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Authored by Padma Akila

In our earlier article we had summarised the decision of the AO in the WhatsApp leak case wherein the financial results of companies like Bata India Limited, Asian Paints Limited, Mindtree Limited & Wipro Limited among others were forwarded through WhatsApp by certain individuals (“Noticees/Appellants”) employed in stock broking companies, who according to SEBI violated provisions of the SEBI (Prohibition of Insider Trading) Regulation, 2015 (“PIT Regulations, 2015”), and construed the information circulated as UPSI. The Securities Appellate Tribunal (SAT) by an Order dated 22nd March 2021 set aside the AO’s order in this matter. In this article we tabulate the key points from decision of the Securities Appellate Tribunal (SAT) following appeal on the same case. Contention of the Noticees Decision of the AO Decision of SAT and Rationale behind the same
1.       The information circulated through WhatsApp does not qualify to be UPSI, as there was no connection between the Noticees and the Companies or its promoters/management. The leaked information, was the same as the announcements subsequently made by the companies to the stock exchanges, and the inability to trace the source of the leaked information within the companies is irrelevant in the determination of such information being UPSI or otherwise SAT overturned the decision of the AO for the reason that despite great efforts by SEBI to find out the source of information or to find out leakage of the information from the respective companies, no information could be recovered. Further, time and again the AO himself had expressed the inability in this regard in his order.
2.       The Noticees had circulated the information to other individuals based on the estimates projected by stock broking companies which is available in the public domain and thus the circulated information fails to be qualified as UPSI. There was no evidence implying that the information circulated was based on market research which was in turn based on generally available information, and such market research was accessible to the public on a non-discriminatory basis and hence the leaked information qualified to be UPSI. SAT rejected the reasoning of the AO and held that the AO failed to take into consideration that there were numerous other messages of similar nature received and forwarded by the Appellant which did not at all match with the published information.

The information can be branded as an UPSI only when the person getting the information had a knowledge that it was UPSI. In this regard, SAT relied on its own judgement in the case of Samir Arora vs. SEBI (2004) SCC Online SAT 90 wherein it had rejected the arguments of SEBI that there is no need for linkage between the potential source of the UPSI and the person allegedly in possession of the alleged UPSI.

3.       The Noticees had not violated the provisions of Sections [1]12A(d) & [2]12A(e) of the SEBI Act, 1992 and Regulation [3]3 (1) of SEBI (PIT) Regulations, 2015 The Noticees had violated the provisions mentioned in the previous column SEBI failed to prove any preponderance of probabilities that the impugned messages were UPSI, that the Appellants knew that it was UPSI and with the said knowledge they or any of them had passed the said information to other parties thereby concluding that the Appellants had not violated the provisions of PIT Regulations, 2015 as alleged by SEBI

[1] Regulation 12A(d) – No person shall directly or indirectly engage in insider trading

[2] Regulation 12A(e) – No person shall directly or indirectly 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.

[3] Regulation 3(1) – No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

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