The top court found that the material on record ‘adequately demonstrated’ a breakdown of relations between the parties and given the SEBI’s findings, the question of ipso facto relying on the nature of relationship between the parties towards insider trading, was legally unsustainable.
“The approach adopted by the SAT turns the SEBI Act on its head as it places the burden of proving that there was a complete breakdown of ties between the parties on the Appellants in C.A. No.7590 of 2021 while conveniently ignoring the fact that the onus was actually on SEBI to prove that the appellants were in possession of or having access to UPSI. The legislative note to Regulation 2(1)(g) makes the above position of law explicitly clear,” the judgment said.
On the allegedly suspicious stock trading, the Court observed that there was no correlation between the UPSI and the share trading.
“ … data reveals that the share price of the PCJ shares consistently fell during the investigation period and therefore it would be incorrect to say that the price of the shares fell only upon announcement of the withdrawal of the buyback offer. In fact, the records reveal that even after the announcement of the buyback offer, there was no increase in the share prices of the company. Resultantly, the appellants stopped selling shares on 13.07.2018 because they believed that the market price continued to fall so badly that the shares possessed by them were not being valued accurately,” the Bench observed.
In the absence of material to show frequent communication between the parties, there could not have been a presumption of communication of UPSI by the appellants, the Court made it clear.
Relying on its decision in Chintalapati Srinivasa Raju, the top court reiterated that merely because a person was related to connected persons cannot by itself be a foundational fact to draw inferences.
On the SEBI’s contention of the related parties living together, the Court stated that it ‘falls flat’ as the parties reside in separate buildings on a large tract of land.
The appeals were accordingly allowed and the money deposited by the petitioners was ordered to be refunded.
Source: Barandbench
