Court   in  Hanumant   vs.   State   of   Madhya   Pradesh   [AIR

1952 Supreme Court 343] has held that:

“Assuming   that   the   accused   Nargundkar   had

taken the tenders to his house, the prosecution, in
order to bring the guilt home to the accused, has
yet to prove the other facts referred to above. No
direct   evidence   was   adduced   in   proof   of   those
facts. Reliance was placed by the prosecution and
by the courts below on certain circumstances, and
intrinsic   evidence   contained   in   the   impugned
document,   Exhibit   P­3A.  In   dealing   with
circumstantial   evidence   the   rules   specially
applicable to such evidence must be borne in mind.
 43

In   such   cases   there   is   always   the   danger   that

conjecture or suspicion may take the place of legal
proof and therefore it is right to recall the warning
addressed by Baron Alderson, to the jury in Reg v.
Hodge ((1838) 2 Lew. 227), where he said :­

"The   mind   was   apt   to   take   a   pleasure   in

adapting   circumstances   to   one   another,   and
even   in   straining   them  a   little,   if   need   be,   to
force   them   to   from   parts   of   one   connected
whole; and the more ingenious the mind of the
individual, the more likely was it, considering
such matters to overreach and mislead itself,
to   supply   some   little   link   that   is   wanting,   to
take for granted some fact consistent with its
previous   theories   and   necessary   to   render
them complete."

It   is   well   to   remember   that   in   cases   where   the

evidence   in   of   a   circumstantial   nature,   the
circumstances from which the conclusion of guilt is
to   be   drawn   should   in   the   first   instance   be   fully
established, and all the facts so established should
be consistent only with the hypothesis of the guilt
of the accused. Again, the circumstances should be
of   a   conclusive   nature   and   pendency   and   they
should be such as to exclude every hypothesis but
the   one   proposed   to   be   proved.   In   other   words,
there must be a chain of evidence so far complete
as   not   to   leave   any   reasonable   ground   for   a
conclusion   consistent   with   the   innocence   of   the
accused   and   it   must   be   such   as   to   show   that
within   all   human   probability   the   act   must   have
been done by the accused.  In spite of the forceful
arguments   addressed   to   us   by   the   learned
Advocate­General on behalf of the State we have
not been able to discover any such evidence either
intrinsic within Exhibit P­3A or outside and we are
constrained to observe that the courts below have
just   fallen   into   the   error   against   which   warning
 44

was   uttered   by   Baron   Alderson   in   the   above

mentioned case.”   [emphasis supplied]

42. This Court in  Chintalapati Srinivasa Raju vs Securities and

Exchange Board of India [(2018) 7 SCC 443]  has further held

that:
“Further, under the second part of Regulation 2(e)
(i),   the   connected   person   must   be   “reasonably
expected”   to   have   access   to   unpublished   price
sensitive  information.  The  expression “reasonably
expected” cannot be a mere ipse dixit – there must
be   material   to   show   that   such   person   can
reasonably   be   so   expected   to   have   access   to
unpublished price sensitive information.
.
.
.
We   have   already   demonstrated   that   the   minority
judgment is much more detailed and correct than
the   majority   judgment   of   the   Appellant   Tribunal.
We   accept   Shri   Singh’s   submission   that   in   cases
like the present,  a reasonable expectation to be in
the   know   of   things   can   only   be   based   on
reasonable   inferences   drawn   from   foundational
facts.  This   Court   in   SEBI   v.   Kishore   R.   Ajmera,
(2016) 6 SCC 368 at 383, stated:

“26. It is a fundamental principle of law that
proof of an allegation leveled against a person
may   be   in   the   form   of   direct   substantive
evidence or, as in many cases, such proof may
have   to   be   inferred   by   a   logical   process   of
reasoning   from   the   totality   of   the   attending
facts   and   circumstances   surrounding   the
allegations/charges   made   and   leveled.   While
direct evidence is a more certain basis to come
to a conclusion, yet, in the absence thereof the
Courts   cannot   be   helpless.   It   is   the   judicial
duty   to   take   note   of   the   immediate   and
 45

proximate   facts   and   circumstances

surrounding   the   events   on   which   the
charges/allegations are founded and to reach
what   would   appear   to   the   Court   to   be   a
reasonable   conclusion   therefrom.   The   test
would always be that what inferential process
that   a   reasonable/prudent   man   would   adopt
to arrive at a conclusion.”

We are of the view that from the mere fact that the
appellant   promoted   two   joint   venture   companies,
one of which ultimately merged with SCSL, and the
fact that he was a co­brother of B. Ramalinga Raju,
without more, cannot be stated to be foundational
facts from which an inference of reasonably being
expected   to   be   in   the   knowledge   of   confidential
information   can   be   formed.  The   fact   that   the
appellant   was   to   be   continued   as   a   director   till
replacement   again   does   not   take   us   anywhere.
Shri   Viswanathan   has   shown   us   that   two   other
independent   non­executive   directors   were
appointed   in   his   place   on   and   from   23.1.2003.
What is clear is that the appellant devoted all his
energies to the businesses he was running, on and
after resigning as an executive director of SCSL, as
a result of which the salary he was being paid by
SCSL was discontinued.”
[emphasis supplied]

43. This   Court   has   also   held   in   a   catena   of   cases   that   the

foundational  facts   must  be established before  a presumption  is

made. In this context, in Seema Silk & Sarees vs. Directorate

of Enforcement [(2008) 5 SCC 580] this Court has held that:

“The   presumption   raised   against   the   trader   is   a

rebuttable   one.   Reverse   burden   as   also   statutory
 46

presumptions can be raised in several statutes as,
for   example,   the   Negotiable   Instruments   Act,
Prevention   of   Corruption   Act,   TADA,   etc.
Presumption   is   raised   only   when   certain
foundational   facts   are   established   by   the
prosecution.  The accused in such an event would
be   entitled   to   show   that   he   has   not   violated   the
provisions of the Act.” 

In the present case, as rightly argued by the learned counsel of

the appellant, the foundational facts were not proved which could

raise the alleged presumption. SEBI failed to place on record any

material to prove that the appellants in C.A. No.7590/2021 were

“connected   persons”  to   Balram   Garg   as   required   by   Regulation

2(1)(d)(ii)(a) read with Regulation 2(1)(f) of the PIT Regulations as

none   of   the   appellants   C.A.   No.7590/2021   were   financially

dependent   on  Balram   Garg   or   even   alleged   to   have   consulted

Balram Garg in any decision related to trading in securities.

44. In light of the above principles of law laid down by this Court, it

was   imperative   on   the   Respondent/SEBI   to   place   on   record

relevant material to prove that the appellants in C.A. No.7590 of

2021, namely, Mrs. Shivani Gupta, Sachin Gupta, Amit Garg and

Quick Developers Pvt. Ltd. were  “immediate relatives”  who were

“dependent   financially”  on   appellant   Balram   Garg   or  “consult”

Balram Garg in “taking decisions relating to trading in securities”.
 47

However, SEBI failed to do so as has been already recorded by the

WTM in its order dated 11.05.2021. The said appellants in C.A.

No.7590   of   2021   were   not  “immediate   relatives”  and   were

completely financially independent of the appellant Balram Garg

and had nothing to do with the said Balram Garg in any decision

making process relating to securities or even otherwise.

45. In the context of appellant no. 4 (in C.A. No.7590 of 2021), namely

Quick   Developers   Pvt.   Ltd.,   the   record   clearly   reveals   that   it   is

neither   a  “holding   company”  or   an  “associate   company”  or   a

“subsidiary company”  of PCJ nor the appellant Balram Garg has

ever   been   the   Director   of   Quick   Developers   Pvt.   Ltd.   Therefore,

Quick   Developers   Pvt.   Ltd.   cannot   be   held   to   be   a  “connected

person” vis­à­vis the appellant Balram Garg.

46. Furthermore,   reliance   of   the   Respondent/SEBI   on   transactions

between   appellant   Sachin   Gupta   and   PCJ   and   the   subsequent

payments   of   rent   by   PCJ   is   against   the   principles   of   natural

justice   as   these   allegations   were   not   part   of   the   Show   Cause

Notices. To cement this proposition, reference could be made to

Tarlochan Dev Sharma vs State of Punjab [(2001) 6 SCC 260]

wherein this Court has held that:
 48

“We are, therefore, clearly of the opinion that not
only  the principles of natural justice were violated
by the factum of the impugned order having been
founded on grounds at variance from the one in the
show   cause   notice,   of   which   appellant   was   not
even   made   aware   of   let   alone   provided   an
opportunity to offer his explanation, the allegations
made   against   the   appellant   did   not   even   prima
facie   make   out   a   case   of   abuse   of   powers   of
President.”
[emphasis supplied]

Similar   observations   have   also   been   made   by   this   Court   in

Hindustan Lever Ltd. vs. Director General (Investigation and

Registration) [(2001) 2 SCC 474].

47. Lastly,   we   have   given   our   anxious   consideration   to   the

judgements relied upon by the learned counsel of the Respondent

viz.  SEBI   vs   Kishore   R.   Ajmera   [(2016)   6   SCC   368]  and

Dushyant N. Dalal vs. SEBI [(2017) 9 SCC 660].  Suffice it to

hold   that   these   cases   are   distinguishable   on   the   facts   of   the

present case, as the former is not a case of insider trading but

that  of   Fraudulent/Manipulative  Trade Practices;  and the  latter

case   relates   to   Interests   and   Penalty   rather   than   the   subject

matter   at   hand.     Reliance   placed   on   the   case   of  Kishore   R.

Ajmera (supra)  to show that presumption can be drawn on the

basis of immediate and relevant facts is contrary to law already
 49

settled by this Court in the case of Chintalapati Srinivasa Raju

(supra) where it is held that “a reasonable expectation to be in the

know of things can only be based on reasonable inference drawn

from   foundational   facts”.    It   has   further   been   held   that   merely

because a person was related to the connected person cannot by

itself be a foundational fact to draw an inference. 

48. To conclude, the entire case of the Respondents was premised on

two   important   propositions,   that  firstly,  there   existed   a   close

relationship   between   the   appellants   herein;   and  secondly,   that

based on the circumstantial evidence (trading pattern and timing

of trading), it could be reasonably concluded that the appellants

in   C.A.   No.7590   of   2021  were “insiders” in  terms of  Regulation

2(1)(g)(ii) of the PIT Regulations. However, as the discussion above

would   reveal,   the   WTM   and   SAT   wrongly   rejected   the   claim   of

estrangement of the Appellants in C.A. No.7590 of 2021, without

appreciating the facts and evidence as was produced before them.

The records and facts adequately establish that the there was a

breakdown   of   ties   between   the   parties,   both   at   personal   and

professional level and that the said estrangement happened much

prior to the two UPSI. Secondly, as has already been discussed,

the SAT erred in holding the appellants in C.A. No.7590 of 2021
 50

to   be   “insiders”   in   terms   of   regulation   2(1)(g)(ii)   of   the   PIT

Regulations on the basis of their trading pattern and their timing

of   trading   (circumstantial   evidence).   We   are   of  the   firm  opinion

that   there   is   no   correlation   between   the   UPSI   and   the   sale   of

shares   undertaken   by   the   appellants   in   C.A.   No.7590   of   2021.

Moreover, in the absence of any material available on record to

show   frequent   communication   between   the   parties,   there   could

not have been a presumption of communication of UPSI by the

appellant Balram Garg. The trading pattern of the appellants in

C.A.   No.7590   of   2021  cannot  be  the circumstantial  evidence to

prove the communication of UPSI by the appellant Balram Garg to

the other appellants in C.A. No.7590 of 2021. There is no material

on record for the WTM and the SAT to arrive at the finding that

both   late   P.C.   Gupta   and   the   appellant   Balram   Garg

communicated the UPSI to the other appellants in C.A. No.7590 of

2021.   The   said   appellants   in   C.A.   No.7590   of   2021   were   not

“immediate relatives” and were completely financially independent

of the appellant Balram Garg and had nothing to do with the him

in   any   decision   making   process   relating   to   securities   or   even

otherwise.   The   submission   of   the   learned   counsel   of   the

respondent   regarding   the   same   residential   address   of   the

 51

appellants also falls flat as admittedly the parties were residing in

separate buildings on a large tract of land. Lastly, in our opinion,

the SAT order suffers from non­application of mind and the same

is   a   mere   repetition   of   facts   stated   by   the   WTM.   The   Appellate

Tribunal was exercising jurisdiction of a First Appellate Court and

was bound to independently assess the evidenced and material on

record, which it evidently failed to do.

49. Accordingly, the appeals are allowed and the impugned judgement

and final orders of WTM and SAT are set aside. The deposits made

by the appellants in both the appeals in terms of the impugned

orders   or   interim   orders  of  this   Court  shall   be   refunded   to   the

respective appellants. 

50. No orders as to costs. 

………………………..J.
        [VINEET SARAN]

………………….…….J.
                          [ANIRUDDHA BOSE]
  
 New Delhi
 Dated: APRIL 19, 2022