Decided on December 16,2011

E. Sudhir Reddy Appellant


P.K.Malhotra, Member - (1.) THIS appeal is directed against the order dated June 30, 2011 passed by the adjudicating officer of the Securities and Exchange Board of India (for short the Board) holding the appellant guilty of violating section 12A (d) and (e) of the Securities and Exchange Board of India Act, 1992 (for short the Sebi Act) read with Regulation 3(i) and 4 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (for short the Insider Trading Regulations) and imposing a penalty of Rs.3 lacs on the appellant.
(2.) THE facts of the case, in brief, are that the Board carried out investigation into the trading of the scrip of Hindustan Dorr Oliver Limited (the company) for the period from February 2, 2009 to March 25, 2009 and found that Mr. E. Sudhir Reddy, the appellant before us, who was also the non executive Vice Chairman and Director of the company, traded in the scrip of the company while he was in possession of unpublished price sensitive information. Investigations also revealed that the appellant traded through CIL Securities Ltd and bought 40,000 shares during the investigation period. The company bagged a contract for uranium ore processing plant from Uranium Corporation of India Limited (UCIL) worth Rs.441 crores and informed about the same to the stock exchanges on February 25, 2009. However, before providing this information to the stock exchanges, the appellant bought 19,721 shares of the company on February 9/10, 2009 when information regarding award of the contract was still unpublished. Being an insider and being in possession of unpublished price sensitive information, the appellant dealt with the shares of the company and hence allegedly violated section 12A of the Sebi Act read with regulation 3(i) and 4 of the Insider Trading Regulations.
(3.) A show cause notice dated February 17, 2011 was issued to the appellant requiring him to show cause as to why an enquiry should not be held against him and why penalty should not be imposed on him under Section 15G of the SEBI Act. The appellant replied to the show cause notice denying the allegations. After affording an opportunity of hearing to the appellant, the adjudicating officer held him guilty of the charges and, vide his order dated June 30, 2011, imposed a penalty of Rs.3 lacs. Hence this appeal. We have heard the learned senior counsel for the parties who have taken us through the records. The term insider trading is generally used in the negative sense as it is perceived that the persons having access to the price sensitive and unpublished information use the same for their personal gain. Section 12 A of the Sebi Act makes provision for prohibition of manipulative or deceptive devices, insider trading and substantial acquisition of securities and, inter -alia, provides that no person shall directly or indirectly engage in insider trading or deal in securities while in possession of material or non -public information. Regulation 4 of the Insider Trading Regulations provides that any insider who deals in securities in contravention of the provisions of regulation 3 and 3A shall be guilty of insider trading. Regulation 3(i) of the said Regulations provides that no insider shall either on his own behalf or on behalf of any other person, deal in securities of a company listed in any stock exchange when in possession of any unpublished price sensitive information. 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 the securities of the company. Regulation 2(k) defines unpublished to mean information which is not published by the company or its agents and is not specific in nature. Section 2(e) defines insider to mean any person who is or was connected with the company or is deemed to have been connected with the company and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company or has received or had access to such unpublished price sensitive information.;

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