Analysis of the Judgement of Shruti Vora v. Securities and Exchange Board of India Citation- Appeal (L) No. 28 of 2020 By - Amresh Swarnkar
Analysis of the Judgement of Shruti
Vora v. Securities and Exchange Board of India Citation- Appeal (L) No. 28 of
2020
Authored By - Amresh Swarnkar
Maharashtra National Law University,
Aurangabad.
5th year (9th
Semester student), batch of 2018-23.
META DESCRIPTION
In this particular blog the relevancy
of the judgement of Shruti Vora v. Securities and Exchange Board of India with
relevance to insider trading has been discussed and what are the various facets
related to constitute insider trading has also been discussed with respect to
this particular judgement.
In this landmark judgement the order
of SEBI was set aside by the Securities Appellate Tribunal against various
individuals who forwarded Whatsapp messages allegedly containing unpublished
price-sensitive information (UPSI) of a company which they had received from
other sources.
This blog is particularly related to
the aspect that whether such an action would amount to insider trading or not
and the Securities Appellate Tribunal has clearly clarified this aspect in this
particular judgement and this particular context of Corporate law has been
discussed in detail in this present blog.
INTRODUCTION
This particular blog is on the
subject matter that whether forwarding of Company’s financials on Whatsapp as
received from other sources would amount to insider trading or not and such an
action was held to be in the realm of ‘insider trading’ by the Securities and
Exchange Board of India and the concerned individuals were said to be liable of
the same but the Securities Appellate Tribunal set aside this order of the
Securities and Exchange Board of India in the judgement of Shruti Vora v.
Securities and Exchange Board of India and this particular judgement makes the
subject matter of this particular blog that what were the various aspects involved
in this present case and what was the basic reasoning given by the Tribunal for
setting aside the order of Securities and Exchange Board of India.
This blog contains the various
aspects of ‘insider trading’ and its various contents and what all amounts to
this offence under the realm of corporate law and the action of forwarding a
Company’s financials on Whatsapp as received from other sources would amount to
Insider Trading or not has been clarified in the judgement of the Securities
Appellate Tribunal which forms the subject matter of this particular blog and
all the relevant details in relation to this aspect have been dealt in detail
in this particular blog.
Tags/ Keywords associated with the
article:
·
Company
Law.
·
Securities
and Exchange Board of India.
·
Insider
Trading.
·
Securities
Appellate Tribunal.
·
Setting
aside of a judgement of SEBI.
·
Shruti
Vora v. SEBI.
·
Unpublished
price-sensitive information.
MAIN BLOG
An introduction to the concept of
Insider Trading:
The concept of insider trading refers
to the buying, selling or trading of shares or other securities (like- bonds or
stocks) of a listed company using unpublished price-sensitive information
(UPSI) which which has not been disclosed yet i.e. made available to the
public at large via it getting published in the public domain and has a clear
and substantial effect on the price of that particular stock which has not been
disclosed till date.
Insider in the concept of Insider
Trading:
Securities and Exchange Board of
India defines an ‘insider’ as a person who has access to the price-sensitive
information about the shares or securities of a particular company. Any person
who has been associated with the company in some or the other manner during the
six months prior to the date of insider trade can fall in the category of an ‘insider.’
Such a person can either be an
employee, a director, a relative, legal counsel or banker of that specific
company or even a person who is an official of the stock exchange, trustee,
employee of an Asset Management Company (AMC) that has worked with that
particular corporate entity.
Such insiders who are in possession
of confidential and exclusive information about the issuer of the particular
stock benefit by buying or selling the undisclosed securities before there is a
fluctuation in the price of such securities.
Unpublished price-sensitive
information in the concept of Insider trading:
Unpublished price-sensitive
information is a piece of substantial and exclusive information with respect to
a company’s stock price, quarterly results, acquisition deals, mergers or any
other sensitive activities that have not yet been shared in the public domain.
When the insiders are having access to the unpublished price-sensitive
information they illegally conduct dealings in trade for their personal gains.
Example
of such a case can be: the director of a company informs a relative of his
about a deal which is yet to be declared and the latter gives that piece of
information to his colleagues who on the basis of this information buy the
stocks of that company. In this case the director, his relative and his
relative’s colleagues will be liable to be booked by SEBI for the violation of
the Prohibition of Insider Trading Regulations.
In the Indian context, such insider
trades are regulated by the SEBI under the Insider Trading Regulations, 2015.
In this context, if the market regulator i.e. SEBI has the power to impose
fines and also prohibit the individuals or entities from trading in the capital
market if it finds them violating these rules.
Penalties for the offence of Insider
Trading:
If any insider either on his own or
on behalf of any other individual deals in the securities of a corporate which
is listed on the stock exchange on the basis of an information which falls in
the category of unpublished price-sensitive information
OR
communicates any unpublished price
sensitive information to any person, with or without the permission of that
particular individual except as required in the ordinary course of business or
under any law
OR
a particular person procures for any
other entity a particular information which falls in the category of
unpublished price-sensitive information so that particular entity can deal in
any securities of a particular corporate
In all the above scenarios such a
person shall be held liable to pay a penalty by the Securities and Exchange
Board of India and will be declared to commit an offence of ‘insider trading.’
Analysis of the judgement of Shruti
Vora v. Securities and Exchange Board of India[1]:
The main content of this blog focuses
on the analysis of this particular judgement in the context of Insider Trading
as in this case the Securities Appellate Tribunal set aside the ruling of Securities
and Exchange Board of India and held that Forwarding of a Company’s
financials on Whatsapp as received from other sources would not amount to
insider trading.
This particular understanding of the
Tribunal has been discussed in detail below as the subject matter of this
particular blog.
In this landmark ruling of the
Securities Appellate Tribunal, the tribunal had set aside the charges of
insider trading held by Securities Exchange Board of India against persons who
had forwarded Whatsapp messages which allegedly contained unpublished
price-sensitive information (UPSI).
The
market regulator i.e. SEBI had initiated a crackdown during the period of which
the operations of search and seizure were conducted against 26 entities of a
Whatsapp group and in these operations about 190 records and devices, among
others were seized by the authority. As per the SEBI, the data of earnings and
other financial information of nearly 12 companies were leaked through the
medium of messages via Whatsapp.
Main question before the Securities
Appellate Tribunal was-
Whether a Whatsapp message which is ‘forwarded
as received’ on a Whatsapp group with regards to the quarterly financial
results of a Company which closely matches with the vital statistics, shortly
after the period of in-house finalization of these financial results by the
particular company and shotly before the disclosure or publication of the same
by the same company, would fall in the category of unpublished price-sensitive
information under the provisions of SEBI (Prohibition of Insider Trading)
Regulations of 2015 or not ?
The Adjudicating Officer had answered
this question in the affirmative and had imposed a penalty of the amount of Rs.
15,00,000 on the appellants.
The
reasoning given by the Adjudicating Officer was that as the message was a piece
of information which was relating to the financial results and as it also
closely matched with the financial results which were published subsequently,
the message amounted to an unpublished price-sensitive information.
Later, when the appeal was filed the
Securities Appellate Tribunal came to the observation that there was no
information which could be recovered by the Securities Exchange Board of India
(respondent) in order to find out the source of this particular information
from the financial, legal or the audit team of the respective corporates.
Hence, the impugned order showed that the learned Adjudicating Officer had
expressed an inability in this regard.
The definitions of the concepts of
‘unpublished price-sensitive information’ and ‘insider’ would establish that an
information which is generally available would not amount to unpublished
price-sensitive information.
So in this judgement the Securities
Appellate Tribunal set aside the reasoning of the Adjudicating Officer, over
ruled the order passed by SEBI and held that an information can be branded as
an unpublished price-sensitive information only in the case when ‘the person
who had received the information had knowledge that the particular piece of
information was unpublished price-sensitive information.’
Even
though knowledge is the state of mind of a person, the same can be proved on
the preponderance of probabilities on attendant circumstances. In the present
case, there are no other attendant circumstances except the possibilities
enumerated by the Adjudicating Officer. The proximity of time and the
similarity between the information were the only two factors that were on the
side of the Adjudicating Officer to brand that piece of information as
unpublished price-sensitive information.
The Securities Appellate Tribunal in
the present case relied on an earlier judgement namely, Samir Arora v. SEBI[2]
[2005] 59 SCL 96 (SAT- Mumbai), in that case the Tribunal had rejected
SEBI’s arguments that there is no need for linkage between the potential
source of the unpublished price-sensitive information and the person allegedly
in possession of the alleged unpublished price-sensitive information.
So the understanding which can be
inferred by this particular judgement is that-
For an information to be held as
unpublished price-sensitive information and to make a person liable for the
offence of insider trading the following criteria need to be fulfilled:
·
A
particular piece of information can be branded as unpublished price-sensitive
information only in the case when the person who is receiving that piece of
information has knowledge that it is unpublished price-sensitive information.
·
There
should be linkage between the potential source of the unpublished
price-sensitive information and the person who is alleged to be in possession
of the alleged unpublished price-sensitive information.
·
An
information which is generally available will not amount to an unpublished
price-sensitive information.
CONCLUSION
In this blog the concept of insider
trading along with the concept of unpublished-price sensitive information have
been dealt in detail and the main subject matter of this blog is the analysis
of the judgement of Shruti Vora v. Securities and Exchange Board of India and
with the help of the reasoning given in this judgement the situation when a
person will be held liable for the offence of insider trading and whether or
not ‘forwarding of Company’s financials on Whatsapp as received from other
sources would amount to insider trading’ have been dealt in detail covering
the various aspects of both the concepts along with the detailed presentation
of this particular judgement.
This particular blog would help the
readers to analyze that why in such a situation an offence of insider
trading is not attracted and it will also enlighten the readers on the
various aspects of both the concepts of ‘insider trading’ and ‘unpublished
price-sensitive information’ as all these things have been dealt in depth
in this particular blog and at the end of this blog the understanding which can
be inferred by this particular judgement has also been mentioned comprising of
the most relevant points of the judgement.
REFERENCES
* Website of Securities and Exchange
Board of India
* SEBI (Prohibition of Insider
Trading) Regulations, 2015
* All India Reporter
* Website of Securities Appellate
Tribunal