BEFORE THE SECURITIES APPELLATE TRIBUNAL

MUMBAI

Appeal No. 50 of 2007

Date of decision : 9.5.2008

1. Rajiv B. Gandhi
2. Sandhya R. Gandhi
3. Amishi B. Gandhi …… Appellants

Versus

Securities and Exchange Board of India …… Respondent

Mr. Somasekhar Sundaresan Advocate with Mr. Karan Bharihoke Advocate and
Mr. Zerick Dastur Advocate for Appellants.
Mr.Shiraz Rustomjee Advocate with Mr. Anant Upadhyay Advocate for the
Respondent.

Coram : Justice N.K. Sodhi, Presiding Officer

Per : Justice N.K. Sodhi, Presiding Officer

Whether the appellants are guilty of ‘insider trading’ is the short question that

arises for our consideration in this appeal filed under section 15T of the Securities and

Exchange Board of India Act, 1992 (hereinafter called the Act) against the order dated

November 30, 2006 passed by the adjudicating officer holding them guilty and

imposing a penalty of Rs.5 lacs on each of them.

Facts in this case are not in dispute. Rajiv B. Gandhi (Gandhi) appellant no.1 is

the Company Secretary and Chief Financial Officer of Wockhardt Limited (for short the

company). Sandhya Gandhi appellant no.2 is his wife and Amishi Gandhi (appellant

no.3) is his sister. The shares of the company are listed, among others, on the National

Stock Exchange of India Limited and the Bombay Stock Exchange Limited (hereinafter

referred to as NSE and BSE respectively). Gandhi as the chief financial officer of the

company is primarily responsible for the preparation of the accounts of the company

including its balance sheets. As per the regulations framed by the Securities and
 7

that information. We are of the considered opinion that if an insider trades or deals in

securities of a listed company, it would be presumed that he traded on the basis of the

unpublished price sensitive information in his possession unless he establishes to the

contrary. Facts necessary to establish the contrary being especially within the

knowledge of the insider, the burden of proving those facts is upon him. The

presumption that arises is rebuttable and the onus would be on the insider to show that

he did not trade on the basis of the unpublished price sensitive information and that he

traded on some other basis. He shall have to furnish some reasonable or plausible

explanation of the basis on which he traded. If he can do that, the onus shall stand

discharged or else the charge shall stand established. Let us illustrate to explain what

we mean. If an insider who sold the shares were to plead that he wanted to raise funds

to meet an emergency in his family say, marriage of his daughter or bypass surgery of a

close relation and could establish that fact, it would be reasonable to hold that even

though he was in possession of unpublished price sensitive information, the motive of

the trade was to meet the emergency. He would not be guilty of the charge of insider

trading.

In view of the interpretation that we have placed on regulation 3 and on the

admitted facts of this case, there would be a presumption that the appellants being

insiders, traded on the basis of the unpublished price sensitive information in possession

of Gandhi and the onus to rebut that presumption was on them. They have not only

failed to rebut the presumption but have not even attempted to offer an explanation as to

the basis which prompted them to trade. Faced with this situation, the learned counsel

for the appellants contended that at no stage of the proceedings were they asked for an

explanation as to the basis of their trade and, therefore, there was no occasion for them

to offer an explanation. We cannot accept this contention. The appellants were clearly

informed in the show cause notice that they “had sold 3600 shares on 21.1.1999 (before

the board meeting) and 22.1.1999 (in the first half hour before the market could react to

the news) on the basis of unpublished price sensitive information”. In view of this
 8

specific allegation and considering the fact that the appellants are insiders there was a

presumption against them and it was for them to have offered an explanation to rebut

that presumption. The facts which prompted the appellants to trade in the scrip of the

company while in possession of unpublished price sensitive information were only

within their knowledge and it was for them to spell out those facts to rebut the

presumption raised by regulation 3 against them. So much so, we asked the learned

counsel for the appellants during the course of the hearing to tell us the reasons which

prompted/motivated the appellants to trade in the scrip, being insiders. He was unable

to offer any explanation. It is, thus, clear that the appellants have failed to discharge the

onus of rebutting the presumption raised against them under regulation 3 of the

regulations. They must, therefore, fail.

In view of our findings recorded above, it is not necessary to deal with

the other contentions raised by the learned counsel for the appellants.

In the result, the question posed in the earlier part of the order is

answered in the affirmative and we hold that the appellants were guilty of insider

trading. The penalty levied on them is not on the higher side keeping in view the

seriousness of the charge and, therefore, it does not call for any interference in appeal.

The appeal is accordingly dismissed with no order as to costs.

Sd/-
Justice N.K. Sodhi
Presiding Officer

Sd/-
Arun Bhargava
Member

Sd/-
Utpal Bhattacharya
Member
9.5.2008
ddg/-