# BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF INDIA

- **Citation:** [2022] 4 S.C.R. 888
- **Court:** Supreme Court of India
- **Decided:** 2022-04-19
- **Case number:** Civil Appeal No. 7054 OF 2021
- **Bench:** Vineet Saran, Aniruddha Bose
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/balram-garg-v-securities-and-exchange-board-of-india-36348
- **Pages:** 38

## Headnote

SEBI (Prevention of Insider Trading Regulations), 2015 -
Regulation 2(1)(d) and 2(1)(f) - Securities and Exchange Board of
India Act, 1992 - ss.11(2)(g), 11(4), 12A(c), 15G and 15Z - Insider
Trading - On receipt of Unpublished Price Sensitive Information
(UPSI) - "Connected persons" and "immediate relatives" -
Respondent/SEBI alleging that P.C. Gupta and his brother appellant
'B', who were respectively the Chairman and Managing Director
of PCJ, a public limited company, were inter alia "connected person"
in terms of Regulation 2(1)(d)(i) and appellants in C.A. No.7590/
2021, traded on basis of UPSI received by them on account of their
alleged proximity to P.C. Gupta and appellant 'B' in view of their
close family relationship - Claim of estrangement by
appellants in C.A. No.7590 of 2021 - Rejected by Whole Time
Member (WTM) of SEBI and also the Securities Appellate Tribunal
(SAT) - Held: WTM and SAT wrongly rejected the claim of
estrangement without appreciating the facts and evidence produced
before them - The records and facts adequately establish that the
there was a breakdown of ties between the parties, both at personal
and professional level and that the said estrangement happened
much prior to the two UPSI - Appellants are neither "connected
persons" under regulations 2(1)(d) nor "immediate relatives" under
2(1)(f) - Even assuming that the family arrangements did not result
in complete estrangement of social relations between the parties,
the SAT could not, by virtue of this very fact, discharge SEBI of the
onus of proof placed on them to prove that Appellants were in
possession of UPSI - SEBI failed to place on record any material to
prove that appellants in C.A. No.7590/2021 were "connected
persons" to appellant 'B' as required by Regulation 2(1)(d)(ii)(a)
read with Regulation 2(1)(f) as none of the appellants in C.A.
No.7590/2021 were financially dependent on appellant 'B' or even
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alleged to have consulted him in any decision related to trading in
securities - Appellants in C.A. No.7590 of 2021 were not "immediate
relatives" and had nothing to do with appellant 'B' in any decision
making process relating to securities or even otherwise.
SEBI (Prevention of Insider Trading Regulations), 2015 -
Regulation 2(1)(g) and 3 - Securities and Exchange Board of India
Act, 1992 - ss.11(2)(g), 11(4), 12A(c), 15G and 15Z - Insider Trading
- On receipt of Unpublished Price Sensitive Information (UPSI) -
Circumstantial evidence (trading pattern and timing of trading) -
Relevance of - Respondent/SEBI alleging that P.C. Gupta and his
brother 'B', who were respectively the Chairman and Managing
Director of PCJ, a public limited company, were inter alia "insider"
under Regulation 2(1)(g) and that appellants in C.A. No.7590/2021,
traded on basis of UPSI received by them on account of their alleged
proximity to P.C. Gupta and 'B' in view of close family relationship
- Whether appellants in C.A. No.7590 of 2021, could be held to be
"insiders" in terms of regulation 2(1)(g)(ii) on basis of circumstantial
evidence (trading pattern and timing of trading) - Held: Regulation
3, which deals with communication of UPSI, does not create a
deeming fiction in law - Hence, it is only through producing cogent
materials (letters, emails, witnesses etc.) that communication of UPSI
could be proved and not by deeming the communication to have
happened owing to the alleged proximity between the parties - In
the present case, the foundational facts were not proved which could
raise the alleged presumption - Trading pattern of appellants in
C.A. No.7590 of 2021 cannot be the circumstantial evidence to prove
the communication of UPSI to them by appellant 'B' - There was no
correlation between the UPSI and the sale of shares undertaken by
the appellants in C.A. No.7590 of 2021 - Decisions of selling the
shares and the timings thereof were purely a personal and
commercial decision undertaken by them and nothing more can be
read into those d

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SUPREME COURT REPORTS
[2022] 4 S.C.R.
[2022] 4 S.C.R. 888
888
 BALRAM GARG
v.
 SECURITIES AND EXCHANGE BOARD OF INDIA
(Civil Appeal No. 7054 OF 2021)
APRIL 19, 2022
[VINEET SARAN AND ANIRUDDHA BOSE, JJ.]
SEBI (Prevention of Insider Trading Regulations), 2015 -
Regulation 2(1)(d) and 2(1)(f) - Securities and Exchange Board of
India Act, 1992 - ss.11(2)(g), 11(4), 12A(c), 15G and 15Z - Insider
Trading - On receipt of Unpublished Price Sensitive Information
(UPSI) - "Connected persons" and "immediate relatives" -
Respondent/SEBI alleging that P.C. Gupta and his brother appellant
'B', who were respectively the Chairman and Managing Director
of PCJ, a public limited company, were inter alia "connected person"
in terms of Regulation 2(1)(d)(i) and appellants in C.A. No.7590/
2021, traded on basis of UPSI received by them on account of their
alleged proximity to P.C. Gupta and appellant 'B' in view of their
close family relationship - Claim of estrangement by
appellants in C.A. No.7590 of 2021 - Rejected by Whole Time
Member (WTM) of SEBI and also the Securities Appellate Tribunal
(SAT) - Held: WTM and SAT wrongly rejected the claim of
estrangement without appreciating the facts and evidence produced
before them - The records and facts adequately establish that the
there was a breakdown of ties between the parties, both at personal
and professional level and that the said estrangement happened
much prior to the two UPSI - Appellants are neither "connected
persons" under regulations 2(1)(d) nor "immediate relatives" under
2(1)(f) - Even assuming that the family arrangements did not result
in complete estrangement of social relations between the parties,
the SAT could not, by virtue of this very fact, discharge SEBI of the
onus of proof placed on them to prove that Appellants were in
possession of UPSI - SEBI failed to place on record any material to
prove that appellants in C.A. No.7590/2021 were "connected
persons" to appellant 'B' as required by Regulation 2(1)(d)(ii)(a)
read with Regulation 2(1)(f) as none of the appellants in C.A.
No.7590/2021 were financially dependent on appellant 'B' or even
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alleged to have consulted him in any decision related to trading in
securities - Appellants in C.A. No.7590 of 2021 were not "immediate
relatives" and had nothing to do with appellant 'B' in any decision
making process relating to securities or even otherwise.
SEBI (Prevention of Insider Trading Regulations), 2015 -
Regulation 2(1)(g) and 3 - Securities and Exchange Board of India
Act, 1992 - ss.11(2)(g), 11(4), 12A(c), 15G and 15Z - Insider Trading
- On receipt of Unpublished Price Sensitive Information (UPSI) -
Circumstantial evidence (trading pattern and timing of trading) -
Relevance of - Respondent/SEBI alleging that P.C. Gupta and his
brother 'B', who were respectively the Chairman and Managing
Director of PCJ, a public limited company, were inter alia "insider"
under Regulation 2(1)(g) and that appellants in C.A. No.7590/2021,
traded on basis of UPSI received by them on account of their alleged
proximity to P.C. Gupta and 'B' in view of close family relationship
- Whether appellants in C.A. No.7590 of 2021, could be held to be
"insiders" in terms of regulation 2(1)(g)(ii) on basis of circumstantial
evidence (trading pattern and timing of trading) - Held: Regulation
3, which deals with communication of UPSI, does not create a
deeming fiction in law - Hence, it is only through producing cogent
materials (letters, emails, witnesses etc.) that communication of UPSI
could be proved and not by deeming the communication to have
happened owing to the alleged proximity between the parties - In
the present case, the foundational facts were not proved which could
raise the alleged presumption - Trading pattern of appellants in
C.A. No.7590 of 2021 cannot be the circumstantial evidence to prove
the communication of UPSI to them by appellant 'B' - There was no
correlation between the UPSI and the sale of shares undertaken by
the appellants in C.A. No.7590 of 2021 - Decisions of selling the
shares and the timings thereof were purely a personal and
commercial decision undertaken by them and nothing more can be
read into those decisions - In absence of any material available on
record to show frequent communication between the parties, there
could not have been a presumption of communication of UPSI by
appellant 'B' - SAT erred in holding the appellants in C.A. No.7590
of 2021 to be "insiders" in terms of regulation 2(1)(g)(ii) on basis
of their trading pattern and their timing of trading (circumstantial
evidence).
 BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA
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SUPREME COURT REPORTS
[2022] 4 S.C.R.
Shares and Securities - Securities Appellate Tribunal (SAT) -
On facts, SAT was exercising jurisdiction of a First Appellate Court
and was bound to independently assess the evidence and material
on record, which it evidently failed to do - The SAT order was a
mere repetition of facts stated by WTM and suffered from nonapplication of mind - Appeal - First Appellate Court - Jurisdiction.
Allowing the appeals, the Court
HELD: The entire case of the Respondents was premised
on two important propositions, that firstly, there existed a close
relationship between the appellants; and secondly, that based on
the circumstantial evidence (trading pattern and timing of trading),
it could be reasonably concluded that the appellants in
C.A.No.7590 of 2021 were "insiders" in terms of Regulation
2(1)(g)(ii) of the SEBI (Prevention of Insider Trading Regulations),
2015. However, the WTM and SAT wrongly rejected the claim of
estrangement of the Appellants in C.A.No.7590 of 2021, without
appreciating the facts and evidence as was produced before them.
The records and facts adequately establish that the there was a
breakdown of ties between the parties, both at personal and
professional level and that the said estrangement happened much
prior to the two UPSI. Secondly, the SAT erred in holding the
appellants in C.A. No.7590 of 2021 to be "insiders" in terms of
regulation 2(1)(g)(ii) of the Regulations on the basis of their
trading pattern and their timing of trading (circumstantial
evidence). There is no correlation between the UPSI and the
sale of shares undertaken by the appellants in C.A. No.7590 of
2021. Moreover, in the absence of any material available on record
to show frequent communication between the parties, there could
not have been a presumption of communication of UPSI by the
appellant 'B'. The trading pattern of the appellants in C.A.
No.7590 of 2021 cannot be the circumstantial evidence to prove
the communication of UPSI by the appellant 'B' to the other
appellants in C.A. No.7590 of 2021. There is no material on record
for the WTM and the SAT to arrive at the finding that both late
P.C. Gupta and the appellant 'B' communicated the UPSI to the
other appellants in C.A. No.7590 of 2021. The said appellants in
C.A. No.7590 of 2021 were not "immediate relatives" and were
completely financially independent of the appellant 'B' and had
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891
nothing to do with the him in any decision making process relating
to securities or even otherwise. The submission of the
respondent regarding the same residential address of the
appellants also falls flat as admittedly the parties were residing
in separate buildings on a large tract of land. Lastly, the SAT
order suffers from non-application of mind and the same is a mere
repetition of facts stated by the WTM. The Appellate Tribunal
was exercising jurisdiction of a First Appellate Court and was
bound to independently assess the evidenced and material on
record, which it evidently failed to do. [Para 48][924-A-H]
SEBI v. Kishore R. Ajmera (2016) 6 SCC 368 : [2016]
1 SCR 1118 and Dushyant N. Dalal v. SEBI (2017) 9
SCC 660 : [2017] 11 SCR 448 - distinguished.
H.K.N. Swami v. Irshad Basith (2005) 10 SCC 243;
UPSRTC v. Mamta (2016) 4 SCC 172 : [2016]
2 SCR 71; Hanumant v. State of Madhya Pradesh AIR
1952 Supreme Court 343 : [1952] SCR 1091;
Chintalapati Srinivasa Raju v. Securities and Exchange
Board of India (2018) 7 SCC 443 : [2018] 5 SCR 785;
Seema Silk & Sarees v. Directorate of Enforcement
(2008) 5 SCC 580 : [2008] 8 SCR 201; Tarlochan Dev
Sharma v. State of Punjab (2001) 6 SCC 260 : [2001]
3 SCR 1146 and Hindustan Lever Ltd. vs. Director
General (Investigation and Registration) (2001) 2 SCC
474 : [2001] 1 SCR 318 - referred to.
United States of America v. Raj Rajaratnam and
Danielle Chiesi 09 Cr 1184 (RJH) - referred to.
Case Law Reference
[2016] 1 SCR 1118
distinguished
Para 20
(2005) 10 SCC 243
referred to
Para 24
[2016] 2 SCR 71
referred to
Para 25
[1952] SCR 1091
referred to
Para 41
[2018] 5 SCR 785
referred to
Para 42
 BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA
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SUPREME COURT REPORTS
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[2008] 8 SCR 201
referred to
Para 43
[2001] 3 SCR 1146
referred to
Para 46
[2001] 1 SCR 318
referred to
Para 46
[2017] 11 SCR 448
distinguished
Para 47
CIVIL APPELLATE JURISDICTION: Civil Appeal No.7054 of
2021.
From the Judgment and Order dated 21.10.2021 of the Securities
Appellate Tribunal at Mumbai in Appeal (AT) No.375 of 2021.
With
Civil Appeal No.7590 of 2021.
Dhruv Mehta, V. Giri, Sr. Advs., Mehul M. Gupta, Abhishek
Mishra, Ms. Arunima Dwivedi, Krishna Dev Jagarlamudi, Ms. Ankita
Gupta, Sai Kaushal, Advs. for the Appellant.
Arvind Datar, Sr. Adv., Dhaval Mehrotra, Sudhanshu Sikka, M/s
K. Ashar & Co., Advs. for the Respondent.
The Judgment of the Court was delivered by
VINEET SARAN, J.
1. The present Civil Appeals arise out of a common judgement
and order dated 21.10.2021 passed by the Securities Appellate Tribunal
(for short "SAT"), wherein the Tribunal dismissed the Appeals No.375
and 376 of 2021 filed by the Appellants herein and upheld the order
dated 11.05.2021 passed by the Whole Time Member (for short "WTM")
of Securities and Exchange Board of India (for short "SEBI")
2. Brief facts relevant for the purpose of the present appeals are
that P. Chand Jeweller Pvt. Ltd. was incorporated on April 13, 2005
under the Companies Act, 1956 as a Private Limited Company. However,
pursuant to a resolution passed by the shareholders on July 5, 2011, the
company was converted into a Public Limited Company, following which
the name of the company was changed to "PC Jeweller Ltd." (for short
"PCJ") and a fresh certificate of incorporation was issued.
3. The genesis of the present dispute is rooted in the action of
Respondent/SEBI against the appellants vide an impounding order dated
17.12.2019 and a show-cause notice dated 24.04.2020. The crux of the
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allegations of the impounding order and the show-cause notice are as
follows:
i.
Padam Chand Gupta (P.C. Gupta) was the Chairman of
PCJ during the relevant period and was a "connected
person" in terms of Regulation 2(1)(d)(i) and an "insider"
under Regulation 2(1)(g) of the SEBI (Prevention of Insider
Trading Regulations), 2015 (for short "PIT Regulations").
ii.
Balram Garg, who is the brother of P.C. Gupta and the
Managing Director of PCJ is also a "connected person" in
terms of Regulation 2(1)(d)(i) and an "insider" under
Regulation 2(1)(g) of the PIT Regulations.
iii.
That allegedly, the appellants in C.A. No.7590/2021, namely,
Sachin Gupta, Smt. Shivani Gupta and Amit Garg traded on
the basis of Unpublished Price Sensitive Information (for
short "UPSI") received by them on account of their alleged
proximity to P.C. Gupta and Balram Garg between the
period from 01.04.2018 to 31.07.2018.
iv.
The above proximity was alleged on the basis of the fact
that Sachin Gupta and Smt. Shivani Gupta are the son and
daughter-in-law of Balram Garg's deceased brother late
P.C. Gupta. Moreover, Amit Garg is the son of Amar Garg,
who was also the brother of Balram Garg. It was also
alleged that all the appellants shared the same residence.
4. Balram Garg, the appellant in C.A. No.7054/2021, filed his
reply (dated 07.08.2020) to the allegations made against him, wherein
he stated the following:
i.
That the foundational facts were not there to prove or raise
the alleged presumption. SEBI failed to place on record
any material to prove that the appellants in C.A. No.7590/
2021 were "connected persons" to Mr. Balram Garg as
required by Regulation 2(1)(d)(ii)(a) read with Regulation
2(1)(f) of the PIT Regulations, as none of the appellants
C.A. No.7590/2021 were financially dependent on Balram
Garg or consulted Balram Garg in any decision related to
trading in securities. Presumption is a rule of evidence
which cannot be drawn unless and until such foundational
facts are proved.
 BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
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ii.
 That no material was brought on record to prima facie
show any transfer of information to the appellants in C.A.
No.7590 of 2021
iii.
That merely being a family/relative cannot by itself be a
ground for the offence of insider trading, especially when
in furtherance of a family agreement, the family was
partitioned in 2011 and there had been no connection
between them ever since.
iv.
Moreover, Sachin Gupta resigned from the post of President
(Gold Manufacturing) held by him in the company on
31.03.2015 pursuant to the family partition. Since then,
neither Sachin Gupta nor his wife Mrs. Shivani Gupta had
anything to do with the business of the PCJ.
5. After granting an opportunity of personal hearing to the appellant
on 24.12.2020, the Whole Time Member of SEBI passed final order
dated 11.05.2021, imposing a penalty of Rs.20 lakhs on the Appellants
along with restraining the appellants from accessing the securities market
and buying, selling or dealing in securities, either directly or indirectly, in
any manner for a period of 1 year from the date of the order and also
restrained the appellants from dealing with the scrip of PCJ for a period
of 2 years.
6. Aggrieved by the order of the WTM of SEBI, the Appellants
filed appeals before the SAT. The Tribunal, vide its common judgement
and order dated 21.10.2021, dismissed the Appeals preferred by the
Appellants and held that:
"Upon hearing both the sides, in our view, the reasoning of
the Ld. WTM cannot be faulted with. The facts as highlighted
by the Ld. WTM would show that though there was a family
arrangement within the family on two occasions, there was
no estrangement, as can be seen from the facts highlighted
by the Ld. WTM (supra). Additionally, in our view, the very
fact that appellant Shivani had authorized her cousin brotherin-law i.e. appellant Amit to trade on her behalf, would belie
the case of the appellants that family settlements means family
estrangement. It cannot be gainsaid that the appellants are
residing at the same address and even appellant Mr. Balram
Garg's address is 'the front side' of the premise. The trading
pattern of the concerned appellant i.e. withholding of the
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selling of trade once buy back talk started within the company
and again selling spree the shares by them once the buy back
offer was made public till the rejection of the proposal by the
State Bank of India was made known to the public, would
clearly show that the concerned appellants were aware of
both the UPSI.
It is true that there is no direct evidence as to who had
disseminated this insider information to the appellants in
Appeal no. 376 of 2021. Late Shri Padam Chand Gupta was
the father of the appellant Mr. Sachin Gupta and father-inlaw of the appellant Ms. Shivani Gupta and uncle of appellant
Mr. Amit Garg. Similarly, appellant Mr. Balram Garg is the
uncle of appellant Mr. Sachin Gupta and appellant Mr. Amit
Garg. All of them were residing in the same address. Appellant
Mr. Sachin Gupta had financial transactions with the company
of which appellant Mr. Balram Garg was Managing Director.
Considering all of the above facts, on preponderance of
probability, it can very well be concluded that Late Padam
Chand as well as appellant Mr. Balram disseminated both
UPSI to the appellants in appeal no. 376 of 2021."
7. Aggrieved by the above order of the SAT dated 21.10.2021,
the appellants filed the present appeals (C.A. No.7054/2021 by Balram
Garg and C.A. No.7590/2021 by Mrs. Shivani Gupta, Sachin Gupta,
Amit Garg and Quick Developers Pvt. Ltd.) under section 15Z of the
Securities and Exchange Board of India Act, 1992. Since, P.C. Gupta
expired in January 2019 after the notices were issued, hence the case
was dropped as against him.
8. Mr. Dhruv Mehta, learned Senior Counsel for the Appellant
Balram Garg (in C.A. No.7054 of 2021) has submitted that the WTM
has held that the appellants no.1 to 3 in C.A. No.7590 of 2021, namely,
Mrs. Shivani Gupta, Sachin Gupta and Amit Garg (also referred to as
Noticee no.1 to 3 in the show-cause notices) were not "connected
persons" or "immediate relatives" qua the appellant Balram Garg and
that this finding of the WTM has become final. It was further submitted
that the appellant Mr. Balram Garg was found to have violated only
Regulation 3 of PIT Regulations, 2015 and that unlike Regulation 4(2) of
PIT Regulations, there is no provision to raise any presumption under
the said Regulation 3.
 BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
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9. It was also contented that to prove the violation of Regulation 3
of PIT Regulations, the burden of proof was on SEBI to establish any
"communication" of UPSI by placing on record cogent evidence viz.
call details, emails, witnesses etc. It was submitted that the Respondent
in this case has failed to place any such evidence on record. Moreover,
it was submitted that the presumption against "immediate relative" is
provided in the Regulations to ensure that relatives who are financially
or otherwise under the complete control of a connected person are not
used for insider trading. However, in this case, no such possibility existed
in relation to the appellant Mr. Balram Garg and the other appellants in
C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta and
Amit Garg.
10. The learned Senior Counsel further contented that the reliance
of the respondent on the transactions between appellant Sachin Gupta
and the Company (PCJ) is against the principles of natural justice as
these allegations were not part of the show cause notices. It was also
submitted that the name of the appellant Balram Garg has been used
inter-changeably with that of late P.C.Gupta and there is no material on
record for the WTM and the SAT to arrive at the finding that both late
P.C.Gupta and the appellant Balram Garg communicated the UPSI to
the appellants in C.A. No.7590 of 2021.
11. Mr. V. Giri, learned Senior Counsel for the appellants in C.A.
No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta, Amit Garg
and Quick Developers Pvt. Ltd., has contended that the entire case of
insider trading is set up against these appellants only on the basis of the
close relationship between the parties. However, he submitted that the
appellants have placed sufficient material on record to demonstrate that
there was a complete breakdown of ties between the parties, both at
personal and professional level and that the said estrangement was much
prior to the UPSI having coming into existence.
12. The learned Senior Counsel has further contented that even
assuming that the appellants have not been able to demonstrate a complete
breakdown of ties between the parties, it was not open for the SAT to
turn the Statute on its head by reversing the burden of proof on the
appellants by conveniently ignoring the fact that the onus was actually
on SEBI to prove that the appellants were in possession or having access
to UPSI.
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13. It was also contended that the charges against the appellants
in C.A. No.7590 of 2021 have been sustained solely on the basis of
circumstantial evidence viz. trading patterns and timing of trades by the
appellants. Moreover, it was not open to the WTM and SAT to hold the
appellants guilty of the offence of insider trading in the absence of any
other concrete evidence as SEBI failed to produce such evidence. The
learned Senior Counsel also emphasized on the fact that the charges
against the appellants that they were "connected persons" within the
meaning of Regulation 2(1)(d) of the PIT Regulations was expressly
rejected by the WTM and that the burden of proving that the appellants
are "insiders" by invoking Regulation 2(1)(g)(ii) of PIT Regulations
was completely upon the SEBI and that they failed to discharge this
burden.
14. Per contra, Mr. Arvind Datar, learned Senior Counsel for the
Respondent has submitted that on April 25, 2018, PCJ initiated discussions
regarding buy-back of fully paid up equity shares. On 10.05.2018, pursuant
to the discussion and approval by the Board, the company, after market
hours, informed the stock exchange of their offer of buy-back of
1,21,14,285 fully paid up equity shares of Rs. 10/- each at a price of Rs.
350/- per equity share. As before this date, the information about buyback was not disclosed, and since the information pertained to change in
capital structure of the company, this information qualified as Unpublished
Price Sensitive Information-1 (for short "UPSI-1"). Accordingly, the
period from April 25, 2018 to May 10, 2018 has been taken as the period
of UPSI-1.
15. It was further submitted that on July 7, 2018, the lead Banker
of PCJ, State Bank of India (for short "SBI"), refused to give No
Objection Certificate (for short "NOC") for the buy-back of equity
shares. Hence, on July 13,2018, the Board approved the withdrawal of
the buy-back offer and the same was informed to the Exchanges after
market hours. It was submitted that this information has been considered
as Unpublished Price Sensitive Information-2 (for short "UPSI-2") as
the same was likely to materially affect the price of the shares of the
company. Moreover, the information pertaining to proposed buy-back of
equity shares of the company came into existence on July 7, 2018 and
became public on July 13, 2018. Accordingly, the period from July 7,
2018 to July 13, 2018 has been taken as period of UPSI-2.
 BALRAM GARG v. SECURITIES AND EXCHANGE BOARD OF
INDIA [VINEET SARAN, J.]
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16. It has been contended that appellant Balram Garg contravened
Regulation 3(1) of the PIT Regulations and Section 12A(c) of the SEBI
Act, 1992, by communicating the UPSI to the appellants in C.A. No.7590
of 2021, by being an "insider" and "connected person" within the meaning
of PIT Regulations, and by being privy to discussions and communications
pertaining to buy-back and withdrawal of equity shares. Additionally, by
virtue of being the Managing Director (MD) of the PCJ, Balram Garg
was in possession of UPSI-1 and UPSI-2.
17. Mr. Datar has contended that during the period 02.04.2018 to
31.07.2018, trades were executed by Appellants in C.A. No.7590 of
2021 while in possession of UPSI and that they made unlawful gains
and avoided losses. Trades were executed from the trading account of
Mrs. Shivani Gupta from 02.04.2018 and continued till 24.04.2018. No
trades were undertaken in May and June 2018 and then sell trades were
undertaken from July 6, 2018 till July 13, 2018 i.e. during UPSI-2.
Appellant Mrs. Shivani Gupta had 100% concentration in the scrip of
PCJ and these trades were executed by Mrs. Shivani Gupta, Sachin
Gupta and Amit Garg, i.e. Appellant No. 1,2, and 3 respectively in C.A.
No.7590 of 2021.
18. The learned Senior Counsel further contented that the Appellant
No. 4 (in C.A. No.7590 of 2021) i.e. Quick Developers Pvt. Ltd, took
short position on 13.07.2018 i.e. just before information pertaining to
withdrawal was communicated to the Exchanges. It is submitted that
such short positions were taken in anticipation of a price fall. Appellant
Amit Garg and his wife are 100% shareholders of Quick Developers
Pvt. Ltd., hence they, through the trades executed from the account of
Quick Developers Pvt. Ltd., avoided losses and also made profit.
19. In the context of the family settlement, learned Senior Counsel
has contended that such a settlement, at best, was an internal division
and does not imply that all ties between the family members were severed
or that relationship of appellant Balram Garg with appellants in C.A.
No.7590 of 2021 was estranged. It was further argued that the appellants
did not cease to have association with each other, which is established
by the following facts:
i.
Sachin Gupta continued to have business transactions with
PCJ. PCJ even paid rent to Sachin Gupta to the tune of
Rs.4 lakhs for Financial Year 2015-16, Rs.77 lakhs for the
Financial Year 2016-17 and Rs.78 lakhs for the financial
Year 2017-18.
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ii.
Sachin Gupta was the nominee of the Demat Account of
late P.C. Gupta and after his death, the holdings of P.C.
Gupta in the company were held by Sachin Gupta. Hence,
it cannot be said that the father and son relationship was
estranged.
iii.
Appellant Balram Garg and the Appellants No. 1,2, and 3
in C.A. No.7590 of 2021 i.e. Mrs. Shivani Gupta, Sachin
Gupta and Amit Garg share the same residential address.
20. Reliance was placed on the SAT order in Utsav Pathak vs.
SEBI (order dated 12.07.2020 in Appeal No. 430 of 2019) wherein
the SAT had laid down the following ratio by relying upon the judgement
of this court in SEBI vs. Kishore R. Ajmera [(2016) 6 SCC 368] and
US District Court's order in United States of America vs. Raj
Rajaratnam and Danielle Chiesi [09 Cr 1184 (RJH)]:
"From the aforesaid foundational facts, the circumstantial
evidence or on a preponderance of probability by a logical
process of reasoning from the totality of the attending facts
and circumstances as stated aforesaid, an irresistible inference
can be drawn that the appellant had passed on the price
sensitive information regarding the open offer to the Tippees.
Such inference taken from the immediate and proximate facts
and circumstances surrounding the events is reasonable and
logical which any prudent man would arrive at such a
conclusion. The Supreme Court in Kanhaiyalal Patel (supra)
held that an inferential conclusion from proved and admitted
facts would be permissible and legally justified so long as
the same is reasonable."
The learned Senior Counsel also submitted that the abovementioned
proposition has been followed by the SAT in Navin Kumar Tayal &
Anr. Vs SEBI in order dated 02.08.2021 in Appeal No. 08 of 2018.
21. Mr. Datar concluded his submissions by stating that the close
relationship of the appellants in C.A. No.7590 of 2021 with the appellant
Balram Garg, especially in view of the trading pattern makes it abundantly
clear that the appellants Mrs. Shivani Gupta, Sachin Gupta and Amit
Garg were in possession of UPSI-1 & 2, who could not have got it from
anywhere else except Balram Garg, who by virtue of being the MD of
the company, possessed the crucial UPSI.
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22. For ready reference, the relevant provisions of the concerned
Acts and Regulations are extracted below:
Section 11(2)(g) of the Securities and Exchange Board of
India Act, 1992
"11. (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)...
(b)...
(c)...
(d)...
(e)...
(f)...
(g) prohibiting insider trading in securities;
(h)...
.............
............."
Section 11(4) of the Securities and Exchange Board of India
Act, 1992
"[(4) Without prejudice to the provisions contained in subsections (1), (2), (2A) and (3) and section 11B, the Board
may, by an order, for reasons to be recorded in writing, in
the interests of investors or securities market, take any of
the following measures, either pending investigation or
inquiry or on completion of such investigation or inquiry,
namely:-
(a) suspend the trading of any security in a recognised
stock exchange;
(b) restrain persons from accessing the securities market
and prohibit any person associated with securities market
to buy, sell or deal in securities;
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(c) suspend any office-bearer of any stock exchange or
self-regulatory organisation from holding such position;
(d) impound and retain the proceeds or securities in respect
of any transaction which is under investigation;
(e) attach, after passing of an order on an application
made for approval by the Judicial
Magistrate of the first class having jurisdiction, for a period
not exceeding one month, one or more bank account or
accounts of any intermediary or any person associated
with the securities market in any manner involved in
violation of any of the provisions of this Act, or the rules
or the regulations made thereunder:
Provided that only the bank account or accounts or any
transaction entered therein, so far as it relates to the proceeds
actually involved in violation of any of the provisions of this
Act, or the rules or the regulations made thereunder shall be
allowed to be attached;
(f) direct any intermediary or any person associated with
the securities market in any manner not to dispose of or
alienate an asset forming part of any transaction which is
under investigation:
Provided that the Board may, without prejudice to the
provisions contained in sub-section (2) or sub-section (2A),
take any of the measures specified in clause (d) or clause (e)
or clause (f), in respect of any listed public company or a
public company (not being intermediaries referred to in section
12) which intends to get its securities listed on any recognised
stock exchange where the Board has reasonable grounds to
believe that such company has been indulging in insider
trading or fraudulent and unfair trade practices relating to
securities market.
Provided further that the Board shall, either before or after
passing such orders, give an opportunity of hearing to such
intermediaries or persons concerned.]"
(emphasis supplied)
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Section 12A of the Securities and Exchange Board of India
Act, 1992
"Prohibition of manipulative and deceptive devices, insider
trading and substantial acquisition of securities or control.
12A. 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 recognized 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;
(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)
Section 15G of the Securities and Exchange Board of India
Act, 1992
"Penalty for insider trading.
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15G.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 pricesensitive 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 81[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)
Securities and Exchange Board of India (Prohibition of
Insider Trading) Regulations, 2015
Definitions.
2. (1) In these regulations, unless the context otherwise
requires, the following words, expressions and derivations
therefrom shall have the meanings assigned to them as
under:-
(a)
"Act" means the Securities and Exchange Board of
India Act,1992 (15of 1992);
(b)
"Board" means the Securities and Exchange Board
of India;
(c)
"compliance officer" means any senior officer,
designated so and reporting to the board of directors
or head of the organization in case board is not there,
who is financially literate and is capable of
appreciating requirements for legal and regulatory
compliance under these regulations and who shall be
responsible for compliance of policies, procedures,
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maintenance of records, monitoring adherence to the
rules for the preservation of unpublished price
sensitive information, monitoring of trades and the
implementation of the codes specified in these
regulations under the overall supervision of the
board of directors of the listed company or the head
of an organization, as the case may be.
(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
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(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
(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 selfregulatory 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.
(e) "generally available information" means information
that is accessible to the public on a non-discriminatory
basis;
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NOTE: It is intended to define what constitutes generally
available information so that it is easier to crystallize and
appreciate what unpublished price sensitive information is.
Information published on the website of a stock exchange,
would ordinarily be considered generally available.
(f) "immediate relative" means a spouse of a person, and
includes parent, sibling, and child of such person or of
the spouse, any of whom is either dependent financially
on such person, or consults such person in taking
decisions relating to trading in securities;
NOTE: It is intended that the immediate relatives of a
"connected person" too become connected persons for
purposes of these regulations. Indeed, this is a rebuttable
presumption.
(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.