SECURITIES AND EXCHANGE BOARD OF INDIA versus SHRI KANAIYALAL BALDEVBHAI PATEL

Citation: [2017] 14 S.C.R. 268 · Decided: 20-09-2017 · Supreme Court of India · Bench: RANJAN GOGOI · Disposal: Disposed off

Cited by 1 judgment(s) · cites 3 · see the full citation network in Lexace

Judgment (excerpt)

[2017] 14 S.C.R. 268 
A 
SECURITIES AND EXCHANGE BOARD OF INDIA 
B 
v. 
SHRI KANAIYALAL BALDEVBHAI PATEL 
(Civil Appeal No. 2595 of2013) 
SEPTEMBER 20, 2017 
[RANJAN GOGOi AND N. V. RAMANA, JJ.) 
Shares and Securities - Securities and Exchange Board of 
India (Prohibition of Fraudulent And Unfair Trade Practices 
Relating To Securities Market) Regulations, 2003 - Regns. 3(a). 
C 
(b). (c) and (d) and 4(1) '-- Fraudulent practice violating market 
integrity - Non-intermediary front-running in security market -
Legality of - Allegations against the private individuals that they 
parted with the privileged/confidential information about the 
investments of their company' to other persons, who accordingly 
traded and earned substantial profits - Held: The information of 
D possible trades that the company is going to undertake is the 
confidential information of the company concerned. which it has 
absolute liberty to deal with - A person conveying confidential 
information to another person (tippee) breaches his duty prescribed 
by lmv and if the recipient of such information knows of the breach 
E and trades, and there is an inducement to bring about an inequitable 
result. then the recipient 'tippee may be said to have committed fraud 
- Accordingly, non-intermediary front running may he brought 
. under the prohibition prescribed under regulations 3 and 4(1). for 
being fraudulent or unfair trade practice, provided ingredients 
under those heads are satisfied - Further, the parting of information 
· F and the subsequent transaction thereto are so intrinsically connected 
that no other conclusion but one of joint liability of both the initiator 
of the fraudulent practice and other party who had knowingly aided 
in the same is possible - Words and Phrases - 'inducement' and 
'fraud' - Meaning of. 
G 
Disposing of the appeals, the Court 
HELD: 
Per N.V. Ramana, J.: 
Whether 'front running by non-intermediary' is a prohibited 
H practice under regulations 3 (a), (b), (c) and (d) and 4(1) of 
268 
SECURITIES AND EXCHANGE BOARD OF INDIA v. SHRI 
269 
KANAlYALAL BALDEVBHAl PATEL 
Securities and Exchange Board oflndia (Prohibition of Fraudulent A 
And Unfair Trade Practices Relating To Securities Market) 
Regulations, 2003 ? 
· 
1. As this case involves practice of 'front-running' in 
security market, a reference may be made to various definitions 
and meanings of front-running in Major Law Lexicon by P. 
B 
Ramanatha Aiyar, The Black's Law dictionary, an Article by Nancy 
Folbre, Circular dated 25.05.2012 of SERI and Consultative Paper 
issued by SERI. In actuality, front-running is more complicated 
than these definitions suggest. It comprises of at least three forms 
of conduct. They are: (1) trading by third parties who are tipped C 
on an impending block trade ("tippee" trading); (2) transactions 
in which the owner or purchaser of the block trade himself engages 
in the offsetting futures or options transaction as a means of 
"hedging" against price fluctuations caused by the block 
transaction ("self-front-running"); and (3) transactions where a 
intermediary with knowledge of an impending customer block · D 
order trades ahead of that order for the intermediary's own profit 
C'trading ahead"). In the instant case, the first and the last types 
of trade i.e., tippee trading and trading ahead are under 
consideration. [Para 19][284-F-G] 
·Major Law Lexicon by P. Ramanatha Aiyar (41h Ed. 
' '2010) The Blacks Law dictionary 91h Ed., Nancy Folbre, 
· The Front-Runners of Wall Street, 07.04.2014 (The New 
: York Times). Circular CIRIEFD/112012, dated 
' ·' ' 25.05.2012 of SERI, Consultative Paper issued by 
' · ' -· SEBI, pursuant to a Press release No. 34/95 dated 
1; ' 
- March 16, 1995 - referred to. 
2. There is no dispute as to the fact that fraud is 
jurisprudentially very difficult to define or cloth it with particular 
ingredients. A generalized meaning may be difficult to be 
attributed, as human ingenuity would invent ways to bypass such 
behaviour. [Para 26][287-E] 
3. On a comparative analysis of the definition of "fraud" as 
existing in the 1995 regulation and the subsequent amendments 
i~ .the 2003 regulations, it can be seen that the original definition 
.jof "fraud" under the FUTP regulation, 1995 adopts the definition 
...J: -~-
E 
F 
G 
H 
270 
SUPREME COURT REPORTS 
[2017] 14 S.C.R. 
A of "fraud" from the Indian Contract Act, 1872 whereas the 
subsequent definition in the 2003 regulation is a variation 

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