Mumbai: The Securities Appellate Tribunal (SAT) on Wednesday exonerated Jaiprakash Associates Ltd’s executive chairman Manoj Gaur and his family from charges of insider trading made by the Securities and Exchange Board of India (Sebi) in January.
The appellate body of India’s markets regulator, however, upheld Sebi’s order against two other company officials—Harish K. Vaid and S.D. Nailwal—over alleged violation of insider trading norms in the shares of Jaiprakash Associates.
Sebi can move India’s top court against the SAT order.
Shares of the company rose 1.86% to end trading at Rs.87.60 on BSE on Wednesday. The exchange’s benchmark Sensex gained 0.24%.
SAT hears appeals on orders passed by the capital markets regulator.
On 5 January, Sebi had penalized the promoters of Jaiprakash Associates and imposed a fine of Rs.10 lakh each on Gaur, his wife Urvashi, his brother Sameer and the two officials for alleged violation of insider trading norms by trading in the company’s stock on the basis of unpublished price-sensitive information.
After probing the trading pattern in the stock between 29 September and 27 October 2008, Sebi had alleged that Gaur had access to price-sensitive information, which was passed on to the promoters to trade in the company’s stock ahead of the July-September earnings announcement in 2008.
Sebi found that Urvashi Gaur bought 1,000 shares of the company on 14 October 2008 and Sameer Gaur bought 7,400 shares on 13, 14 and 16 October 2008.
Sebi had alleged that both of them were people connected to Manoj Gaur under the insider trading regulations and they traded in the shares of the company on the basis of certain price-sensitive information that was passed on by Manoj Gaur to them before the actual declaration of the financial results on 21 October 2008.
Jaiprakash Associates had challenged the order at SAT.
The appellate body said that Urvashi Gaur and Sameer Gaur were regularly trading not only in the stock of the company but in other shares as well. If indeed Manoj Gaur had passed on price-sensitive information to Urvashi Gaur, she would not have traded in 1,000 shares only, the tribunal said.
Similarly, Sameer Gaur too was found to be a regular trader of shares of the company.
“Looking at the trading pattern, the number of shares purchased and going by their status, it seems highly improbable that trading was done by them on the basis of price-sensitive information,” said SAT member and presiding officer P.K. Malhotra.
“….the adjudicating officer has failed to bring on record any evidence, direct or circumstantial, to show that Manoj Gaur passed on the unpublished price-sensitive information to Urvashi Gaur and Sameer Gaur and thus violated regulation 3(ii) of the regulations,” said the SAT order. According to the order, the Sebi adjudicating officer failed to produce any evidence to show that they (Urvashi and Sameer Gaur) were in possession of unpublished price-sensitive information about the financial results of the company for the quarter ending 30 September 2008.
“As we have observed earlier, having regard to the gravity of charge of insider trading, higher degree of preponderance of probabilities is needed to bring home the charge. The adjudicating officer has not brought any material on record to show that they were in possession of unpublished price-sensitive information,” the SAT order said.
It upheld Sebi’s order holding company secretary and compliance officer of Jaiprakash Associates Harish K. Vaid and wholetime director S.D. Nailwal guilty of insider trading charges.
Sebi’s order in January had made two separate charges on Harish K. Vaid—as an officer of Jaiprakash Associates and as the so-called karta of Harish K. Vaid, a Hindu undivided family. The family, which was holding 2,675 shares of the company, booked a profit of Rs.2,216 through trading.
SAT observed that although the quantum of profit booked out of the alleged trades was small, Vaid had violated the insider trading norms as he was privy to price-sensitive information.
Nailwal was involved in the consolidation of financial results of the company and the preparation of agenda for the board’s meeting to consider proposed interim dividend and the rights issue. He had traded in the company stock by taking advantages of the unpublished price-sensitive information, SAT said.