R. F. Nariman, J. - (1.) The present appeals have their genesis in what is popularly known as the "Satyam scam". By a letter dated 7.1.2009, one B. Ramalinga Raju, former Chairman of Satyam Computer Services Limited (hereinafter referred to as "SCSL") sent a letter to various stock exchanges and the SEBI stating that the financial statements of SCSL had been grossly overstated and did not reflect the true and fair view of the financial position of SCSL. Civil Appeal No.16805 of 2017
(2.) In the present appeal, the appellant was roped in by the Whole Time Member of the SEBI as well as the Appellate Tribunal as he happened to be an executive director of SCSL from 1993 upto 31.8.2000 and a non-executive director from 1.9.2000 to 23.1.2003. He also happens to be the "co-brother" of B. Ramalinga Raju as the two of them have married two sisters.
(3.) Scsl was originally incorporated as a private limited company with two shareholders, namely, B. Ramalinga Raju and D.V. Satyanarayana Raju on 24.6.1987. These two gentlemen were the original promoters of this company. The appellant, who was an executive director of this company from 1993 onwards, was confined to operating a joint venture company of SCSL, namely, Satyam Enterprise Solutions Private Limited (SES). The appellant stated that he was never involved in the day to day affairs of SCSL. In the said joint venture company, 80% shareholding was held by SCSL and the appellant held the remaining 20% shares. SES merged into SCSL pursuant to a scheme of arrangement, approved by the Andhra Pradesh High Court in 1999, as a result of which the appellant was issued 8,00,000 equity shares of SCSL. Later in the same year, SCSL declared a bonus, thereby doubling the number of shares held by the appellant to 16,00,000 equity shares of SCSL. On 7.8.2000, SCSL announced a stock split by which the face value of the shares was reduced from Rs.10/- to Rs.2/- as a result of which every shareholder got an additional five shares of Rs.2/- for each share of Rs.10/- held by them. Consequently, the shareholding of the appellant increased to 76,50,000 equity shares of SCSL. The first time that unpublished price sensitive information (hereinafter referred to as "UPSI") came into existence so far as SCSL is concerned is stated to be on 31.3.2001. It is pertinent to note that as on this date, as has been stated hereinabove, the appellant was a non-executive director of the said company. Various annual reports from 2000 till 2003 disclosed B. Ramalinga Raju and B. Rama Raju as promoters of SCSL, but not the appellant. The appellant sold his shares in SCSL from 22.2.2001 to December, 2008. Ultimately, by a show cause notice dated 19.6.2009, after referring to the said letter dated 7.1.2009 by the Chairman of SCSL, it was stated that as the appellant was a promoter and director of SCSL, he was liable as an "insider", having knowledge of UPSI, as a result of which he stood to gain by selling shares which he owned at an inflated value. The appellant replied to the show cause notice, taking detailed factual grounds as well as grounds in law, stating that he could not be said to be an "insider" as defined by the SEBI (Prohibition of Insider Trading Regulations), 1992 (hereinafter referred to as the "1992 Regulations"). By an order dated 10.9.2015, the Whole Time Member of the SEBI, after extracting relevant sections of the SEBI Act, 1992 and the relevant regulations referred to in the show cause notice, held that given Annexure 15 to the show cause notice, the appellant being a promoter was not the only ground of violation of the 1992 Regulations, but being a director of SCSL and co-brother of B. Ramalinga Raju would also rope the appellant in. After referring to Regulations 2(c) and 2(e) of the 1992 Regulations, the Whole Time Member held that being a director of SCSL, the appellant was a "connected person" under Regulation 2(c) and, therefore, an "insider" under Regulation 2(e). The Whole Time Member went on to hold that the fact that the books of accounts of SCSL were fabricated and manipulated since 2001 remains within the knowledge and possession of "insiders" who were reasonably expected to have access to them. When it was sought to be contended that the Special Court, Enforcement Directorate and Serious Frauds Investigation Office (SFIO) have given findings that only B. Ramalinga Raju and his cohorts were involved in the manipulations of accounts of SCSL, and had hidden the same from and deceived the rest of the board of directors, the Whole Time Member stated that SEBI's investigation is independent and separate from that of other investigation agencies, and that since the appellant was part of the board of directors and declared as a promoter in disclosures filed by SCSL with stock exchanges, and being a co-brother of B. Ramalinga Raju, he was, therefore, closely connected with SCSL and its Chairman and "could have in all probability known about affairs of Satyam Computers including the claimed wrong disclosure of him being a promoter". It is important to note that it was held that the appellant had no role in the fraud committed by B. Ramalinga Raju and his cohorts. It was then held that the appellant was barred from accessing the securities market for a period of 7 years. Further, the appellant was to disgorge the amount mentioned against his name, which is an amount of Rs. 136.64 crores, for the entirety of the period till he sold his shares i.e. upto December, 2008.;