N. Ravichandran And Others vs Securities And Exchange Board Of India

M. T. Joshi, J

Aggrieved by the two separate decisions of the respondent Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) one passed by the learned Whole Time Member (hereinafter referred to as ‘WTM’) dated November 5, 2019 as modified by order dated August 13, 2020 and second set of orders passed by the learned Adjudicating Officer (hereinafter referred to as ‘AO’) dated September 30, 2020, all the present appeals are preferred by the original noticees in the proceedings before the respondent SEBI. The learned WTM of the respondent SEBI had earlier passed an order on September 22, 2009 which was set aside and the case was remanded back to the respondent SEBI by this Tribunal vide order dated October 21, 2010 in Appeal No. 191 of 2009 Praveen Mohnot and others vs. SEBI. Thereafter, again second order was passed by the learned WTM on July 24, 2014 which also came to be set aside and the matter came to be remanded by this Tribunal to the learned WTM vide order dated February 5, 2015. In the circumstances, the last impugned order was passed by the learned WTM on November 5, 2019.

So far as the proceeding before the learned AO is concerned, the record would show that in all six AOs one after another came to be appointed and lastly the orders were passed by the new incumbent on September 30, 2020.

The case pertains to the charges of insider trading under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. The record shows that Mr. Hemant R. Patel one of the noticees had filed a consent application before the respondent SEBI and, therefore, by excluding him the impugned order came to be passed against the remaining four noticees i.e. the present appellants. The learned WTM had restrained the present appellants from dealing in the securities market for a period of five years as well from being a director in board of directors of any listed company for the same period. Further directions to disgorge an amount of Rs. 4,37,550/- with interest of 12% p. a. was issued as regard the appellant Ms. Priyanka and Rs. 4,12,000/- with simple interest at the rate of 12% p. a. against the appellant Ms. Anita Ravichandran.

So far as the impugned orders passed by the learned AO is concerned, different penalties were imposed on the appellants. Penalty of Rs. 12,36,000/- was imposed on the appellant Ms. Anita Ravichandran. Rs. 5 lacs each has been imposed on the appellant Mr. N. Ravichandran and Mr. Praveen Mohnot and Rs. 13,12,650/-was imposed on the appellant Ms. Priyanka.

For the purpose of convenience, the facts are taken from the order passed by the learned WTM. It would show that one Awaita Properties Pvt. Ltd. An unlisted entity (hereinafter referred to as ‘APPL’) had acquired 60.46% shareholding of KLG Capital Serviced Ltd. (hereinafter referred to as ‘KLG’) during the period of February 22, 2008 to February 27, 2008. This acquisition was disclosed by KLG to BSE Ltd. (hereinafter referred to as ‘BSE’) on February 28, 2008. Thereafter, APPL made a public announcement dated March 3, 2008 to acquire another 20% shares of KLG. Some alerts were received by the respondent SEBI in its IMSS system and, therefore, the investigation was started. It was found that during the same period when APPL acquired the shares of KLG, three entities i.e. Hemant Patel HUF, appellant Ms. Priyanka Singhvi and appellant Ms. Anita Ravichandran had bought substantial equity shares of KLG. It was found that this acquisition of shares by the three entities were made on the basis of price sensitive information of acquisition of shares by APPL which during the relevant period was unpublished. Since this insider trading was allegedly carried on the basis of unpublished price sensitive information (hereinafter referred to as ‘UPSI’) by the three entities on the basis of information supplied by Mr. Hemant Patel as well Mr. Praveen Mohnot, show cause notice was issued to them on December 2, 2008 and December 18, 2008. After hearing the parties the necessary order was passed. This Tribunal in the appeals however found that substantial charges that the appellants and Mr. Hemant being connected or deemed to be connected was not made. The case was therefore remanded back with a direction to issue show cause notice afresh in accordance with law. In the circumstances, the respondent SEBI issued a fresh show cause notice on December 27, 2012 by modifying the contents. Upon hearing the parties, the next order was passed by the learned WTM on July 24, 2014. The said order was also challenged before this Tribunal and vide order dated February 2, 2015, this Tribunal again set aside the order and restored the matter to the learned WTM. Thereupon, the impugned order came to be passed by the learned WTM. Hence, the present appeals are preferred against the order of the learned WTM as well as against the order of learned AO.

We have heard Mr. P. R. Ramesh, the learned counsel for the appellants and Mr. Kumar Desai, the learned counsel with Mr. Mihir Mody, Mr. Arnav Misra, Mr. Mayur Jaisingh, the learned counsel for the respondent.

Table A in the paragraph no. 22 of the impugned order passed by the learned WTM would show the acquisition of shares made by the appellant Ms. Priyanka and appellant Ms. Anita as well as APPL during the period between February 22, 2008 to February 27, 2008. It would show that the appellant Ms. Priyanka purchased 1,10,000 shares and appellant Ms. Anita Ravichandran purchased 80,000 shares. Thereafter, both these appellants sold the shares between May and June 2008 for a profit as detailed in the table A. As noted earlier APPL has also acquired 60.46% of the shareholding of KLG i.e. more than 20 lacs shares during the same period.

During the relevant period, Mr. Hemant Patel, appellant Praveen Mohnot and appellant N. Ravichandran were President - Business Development, Executive Director and Dy. Chairman respectively of one entity named as SKIL Infrastructure Limited (hereinafter referred to as ‘SKIL’). Horizon Infrastructure Limited (hereinafter referred to as ‘HIL’) and Startwort Engineer Pvt. Ltd. (hereinafter referred to as ‘SEPL’) are the group companies of APPL and SKIL. Three noticees, namely, Hemant Patel HUF, Ms. Priyanka and Ms. Anita Ravichandran had borrowed funds from SEPL – another group company - for funding the trades carried by them in the shares of KLG. Appellant Ms. Priyanka is the daughter of appellant Praveen Mohnot while appellant Ms. Anita is the wife of appellant N. Ravichandran. In the circumstances, the charge of respondent SEBI is that Mr. Hemant Patel, N. Ravichandran and Praveeen Mohnot who were heading SKIL had knowledge that one of its group company APPL was acquiring KLG and they had imparted the information and on the basis of the said information these appellants i.e. near relatives had purchased the shares at a lower price and sold thereafter at a higher price.

Mr. Hemant Patel had made a statement before the respondent SEBI during the investigation that he had information about the impending sale shares of KLG and, therefore, he had taken a decision to buy those shares. He had received financial due diligence review of KLG carried out by the Chartered Accountant firm one month prior to the acquisition which was addressed to him. This report consisted of capital structure, company profile and all other details necessary for acquisition. Mr. Hemant Patel also dealt with the merchant banker Networth Stock Broking Ltd. (hereinafter referred to as ‘NSBL’). He made frequent calls to NSBL and other officials of NSBL during the relevant period. One Mr. K. L. Garg was the promoter cum director of KLG. Mr. Hemant Patel had also telephonic conversion as well as had SMS with Mr. K. L. Garg. Mr. Hemant Patel had also made a statement before the respondent SEBI that he had meeting with Mr. K. L. Garg regarding possibility of stake sale of KLG on February 22, 2008 and he was involved in the post-acquisition process of the same. The appellant Mr. Praveen Mohnot as an Executive Director of SKIL has signed the Memorandum of Understanding with NSEBL merchant banker of APPL for the purpose of an open offer on behalf of APPL. As already pointed out that appellant Ms. Priyanka and appellant Ms. Anita Ravichandran had obtained loan from SEPL, a group company of APPL and SKIL which was used for buying shares of KLG. The timing of the sell order placed by appellant Ms. Priyanka and Ms. Anita Ravichandran as detailed in the order would show that the timing matched with the acquisition of shares by APPL on the platform of stock exchanges. In those circumstances, SEBI concluded that appellant Priyanka and appellant Ms. Anita Ravichandran received UPSI from Mr. Hemant and Mr. Praveen respectively and even the funds for acquiring the shares with them was managed with the help of another group of company as detailed (supra).

Learned counsel for the appellants submitted before us that there has been gross delay in passing the order by the learned WTM as well as by the learned AO. It would show that while the impugned transactions are of the year 2008, the learned WTM could pass the impugned order on November 5, 2019. Not only this, so far as the proceeding before the learned AO is concerned, it would show that the respondent SEBI had changed the AO for six times. Not only this, lastly, the personal hearing was given by the sixth AO on August 18, 2020. It was, therefore, submitted that on this sole ground all the appeals deserve to be allowed.

The record would however show that the learned WTM had passed the first order on September 22, 2009 and due to remand of the case on two occasions, third time the impugned order came to be passed on November 5, 2019.

So far as the proceeding before the learned AO is concerned, the respondent SEBI submitted that the history of the case would show that five noticees one after another sought time to file reply, sought time to have consent proceeding, remained absent for personal hearing on one and or the another dates and thereafter ultimately the order came to be passed. Even at that time, the consent application of Mr. Hemant Patel was pending, therefore the impugned order was passed excluding him. He, therefore, submitted that there is no delay in the proceeding.

The appellants have placed reliance on the decision of this Tribunal in the case of Ashok Shivlal Rupani vs. SEBI in Appeal No. 417 of 2018 decided on August 22, 2019. In that case, finding that inordinate delay was caused by the respondent SEBI in proceeding, the appeal came to be allowed. In the present cases, however, the record would show that so far as the proceeding before the WTM is concerned, the orders were passed diligently by the learned WTM. Those however were set aside on two occasions and, therefore, the last impugned order came to be passed. Therefore, there is no delay on the part of the respondent SEBI in deciding the said proceeding. Further, no prejudice is shown to have been caused to the appellants.

Similar is the case as regard the impugned order of the AO. There were five noticees who had sought time for filing reply, for remaining present before the AO for making the oral submissions and also sought time to have consent proceedings one after another which sometime came to be revoked, therefore, it cannot be said that respondent SEBI had delayed the proceeding. Further, no prejudice in defending the case of the appellants is shown. Therefore, the plea of the delay will have to be rejected.

Coming to the merit of the case, the trades in question are not disputed. The learned counsel for the appellants submitted that there is no material on record to show that Mr. N. Ravichandran and Mr. Praveen Mohnot had informed the appellant Ms. Anita Ravichandran and Ms. Priyanka of the impending acquisition. They were not aware of the said acquisition i.e. UPSI. Therefore, relying on the case of SEBI vs. Kanaiyalal B. Patel decided by Hon’ble Supreme Court of India in CA. No. 2595 of 2013, it was submitted that the orders cannot be sustained.

It is to be noted that while Ms. Anita Ravichandran is the wife of Mr. N. Ravichandran, Ms. Priyanka is the daughter of Mr. Praveen Mohnot. The facts recorded (supra) would show that Mr. N. Ravichandran and Mr. Praveen Mohnot had knowledge of acquisition of KLG of APPL as they were instrumental in causing the acquisition in one way or the other as detailed (supra). The definition of ‘insider’ as found in the Regulation 2(e) of the PIT Regulations is as under :-

“2(e). “insider” means any person who,

(i) is or was connected with the company or is deemed to have been connected with the company and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of

[a] company, or

(ii) who has received or has had access to such unpublished price sensitive information.”

Regulation 2(h) of the PIT Regulations enumerates the list of “person is deemed to be a connected person”. Clause (viii) of Regulation 2(h) of the PIT Regulations defines relative of the connected person as the person deemed to be a connected person. Mr. N. Ravichandran and Mr. Praveen Mohnot were the insiders as they had received and had access to the UPSI as detailed (supra). The appellant Ms. Anita Ravichandran and appellant Ms. Priyanka are the relatives of these connected persons i.e. wife and daughter respectively. Therefore, the submission of the appellants that there is no material on record to show that appellant Ms. Anita Ravichandran and Ms. Priyanka had information of the UPSI cannot be accepted.

Next of the submission of the appellants before us is that the price sensitive information was in connection with the listed company KLG. But it however did not inform the stock exchange of this price sensitive information nor the trading window was closed. There is no charge against Mr. K. L. Garg though he was said to be originally creator of the information. The statement of Mr. Hemant Patel on which reliance is placed by the by the respondent was speculative statement. There was no definite price sensitive information or UPSI as the said appellants traded on a calculated risk.

The submissions of the appellants cannot be accepted. The trading time and date of the appellants as well as of APPL, the fact that Mr. N. Ravichandran and Mr. Praveen Mohnot were involved in acquisition of shares of KLG would show that there was a definite information with them that their entity APPL was going to acquire KLG and in fact on the date of acquisition, Ms. Anita Ravichandran also bought the shares of KLG. Therefore, in the facts of the present case the submissions cannot be accepted.

It was submitted that the debarment orders are disproportionate and in ignorance of other orders passed by the another WTM of SEBI in other matters. However, in the facts and circumstances of each of the case, separate and different WTMs passed different orders by exercising their discretion. Therefore, unless the period of debarment shockingly disproportionate to the violation, no interference is required.

In the result, the following order :-

ORDER

All the appeals are hereby dismissed without any order as to costs.

This order will be digitally signed by the Private Secretary on behalf of the bench and all concerned parties are directed to act on the digitally signed copy of this order. Certified copy of this order is also available from the Registry on payment of usual charges.