CHINTALAPATI SRINIVASA RAJU versus SECURITIES AND EXCHANGE BOARD OF INDIA

Citation: [2018] 5 S.C.R. 785 · Decided: 14-05-2018 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Disposed off

Cited by 2 judgment(s) · cites 6 · see the full citation network in Lexace

Judgment (excerpt)

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  CHINTALAPATI SRINIVASA RAJU
    v.
SECURITIES AND EXCHANGE BOARD OF INDIA
(Civil Appeal No.16805 of 2017 Etc.)
MAY 14, 2018
[R. F. NARIMAN AND NAVIN SINHA, JJ.]
SEBI (Prohibition of Insider Trading) Regulations, 1992:
Regn 2(e)(i), 2(c) – Insider trading – Satyam scam – Appellant-
co-brother of the Chairman of SCSL-Satyam Computer Services
Limited, was executive director of SCSL from 1993 to 2000 and
non-executive director from 2000 to 2003 – Appellant holding
76,50,000 equity shares of SCSL – Letter by former Chairman of
SCSL, to the stock exchange and SEBI that financial statement of
the company had been grossly overstated – Show cause notice to
appellant that being a promoter and director of SCSL, he was liable
as an “insider”, having knowledge of Unpublished Price Sensitive
Information (UPSI), as a result of which he stood to gain by selling
his shares at an inflated value – Whole Time Member of SEBI and
appellate tribunal held that the appellant was a “connected person”
u/Regn 2(c) and, thus, “insider” u/Regn 2(e) – On appeal, held:
Appellant cannot be described as a promoter since the annual
reports, which contained his signatures as a director, did not show
him as a promoter – Chairman and his brother described him as a
promoter in letters written to various stock exchanges behind his
back and duped him – He was victim of fraud perpetrated by them
– By 2006, all the actual promoters disposed of their shareholding
in SCSL because they were aware of the credit crunch faced by
SCSL – Appellant continued to retain substantial shareholding in
SCSL till the end of 2008 clearly points to lack of possession of
UPSI – Appellant had no professional or business relationship with
his co-brother and had no connection with any of the entities floated
by his co-brother – Appellant ceased to be executive director in
2000 as such was not involved with fraudulent manipulation which
began only from 2001 onwards – It has not been shown how
appellant was in any manner responsible for actions taken by those
in the management of SCSL – Inference of reasonably being
   [2018] 5 S.C.R. 785
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SUPREME COURT REPORTS
[2018] 5 S.C.R.
expected to be in the knowledge of confidential information cannot
be formed – SEBI (Prohibition of Insider Trading) Regulations, 2015
– Securities and Exchange Board of India Act, 1992.
Regn 2(e)(ii), 2(h)(ix) – Unpublished Price Sensitive
Information (UPSI) – Satyam scam – Appellant Company-private
company of the executive director/non-director of SCSL and his
wife – Each holding 50% share capital of the company – Appellant
sold only 8,00,000 shares held in SCSL – 24,00,000 shares never
sold by appellant, but for which only application money was
received and returned by 17.4.2002 – Disgorgement order included
gains made on account of the said shares – Minority judgment
holding that 8,00,000 shares had been sold prior to the occurrence
of the UPSI and 24,00,000 shares were never sold but were merely
returned to executive director/non-director of SCSL, could not form
the basis of any disgorgement order – On appeal, held: Minority
judgment is upheld – Appellant does not have persons who are
relatives of persons mentioned in sub-clauses (vi), (vii) and (viii) –
Under these sub-clauses, a person is deemed to be a connected
person if such person is a relative of persons in cl (i) to (v); or is a
banker of the company; or is a relative of a connected person –
Since none of these clauses are attracted, s. 2(h)(ix) not attracted.
Regn 2(h)(viii) – Person deemed to be connected – Satyam
scam – Father of executive director/non-executive director of the
company – Father neither a promoter nor a director of SCSL, and
sold 2,50,000 shares in 2005 and expired in 2007 – Order by the
tribunal that father was a person deemed to be connected under
Regn 2(h)(viii) since he was relative of a connected person – On
appeal, held: Director/executive director ceased to be a connected
person in 2003 – Thus, when the father sold shares in 2005, he
could not be a deemed to be connected person since the director
himself ceased to be a connected person – Thus, order of Whole
Time Member quashed and set aside.
Regn 2(e)(i) – Insider – Connected person – Satyam scam –
Mother of the Chairman, though relative, yet made off market
transactions way back in 2003 – Whole time member and majority
judgment of the appellate tribunal holding that mother being the
close relative, thus, must be presumed that

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