SECURITIES AND EXCHANGE BOARD OF INDIA VS. RAJEEV VASANT SHETH

2026 INSC 826C.A.NO. 4905/2022 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 4905 OF 2022

SECURITIES AND EXCHANGE BOARD OF INDIA …APPELLANT(S)

VERSUS

RAJEEV VASANT SHETH & ORS. … RESPONDENT(S)

J U D G M E N T

SANJAY KAROL, J.

1. The present appeal under Section 15Z of the Securities and Exchange

Board of India Act, 19921 challenges the correctness of the final judgment and

order dated 19.04.2022 passed by the Securities Appellate Tribunal, Mumbai2 in

Appeal No.536 of 2021, whereby the SAT, while allowing the said appeal,

quashed and set aside the order dated 24.05.2021 passed by the Whole Time

Member3, SEBI holding the Respondents herein, guilty of insider trading under

the SEBI Act.

1 ‘SEBI Act’ for short.

2 ‘SAT’ for short.

3 ‘WTM’ for short.

C.A.NO. 4905/2022 2

2. Brief facts giving rise to the present appeal, shorn of unnecessary details,

are as follows:

2.1. Tara Jewels Limited4 is a company engaged in buying and selling of

jewelry. The Respondent No.1 before us, namely, Mr. Rajeev Vasant Sheth, is the

Chairman and Managing Director; Respondent No. 2, namely Ms. Aarti Sheth,

and Respondent No. 3, Divya Sheth, being the daughters of Respondent No. 1,

were the Promoters and Vice Presidents of TJL.

2.2. TJL was traded on the Bombay Stock Exchange and National Stock

Exchange. It had entered the liquidation process by order dated 30.07.2019

passed by the National Company Law Tribunal. The Company suffered losses of

Rs.166.80 Crores during the quarter ending in September 2017, whereas in the

previous quarter ending in June 2017 net loss was of Rs.6.62 Crores. For the same

period, net Sales of the Company fell by approximately 69%.

2.3. During the Unpublished Price Sensitive Information5 Period i.e.,

02.10.2017 to 29.11.2017, the Respondent No.1 sold of 30,93,948 shares owned

by him, which was about 12.56% of the total shareholding of the company, and a

further 29,75,000 shares by subsequent transactions. Respondents No.2 and 3

sold of their entire holding - 1,14,440 each. Consequently, a cumulative loss of

approximately Rs.1.38 crores was avoided.

2.4. SEBI issued Impounding Order-cum-Show Cause Notice6 on 04.09.2020

seeking explanation as to why appropriate directions be not issued against them

as also the penalty imposed.

3. The above-mentioned SCN culminated in order 24.05.2021 of the WTM

whereby all the three respondents were found to have committed insider trading

prohibited under the SEBI Act and the Securities and Exchange Board of India

4 ‘TJL’ for short.

5 ‘UPSI’ for short.

6 ‘SCN’ for short.

C.A.NO. 4905/2022 3

(Prohibition of Insider Trading) Regulations 20157. Relevant part of the order is

extracted hereunder:

“3. Having carefully considered the materials available on record and

the submissions advanced by the Noticees I hold that the charges

relating to violation of the provisions of the SEBI Act and the PIT

Regulations are found to have been established, and further considering

the factors enumerated under Section 15 J of SEBI, I hold that it would

be sufficient and proper that the instant proceeding be disposed with

issuance of certain directions. Accordingly, I, in exercise of the powers

conferred upon me under Section 19 read with Sections 11(1), 11(4),

11B(1), 11B(2) and 11(4A) further read with Section 15G, 15HB and

15J of the SEBI Act, hereby issue following directions and impose

following penalty:

i. Noticee no. 1 i.e., Mr. Rajeev Vasant Sheth is restrained from

accessing the securities market and further prohibited from buying,

selling or otherwise dealing in securities (including units of mutual

funds), directly or indirectly, or being associated with the securities

market in any manner, whatsoever, for a period of 1 year from the date

of this order.

ii. Noticees no. 2 & 3 i.e., Ms. Aarti Sheth and Ms. Divya Sheth are

restrained from accessing the securities market and further prohibited

from buying, selling or otherwise dealing in securities (including units

of mutual funds), directly or indirectly, or being associated with the

securities market in any manner, whatsoever, for a period of 6 months

from the date of this order.

iii. Noticee no. 1 is directed to disgorge the amount to the extent of loss

avoided by his insider trading, aș given in Table 6 of the present order

within 45 days from the date of receipt of this order. The amount shall

be remitted by the Noticee no. 1 along with interest at the rate of 12%

per annum from November 30, 2017 till the date of actual payment.

iv. Noticees no. 2 and 3 are directed to disgorge the amount to the extent

of loss avoided by their insider trading, as given in Table 6 of the present

order within 45 days from the date of receipt of this order. The amount

shall be remitted by the Noticees no. 2 and 3 along with interest at the

rate of 12% per annum and for this purpose the interest shall be

calculated from November 30, 2017 till the date of deposit of the said

amount by these two Noticees in the respective escrow accounts, in

compliance with impounding order cum SCN: While calculating and

remitting the disgorgement amount along with interest for the period,

the Noticees 2 & 3 are allowed to set-off the amount already

paid/deposited by them In the escrow accounts in the name of SEBI.

7 ‘PIT Regulations 2015’ for short.

C.A.NO. 4905/2022 4

In terms of the provisions of section 11(5) of SEBI Act, the amount so

disgorged from the Noticees 1, 2 & 3 will be credited to Investor

Education and Protection Fund (IEPF).

v. Further, I impose the following Monetary penalties on the Noticees

under the provisions of Sections 15G and 15HB for their respective

violations of the provisions of SEBI Act and the PIT Regulations;

Entity Provisions of law violated Penal

Provision

Quantum

of Penalty

Mr. Rajeev

Vasant

Sheth

Regulation 3(1) and 4(1) of

PIT Regulations and Section

12A(d) & (e) of the SEBI

Act

15G INR 25

Lakh

Ms. Aarti

Sheth

Regulation 4(1) of PIT

Regulations and Section

12A(d) & (e) of the SEBI

Act

INR 10

Lakh

Ms. Divya

Sheth

Regulation 4(1) of PIT

Regulations and Section

12A(d) & (e) of the SEBI

Act

INR 10

Lakh

Mr. Rajeev

Vasant

Sheth

Clause 6 of the Minimum

Standards for Code of

Conduct to Regulate,

Monitor and Report Trading

by insiders specified in

Schedule B read with

regulation 9(1) of PIT

Regulations

15HB INR 5

Lakh

Ms. Aarti

Sheth

INR 1

Lakh

Ms. Divya

Sheth

INR 1

Lakh

”

4. Aggrieved thereby, the Respondents filed an appeal before SAT, Mumbai.

It was observed that the explanation given by the respondents herein that TJL was

at the risk of being downgraded to a non-performing asset is sufficient to prove

his innocence regarding trading of shares while in possession of UPSI. It was held

that such an explanation would be covered under the proviso to Regulation 4(1)

of the PIT Regulations 2015. It was further observed with reference to the closing

price of TJL’s shares on 29.11.2017 and 30.11.2017 on both NSE and BSE that

there was hardly any price difference and as such it could not be observed that

the sale of the shares was for the purpose of avoiding further losses. The appeal

was allowed.

C.A.NO. 4905/2022 5

5. SEBI takes exception to setting aside the liability imposed upon the

respondents in this appeal. We have heard learned Senior Counsel/Counsels for

the parties.

6. Let us first understand the concept of Insider Trading. In essence, it is

dealing in a company’s securities having been informed by confidential

information which is likely to affect the price of the securities in the market, once

such information is made public. It qualifies as a breach of fiduciary duty by the

employees of the company who are, by virtue of being such employees, privy to

such insider information. The genesis of this concept is found in the United States

of America, and the same is regulated by the Securities Exchange Act of 1934.

6.1. The SEBI Act, similar to the 1934 Act in the USA, does not define ‘Insider

Trading’. It only provides under Chapter VA titled “Prohibition of Manipulative

and Deceptive Devices, Insider Trading and Substantial Acquisition of Securities

or Control” and specifically under Section 12A thereunder that no person shall

directly or indirectly engage in insider trading. The said section is reproduced

hereunder:

“12A. Prohibition of manipulative and deceptive devices, insider

trading and substantial acquisition of securities or control.—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 recognised 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;

(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;

C.A.NO. 4905/2022 6

(e) deal in securities while in possession of material or non-public

information or communicate such material or non-public 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)

6.2. Section 11 of the SEBI Act provides for the functions of the Board, which

includes prohibition of insider trading and Section 30 thereof, provides for the

power to make regulations to the Board itself, to carry out the purposes of the

Act. It is under this power that the Board brought in the PIT Regulations 2015

which we shall discuss later.:

“11. Functions of Board. – (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) regulating the business in stock exchanges and any other securities

markets;

… … …

(d) promoting and regulating self-regulatory organisations;

(e) prohibiting fraudulent and unfair trade practices relating to securities

markets;

(f) promoting investors’ education and training of intermediaries of

securities markets;

(g) prohibiting insider trading in securities; …

30. Power to make regulations.—

(1) The Board may, 5*** by notification, make regulations consistent

with this Act and the rules made thereunder to carry out the purposes of

this Act.

(2) In particular, and without prejudice to the generality of the foregoing

power, such regulations may provide for all or any of the following

matters, namely:—

(a) the times and places of meetings of the Board and the procedure to

be followed at such meetings under sub-section (1) of section 7

including quorum necessary for the transaction of business;

(b) the term and other conditions of service of officers and employees

of the Board under sub-section (2) of section 9;

C.A.NO. 4905/2022 7

(c) the matters relating to issue of capital, transfer of securities and other

matters incidental thereto and the manner in which such matters shall

be disclosed by the companies under section 11A;

(ca) the utilisation of the amount credited under sub-section (5) of

section 11;

(cb) the fulfilment of other conditions relating to collective investment

scheme under sub-section (2A) of section 11AA;

(d) the conditions subject to which certificate of registration is to be

issued, the amount of fee to be paid for certificate of registration and

the manner of suspension or cancellation of certificate of registration

under section 12;

(da) the terms determined by the Board for settlement of proceedings

under sub-section (2) and the procedure for conducting of settlement

proceedings under sub-section (3) of section 15JB;

(db) any other matter which is required to be, or may be, specified by

regulations or in respect of which provision is to be made by

regulations.”

6.3. Having proscribed insider trading in the above terms, the Act provides for

a penalty for indulging therein under Section 15G of the Act, which reads as

under:

“15G. Penalty for insider trading.—If any insider who,—

(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 price sensitive information; or

(ii) communicates any unpublished price sensitive 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 price sensitive

information,

shall be liable to a penalty [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)

6.4. Once it is determined that a penalty is to be imposed, Section 15J provides

for the factors to be considered in the imposition of the penalty. Section states:

“15J. [Factors to be taken into account while adjudging quantum

of penalty].—While adjudging the quantum of penalty under [15-I or

section 11 or section 11B, the Board or the adjudicating officer] shall

have due regard to the following factors, namely:—

C.A.NO. 4905/2022 8

(a) the amount of disproportionate gain or unfair advantage, wherever

quantifiable, made as a result of the default;

(b) the amount of loss caused to an investor or group of investors as a

result of the default;

(c) the repetitive nature of the default.

[Explanation.—For the removal of doubts, it is clarified that the power

4*** to adjudge the quantum of penalty under sections 15A to 15E,

clauses (b) and (c) of section 15F, 15G, 15H and 15HA shall be and

shall always be deemed to have been exercised under the provisions of

this section.]"

6.5. Section 11B of the SEBI Act provides for the power to issue directions.

This becomes relevant further ahead qua disgorgement. The same is reproduced

here:

“Power to issue directions.

11B. Save as otherwise provided in section 11, if after making or

causing to be made an enquiry, the Board is satisfied that it is

necessary,—

(i) in the interest of investors, or orderly development of securities

market; or

ii) to prevent the affairs of any intermediary or other persons referred to

in section 12 being conducted in a manner detrimental to the interest of

investors or securities market; or

iii) to secure the proper management of any such intermediary or

person, it may issue such directions,—

(a) to any person or class of persons referred to in section 12, or

associated with the securities market; or

(b) to any company in respect of matters specified in section 11A, as

may be appropriate in the interests of investors in securities and the

securities market.

Explanation.—For the removal of doubts, it is hereby declared that the

power to issue directions under this section shall include and always be

deemed to have been included the power to direct any person, who

made profit or averted loss by indulging in any transaction or activity

in contravention of the provisions of this Act or regulations made

thereunder, to disgorge an amount equivalent to the wrongful gain made

or loss averted by such contravention.”

6.6. If a party is aggrieved by the imposition of a penalty, Section 15T

postulates an appeal to be filed before SAT, and if still aggrieved, such a party

can approach this Court under Section 15Z. It reads:

C.A.NO. 4905/2022 9

“15Z. Appeal to Supreme Court.— Any person aggrieved by any

decision or order of the Securities Appellate Tribunal may file an appeal

to the Supreme Court within sixty days from the date of communication

of the decision or order of the Securities Appellate Tribunal to him on

any question of law arising out of such order:

Provided that the Supreme Court may, if it is satisfied that the appellant

was prevented by sufficient cause from filing the appeal within the said

period, allow it to be filed within a further period not exceeding sixty

days.”

7. Keeping in view the aforesaid scheme of the Act, we now move to the PIT

Regulations 2015. Regulation 2 provides the definitions for certain aspects that

are relevant here:

7.1. Sub-regulation (d) thereunder, defines a ‘connected person’ as follows:

“(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 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

C.A.NO. 4905/2022 10

(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 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.”

(emphasis supplied)

7.2. Sub-regulation (g) defines ‘insider’:

“(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 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

C.A.NO. 4905/2022 11

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.”

(emphasis supplied)

7.3. Sub-regulation (n) defines ‘unpublished price sensitive information’:

“(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, de-mergers, acquisitions, delistings, disposals and

expansion of business and such other transactions;

(v) changes in key managerial personnel.

[***].

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.”

(emphasis supplied)

8. Regulation 3 of the PIT Regulations, 2015 prescribes that no insider shall

communicate, provide or allow access to any UPSI other than in furtherance of

legitimate purposes or discharge of, inter alia, legal obligations. The relevant part

thereof inasmuch as it relates to the mainstay of the present lis, i.e., Regulation 4,

is as under:

“(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 [listed] company is of

informed opinion that [sharing of such information] is in the best

interests of the company;

C.A.NO. 4905/2022 12

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 [listed] company is

of informed opinion [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 [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.”

9. Regulation 4 of the PIT Regulation 2015 prohibits trading when in

possession of UPSI. It incorporates a rebuttable presumption that the trades done

by the person in possession of such UPSI are motivated by the information

contained therein. It provides for scenarios where the person accused of having

traded while in possession of such UPSI, can demonstrate their innocence. It says

‘provided that the insider may prove his innocence by demonstrating

circumstances including the following’.

9.1. The transaction that is subject matter of dispute is (a) off-market; (b) inter

se transfer between insiders; (c) while they were in possession of same UPSI; and

(d) that it was not in violation of Regulation 3 with the exception of sub-regulation

C.A.NO. 4905/2022 13

(3) of Regulation 3 which we have already extracted supra and (e) both parties

made a conscious and informed trade decision. It is further provided that such

inter-se transfer be notified to the company in two-working days and that such

companies shall further transmit such information to the stock exchange where

such company is listed.

“(i) the transaction is an off-market inter-se transfer between [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.

[Provided that such unpublished price sensitive information was not

obtained under sub-regulation (3) of regulation 3 of these regulations.

Provided further that such off-market trades shall be reported by the

insiders to the company within two working days. Every company shall

notify the particulars of such trades to the stock exchange on which the

securities are listed within two trading days from receipt of the

disclosure or from becoming aware of such information.]”

9.2. The second defence is if the transaction in question has been carried out

through the block deal window mechanism between persons who were in

possession of UPSI, having made an informed and conscious decision; not being

in violation of Regulation 3; and not having secured the relevant information

under sub-regulation (3) of Regulation 3.

“(ii) the transaction was carried out through the block deal window

mechanism between persons who were in possession of the unpublished

price sensitive information without being in breach of regulation 3 and

both parties had made a conscious and informed trade decision;

Provided that such unpublished price sensitive information was not

obtained by either person under sub-regulation (3) of regulation 3 of

these regulations.”

9.3. The transaction was in furtherance of statutory or regulatory obligations in

connection with a bona fide transaction.

“(iii) the transaction in question was carried out pursuant to a statutory

or regulatory obligation to carry out a bona fide transaction.”

C.A.NO. 4905/2022 14

9.4. The transaction was in exercise of stock options, and the price thereof was

predetermined as per applicable regulations.

“(iv) the transaction in question was undertaken pursuant to the exercise

of stock options in respect of which the exercise price was pre-

determined in compliance with applicable regulations.”

9.5. The fifth defence deals with non-individual investors and provides for two

scenarios where innocence can be pleaded (1) where the people making the trade

and the people in possession of the UPSI were different and (2) where adequate

arrangements were in place to prevent the communication of the UPSI, and there

is no evidence of such arrangements having been breached.

“(v) in the case of non-individual insiders: –

(a) the individuals who were in possession of such unpublished price

sensitive information were different from the individuals taking trading

decisions and such decision-making 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;”

9.6. The sixth defence is trades carried out in accordance with trading plans as

formulated under Regulation 5.

9.7. At the end of Regulation 4(1) there is a note that embeds a presumption of

trades so made being motivated by such knowledge and information in his

possession, when such a person has UPSI. The intentions and the purposes to

which the proceeds of the transactions are applied are thereby made irrelevant.

The text of the note is:

“NOTE: When a person who has traded in securities has been in

possession of unpublished price sensitive information, his trades would

be 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

C.A.NO. 4905/2022 15

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.”

(emphasis supplied)

10. Turning back to the present facts, it is the case of the appellant that the

respondents do not fall within any of the defences provided under Regulation 4

(1) and therefore the SAT had erred. Per contra, the respondents contend that the

present case would be covered by the judgment of this Court in SEBI v. Abhijit

Rajan8 given its similarity on facts. In that case too, the persons accused of insider

trading had rerouted the funds for the purposes of the company. It is further

submitted that the respondents gained nothing from the trades.

11. We are of the considered view that the law as discussed above leads us to

only one conclusion. It is not in dispute that the respondents were in possession

of UPSI. It is also not in dispute that the respondents had sold of large portions

or the entirety of their shareholding while in possession of such UPSI. As such,

in view of the note appended to Regulation 4 (1) reproduced supra, the purposes

for which the proceeds are employed is an irrelevant consideration. The fact that

the respondents had indulged in the trades at the relevant point in time is sufficient

to conclude that they had conducted insider trading. In that view of the matter,

less or no profit, is of no consequence.

12. Insofar as the argument of the appellant that none of the defences provided

or those of the similar nature would cover the respondents is concerned, let us

consider the same. In short, what is implied by the appellant is that even if the

defences laid out in Regulation 4 (1) are read ejusdem generis, the respondents

8 (2024) 11 SCC 645.

C.A.NO. 4905/2022 16

would still not be covered. Regarding this principle, it is said by a three-Judge

Bench in P. Mohanraj v. Shah Bros. Ispat (P) Ltd.,9 with reference to an earlier

decision in Vikram Singh v. Union of India,10 which in turn further referred to

Siddeshwari Cotton Mills (P) Ltd. v. Union of India,11 that:

“26. In Vikram Singh v. Union of India [Vikram Singh v. Union of

India, (2015) 9 SCC 502 : (2015) 4 SCC (Cri) 213] , this Court was

asked to construe the expression “government or any other person”

contained in Section 364-A of the Penal Code, 1860 with reference to

ejusdem generis. This Court, in repelling the contention, went on to hold

: (SCC pp. 523-25, paras 26-30 & 32)

… … …

27. In Siddeshwari Cotton Mills (P) Ltd. v. Union of India [Siddeshwari

Cotton Mills (P) Ltd. v. Union of India, (1989) 2 SCC 458 : 1989 SCC

(Tax) 297] M.N. Venkatachaliah, J., as his Lordship then was, examined

the rationale underlying ejusdem generis as a rule of construction and

observed : (SCC p. 463, para 14)

‘14. The principle underlying this approach to statutory

construction is that the subsequent general words were only

intended to guard against some accidental omission in the

objects of the kind mentioned earlier and were not intended

to extend to objects of a wholly different kind. This is a

presumption and operates unless there is some contrary

indication. But the preceding words or expressions of

restricted meaning must be susceptible of the import that

they represent a class. If no class can be found, ejusdem

generis rule is not attracted and such broad construction as

the subsequent words may admit will be favoured. As a

learned author puts it:

‘… if a class can be found, but the specific

words exhaust the class, then rejection of the

rule may be favoured because its adoption

would make the general words unnecessary; if,

however, the specific words do not exhaust the

class, then adoption of the rule may be favoured

because its rejection would make the specific

words unnecessary.’ [ See: Construction of

Statutes by E.A. Driedger, p. 95 quoted by

Francis Bennion in his Statutory Construction,

pp. 829 and 830.]’”

13. The defences provided for in the regulations are mentioned in Regulation

4 (1), preceded immediately by the word including; the rule of ejusdem generis

9 (2021) 6 SCC 258.

10 (2015) 9 SCC 502.

11 (1989) 2 SCC 458.

C.A.NO. 4905/2022 17

cannot be applied since it is applied to words of general nature following specific

and particular words. These general words are to be interpreted as per this rule,

in light of the specific words. In this case, the specific words, i.e., the defences

follow the general word, i.e., including. What we can observe, though, is that the

word including indicates the six defences provided are not meant to be

exhaustive. What follows is that the other defences that may be covered would be

of the same and similar nature as already provided therein.

14. In regard to Abhijit Rajan (supra), it may be observed that in that case the

persons accused of insider trading had sold of the shares while in possession of

UPSI apparently for the purposes of funding the Corporate Debt Restructuring

Package. It was observed in the facts of that case that one of the companies

involved stood to gain “hugely” from the cancellation of the shareholders'

agreements but had still proceeded with the selling of the shares since if the

restructuring had not gone through, the parent company Gammon Infrastructure

Projects Limited, Gammon India Limited could have gone into bankruptcy. In

other circumstances, it was held that no ordinary man of prudence would expect

an increase of value and would sell shares with the intent to commit insider

trading before the relevant information became public. From a perusal of the

judgment, it is clear that the transactions subject matter of the dispute took place

in the year 2013 and accordingly were governed by the predecessor regulations

i.e., Securities and Exchange Board of India (Prohibition of Insider Trading)

Regulations, 199212.

15. Having gone through the above-said 1992 Regulations, Regulation 3B

appears to deal with defences, in similar terms to what is provided in Regulation

4(1) in the 2015 PIT Regulations. The most obvious difference that appears plain

12 ‘1992 PIT Regulations’ for short.

C.A.NO. 4905/2022 18

to us, is that there is no such ‘note’ as there is in the latter. In other words, there

was no specific bar against the consideration of the issue of where the proceeds

of such insider trading transactions are used. As such, apart from the fact that in

Abhijit Rajan the shares were sold before the increase in price shares, as opposed

to a fall in the prices in the present case, there was scope available for the Tribunal

and the Court to consider why a particular person undertook the transactions in

question. Had it been that there was a fall in the shares of the company in that

case, their intent to scrounge up the money for the CDR process for the parent

company could have been considered. If the same transactions were after the 2015

PIT Regulations, that could not have been considered.

16. For the reasons as aforestated, the appeal is allowed. On the aspect of the

penalty and disgorgement, the order that has been issued by the WTM stands

reproduced supra. The SAT, consequent to its conclusion, has set aside the same.

In accordance with the discussion above, the penalty has to be imposed once

again. As far as disgorgement is concerned, which in simple terms is being asked

by the order to give up the profits secured by the insider having traded securities

while in possession of UPSI. It is clearly established that, in view of the above

discussion that the respondents had engaged in insider trading and, as such, had

avoided approximately Rs.1.38 crores in losses. In view of the explanation given

in Section 11B of the SEBI Act reproduced supra, such order of the WTM cannot

be faulted. The same is restored.

17. Regarding the penalty imposed upon the respondents in view of violation

of Clause 6 of the Minimum Standards for Code of Conduct to Regulate, Monitor

and Report Trading by insiders specified in Schedule B read with Regulation 9

(1) of the PIT Regulations 2015, that too, in our view, is justified.

C.A.NO. 4905/2022 19

18. However, insofar as the amount of penalty imposed under section 15G is

concerned, taking a cumulative view of the facts and circumstances of the present

case as already discussed above, we are of the view that Rs.25 Lakhs as penalty

to Respondent No.1 may be excessive. Accordingly, the same is reduced to 10

Lakhs i.e., the minimum penalty as imposed on Respondent Nos. 2 and 3.

19. Before parting with the matter, we may observe that in the impugned

judgment, the SAT appears to recognize a defense to insider trading, i.e.,

legitimate corporate purpose as was interpreted by the SAT in Rakesh Agrawal

v. Securities Exchange Board of India13, which was a decision rendered in the

context of the 1992 PIT Regulations. That, however, was not a course open for

the SAT to take in the impugned judgment in view of the note appended in

Regulation 4(1).

20. The penalty is modified to the above extent. The same shall be paid within

a period of three months, if not already paid.

Pending application(s), if any, shall stand disposed of.

.……….……………………………………J.

(SANJAY KAROL)

..............…………………………………….J.

(NONGMEIKAPAM KOTISWAR SINGH)

NEW DELHI;

AUGUST 11, 2026

13 2003 SCC OnLine SAT 38.