SECURITIES AND EXCHANGE BOARD OF INDIA versus ABHIJIT RAJAN

Citation: [2022] 9 S.C.R. 669 · Decided: 19-09-2022 · Supreme Court of India · Bench: INDIRA BANERJEE · Disposal: Dismissed

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Judgment (excerpt)

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669
SECURITIES AND EXCHANGE BOARD OF INDIA
v.
ABHIJIT RAJAN
(Civil Appeal No. 563 of 2020)
SEPTEMBER 19, 2022
[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),
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
‘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
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undeserved gains by encashing on the unpublished price sensitive
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,
(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was price sensitive; (iv) whether the information was unpublished;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
[2022] 9 S.C.R. 669
669
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SUPREME COURT REPORTS
[2022] 9 S.C.R.
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
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
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
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
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
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
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 

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