Surendra Rahalkar- Present proceedings have emanated from show cause notice dated July 06, 2020 (hereinafter referred to as “The SCN“) issued by the Securities and Exchange Board of India (hereinafter referred to as “SEBI”) to the aforesaid Notices for the alleged violations of Section 12A(d) & (e) of Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act, 1992”), provisions of SEBI (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as “PIT Regulations, 1992”) (Since repealed) and SEBI (Prohibition of Insider Trading) Regulations, 2015 (hereinafter referred to as “PIT Regulations, 2015”). The SCN came to be issued to the Noticees as SEBI had conducted an investigation into the allegations of insider trading by certain entities in the scrip of Suprajit Engineering Limited (hereinafter to be referred as “the Company” / “SEL”) for the periods from October 28, 2014 to May 31, 2015 and April 01, 2016, to May 31, 2016.
- On May 06, 2015, SEL informed stock exchanges about a proposal of acquiring 51 % to 61.88% in the equity capital of Phoenix Lamps Limited (hereinafter referred to as “PLL”) from Argon India Limited, Mauritius & Argon South Asia Limited, Mauritius at an agreed price of Rs. 89/- (Rupees Eighty-Nine) per share for each share having face value of Rs. 10/- each. Stock Exchanges were also informed about an open offer to acquire 72,85,018 shares of face value of Rs. 10/- each aggregating to 26% of the Equity Capital of PLL at Rs. 100 (Rupees One Hundred) per share.
This information before its announcement made to the stock exchanges on May 06, 2015, has been considered by the SCN as Unpublished Price Sensitive Information (hereinafter referred to as “UPSl-1”).
- Subsequently, on April 18, 2016, SEL issued a press release to the stock exchanges announcing merger of PLL (Subsidiary of SEL) with SEL and this Announcement prior to its disclosure to stock exchanges on April 18, 2016, has also been considered by the SCN as Unpublished Price Sensitive Information (hereinafter referred to as “UPSl-2“).
- In relation to proposal of acquiring 51 % to 61.88% shares of PLL (UPSl-1), from chronology of events provided by the Company, it was noticed that the discussion on proposal started from March 30, 2015. However, Grant Thornton vide email dated April 08, 2019 submitted that it had signed engagement letter with SEL on October 28, 2014 with reference to transaction support services in relation to the proposed acquisition of controlling stake by SEL in PL. Hence, the Investigation Period for the said announcement has been considered from October 28, 2014 to May 31, 2015 (hereinafter referred to as ‘Investigation Period -1’).
- With respect to merger of PLL with SEL i.e. UPSI 2, from chronology of events provided by the Company, it was noticed that the first discussion related to merger started in first week of April 2016. Therefore, Investigation Period for UPSI 2 has been considered from April 01, 2016 to May 31, 2016 (hereinafter referred to as ‘Investigation Period -2’).
Trading by Noticees/insiders during UPSI periods: UPSI wise trading details of all the Noticees are as below:
UPSI Period-1 (October 28, 2014 to May 05, 2015):
Table A
| S.No | Name of the Noticee | Date | Buy | Sell |
| 1. | Noticee No.2 (Suresh Shetty (HUF)) | 15-04-2015 | 12,117 | Nil |
| 2. | Noticee No.3 (Emerging Securities Private Limited) | 26-03-2015 | 9,197 | Nil |
| 10-04-2015 | 20,803 | Nil |
During UPSI Period -1 only two Noticees viz. no. 2 & 3 [Suresh Shetty (HUF) and Emerging Securities Private Limited (‘ESPL’)] traded in the scrip of SEL. UPSI Period-2 (April 01, 2016 to April 17. 2016):
UPSI Period-2 (April 01, 2016 to April 17. 2016):
Table B
| S.No | Name of the Noticee | Date | Buy | Sell |
| 1. | Notice No.1 (Suresh Shetty) | 01/04/2016 | 4,500 | Nil |
| 2. | Notice No.2 (Suresh Shetty (HUF)) | 01/04/2016 | 8,000 | Nil |
| 3. | Notice No.3 (Emerging Securities Pvt Ltd | 01/04/2016 to 05-04-2016 | 55,697 | 260 |
| 4. | Notice No.4 (Reetha Shetty) | 04/04/2016 | 9,363 | Nil |
| 5. | Notice No.6 (Shruti Shetty) | 01/04/2016 | 4,500 | Nil |
| 6. | Notice No.5 (Vanijya Investment and Trading) | 01/04/2016 | 200 | Nil |
During UPSI Period-2, all six Noticees viz. Suresh Shetty, Suresh Shetty (HUF), ESPL, Reetha Shetty, Shruti Shetty and M/s Vanijya Investment and Trading, traded in the scrip of SEL.
The Noticees viz. Suresh Shetty, Suresh Shetty (HUF), ESPL, Reetha Shetty, Vanijya Investment and Trading and Shruti Shetty did not sell the shares during investigation periods and were holding 30, 18,280 shares as on February 01, 2019. Therefore, the wrongful gain made by the entities have been arrived by the SCN on notional basis which is given as below in tabular form:
During UPSI Period-2:
Table -C
| S.no | Name | No.of Share Bought | Weighted Average Purchase Price | Total Buy Value(In Rs. | Notional sale Value as on April 18,2016 based on closing price | Wrongful Gain Made(in Rs.) | |
| A | B | C=A*B | D=A*147.45(NSE)=A*146.80(BSE) | E=D-C | |||
| 1. | Suresh Shetty (Noticee No.1 ) | NSE | 4,500 | 132.28 | 5,95,260 | 6,63,525 | 68,265 |
| 2. | Emerging Securities Pvt Ltd(Noticee No.3 ) | NSE | 55,197 | 133.15 | 73,49,481 | 81,38,798 | 7,89,317 |
| BSE | 500 | 133.04 | 66,520 | 73,400 | 6,880 | ||
| 3. | Vanijya Investment and Trading (Noticee No.5 ) | NSE | 200 | 132.38 | 26,476 | 29,490 | 3,014 |
| 4. | Reetha Shetty (Noticee No.4 ) | NSE | 9,363 | 132.50 | 12,40,598 | 13,80,574 | 1,39,977 |
| 5. | Shruti Shetty (Noticee No.6) | NSE | 4,500 | 132.50 | 5,96,250 | 6,63,525 | 67,275 |
| 6. | (Suresh Shetty (HUF) (Noticee No.2) | NSE | 8,000 | 132.49 | 10,59,920 | 11,79,600 | 1,19,680 |
| Total | 1,09,34,505 | 1,21,28,912 | 11,94,408 | ||||
*Closing Price at NSE and BSE on April 16, 2016
The Noticee no. 1 has raised the following key contentions to the allegations levelled in the SCN:
- My investments in SEL: Overall stock portfolio aggregating 723 crores during 2015-2016 of which the investment in SEL constituted 5.28%
- There was no approval of the Board of SEL for appointment of Grant Thornton. This means that the appointment of Grant Thornton was also not to my knowledge. The appointment was made by the management of SEL without my knowledge or involvement.
- In any case, I had, filed a suo-motu application with SEBI seeking settlement of the disclosure related under the PIT Regulations issues pertaining to my acquisitions of shares of SEL. I have already paid a substantial amount of Rs. 29,54,738/- pursuant thereto.
- In light of the above, I submit that the proceedings pursuant to the SCN be dropped without any adverse order or direction against me I have deposited an amount of Rs. 11,94,408/- with SEBI as collateral in lieu of the alleged gains made by me I request that the same be returned to me.
It is clear from the above facts, that whatever happened was inadvertent and gain if any made was minuscule as compared to the size of total portfolio and even value of past investments in the company. Benefits of the doubt in favour of Noticees could have been given. But SEBI after considering the above facts, came to the conclusions that Noticees are guilty and following directions and penalties are levied:-
- Noticee no. 1, 2 and 3 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 two (2) year, from the date of this order;
- Noticee no. 4, 5 and 6 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 one (1) year, from the date of this order;
- Noticee no. 1, 2 and 3, are restrained from buying, selling or dealing in the securities of Suprajit Engineering Ltd. (SEL), directly or indirectly, in any manner whatsoever, for a period of three (3) years;
- Noticee no. 4, 5 and 6, are restrained from buying, selling or dealing in the securities of Suprajit Engineering Ltd. (SEL), directly or indirectly, in any manner whatsoever, for a period of two (2) years;
- The Noticee no. 1 to 6 are directed to discharge the amount as indicated in the following Table against their respective names, within 45 days from the date of receipt of this order:
| Noticee No. | Name of Noticee | Wrongful Gain in Rs. |
| 1. | Suresh Shetty | 68,265 |
| 2. | Suresh Shetty (HUF) | 1,19,680 |
| 3. | Emerging Securities Private Limited | 7,96,197 |
| 4. | Reetha Shetty | 1,39,977 |
| 5. | Vanijya Investment and Trading | 3,014 |
| 6. | Shruti Shetty | 67,275 |
The amount shall be remitted by the Noticees along with interest at the rate of 12% per annum from April 18, 2016 till the date of actual payment, to Investor Protection and Education Fund (IPEF) referred to in Section 11 (5) of the SEBI Act, 1992. The demand draft for the payment of disgorgement amount with interest, should be sent to “The Division Chief, IVD-ID7, Securities and Exchange Board of India, SEBI Bhavan II, Plot no. C-7, “G” Block, Bandra Kurla Complex, Bandra (E), Mumbai -400 051 “. While remitting the disgorgement amount along with interest, the Noticees are allowed to set-off the amount already paid/deposited by them with SEBI.
- Noticee no.1, Noticee no. 2 and Noticee no. 3, are hereby imposed with penalty of Rs. Thirty (30) Lakhs each, under Section 15G of the SEBI Act, 1992, and are directed to pay their respective penalties within a period of forty-five (45) days, from the date of receipt of this order;
- Noticee no.4, Noticee no. 5 and Noticee no. 6, are hereby imposed with penalty of Rs. Ten (10) Lakhs each, under Section 15G of the SEBI Act, 1992, and are directed to pay their respective penalties within a period of forty-five (45) days, from the date of receipt of this order;
