MR. ANIL HARISH 305-309, NEELKANTH, 98, MARINE DRIVE, MUMBAI - 400 02 Vs. SECURITIES AND EXCHANGE BOARD OF INDIA SEBI BHAVAN, PLOT NO. C-4A, G BLOCK, BANDRA KURLA COMPLEX, BANDRA (EAST), MUMBAI - 400 051

JUDGEMENT

(1.) THIS order will dispose of two Appeals no. 217 and 218 of 2011 which arise out of two orders dated October 31, 2011 passed by the adjudicating officer of the Securities and Exchange Board of India (for short the Board) holding the appellants guilty of violating Regulation 3 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (insider trading regulations) and imposing a penalty of Rs. 20 lacs on the appellant in Appeal no. 217 of 2011 and Rs. 3.40 lacs on the appellant in Appeal no. 218 of 2011. Counsel for the parties agree that since the two orders arise out of the common set of facts, they can be disposed of by a common order. The allegation against the appellants is that they have traded in the shares of M/s. Valecha Engineering Ltd. (the company) while in possession of unpublished price sensitive information. Shri Anil Harish, appellant in Appeal no. 217 of 2011 was the chairman of the company at the relevant time and the appellant in Appeal no. 218 of 2011 Mrs. Ratna Harish is the mother of Mr. Anil Harish. It was alleged that Mr. Anil Harish being privy to the unpublished price sensitive information had traded in the scrip of the company and also disseminated the same to the other person before the information was made public by the company and has thereby violated the provisions of the insider trading regulations.

(2.) THE facts of the case, in brief, are that the Board had conducted investigations into the alleged irregularities in the affairs, trading and dealings in the shares of the company based on certain inputs received from the National Stock Exchange of India Ltd. (NSE) regarding price movement in the shares of the company during the period January 1, 2009 to December 31, 2009. The shares of the company were listed on the NSE and the Bombay Stock Exchange Ltd. (BSE). The investigation prima facie revealed that there was delay by the company in disseminating price sensitive information to the stock exchanges regarding its bagging of certain orders and the promoters and the company/related entities had benefited by purchasing shares of the company prior to dissemination of price sensitive information to public. A show cause notice dated May 18, 2011 was issued to Mr. Anil Harish alleging that he had traded in the shares of the company on August 21, 2009 and August 25, 2009, that is, just prior to the price sensitive corporate announcement made by the company on August 28, 2009 towards its getting projects worth Rs. 172 crores. It was further alleged that from the documents submitted by the company it is revealed that the Government of Arunachal Pradesh, vide its letter dated August 22, 2009, instructed the company to proceed with the work awarded to the company vide its earlier letter dated July 31, 2009. It was also observed by the Board that in the meeting held on July 31, 2009, chaired by the appellant, the board of directors had discussed this matter and therefore the appellant was privy to the information regarding award of contracts which the Board had considered to be price sensitive information. It is alleged that the appellant had traded in the scrip of the company on August 21, 2009 buying 9600 shares on BSE and 10400 shares on NSE and also on August 25, 2009 buying 9960 shares on BSE and 10040 shares on NSE. It was further observed that Mrs. Ratna Harish, Appellant in Appeal no. 218 of 2011, had also traded in the scrip of the company on August 25, 2009 i.e. just prior to the announcement in respect of getting the projects worth Rs. 172 crores. The appellant filed a detailed reply dated July 4, 2011 denying the allegations. The appellants were also granted personal hearing when they filed a number of documents in support of their case. After considering the material available on record, the adjudicating officer passed the impugned orders holding the appellants guilty of violating Regulation 3 of the insider trading regulations and imposing penalties as stated above. Hence this appeal.

(3.) WE find that the intimation given to the stock exchange on August 25, 2010 was not in respect of one project but was in respect of five different projects out of which two road projects are from Arunachal Pradesh worth Rs. 79 crores only. The other contracts were relating to construction of waste tank farm for Bhabha Atomic Research Centre, Trombay worth Rs. 15 crores, bridge work at Thane worth Rs. 46 crores and bridge work at Indore worth Rs. 32 crores. When a company having contracts worth Rs. 1000 crores pending with it for execution bags a few new projects through the tendering process such information need not necessarily be price sensitive. It needs to be appreciated that the projects relating to Arunachal Pradesh were awarded after a long drawn up tendering process keeping in view the transparency norms to be followed by the government departments/public sector undertakings and the persons participating in the tendering process knew about the developments which took place at each and every stage of the tendering process. Opening of tenders is done in the presence of bidders where the bidders came to know the lowest bidder who is likely to get the award. Usually, there is a long time gap between the date when the lowest bidder is declared and the contract is actually awarded to the lowest bidder. During all this period, the information with regard to the lowest bidder and processing of the award of contract in his favour is known to all the participants. Under such circumstances, award of the contract to an infrastructure company cannot be said to be a price sensitive information. The adjudicating officer has not dealt at all with the issue whether award of the contract was a price sensitive information. In fact, he has proceeded on the assumption that the announcement made by the company on August 25, 2009 is a price sensitive information. In para 21 of the impugned order he has recorded that "there is no dispute over the issue that the aforesaid announcement of the company was indeed a price sensitive information". This is incorrect in view of the fact that the appellant has throughout taken a stand that information with regard to award of contract by Arunachal Pradesh Government was not a price sensitive information. In view of our finding above, the order passed by the adjudicating officer cannot be sustained. We may point out some other discrepancies in the order for which the order seems to be vitiated. In para 17 of the impugned order in the case of Mr. Anil Harish, it has been observed by the adjudicating officer that major chunk of purchases were made by the appellant just prior to corporate announcement made by the company regarding "its bagging of the said project worth Rs. 172 crores from the Government of Arunachal Pradesh on August 28, 2009". Again in para 21 of the order, it is recorded by him that "the price movement in the shares of the company as has been detailed in the table at paragraph 20 above, do indicate that during the last week of August, 2009, its price had moved almost in tandem with the BSE sensex and the corporate disclosure made by the company on August 28, 2009 regarding its getting orders worth Rs. 172 crore from the Government of Arunachal Pradesh, had no significant impact on the price of the scrip". We are constrained to observe that the adjudicating officer has not properly examined the information given by the appellant to the stock exchange which clearly shows that the orders from the Arunachal Pradesh Government were in respect of two road projects worth only Rs. 79 crore and not worth Rs. 172 crores. The impugned order proceeds on the assumption that the company had bagged orders worth Rs. 172 crores from the Government of Arunachal Pradesh whereas it had received orders only to the extent of Rs. 79 crore from the Government of Arunachal Pradesh. We also noticed that the adjudicating officer has traversed beyond the charge in the show cause notice. In para 4 of the show -cause notice dated May 18, 2011, reference is made only to the transaction entered into by the appellant on August 21, 2009 and August 25, 2009. However, in the impugned order the appellant has been held guilty even in respect of transactions made by him on August 28, 2009. The transactions of August 28, 2009 were not the subject matter of the sho w a cause notice. In any case, since the disclosures were made to the stock exchanges on August 25, 2009 which were disseminated to the public by NSE on August 25, 2009 itself and by BSE on August 27, 2009, the adjudicating officer has erred in taking note of the transactions of August 28, 2009 also. In short, the order cannot be sustained for the reasons that there is no finding recorded by the adjudicating officer that the information with regard to bagging of award from the Government of Arunachal Pradesh was a price sensitive information; the contracts relating to Arunachal Pradesh government were only to the tune of Rs. 79 crore and not Rs. 172 crores and the tradings of the appellants on August 28, 2009 have also been taken into account which were after the date of publication of the information and were also not a subject matter of the show -cause notice. Since we are holding that in the facts and circumstances of the case, the bagging of contracts by the company from the Arunachal Pradesh Government was not price sensitive information, the charge against appellant in Appeal no. 218 of 2011 also fails.