/2022 INSC 0296/
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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
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

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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   (2 nd
  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   (1 st
  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