/2022 INSC 0816/
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
Civil Appeal No.563 of 2020
SECURITIES AND EXCHANGE BOARD OF INDIA      ...APPELLANT(S)
VERSUS
ABHIJIT RAJAN              ...RESPONDENT(S)
 
J U D G M E N T
V. Ramasubramanian
1. The Securities and Exchange Board of India has come up with the
above appeal, challenging an Order of the Securities Appellate Tribunal,
by   which   the   Order   of   its   Whole   Time   Member   (for   short   “ WTM ”)
directing the respondent to disgorge the amount of unlawful gains made
by him, was set aside.
2. We have heard Mr. Arvind P. Datar, learned senior counsel for the
appellant and Mr. Somasekhar Sundaresan, learned counsel appearing
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for the respondent.
3. The background facts leading to the above appeal are as follows:
(i)  The   respondent   herein   was   the   Chairman   and
Managing   Director   of   a   company   by   name   Gammon
Infrastructure   Projects   Limited   (hereinafter   referred   to
as   “GIPL” )   till   September   20,   2013.   Thereafter,   he
ceased   to   be   the   Chairman   Managing   Director,   but
continued to be a Director of the Company.
(ii) In   the   year   2012   GIPL   was   awarded   a   contract   by
National Highways Authority of India. The total cost of
the   project   was   Rs.1648   crores.   For   the   execution   of
the   project,   GIPL   set   up   a   special   purpose   vehicle
called   Vijayawada   Gundugolanu   Road   Project   Private
Limited (“VGRPPL”).
(iii) Similarly,   another   company   by   name   Simplex
Infrastructure Limited (SIL) was awarded a contract by
NHAI in Jharkhand and West Bengal and the total cost
of   the   project   was   Rs.940   crores.   For   the   execution   of
the project, SIL set up a special purpose vehicle called
Maa Durga Expressways Private Limited (MDEPL).
(iv) GIPL   entered   into   two   shareholders   agreements   with
SIL.   Under   these   agreements,   GIPL   was   to   invest   in
MDEPL   and   SIL   was   to   invest   in   VGRPPL   for   their
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respective projects. The mutual investments were to be
tuned in such a manner that GIPL and SIL would hold
49% equity interest in each other’s projects.
(v)  However,   on   9.08.2013   the   Board   of  Directors  of   GIPL
passed a resolution authorizing the termination of both
shareholders agreements.
(vi)  On   22.8.2013,   the   respondent   sold   about   144   lakhs
shares (approx.) held by  him in GIPL, for an aggregate
value of approximately Rs.10.28 crores.
(vii)     On 30.08.2013 GIPL made a disclosure to the National
Stock   exchange   of   India   and   BSE   regarding   the
termination of two shareholders agreements.
(viii) On   20.09.2013   the   respondent   resigned   from   the   post
of Chairman and Managing Director of GIPL.
(ix)  Pursuant to an input received from the National Stock
Exchange,   about   the   aforesaid   transaction   and   the
possibility   of   the   trading   having   taken   place   on   the
basis of unpublished price sensitive information, SEBI
conducted   a   preliminary   enquiry.   After   completion   of
the   preliminary   enquiry,   SEBI   passed   an   ex­parte
interim   order   on   17.07.2014   holding   prima   facie   that
the   respondent   violated   the   provisions   of   Section
12A(d) and (e) of The Securities and Exchange Board of
India   Act,   1992   (hereinafter   referred   to   as   “ SEBI   Act,
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1992 ”)   and   consequently   restraining   the   respondent
from   buying,   selling   or   dealing   in   securities   and
accessing   the   security   markets   directly   or   indirectly.
This   ex­parte   interim   order   was   also   confirmed   by   a
confirmatory   order   dated   23.03.2015,   passed   after
providing an opportunity of hearing to the respondent.
The   appeal   filed   by   the   respondent   against   the   said
confirmatory   order   was   dismissed   as   withdrawn   on
4.02.2016.
(x)  In   the   interregnum,   SEBI   completed   the   investigation
and   issued   certain   directions   on   21.03.2016,   followed
by   a   show   cause   notice   dated   29.03.2016.   The   show
cause notice was addressed not only to the respondent
herein ,   but   also   to   another   Company   by   name
Consolidated   Infrastructure   Company   Private   Limited
and two of its Directors. The noticees filed their replies
and   after   giving   an   opportunity   of   hearing   to   the
noticees, the WTM passed an Order dated 13.07.2016.
By the said order the WTM held the respondent   herein
guilty   of   insider   trading   and   hence   liable   to   disgorge
the amount of unlawful gains made by him to the tune
of Rs.1.09 crores. The show cause notices issued to the
others,   namely,   Consolidated   Infrastructure   Company
Private   Limited   and   its   Directors   were   closed   without
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any   directions,   on   the   ground   that   no   case   was   made
out against them.
(xi) Challenging the said order of the WTM, the respondent
filed  a   statutory   appeal  before  the   Securities   Appellate
Tribunal.   The   appeal   was   allowed   by   the   Tribunal   by
an   Order   dated   08.11.2019   and   it   is   against   the   said
order that SEBI has come up with the above appeal.
4. The   reasons   for   the   Securities   Appellate   Tribunal   allowing   the
appeal of the respondent are three­fold,   namely,   (i)   that the information
regarding the termination of the two shareholders agreements, was not
actually   a   price   sensitive   information,   since   the   investment   of   GIPL   in
Simplex Project, to the tune of Rs. 4.9 crores constituted only 0.05% of
GIPL’s order book value at the end of August, 2013 and only 0.7% of its
turnover for the financial year;   (ii)   that in any case the respondent was
in   dire   need   to   sell   the   shares   at   that   time   for   the   purpose   of   CDR
(Corporate Debt Restructuring) package and hence he cannot be said to
have   indulged   in   trading   on   the   basis   of   information   within   his
knowledge; and  (iii)  that there was no reason why SEBI did not take into
account   the   last   trade   price   of   03.09.2013,   but   chose   the   price   as   on
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04.09.2013.  
5. Assailing the order of the Securities Appellate Tribunal, it is argued
by Mr. Arvind P. Datar, learned senior counsel for the appellant:­
(a)  that   proportionality   is   a   dangerous   and   subjective
ground   in   matters   involving   insider   trading,   especially
since   one­third   of   the   total   number   of   directors   of   a
listed   company   are   independent   directors   and   even
transactions   involving   thousands   of   crores   might   be   a
minor proportion to the turnover, if the company is very
large in size;
(b) that Regulations 3 and 4 contain an absolute prohibition
against insider trading and such a statutory prohibition
cannot   be  diluted  by  arguing  that  the  total  value  of  the
contracts   terminated   by   the   company   was   just   a   minor
percentage   of   the   order   book   value   and   the   total
turnover of the company;
(c) that   in   any   case   the   total   value   of   the   contracts
terminated   on   both   sides   was   nearly   Rs.2600   crores
(Rs.1648 crores + 940 crores) and hence the information
relating to the termination of the contracts was definitely
likely to materially affect the price of the securities of the
company under Regulation 2(ha);
(d) That   Explanation  (vi)   under   Section   2(ha)   which   speaks
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about  “significant changes in policies, plans or operations
of the company”   cannot limit the scope of the main part
of the definition and in this case as a matter of fact the
price   of   the   share   dropped   in   just   one   day   and   the
respondent avoided a loss of Rs.85 lakhs;
(e) that   the   de   minimis   syndicate   has   no   application   to
insider   trading,   as   it   introduces   an   element   of
subjectivity; 
(f) that   bona   fide   intentions   or   grounds   of   necessity,   such
as those pleaded in this case, cannot frustrate the object
of   strict   ban   on   insider   trading,   especially   when   the
expression   “lawful   excuse”   as  used  in   about   88  Central
Statutes   to   justify   non­compliance,   is   conspicuously
absent in the Statute on hand;
(g) that   in   any   case,   SEBI   took   note   of   the   situation   in
which   the   respondent   was   placed,   warranting   the
necessity to sell the shares and hence confined the final
order   only   to   disgorgement,   which   is   merely   in   the
nature of restitutionary relief;
(h) that   the   intimation   regarding   the   termination   of   the
contracts   was   given   to   the   Bombay   Stock   Exchange   at
1.05   p.m.   and   to   NSE   at   2.40   p.m.   on   03.09.2013   and
the   trading   concluded   at   3:30   p.m.   and   hence   the
adoption   of   the   closing   price   on   03.09.2013   would   not
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correctly   determine   either   the   gains   made   or   the   losses
averted; and
(i) that   therefore,   the   question   of   SEBI   taking   the   closing
price as on 03.09.2013 did not arise.
6. Responding   to   the   above   submissions   made   on   behalf   of   the
appellant,   Mr.   Somasekhar   Sundaresan,   learned   counsel   for   the
respondent raised the following contentions:­
(a) that   the   primary   object   of   Insider   Trading   Regulations
anywhere   in   the   world   is   to   prohibit   an   insider   from
taking advantage of asymmetrical access to unpublished
price sensitive information  over  others who do not have
such access;
(b) that   the   question   whether   an   information   is   price
sensitive   or   not,   would   depend   upon   its   potency   to
materially   impact,   upon   publication,   the   price   of   the
securities;
(c) that  therefore by   its very  nature,  it  is  barely   a  question
of  fact or  at the  most, a mixed question  of  fact  and  law
which   will   not   fall   within   the   scope   of   Section   15Z   of
SEBI Act, 1992 warranting interference by this Court;
(d) that   one   of   the   key   factors   which   the   Courts   take   into
account   while   interpreting   the   circumstances   revolving
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around transactions such as the one in question, is the
purpose for which the transaction was effected;
(e) that   apart   from   looking   into   the   purpose   of   the
transaction,   Courts   have   also   taken   into   account   other
circumstances   such   as   the   scale   of   the   transaction,
pattern   of   trading   and   honesty   in   responses   during   the
proceedings   as   is   evident   from   the   decisions   in
(i)   Chintalapati   Raju   vs.   SEBI ; 1
  (ii)   Rajiv   Gandhi
vs.   SEBI ; 2
  (iii)   Miller   vs.   Pezzani 3
;   and   (iv)   SEBI   vs.
Kanaiyalal Baldevbhai Patel 4
;
(f) that   in   the   case   on   hand,   the   information   in   question,
namely,   the   termination   of   the   Agreements   actually
resulted in  GIPL gaining  total  control of  a  larger  project
worth Rs.1648 crores and that in other words what was
lost   by   the   termination   was   far   lesser   than   what   was
gained   and   hence   the   information   relating   to   the
termination of the Agreements was actually a favourable
and not adverse information;
(g) that as seen from SEBI’s own computation, the value of
the   contract   terminated   was   just   3.1%   to   4.1%   and
hence   it   cannot   be   reasonably   expected   to   have   a
1     (2018) 7 SCC 443
2     ( Appeal No.50/2007 decided by the Ld. SAT on 09.05.2008) – (Civil Appeal 5302 of 2008 against this order was dismissed)
3     (A decision of the US Court of Appeals)-the US Supreme Court refused to entertain a challenge to it
4   (2017) 15 SCC 1
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material   impact   on   the   market   price   of   the   shares   of
GIPL;
(h) that   GIPL’s   investments   in   the   project   of   SIL
represented 0.05% of GIPL’s order  book and 0.7% of its
turnover;
(i) that a project with a small percentage of the order book
and a miniscule percentage of the turnover  cannot   ipso
facto  become material for information about it to become
UPSI;
(j) that   on   facts,   the   shares   sold   by   the   respondent   on
22.08.2013   constituted   0.99%   of   the   share   capital   of
GIPL;
(k) that   what   was   sold   by   the   respondent   was   70%   of   his
total   shareholding   in   GIPL   and   the   sale   was   not   an
isolated  one but coupled with the  sale of multiple other
assets to raise money to fund promoters’ contribution to
the   CDR   package   of   Gammon   India   Limited,   the   listed
parent company of GIPL;
(l) that the failure of the respondent to meet the obligation
towards   CDR   package   would   have   led   to   GIL   filing   for
bankruptcy; 
(m) that every penny of the sale proceeds of the shares, was
transferred   by   the   respondent   towards   the
implementation   of   CDR   package   and   hence   it   is   a
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misconception   to   think   that   he   made   unlawful   gains
that ought to be disgorged;
(n) that   SEBI   itself   has   accepted   the   fact   that   the   sale
proceeds were used for funding the CDR package;
(o) that   SEBI   itself   exonerated   the   co­noticee,   namely,
Consolidated   Infrastructure   Company   Private   Limited,
on the ground that its sale of shares was on account of a
pressing   need   to   meet   a   margin   shortfall   to   its   stock
broker;
(p) that   SEBI   thus   applied   two   different   yardsticks,   one   in
respect  of  the  respondent  and   another  in   respect  of   the
co­noticee   in   the   very   same   proceeding,   which
necessitated interference by the Tribunal;  and 
(q) that   therefore   the   present   appeal   does   not   raise   a
substantial   question   of   law   and   that   in   any   case   the
order   of   the   Appellate   Tribunal   does   not   call   for   any
interference.
7. From the rival contentions, we think that the questions arising for
our determination can be formulated as follows:
(i) whether   the   information   regarding   the   decision   of   the
Board   of   Directors   of   GIPL   to   terminate   the   aforesaid   two
contracts can be characterized as “ price sensitive information ”
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within   the   meaning   of   Section   2(ha)   of   the   Securities   and
Exchange   Board   of   India   (Prohibition   of   Insider   Trading)
Regulations 1992, ( hereinafter referred to as the ‘Regulations’ );
(ii) whether the sale by the respondent of the equity shares
held   by   him   in   GIPL,   under   peculiar   and   compelling
circumstances  in  which  he  was  placed, would  fall  within   the
mischief   of   ‘ insider   trading ’   in   terms   of   Regulation   3(i)   read
with Regulation 4 of the Regulations;
(iii) whether   SEBI   should   have   taken   into   account   the   last
trade   price   of   the   day   on   which   information   was   disclosed
instead of the trade price of the next day;
Question Nos.1 & 2
8. Before we proceed to analyze the points, we must note that this is
an appeal under Section 15Z of SEBI Act, 1992 and we are concerned in
such   appeals   with   “ any   question   of   law   arising   out   of   the   order   of   the
Tribunal ”.   The   focus   of   Section   15Z   is   on   ‘ any   question   of   law ’   and   not
‘ any   substantial   question   of   law’ .   Keeping   this   in   mind,   we   shall   now
proceed further. 
9. The   SEBI   Act,   1992   is   intended,   as   seen   from   its   preamble,   “ to
provide   for   the   establishment   of   a   Board   to   protect   the   interests   of
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investors in securities and to promote the development of and to regulate
the securities market ”. As a matter of fact, the Securities and Exchange
Board   of   India   was   established   even   before   the   Act   was   enacted.   Since
the   Board   was   already   in   place,   the   Parliament   enacted   the   Act   with   a
view among other things, to vest SEBI with statutory powers.
10. In   exercise   of   the   powers   conferred   by   Section   30   of   the   Act,   the
Board   issued   a   set   of   Regulations   known   as   “ Securities   and   Exchange
Board   of   India   (Prohibition   of   Insider   Trading)   Regulations,   1992 ”,   with
the   previous   approval   of   the   Central   Government.   Regulation   2(ha)   of
these Regulations defines the expression “ price sensitive information ” as
follows:­
“ 2(ha)   “price   sensitive   information”   means   any   information
which relates directly or indirectly to a company and which if
published is likely  to  materially  affect  the price of  securities
of company.
Explanation.—The   following   shall   be   deemed   to   be   price
sensitive information  :­ 
    (i)    periodical financial results of the company; 
    (ii)   intended declaration of dividends (both interim and     
           final); 
    (iii)  issue of securities or buy­back of securities; 
    (iv)  any major expansion plans or execution of new  
       projects. 
    (v)   amalgamation, mergers or takeovers; 
    (vi)  disposal of the whole or substantial part of the 
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undertaking; 
    (vii) and significant changes in policies, plans or operations
of the  company.”
11. Regulation 2 (k) defines the expression “unpublished” as follows:
“ Unpublished” means information which is not published by
the company or its agents and is not specific in nature.
Explanation. – Speculative reports in print or electronic media
shall not be considered as published information.”
12. Regulation   3   imposes   a   prohibition   on   dealing,   communicating   or
counseling on matters relating to insider trading.  It reads as follows:­
“ 3. No insider shall –
(i) either   on   his   own   behalf   or   on   behalf   of   any   other
person, deal in securities of a company listed on any
stock   exchange   when   in   possession   of   any
unpublished price sensitive information; or
(ii) communicate   or   counsel   or   procure   directly   or
indirectly   any   unpublished   price   sensitive
information   to   any   person   who   while   in   possession
of   such   unpublished   price   sensitive   information
shall not deal in securities : 
Provided  that nothing contained above shall be applicable
to   any   communication   required   in   the   ordinary   course   of
business or profession or employment or under any law.”
13. Regulation   4   declares   the   circumstances   under   which   a   person
shall be held guilty of insider trading. It reads as follows:­
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“ 4.   Any   insider   who   deals   in   securities   in   contravention   of
the provisions of regulation 3 or 3A shall be guilty of insider
trading.”
14. Interestingly,   the   Regulations   do   not   define   the   words,   “ insider
trading ”. But Regulation 4 declares a person guilty of insider trading if,
(i)   he   happens   to   be   an   insider;   and   (ii)   if   he   deals   in   securities   in
contravention of Regulation 3.
15. The word “ insider ” is defined in Regulation 2(e) as follows:­
“ (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   is   reasonably
expected   to   have   access   to   unpublished   price   sensitive
information in respect of securities of a company, or 
(ii) has received or has had access to such unpublished price
sensitive information.
16. The   words   “ dealing   in   securities ”   is   defined   in   Regulation   2(d)   as
follows:­
“ (d)   “dealing   in   securities”   means   an   act   of   subscribing,
buying,   selling   or   agreeing   to  subscribe,   buy,   sell   or   deal  in
any securities by any person either as principal or agent.”
17. We   may   note   at   this   stage   that   the   Regulations   underwent
sweeping   changes   through   SEBI   (Insider   Trading)   (Amendment)
Regulations   2002,   w.e.f.   20.02.2002.   Prior   to   the   amendment   made   in
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the year 2002, the words, “ unpublished price sensitive information ” were
defined   through   a   single   definition   clause,   namely   Regulation   2(k)   as
follows:­
“ 2(k)   Unpublished   price   sensitive   information   means   any
information   which   related   to   the   following   matters   or   is   of
concern,   directly   or   indirectly,   to   a   company,   and   is   not
generally   known   or   published   by   such   company   for   general
information,   but   which   if   published   or   known,   is   likely   to
materially   affect   the   price   of   securities   of   that   company   in
the market – 
(i)  financial   results   (both   half­yearly   and   annual)   of   the
company; 
(ii)  intended declaration of dividend (both interim/final); 
(iii)  issue of shares by way of public rights, bonus etc.; 
(iv)  any   major   expansion   plans   or   execution   of   new
projects; 
(v)  amalgamations, mergers and takeovers; 
(vi)  disposal of the whole or substantially the whole of the
undertaking; 
(vii) such   other   information   as   may   affect   the   earnings   of
the company.”
18. But   under   the   Amendment   Regulations,   2002,   the   word,
“ unpublished ”   alone   is   defined   in   Regulation   2(k)   and   the   rest   of   the
words “ price sensitive information ” is defined in Regulation 2(ha).
19. The   important   modifications   brought   forth   under   the   Amendment
Regulations   of   2002   to   the   definition   of   what   is   unpublished   price
sensitive information are two­fold namely,  (i)  that the definition of words
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unpublished   is   expanded;   and   (ii)   that   even   significant   changes   in
policies,   plans   and   operations   of   the   company   are   brought   within   the
definition   of   the   expression   “ price   sensitive   information ”,   through   a
deeming provision in the Explanation under Regulation 2(ha).
20. Therefore in view of the Regulations discussed above, a person can
be   held   guilty   of   violating   Regulation   3,  only   if  the   following   conditions
are satisfied:­
(i) He   must   be   an   insider   within   the   meaning   of   the   word
“ insider ”,   under   Regulation   2(e),   by   virtue   of   his   past   or
present   connection   or   deemed   connection   with   the   company
and he is also reasonably expected either to have had access
to UPSI or has received such information; 
(ii)   The information that such a person received or has had
access   or   reasonably   expected   to   have   had   access   should   be
unpublished,   in   the   sense   that   it   was   not   published   by   the
company or its agent or though published, it was not specific
in nature; 
(iii) Such   unpublished   information   should   fall   within   the
definition of the expression “ price sensitive information ” within
the meaning of Section 2(ha) of the Regulations; and
(iv)   He   must   have   indulged   in   trading,   either   by   dealing   in
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securities of the company or in communicating or counseling
or procuring directly or indirectly any such information to any
person.
21. In   other   words,   to   find   out   if   a   person   is   guilty   of   violation   of
Regulation 3, the Court should address itself to the following questions
namely,   (i)    is  he  an   insider?;   (ii)   did  he  possess  or  have  access  to   any
information   relating   to   the   company?;   (iii)   whether   such   information
was   price   sensitive?;   (iv)   whether   the   information   was   unpublished?;
and    (v)  whether he dealt in securities by subscribing, buying, selling or
agreeing to do any of these things in any securities?
22. Before we proceed to find an answer to the above questions in the
context   of   the   present   appeal   we   must   take   note   of   one   important   fact
namely,   that   the   price   sensitivity   of   an   information   has   a   correlation
directly to the materiality of the impact that it can have on the price of
the securities of the company.  An information may materially affect the
price   of   the   security   of   a   company   either   positively   or   negatively.   The
impact   may   be   beneficial   or   adverse.   The   information   should   have   the
potential either to catapult the price of the securities of the company to
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a higher level or to make it plunge. The effect can be bullish or bearish.
But the effect should be material and not completely insignificant.
23. Keeping   the   above   parameters   in   mind   if   we   come   to   the   facts   of
the   case  on   hand,  it  will  be  clear,   (i)   that   the  respondent   was  certainly
an   insider,   as   he   was   a   Chairman   and   Managing   Director   of   GIPL   till
20.09.2013 and was a party  to the resolution of the Board of Directors
passed   on   09.08.2013   authorising   the   termination   of   the   shareholders’
Agreements;   (ii)   that the information relating to the termination of both
the shareholders’ Agreements that the respondent had, would certainly
fall   under   the   category   of   “ significant   changes   in   policies,   plans   or
operations   of   the   Company ”   under   Regulation   2(ha)(vii);   (iii)   that   the
respondent   dealt   in   securities   by   selling   144   lakhs   of   shares   on
22.08.2013, which was a month before his resignation as Chairman and
Managing   Director;   and   (iv)   that   the   termination   of   the   shareholders’
Agreements   on   09.08.2013   was   disclosed   to   the   NSE   and   BSE   on
30.08.2013,   after   the   sale   of   the   shares,   which   made   the   information
relating   to   the   termination   of   the   Agreements   unpublished   as   on   the
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date of the sale.
24. Therefore,   it   may   appear   at   first   blush,   that   the   respondent,   who
was   an   insider   and   who   possessed   information   which   was   both
unpublished   and   price   sensitive,   was   guilty   of   the   charge   of   insider
trading as he undoubtedly dealt in securities.
25.   But the catch lies in understanding the true scope of Explanation
(vii)  under   Regulation  2(ha).    As  we  have  seen  earlier,  the  main  part  of
Regulation   2(ha)   defines   “ price   sensitive   information ”   to   mean   any
information, which relates directly or indirectly to a company and which
if   published   is   likely   to   materially   affect   the   price   of   securities   of   a
company.     The   Explanation   under   Regulation   2(ha)   creates   a   deeming
fiction   and   it   makes   7   items   of   information   listed   thereunder   as   price
sensitive information.
26. It may be interesting to note that out of the 7 items of information
listed under the Explanation, all the others except Item No.(vii) are likely
to have an impact directly  upon the financial strength of the company.
Item No.(vii) stands apart, in that it is very broad and general in nature.
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While   nothing   more   is   required   to   show   that   the   information   listed   in
Items   (i)   to   (vi)   of   the   Explanation   under   Regulation   2(ha)   is   likely   to
materially affect the price of securities of a company, the same is not the
case   insofar   as   the   information   in   Item   No.(vii)   is   concerned.     In   other
words,   the   likelihood   of   the   price   of   the   securities   getting   materially
affected, is inherent in Items (i) to (vi) namely,
   “ (i)   periodical financial results of the company; 
    (ii)   intended declaration of dividends (both interim and     
           final); 
    (iii)  issue of securities or buy­back of securities; 
    (iv)  any major expansion plans or execution of new  
        projects. 
    (v)   amalgamation, mergers or takeovers; 
    (vi)  disposal of the whole or substantial part of the 
undertaking;” 
But such is not the case with the information in Item No.(vii).
27. Therefore, while dealing with a case falling under Explanation (vii)
of   Regulation   2(ha),   one   may   have   to   see   whether   there   was   any
likelihood   of   the   said   information   materially   affecting   the   price   of   the
securities of the company.  Additionally, the activity in which the insider
was   involved   also   determines   his   culpability   for   violation   of   Regulation
3.     For   instance,   the   sale   by   a   person   in   possession   of   price   sensitive
information,   at   a   time   when   the   price   is   likely   to   take   a   plunge,   will
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certainly   be   an   attempt   at   taking   advantage   of   or   encashing   the
information.   Similarly the purchase by a person in possession of UPSI
at   a   time   when   the   price   of   the   security   is   about   to   skyrocket,   will
certainly be an attempt to take advantage.
28. But   the   above   logic   cannot   be   applied   to   cases   which   fall   on   the
opposite  side  of  the  spectrum.   For  instance,  the  sale  by  a  person  at  a
time when the price of the securities is likely to shoot up on account of
price   sensitive   information   coming   into   the   public   domain   or   the
purchase by a person at a time when the price of the shares is likely to
go   downward   due   to   price   sensitive   information   getting   published,
cannot come under the category of insider trading.    While it is true that
the actual gaining of profit or sufferance of loss in the transaction, may
not provide an escape route for an insider against the charge of violation
of Regulation 3, one cannot ignore normal human conduct.   If a person
enters   into   a   transaction   which   is   surely   likely   to   result   in   loss,   he
cannot be accused of insider trading.  In other words, the actual gain or
loss is immaterial, but the motive for making a gain is essential.
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29. The   words,   “ likely   to   materially   affect   the   price ”   appearing   in   the
main   part   of   Regulation   2(ha)   gain   significance   for   the   simple   reason
that profit motive, if not actual profit should be the motivating factor for
a   person   to   indulge   in   insider   trading.     This   is   why   the   information   in
Item   No.(vii)  of the  Explanation  under  Regulation 2(ha)  may   have to  be
examined   with   reference   to   the   words   “ likely   to   materially   affect   the
price ”.     Keeping   this   in   mind   let   us   now   come   back   to   the   facts   of   the
case.
30. GIPL was awarded a contract for the execution of a project, whose
total   cost  was   admittedly   Rs.  1648   crores.  SIL  was   awarded   a  contract
for a project whose cost was Rs. 940 crores. Both GIPL and SIL created
Special   Purpose   Vehicles   and   then   they   entered   into   two   shareholders
Agreements.   Under   these   Agreements,   GIPL   and   SIL   will   have   to   make
investments   in   the   Special   Purpose   Vehicles   created   by   each   other,   in
such   a   manner   that   each   of   them   will   hold   49%   equity   interest   in   the
other's project. 
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31. It means that GIPL could have acquired 49% equity interest in the
project   worth   Rs.   940   crores   and   SIL   would   have   acquired   49%   equity
interest in a project worth Rs. 1648 crore.
32.   In   arithmetical   terms,   the   acquisition   by   GIPL,   of   an   equity
interest   in   SIL’s   project   was   worth   Rs.   460   crores   approximately.
Similarly,   the   acquisition   by   SIL,   of   the   equity   interest   in   GIPL's
project was worth Rs. 807.52 crores. Therefore, the cancellation of the
shareholders   Agreements   resulted   in   GIPL   gaining   very   hugely   in
terms of order book value. In such circumstances an ordinary man of
prudence would expect an increase in the value of the shares of GIPL
and  would wait for  the market trend to show itself up, if he actually
desired to indulge in insider trading. But the respondent did not wait
for   the   information   about   the   market   trend,   after   the   information
became   public.   The   reason   given   by   him,   which   is   also   accepted   by
the WTM and the Tribunal is that he had to dispose of his shares as
well   as   certain   other   properties   for   the   purpose   of   honouring   a   CDR
package.     It   is   on   record   that   if   the   CDR   package   had   not   gone
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through  successfully,  the   parent  company   of  GIPL  namely,   Gammon
India Ltd., could have gone for bankruptcy.
33. Therefore,   the   Tribunal   was   right   in   thinking   that   the
respondent had no motive or intention to make undeserved gains by
encashing   on   the   unpublished   price   sensitive   information   that   he
possessed.
34. As a matter of fact, the Tribunal found that the closing price of
shares rose, after the disclosure of the information.   This shows that
the   unpublished   price   sensitive   information   was   such   that   it   was
likely   to   be   more   beneficial   to   the   shareholders,   after   the   disclosure
was made.  Any person desirous of indulging in insider trading, would
have waited till the information went public, to sell his holdings.  The
respondent   did   not   do   this,   obviously   on   account   of   a   pressing
necessity.
35. We   agree   with   the   contention   of   Shri   Arvind   P.   Datar,   learned
senior counsel for the appellant, that the allegation of insider trading
cannot be measured in terms of the value of the contracts terminated
and   the   percentage   of   shares   sold   and   that   the   theory   of
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proportionality   cannot   be   applied   in   such   cases.     The   magnitude   of
what   an  insider   did,   in  relation   to   the  size   of   the  company,   may   not
have   a   bearing   upon   the   question   whether   someone   indulged   in
insider   trading   or   not.     But   what   is   sought   to   be   encashed   by   the
insider   should   be   an   information   which   if   published   is   likely   to
materially affect the price of the securities of the company.
36. The   contention   of   Shri   Arvind   P.   Datar,   learned   senior   counsel,
that   the   total   value   of   the   contracts   terminated   on   both   sides   was
nearly   Rs.2600/­   crores   (Rs.1648   crores   +   Rs.940   crores)   and   that
therefore the  information  relating  to  the  termination  of  the contracts
was surely likely to materially affect the price of the securities of the
company, is unsustainable for the simple reason that the net effect of
the   termination   of   both   the   contracts,   for   GIPL   was   a   positive
advantage   of   about   Rs.800   crores.   We   have   already   provided   in
paragraph 32 above, the simple arithmetics of the whole transaction,
which put GIPL in a more advantageous position after the termination
of the contract.
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37. It is true that the   de minimis   Rule has no application to insider
trading,   as   it   introduces   an   element   of   subjectivity.     This   is   why   we
have  not  gone  on  the  basis  that  GIPL’s investments  in  the   project  of
SIL   represented   0.05%   of   GIPL’s   order   book   value   and   0.7%   of   its
turnover.  We have gone on the basis that the termination of both the
contracts   put   GIPL   in   a   more   advantageous   position,   in   which   one
would  have   expected   the  price  of  the  securities   to   soar.     The  normal
human conduct would be to wait for this event to happen.  This event
could have happened only after  the publication of the information in
question.  The fact that the respondent did not wait to take advantage
of the situation, convinces us that his intention was not to indulge in
insider trading.
38. Shri Arvind P. Datar, learned senior counsel is right in pointing
out   that   in   as   many   as   88   Central   Statutes,   the   expression   “ lawful
excuse ” is used as a justification for non­compliance.  But the same is
not   used   in   SEBI   Act,   1992   or   the   Regulations   issued   thereunder.
Therefore, we have not tested the conduct of the respondent solely on
the   argument   of   necessity.     But   we   have   taken   note   of   the   admitted
27

position   that   the   respondent   had   to   save   the   parent   company   going
bankrupt, by selling his stock, at a time when he had every reason to
wait for the information regarding the termination of the contracts to
go public.  This is not a case where the respondent has come up with
an   excuse   to   justify   his   action   that   was   intended   to   give   him   a
financial advantage.  This is a case where a man of ordinary prudence
would   have   expected   the   price   of   the   shares   to   go   up,   after   the
information   became   public,   due   to   the   impact   that   the   information
was likely to have on the turnover/net worth of the company.
39. The contention of the appellant that SEBI took note of the situation
in   which   the   respondent   was   placed   and   the   dire   need   that   he   had   to
sell the shares and that therefore SEBI  confined the final order  only  to
disgorgement,   is   neither   here   nor   there.     This   argument   is   actually   an
argument of convenience.  It so happened in this case that according to
SEBI   the   closing   price   of   the   stock   on   03.09.2013   showed   favourable
position   for   the   respondent   and   SEBI   was   able   to   calculate   as   though
the   respondent   made   a   profit.     But   if   a   company   is   likely   to   gain
strength   by   making   a   significant   change   in   its   policy,   the   price   of   its
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securities is likely to shoot up.  Despite such a natural phenomena, if a
person sells his stocks without waiting for the market trend to show up,
it   can   only   be   taken   as   a   sale,   devoid   of   any   desire   to   make   unlawful
gains, even if it cannot be termed as a distress sale.  
40. In   SEBI   vs.   Kishore   R.   Ajmera 5
,   this   Court   was   concerned   with
the question as to what is the degree of proof required to hold a broker
liable   for   fraudulent/manipulative   practices   under   SEBI   (Prohibition   of
Fraudulent   and   Unfair   Trade   Practices   relating   to   Securities   Market)
Regulations,   2003   as   well   as   the   Conduct   Regulations   of   1992.     After
taking   note   of   the   fact   that   SEBI   Act   and   the   Regulations   framed
thereunder are intended to protect the interest of investors and that the
provisions   of   the   Act   and   the   Regulations   have   to   be   understood   and
interpreted in that light, this Court held in Para 26 as follows:­
“ It   is   the   judicial   duty   to   take   note   of   the   immediate
and   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.”
5    (2016) 6 SCC 368
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41. While   dealing   with   yet   another   case   arising   out   of   allegations   of
violation   of   SEBI   (Prohibition   of   Fraudulent   and   Unfair   Trade   Practices
relating   to   Securities   Market)   Regulations,   2003,   this   Court   held   in
Kanaiyalal   Baldevbhai   Patel   (Supra)   (para­58)   that   the   volume,   the
nature of the trading and the timing of the transactions may have to be
taken   into   account   to   find   out   whether   there   was   an   attempt   at
encashing   the   benefit   of   the   information   that   the   insider   was   in
possession.  It is no doubt true that the Court clarified in paragraph 62
of its decision in  Kanaiyalal Baldevbhai Patel  (supra) that  mens rea  is
not   an   indispensable   requirement   to   attract   the   rigor   of   FUTP
Regulations,   2003.     This   Court   held   that   the   correct   test   is   one   of
preponderance of probabilities.  
42. But   an   attempt   by   the   insider   to   encash   the   benefit   of   the
information  is  not   exactly  the  same  as   mens   rea .     Therefore,  the  Court
can   always   test   whether   the   act   of   the   insider   in   dealing   with   the
securities, was an attempt to take advantage of or encash the benefit of
the   information   in   his   possession.     This   is   the   test   we   have   applied   to
the case on hand.
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43. In   Chintalapati Srinivasa Raju   (supra), this Court approved the
minority   judgment   of   the   Securities   Appellate   Tribunal   (in   para   20),
which   took   note   of   the   compelling   circumstances   under   which   the
individual was selling shares.  The fact that this has been taken note of
by   WTM   as   a   mitigating   factor,   while   passing   a   mere   restitutionary
order,   does   not   take   away   the   validity   of   the   defence   taken   by   the
respondent.
44. Therefore, we are of the view on Question No.1 that the information
regarding   the   termination   of   the   two  contracts   can   be  characterised  as
price   sensitive   information,   in   that   it   was   likely   to   place   the   existing
shareholders   in   an   advantageous   position,   once   the   information   came
into   the   public   domain.     In   such   circumstances,   our   answer   to
Question   No.2  would  be  that  the  sale  by  the  respondent,  of  the   shares
held by him in GIPL would not fall within the mischief of insider trading,
as   it   was   somewhat   similar   to   a   distress   sale,   made   before   the
information could have a positive impact on the price of the shares.
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45. In view of our answers to Question Nos. 1 and 2, we are of the view
that   there   is   no   necessity   to   go   into   Question   No.3.     Our   answers   to
Question Nos. 1 and 2 are sufficient to hold that the impugned order of
the Tribunal does not call for any interference.   Therefore, the appeal is
dismissed.  There will be no order as to costs.
… ..…………....................J.
      (Indira Banerjee)
.…..………......................J
(V. Ramasubramanian)
NEW DELHI
SEPTEMBER 19, 2022
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