SECURITIES AND EXCHANGE BOARD OF INDIAversusABHIJIT RAJAN

                        [2022] 9 S.C.R. 669                              669


      SECURITIES AND EXCHANGE BOARD OF INDIA                             A
                                  v.
                         ABHIJIT RAJAN
                   (Civil Appeal No. 563 of 2020)
                       SEPTEMBER 19, 2022                                B
 [INDIRA BANERJEE AND V. RAMASUBRAMANIAN, JJ.]
       Securities and Exchange Board of India (Prohibition of Insider
Trading) Regulations, 1992 – Regulation 3(i) r/w Regulation 4 –
Securities and Exchange Board of India Act, 1992 – ss. 12A (d),
                                                                         C
12A (e),15Z and 30 – Insider trading – Price sensitive information
– Whether information regarding decision of the Board of Directors
of GIPL to terminate the contracts in question can be characterized
as “price sensitive information” and whether sale by respondent of
the equity shares held by him in GIPL, under peculiar and compelling
circumstances in which he was placed, fell within the mischief of        D
‘insider trading’ in terms of Regulation 3(i) read with Regulation 4
– Held: On facts, the information regarding termination of the
contracts in question can be characterized as price sensitive
information, in that it was likely to place the existing shareholders
in an advantageous position, once the information came into the
                                                                         E
public domain – In such circumstances, the sale by respondent, of
the shares held by him in GIPL would not fall within the mischief of
insider trading, as it was somewhat similar to a distress sale, made
before the information could have a positive impact on the price of
the shares – Respondent had no motive or intention to make
undeserved gains by encashing on the unpublished price sensitive         F
information that he possessed.
       Securities and Exchange Board of India (Prohibition of Insider
Trading) Regulations, 1992 – Regulation 3 – Violation of – When –
Held: To find out if a person is guilty of violation of Regulation 3,
the Court should address itself to the following questions namely,       G
(i) is he an insider; (ii) did he possess or have access to any
information relating to the company; iii) whether such information
was price sensitive; (iv) whether the information was unpublished;
and (v) whether he dealt in securities by subscribing, buying, selling
or agreeing to do any of these things in any securities
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                                 669
670            SUPREME COURT REPORTS                      [2022] 9 S.C.R.


A           Dismissing the appeal, the Court
             HELD:1. It may appear at first blush, that the respondent,
      who was an insider and who possessed information which was
      both unpublished and price sensitive, was guilty of the charge of
      insider trading as he undoubtedly dealt in securities. But the catch
B     lies in understanding the true scope of Explanation (vii) under
      Regulation 2(ha). The main part of Regulation 2(ha) defines “price
      sensitive information” to mean any information, which relates
      directly or indirectly to a company and which if published is likely
      to materially affect the price of securities of a company. The
      Explanation under Regulation 2(ha) creates a deeming fiction and
C     it makes 7 items of information listed thereunder as price sensitive
      information. [Paras 24, 25][684-B-D]
             2.1. While dealing with a case falling under Explanation (vii)
      of Regulation 2(ha), one may have to see whether there was
      any likelihood of the said information materially affecting the price
D     of the securities of the company. Additionally, the activity in which
      the insider was involved also determines his culpability for
      violation of Regulation 3. For instance, the sale by a person in
      possession of price sensitive information, at a time when the price
      is likely to take a plunge, will certainly be an attempt at taking
E     advantage of or encashing the information. Similarly the purchase
      by a person in possession of UPSI at a time when the price of the
      security is about to skyrocket, will certainly be an attempt to
      take advantage. [Para 27][685-A-B]
            2.2. But the above logic cannot be applied to cases which
F     fall on the opposite side of the spectrum. For instance, the sale
      by a person at a time when the price of the securities is likely to
      shoot up on account of price sensitive information coming into
      the public domain or the purchase by a person at a time when
      the price of the shares is likely to go downward due to price
      sensitive information getting published, cannot come under the
G     category of insider trading. While it is true that the actual gaining
      of profit or sufferance of loss in the transaction, may not provide
      an escape route for an insider against the charge of violation of
      Regulation 3, one cannot ignore normal human conduct. If a person
      enters into a transaction which is surely likely to result in loss,
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SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                       671
                    RAJAN

he cannot be accused of insider trading. In other words, the actual     A
gain or loss is immaterial, but the motive for making a gain is
essential. [Para 28][685-C-E]
       3. The words, “likely to materially affect the price”
appearing in the main part of Regulation 2(ha) gain significance
for the simple reason that profit motive, if not actual profit should   B
be the motivating factor for a person to indulge in insider trading.
This is why the information in Item No.(vii) of the Explanation
under Regulation 2(ha) may have to be examined with reference
to the words “likely to materially affect the price”. [Para 29][685-
F]
                                                                        C
      4. The cancellation of the shareholders Agreements
resulted in GIPL gaining very hugely in terms of order book
value. In such circumstances an ordinary man of prudence would
expect an increase in the value of the shares of GIPL and would
wait for the market trend to show itself up, if he actually desired
to indulge in insider trading. But the respondent did not wait for      D
the information about the market trend, after the information
became public. The reason given by respondent, which is also
accepted by the WTM and the Tribunal is that he had to dispose
of his shares as well as certain other properties for the purpose
of honouring a CDR package. It is on record that if the CDR             E
package had not gone through sucessfully, the parent company
of GIPL, Gammon India Ltd. could have gone for bankruptcy.
Therefore, the Tribunal was right in thinking that the respondent
had no motive or intention to make undeserved gains by encashing
on the unpublished price sensitive information that he possessed.
[Paras 32 and 33][686-C-E]                                              F

      5. The contention of the appellant that SEBI took note of
the situation in which the respondent was placed and the dire
need that he had to sell the shares and that therefore SEBI
confined the final order only to disgorgement, is neither here
nor there. This argument is actually an argument of convenience.        G
If a company is likely to gain strength by making a significant
change in its policy, the price of its securities is likely to shoot
up. Despite such a natural phenomena, if a person sells his stocks
without waiting for the market trend to show up, it can only be
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672             SUPREME COURT REPORTS                     [2022] 9 S.C.R.


A     taken as a sale, devoid of any desire to make unlawful gains,
      even if it cannot be termed as a distress sale. [Para 39][688-A-C]
            6. In the present case, the information regarding the
      termination of the two contracts can be characterized as price
      sensitive information, in that it was likely to place the existing
B     shareholders in an advantageous position, once the information
      came into the public domain. In such circumstances, the sale by
      the respondent, of the shares held by him in GIPL would not fall
      within the mischief of insider trading, as it was somewhat similar
      to a distress sale, made before the information could have a
C     positive impact on the price of the shares. [Paras 44][689-D-E]
               Chintalapati Raju v. SEBI (2018) 7 SCC 443 : [2018]
              5 SCR 785; SEBI v. Kanaiyalal Baldevbhai Patel (2017)
              15 SCC 1 : [2017] 14 SCR 268 and SEBI v. Kishore R.
              Ajmera (2016) 6 SCC 368 : [2016] 1 SCR 1118 –
D             referred to.
                             Case Law Reference
      [2018] 5 SCR 785            referred to        Para 6(e)
      [2017] 14 SCR 268           referred to        Para 6(e)
E
      [2016] 1 SCR 1118           referred to        Para 40
              CIVIL APPELLATE JURISDICTION: Civil Appeal No. 563 of
      2020.

F          From the Judgment and Orders dated 08.11.2019 of the Securities
      Appellate Tribunal, Mumbai in Appeal No. 232 of 2016.
            Pratap Venugopal, Ms. Surekha Raman, Akhil Abraham Roy, Vijay
      Valsan, M/s K J John And Co., Advs. for the Appellant.
           Somasekhar Sundaresan, Divyam Agarwal, Pulkit Sukhramani,
G     Abhishek V., Ms. Vidhi Jhawar, Advs. for the Respondent.




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SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                           673
                    RAJAN

      The Judgment of the Court was delivered by                            A
      V. RAMASUBRAMANIAN, J.
      1. The Securities and Exchange Board of India has come up with
the above appeal, challenging an Order of the Securities Appellate
Tribunal, by which the Order of its Whole Time Member (for short
“WTM”) directing the respondent to disgorge the amount of unlawful          B
gains made by him, was set aside.
       2. We have heard Mr. Arvind P. Datar, learned senior counsel for
the appellant and Mr. Somasekhar Sundaresan, learned counsel appearing
for the respondent.
                                                                            C
      3. The background facts leading to the above appeal are as follows:
      (i)     The respondent herein was the Chairman and Managing
              Director of a company by name Gammon Infrastructure
              Projects Limited (hereinafter referred to as “GIPL”) till
              September 20, 2013. Thereafter, he ceased to be the           D
              Chairman Managing Director, but continued to be a Director
              of the Company.
      (ii)    In the year 2012 GIPL was awarded a contract by National
              Highways Authority of India. The total cost of the project
              was Rs.1648 crores. For the execution of the project, GIPL
                                                                            E
              set up a special purpose vehicle called Vijayawada
              Gundugolanu Road Project Private Limited (“VGRPPL”).
      (iii)   Similarly, another company by name Simplex Infrastructure
              Limited (SIL) was awarded a contract by NHAI in
              Jharkhand and West Bengal and the total cost of the project
                                                                            F
              was Rs.940 crores. For the execution of the project, SIL
              set up a special purpose vehicle called Maa Durga
              Expressways Private Limited (MDEPL).
      (iv)    GIPL entered into two shareholders agreements with SIL.
              Under these agreements, GIPL was to invest in MDEPL
              and SIL was to invest in VGRPPL for their respective          G
              projects. The mutual investments were to be tuned in such
              a manner that GIPL and SIL would hold 49% equity interest
              in each other’s projects.

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674         SUPREME COURT REPORTS                        [2022] 9 S.C.R.


A     (v)     However, on 9.08.2013 the Board of Directors of GIPL
              passed a resolution authorizing the termination of both
              shareholders agreements.
      (vi)    On 22.8.2013, the respondent sold about 144 lakhs shares
              (approx.) held by him in GIPL, for an aggregate value of
B             approximately Rs.10.28 crores.
      (vii)   On 30.08.2013 GIPL made a disclosure to the National Stock
              exchange of India and BSE regarding the termination of
              two shareholders agreements.
      (viii) On 20.09.2013 the respondent resigned from the post of
C            Chairman and Managing Director of GIPL.
      (ix)    Pursuant to an input received from the National Stock
              Exchange, about the aforesaid transaction and the possibility
              of the trading having taken place on the basis of unpublished
              price sensitive information, SEBI conducted a preliminary
D             enquiry. After completion of the preliminary enquiry, SEBI
              passed an ex-parte interim order on 17.07.2014 holding
              prima facie that the respondent violated the provisions of
              Section 12A(d) and (e) of The Securities and Exchange
              Board of India Act, 1992 (hereinafter referred to as “SEBI
E             Act, 1992”) and consequently restraining the respondent
              from buying, selling or dealing in securities and accessing
              the security markets directly or indirectly. This ex-parte
              interim order was also confirmed by a confirmatory order
              dated 23.03.2015, passed after providing an opportunity of
              hearing to the respondent. The appeal filed by the
F             respondent against the said confirmatory order was
              dismissed as withdrawn on 4.02.2016.
      (x)     In the interregnum, SEBI completed the investigation and
              issued certain directions on 21.03.2016, followed by a show
              cause notice dated 29.03.2016. The show cause notice was
G             addressed not only to the respondent herein, but also to
              another Company by name Consolidated Infrastructure
              Company Private Limited and two of its Directors. The
              noticees filed their replies and after giving an opportunity
              of hearing to the noticees, the WTM passed an Order dated
              13.07.2016. By the said order the WTM held the respondent
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SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                              675
         RAJAN [V. RAMASUBRAMANIAN, J.]

             herein guilty of insider trading and hence liable to disgorge     A
             the amount of unlawful gains made by him to the tune of
             Rs.1.09 crores. The show cause notices issued to the others,
             namely, Consolidated Infrastructure Company Private
             Limited and its Directors were closed without any directions,
             on the ground that no case was made out against them.
                                                                               B
      (xi)   Challenging the said order of the WTM, the respondent
             filed a statutory appeal before the Securities Appellate
             Tribunal. The appeal was allowed by the Tribunal by an
             Order dated 08.11.2019 and it is against the said order that
             SEBI has come up with the above appeal.
                                                                               C
       4. The reasons for the Securities Appellate Tribunal allowing the
appeal of the respondent are three-fold, namely, (i) that the information
regarding the termination of the two shareholders agreements, was not
actually a price sensitive information, since the investment of GIPL in
Simplex Project, to the tune of Rs. 4.9 crores constituted only 0.05% of
GIPL’s order book value at the end of August, 2013 and only 0.7% of its        D
turnover for the financial year; (ii) that in any case the respondent was
in dire need to sell the shares at that time for the purpose of CDR
(Corporate Debt Restructuring) package and hence he cannot be said
to have indulged in trading on the basis of information within his
knowledge; and (iii) that there was no reason why SEBI did not take            E
into account the last trade price of 03.09.2013, but chose the price as on
04.09.2013.
      5. Assailing the order of the Securities Appellate Tribunal, it is
argued by Mr. Arvind P. Datar, learned senior counsel for the appellant:-
      (a)    that proportionality is a dangerous and subjective ground in      F
             matters involving insider trading, especially since one-third
             of the total number of directors of a listed company are
             independent directors and even transactions involving
             thousands of crores might be a minor proportion to the
             turnover, if the company is very large in size;                   G
      (b)    that Regulations 3 and 4 contain an absolute prohibition
             against insider trading and such a statutory prohibition cannot
             be diluted by arguing that the total value of the contracts
             terminated by the company was just a minor percentage of
             the order book value and the total turnover of the company;
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676              SUPREME COURT REPORTS                          [2022] 9 S.C.R.


A          (c)     that in any case the total value of the contracts terminated
                   on both sides was nearly Rs.2600 crores (Rs.1648 crores
                   + 940 crores) and hence the information relating to the
                   termination of the contracts was definitely likely to materially
                   affect the price of the securities of the company under
                   Regulation 2(ha);
B
           (d)     That Explanation (vi) under Section 2(ha) which speaks
                   about “significant changes in policies, plans or
                   operations of the company” cannot limit the scope of the
                   main part of the definition and in this case as a matter of
                   fact the price of the share dropped in just one day and the
C                  respondent avoided a loss of Rs.85 lakhs;
           (e)     that the de minimis syndicate has no application to insider
                   trading, as it introduces an element of subjectivity;
           (f)     that bona fide intentions or grounds of necessity, such as
D                  those pleaded in this case, cannot frustrate the object of
                   strict ban on insider trading, especially when the expression
                   “lawful excuse” as used in about 88 Central Statutes to
                   justify non-compliance, is conspicuously absent in the Statute
                   on hand;

E          (g)     that in any case, SEBI took note of the situation in which
                   the respondent was placed, warranting the necessity to sell
                   the shares and hence confined the final order only to
                   disgorgement, which is merely in the nature of restitutionary
                   relief;

F          (h)     that the intimation regarding the termination of the contracts
                   was given to the Bombay Stock Exchange at 1.05 p.m. and
                   to NSE at 2.40 p.m. on 03.09.2013 and the trading concluded
                   at 3:30 p.m. and hence the adoption of the closing price on
                   03.09.2013 would not correctly determine either the gains
                   made or the losses averted; and
G
           (i)     that therefore, the question of SEBI taking the closing price
                   as on 03.09.2013 did not arise.
            6. Responding to the above submissions made on behalf of the
      appellant, Mr. Somasekhar Sundaresan, learned counsel for the
      respondent raised the following contentions:-
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    SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                                 677
             RAJAN [V. RAMASUBRAMANIAN, J.]

        (a)    that the primary object of Insider Trading Regulations                 A
               anywhere in the world is to prohibit an insider from taking
               advantage of asymmetrical access to unpublished price
               sensitive information over others who do not have such
               access;
        (b)    that the question whether an information is price sensitive            B
               or not, would depend upon its potency to materially impact,
               upon publication, the price of the securities;
        (c)    that therefore by its very nature, it is barely a question of
               fact or at the most, a mixed question of fact and law which
               will not fall within the scope of Section 15Z of SEBI Act,             C
               1992 warranting interference by this Court;
        (d)    that one of the key factors which the Courts take into
               account while interpreting the circumstances revolving
               around transactions such as the one in question, is the
               purpose for which the transaction was effected;                        D
        (e)    that apart from looking into the purpose of the transaction,
               Courts have also taken into account other circumstances
               such as the scale of the transaction, pattern of trading and
               honesty in responses during the proceedings as is evident
               from the decisions in (i) Chintalapati Raju vs. SEBI;1 (ii)            E
               Rajiv Gandhi vs. SEBI;2 (iii) Miller vs. Pezzani3; and
               (iv) SEBI vs. Kanaiyalal Baldevbhai Patel4;
        (f)    that in the case on hand, the information in question, namely,
               the termination of the Agreements actually resulted in GIPL
               gaining total control of a larger project worth Rs.1648 crores         F
               and that in other words what was lost by the termination
               was far lesser than what was gained and hence the
               information relating to the termination of the Agreements
               was actually a favourable and not adverse information;

                                                                                      G
1
  (2018) 7 SCC 443
2
  (Appeal No.50/2007 decided by the Ld. SAT on 09.05.2008) – (Civil Appeal 5302 of
2008 against this order was dismissed)
3
  (A decision of the US Court of Appeals)-the US Supreme Court refused to entertain
a challenge to it
4
  (2017) 15 SCC 1                                                                     H
678         SUPREME COURT REPORTS                        [2022] 9 S.C.R.


A     (g)     that as seen from SEBI’s own computation, the value of
              the contract terminated was just 3.1% to 4.1% and hence
              it cannot be reasonably expected to have a material impact
              on the market price of the shares of GIPL;
      (h)     that GIPL’s investments in the project of SIL represented
B             0.05% of GIPL’s order book and 0.7% of its turnover;
      (i)     that a project with a small percentage of the order book
              and a miniscule percentage of the turnover cannot ipso
              facto become material for information about it to become
              UPSI;
C     (j)     that on facts, the shares sold by the respondent on
              22.08.2013 constituted 0.99% of the share capital of GIPL;
      (k)     that what was sold by the respondent was 70% of his total
              shareholding in GIPL and the sale was not an isolated one
              but coupled with the sale of multiple other assets to raise
D             money to fund promoters’ contribution to the CDR package
              of Gammon India Limited, the listed parent company of
              GIPL;
      (l)     that the failure of the respondent to meet the obligation
              towards CDR package would have led to GIL filing for
E             bankruptcy;
      (m)     that every penny of the sale proceeds of the shares, was
              transferred by the respondent towards the implementation
              of CDR package and hence it is a misconception to think
              that he made unlawful gains that ought to be disgorged;
F
      (n)     that SEBI itself has accepted the fact that the sale proceeds
              were used for funding the CDR package;
      (o)     that SEBI itself exonerated the co-noticee, namely,
              Consolidated Infrastructure Company Private Limited, on
              the ground that its sale of shares was on account of a
G             pressing need to meet a margin shortfall to its stock broker;
      (p)     that SEBI thus applied two different yardsticks, one in
              respect of the respondent and another in respect of the co-
              noticee in the very same proceeding, which necessitated
              interference by the Tribunal; and
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SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                              679
         RAJAN [V. RAMASUBRAMANIAN, J.]

      (q)     that therefore the present appeal does not raise a substantial   A
              question of law and that in any case the order of the
              Appellate Tribunal does not call for any interference.
       7. From the rival contentions, we think that the questions arising
for our determination can be formulated as follows:
      (i)     whether the information regarding the decision of the Board      B
              of Directors of GIPL to terminate the aforesaid two
              contracts can be characterized as “price sensitive
              information” within the meaning of Section 2(ha) of the
              Securities and Exchange Board of India (Prohibition of
              Insider Trading) Regulations 1992, (hereinafter referred         C
              to as the ‘Regulations’);
      (ii)    whether the sale by the respondent of the equity shares
              held by him in GIPL, under peculiar and compelling
              circumstances in which he was placed, would fall within
              the mischief of ‘insider trading’ in terms of Regulation         D
              3(i) read with Regulation 4 of the Regulations;
      (iii)   whether SEBI should have taken into account the last trade
              price of the day on which information was disclosed instead
              of the trade price of the next day;
      Question Nos.1 & 2                                                       E
       8. Before we proceed to analyze the points, we must note that
this is an appeal under Section 15Z of SEBI Act, 1992 and we are
concerned in such appeals with “any question of law arising out of
the order of the Tribunal”. The focus of Section 15Z is on ‘any question
of law’ and not ‘any substantial question of law’. Keeping this in             F
mind, we shall now proceed further.
      9. The SEBI Act, 1992 is intended, as seen from its preamble, “to
provide for the establishment of a Board to protect the interests of
investors in securities and to promote the development of and to
regulate the securities market”. As a matter of fact, the Securities and       G
Exchange Board of India was established even before the Act was
enacted. Since the Board was already in place, the Parliament enacted
the Act with a view among other things, to vest SEBI with statutory
powers.
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680             SUPREME COURT REPORTS                          [2022] 9 S.C.R.


A           10. In exercise of the powers conferred by Section 30 of the Act,
      the Board issued a set of Regulations known as “Securities and
      Exchange Board of India (Prohibition of Insider Trading)
      Regulations, 1992”, with the previous approval of the Central
      Government. Regulation 2(ha) of these Regulations defines the
      expression “price sensitive information” as follows:-
B
            “2(ha) “price sensitive information” means any information which
            relates directly or indirectly to a company and which if published
            is likely to materially affect the price of securities of company.
            Explanation.—The following shall be deemed to be price sensitive
C           information :-
              (i)   periodical financial results of the company;
             (ii) intended declaration of dividends (both interim and final);
             (iii) issue of securities or buy-back of securities;
D            (iv) any major expansion plans or execution of new projects.
              (v) amalgamation, mergers or takeovers;
             (vi) disposal of the whole or substantial part of the undertaking;
             (vii) and significant changes in policies, plans or operations of
E                  the company.”
            11. Regulation 2 (k) defines the expression “unpublished” as
      follows:
            “Unpublished” means information which is not published by the
            company or its agents and is not specific in nature.
F
            Explanation.– Speculative reports in print or electronic media
            shall not be considered as published information.”
            12. Regulation 3 imposes a prohibition on dealing, communicating
      or counseling on matters relating to insider trading. It reads as follows:-
G           “3. No insider shall –
            (i) either on his own behalf or on behalf of any other person,
                deal in securities of a company listed on any stock exchange
                when in possession of any unpublished price sensitive
                information; or
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SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                             681
         RAJAN [V. RAMASUBRAMANIAN, J.]

      (ii) communicate or counsel or procure directly or indirectly any       A
           unpublished price sensitive information to any person who
           while in possession of such unpublished price sensitive
           information shall not deal in securities :
      Provided that nothing contained above shall be applicable to any
      communication required in the ordinary course of business or            B
      profession or employment or under any law.”
       13. Regulation 4 declares the circumstances under which a person
shall be held guilty of insider trading. It reads as follows:-
      “4. Any insider who deals in securities in contravention of the
      provisions of regulation 3 or 3A shall be guilty of insider trading.”   C

       14. Interestingly, the Regulations do not define the words, “insider
trading”. But Regulation 4 declares a person guilty of insider trading if,
(i) he happens to be an insider; and (ii) if he deals in securities in
contravention of Regulation 3.
                                                                              D
      15. The word “insider” is defined in Regulation 2(e) as follows:-
      “(e) “insider” means any person who,
      (i) is or was connected with the company or is deemed to have
      been connected with the company and is reasonably expected to
      have access to unpublished price sensitive information in respect       E
      of securities of a company, or
      (ii) has received or has had access to such unpublished price
      sensitive information.
       16. The words “dealing in securities” is defined in Regulation
2(d) as follows:-                                                             F

      “(d) “dealing in securities” means an act of subscribing, buying,
      selling or agreeing to subscribe, buy, sell or deal in any securities
      by any person either as principal or agent.”
       17. We may note at this stage that the Regulations underwent           G
sweeping changes through SEBI (Insider Trading) (Amendment)
Regulations 2002, w.e.f. 20.02.2002. Prior to the amendment made in
the year 2002, the words, “unpublished price sensitive information”
were defined through a single definition clause, namely Regulation 2(k)
as follows:-
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682                 SUPREME COURT REPORTS                        [2022] 9 S.C.R.


A            “2(k) Unpublished price sensitive information means any
             information which related to the following matters or is of concern,
             directly or indirectly, to a company, and is not generally known or
             published by such company for general information, but which if
             published or known, is likely to materially affect the price of
             securities of that company in the market –
B
             (i)      financial results (both half-yearly and annual) of the
                      company;
             (ii)     intended declaration of dividend (both interim/final);
             (iii)    issue of shares by way of public rights, bonus etc.;
C
             (iv)     any major expansion plans or execution of new projects;
             (v)      amalgamations, mergers and takeovers;
             (vi)     disposal of the whole or substantially the whole of the
                      undertaking;
D
             (vii)    such other information as may affect the earnings of the
                      company.”
           18. But under the Amendment Regulations, 2002, the word,
      “unpublished” alone is defined in Regulation 2(k) and the rest of the
      words “price sensitive information” is defined in Regulation 2(ha).
E
             19. The important modifications brought forth under the
      Amendment Regulations of 2002 to the definition of what is unpublished
      price sensitive information are two-fold namely, (i) that the definition of
      words unpublished is expanded; and (ii) that even significant changes in
      policies, plans and operations of the company are brought within the
F     definition of the expression “price sensitive information”, through a
      deeming provision in the Explanation under Regulation 2(ha).
             20. Therefore in view of the Regulations discussed above, a person
      can be held guilty of violating Regulation 3, only if the following conditions
      are satisfied:-
G
             (i) He must be an insider within the meaning of the word “insider”,
             under Regulation 2(e), by virtue of his past or present connection
             or deemed connection with the company and he is also reasonably
             expected either to have had access to UPSI or has received such
             information;
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                                683
         RAJAN [V. RAMASUBRAMANIAN, J.]

       (ii) The information that such a person received or has had access        A
       or reasonably expected to have had access should be unpublished,
       in the sense that it was not published by the company or its agent
       or though published, it was not specific in nature;
       (iii) Such unpublished information should fall within the definition
       of the expression “price sensitive information” within the                B
       meaning of Section 2(ha) of the Regulations; and
       (iv) He must have indulged in trading, either by dealing in securities
       of the company or in communicating or counseling or procuring
       directly or indirectly any such information to any person.
      21. In other words, to find out if a person is guilty of violation of      C
Regulation 3, the Court should address itself to the following questions
namely, (i) is he an insider?; (ii) did he possess or have access to any
information relating to the company?; (iii) whether such information
was price sensitive?; (iv) whether the information was unpublished?;
and (v) whether he dealt in securities by subscribing, buying, selling or        D
agreeing to do any of these things in any securities?
       22. Before we proceed to find an answer to the above questions
in the context of the present appeal we must take note of one important
fact namely, that the price sensitivity of an information has a correlation
directly to the materiality of the impact that it can have on the price of       E
the securities of the company. An information may materially affect the
price of the security of a company either positively or negatively. The
impact may be beneficial or adverse. The information should have the
potential either to catapult the price of the securities of the company to
a higher level or to make it plunge. The effect can be bullish or bearish.
But the effect should be material and not completely insignificant.              F
       23. Keeping the above parameters in mind if we come to the
facts of the case on hand, it will be clear, (i) that the respondent was
certainly an insider, as he was a Chairman and Managing Director of
GIPL till 20.09.2013 and was a party to the resolution of the Board of
Directors passed on 09.08.2013 authorising the termination of the                G
shareholders’ Agreements; (ii) that the information relating to the
termination of both the shareholders’ Agreements that the respondent
had, would certainly fall under the category of “significant changes in
policies, plans or operations of the Company” under Regulation
2(ha)(vii); (iii) that the respondent dealt in securities by selling 144 lakhs
                                                                                 H
684             SUPREME COURT REPORTS                             [2022] 9 S.C.R.


A     of shares on 22.08.2013, which was a month before his resignation as
      Chairman and Managing Director; and (iv) that the termination of the
      shareholders’ Agreements on 09.08.2013 was disclosed to the NSE and
      BSE on 30.08.2013, after the sale of the shares, which made the
      information relating to the termination of the Agreements unpublished as
      on the date of the sale.
B
             24. Therefore, it may appear at first blush, that the respondent,
      who was an insider and who possessed information which was both
      unpublished and price sensitive, was guilty of the charge of insider trading
      as he undoubtedly dealt in securities.
C            25. But the catch lies in understanding the true scope of Explanation
      (vii) under Regulation 2(ha). As we have seen earlier, the main part of
      Regulation 2(ha) defines “price sensitive information” to mean any
      information, which relates directly or indirectly to a company and which
      if published is likely to materially affect the price of securities of a
      company. The Explanation under Regulation 2(ha) creates a deeming
D     fiction and it makes 7 items of information listed thereunder as price
      sensitive information.
             26. It may be interesting to note that out of the 7 items of information
      listed under the Explanation, all the others except Item No.(vii) are likely
      to have an impact directly upon the financial strength of the company.
E     Item No.(vii) stands apart, in that it is very broad and general in nature.
      While nothing more is required to show that the information listed in
      Items (i) to (vi) of the Explanation under Regulation 2(ha) is likely to
      materially affect the price of securities of a company, the same is not
      the case insofar as the information in Item No.(vii) is concerned. In
F     other words, the likelihood of the price of the securities getting materially
      affected, is inherent in Items (i) to (vi) namely,
              “(i) periodical financial results of the company;
              (ii) intended declaration of dividends (both interim and final);
              (iii) issue of securities or buy-back of securities;
G
              (iv) any major expansion plans or execution of new projects.
              (v) amalgamation, mergers or takeovers;
              (vi) disposal of the whole or substantial part of the undertaking;”

H            But such is not the case with the information in Item No.(vii).
SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                                685
         RAJAN [V. RAMASUBRAMANIAN, J.]

       27. Therefore, while dealing with a case falling under Explanation        A
(vii) of Regulation 2(ha), one may have to see whether there was any
likelihood of the said information materially affecting the price of the
securities of the company. Additionally, the activity in which the insider
was involved also determines his culpability for violation of Regulation
3. For instance, the sale by a person in possession of price sensitive
                                                                                 B
information, at a time when the price is likely to take a plunge, will
certainly be an attempt at taking advantage of or encashing the
information. Similarly the purchase by a person in possession of UPSI at
a time when the price of the security is about to skyrocket, will certainly
be an attempt to take advantage.
       28. But the above logic cannot be applied to cases which fall on          C
the opposite side of the spectrum. For instance, the sale by a person at a
time when the price of the securities is likely to shoot up on account of
price sensitive information coming into the public domain or the purchase
by a person at a time when the price of the shares is likely to go downward
due to price sensitive information getting published, cannot come under          D
the category of insider trading. While it is true that the actual gaining of
profit or sufferance of loss in the transaction, may not provide an escape
route for an insider against the charge of violation of Regulation 3, one
cannot ignore normal human conduct. If a person enters into a transaction
which is surely likely to result in loss, he cannot be accused of insider
trading. In other words, the actual gain or loss is immaterial, but the          E
motive for making a gain is essential.
       29. The words, “likely to materially affect the price” appearing
in the main part of Regulation 2(ha) gain significance for the simple
reason that profit motive, if not actual profit should be the motivating
factor for a person to indulge in insider trading. This is why the information   F
in Item No.(vii) of the Explanation under Regulation 2(ha) may have to
be examined with reference to the words “likely to materially affect
the price”. Keeping this in mind let us now come back to the facts of
the case.
      30. GIPL was awarded a contract for the execution of a project,            G
whose total cost was admittedly Rs. 1648 crores. SIL was awarded a
contract for a project whose cost was Rs. 940 crores. Both GIPL and
SIL created Special Purpose Vehicles and then they entered into two
shareholders Agreements. Under these Agreements, GIPL and SIL will
have to make investments in the Special Purpose Vehicles created by              H
686             SUPREME COURT REPORTS                           [2022] 9 S.C.R.


A     each other, in such a manner that each of them will hold 49% equity
      interest in the other’s project.
             31. It means that GIPL could have acquired 49% equity interest
      in the project worth Rs. 940 crores and SIL would have acquired 49%
      equity interest in a project worth Rs. 1648 crore.
B            32. In arithmetical terms, the acquisition by GIPL, of an equity
      interest in SIL’s project was worth Rs. 460 crores approximately. Similarly,
      the acquisition by SIL, of the equity interest in GIPL’s project was worth
      Rs. 807.52 crores. Therefore, the cancellation of the shareholders
      Agreements resulted in GIPL gaining very hugely in terms of order book
C     value. In such circumstances an ordinary man of prudence would expect
      an increase in the value of the shares of GIPL and would wait for the
      market trend to show itself up, if he actually desired to indulge in insider
      trading. But the respondent did not wait for the information about the
      market trend, after the information became public. The reason given by
      him, which is also accepted by the WTM and the Tribunal is that he had
D     to dispose of his shares as well as certain other properties for the purpose
      of honouring a CDR package. It is on record that if the CDR package
      had not gone through successfully, the parent company of GIPL namely,
      Gammon India Ltd., could have gone for bankruptcy.
            33. Therefore, the Tribunal was right in thinking that the respondent
E     had no motive or intention to make undeserved gains by encashing on
      the unpublished price sensitive information that he possessed.
              34. As a matter of fact, the Tribunal found that the closing price
      of shares rose, after the disclosure of the information. This shows that
      the unpublished price sensitive information was such that it was likely to
F     be more beneficial to the shareholders, after the disclosure was made.
      Any person desirous of indulging in insider trading, would have waited
      till the information went public, to sell his holdings. The respondent did
      not do this, obviously on account of a pressing necessity.
             35. We agree with the contention of Shri Arvind P. Datar, learned
G     senior counsel for the appellant, that the allegation of insider trading
      cannot be measured in terms of the value of the contracts terminated
      and the percentage of shares sold and that the theory of proportionality
      cannot be applied in such cases. The magnitude of what an insider did,
      in relation to the size of the company, may not have a bearing upon the
      question whether someone indulged in insider trading or not. But what is
H
SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                              687
         RAJAN [V. RAMASUBRAMANIAN, J.]

sought to be encashed by the insider should be an information which if         A
published is likely to materially affect the price of the securities of the
company.
       36. The contention of Shri Arvind P. Datar, learned senior counsel,
that the total value of the contracts terminated on both sides was nearly
Rs.2600/- crores (Rs.1648 crores + Rs.940 crores) and that therefore           B
the information relating to the termination of the contracts was surely
likely to materially affect the price of the securities of the company, is
unsustainable for the simple reason that the net effect of the termination
of both the contracts, for GIPL was a positive advantage of about Rs.800
crores. We have already provided in paragraph 32 above, the simple
arithmetics of the whole transaction, which put GIPL in a more                 C
advantageous position after the termination of the contract.
       37. It is true that the de minimis Rule has no application to insider
trading, as it introduces an element of subjectivity. This is why we have
not gone on the basis that GIPL’s investments in the project of SIL
represented 0.05% of GIPL’s order book value and 0.7% of its turnover.         D
We have gone on the basis that the termination of both the contracts put
GIPL in a more advantageous position, in which one would have expected
the price of the securities to soar. The normal human conduct would be
to wait for this event to happen. This event could have happened only
after the publication of the information in question. The fact that the        E
respondent did not wait to take advantage of the situation, convinces us
that his intention was not to indulge in insider trading.
       38. Shri Arvind P. Datar, learned senior counsel is right in pointing
out that in as many as 88 Central Statutes, the expression “lawful excuse”
is used as a justification for non-compliance. But the same is not used in     F
SEBI Act, 1992 or the Regulations issued thereunder. Therefore, we
have not tested the conduct of the respondent solely on the argument of
necessity. But we have taken note of the admitted position that the
respondent had to save the parent company going bankrupt, by selling
his stock, at a time when he had every reason to wait for the information
regarding the termination of the contracts to go public. This is not a case    G
where the respondent has come up with an excuse to justify his action
that was intended to give him a financial advantage. This is a case where
a man of ordinary prudence would have expected the price of the shares
to go up, after the information became public, due to the impact that the
information was likely to have on the turnover/net worth of the company.       H
688                SUPREME COURT REPORTS                         [2022] 9 S.C.R.


A            39. The contention of the appellant that SEBI took note of the
      situation in which the respondent was placed and the dire need that he
      had to sell the shares and that therefore SEBI confined the final order
      only to disgorgement, is neither here nor there. This argument is actually
      an argument of convenience. It so happened in this case that according
      to SEBI the closing price of the stock on 03.09.2013 showed favourable
B
      position for the respondent and SEBI was able to calculate as though
      the respondent made a profit. But if a company is likely to gain strength
      by making a significant change in its policy, the price of its securities is
      likely to shoot up. Despite such a natural phenomena, if a person sells
      his stocks without waiting for the market trend to show up, it can only be
C     taken as a sale, devoid of any desire to make unlawful gains, even if it
      cannot be termed as a distress sale.
             40. In SEBI vs. Kishore R. Ajmera5, this Court was concerned
      with the question as to what is the degree of proof required to hold a
      broker liable for fraudulent/manipulative practices under SEBI
D     (Prohibition of Fraudulent and Unfair Trade Practices relating to
      Securities Market) Regulations, 2003 as well as the Conduct Regulations
      of 1992. After taking note of the fact that SEBI Act and the Regulations
      framed thereunder are intended to protect the interest of investors and
      that the provisions of the Act and the Regulations have to be understood
      and interpreted in that light, this Court held in Para 26 as follows:-
E
               “It is the judicial duty to take note of the immediate and proximate
               facts and circumstances surrounding the events on which the
               charges/allegations are founded and to reach what would appear
               to the Court to be a reasonable conclusion therefrom. The test
               would always be that what inferential process that a reasonable/
F              prudent man would adopt to arrive at a conclusion.”
             41. While dealing with yet another case arising out of allegations
      of violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices
      relating to Securities Market) Regulations, 2003, this Court held in
      Kanaiyalal Baldevbhai Patel (Supra) (para-58) that the volume, the
G     nature of the trading and the timing of the transactions may have to be
      taken into account to find out whether there was an attempt at encashing
      the benefit of the information that the insider was in possession. It is no
      doubt true that the Court clarified in paragraph 62 of its decision in
      Kanaiyalal Baldevbhai Patel (supra) that mens rea is not an
      5
H         (2016) 6 SCC 368
SECURITIES AND EXCHANGE BOARD OF INDIA v. ABHIJIT                                 689
         RAJAN [V. RAMASUBRAMANIAN, J.]

indispensable requirement to attract the rigor of FUTP Regulations, 2003.         A
This Court held that the correct test is one of preponderance of
probabilities.
      42. But an attempt by the insider to encash the benefit of the
information is not exactly the same as mens rea. Therefore, the Court
can always test whether the act of the insider in dealing with the securities,    B
was an attempt to take advantage of or encash the benefit of the
information in his possession. This is the test we have applied to the
case on hand.
      43. In Chintalapati Srinivasa Raju (supra), this Court approved
the minority judgment of the Securities Appellate Tribunal (in para 20),          C
which took note of the compelling circumstances under which the
individual was selling shares. The fact that this has been taken note of
by WTM as a mitigating factor, while passing a mere restitutionary order,
does not take away the validity of the defence taken by the respondent.
       44. Therefore, we are of the view on Question No.1 that the                D
information regarding the termination of the two contracts can be
characterised as price sensitive information, in that it was likely to place
the existing shareholders in an advantageous position, once the information
came into the public domain. In such circumstances, our answer to
Question No.2 would be that the sale by the respondent, of the shares
held by him in GIPL would not fall within the mischief of insider trading,        E
as it was somewhat similar to a distress sale, made before the information
could have a positive impact on the price of the shares.
       45. In view of our answers to Question Nos. 1 and 2, we are of
the view that there is no necessity to go into Question No.3. Our answers
to Question Nos. 1 and 2 are sufficient to hold that the impugned order           F
of the Tribunal does not call for any interference. Therefore, the appeal
is dismissed. There will be no order as to costs.

Bibhuti Bhushan Bose                                          Appeal dismissed.
(Assisted by : Shubhanshu Das, LCRA)                                              G




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