Summary
Applying the historical 1992 insider-trading regulations, the Supreme Court held that connection with a company alone did not make a person an insider: reasonable expectation of access to unpublished price-sensitive information also required a factual foundation. It allowed appeals by Chintalapati Srinivasa Raju and five related appellants, rejecting unsupported attribution and disgorgement. It dismissed the appeals of SRSR and B. Suryanarayana Raju, whose roles supported insider findings, and explained the admissible evidentiary use of investigative reports and judgments.
Issues
- Whether connected status or family relationship alone satisfied the historical definition of insider.
- Whether appellant-specific evidence justified insider findings and disgorgement, and whether investigative reports and criminal judgments could be considered.
Provisions considered
- Regulations 2(c), 2(e), 2(h) and 3(i), SEBI (Prohibition of Insider Trading) Regulations, 1992Under the applicable historical framework, connection and reasonable expectation of access required separate satisfaction. The Court distinguished pre-2002 trading on the basis of information from the later possession test, and the different 2015 definition. (¶¶ 7, 8, 10, 11, 12, 25, 26, 27, 28, 30, 31, 33, 34)
- Section 246, Companies Act, 1956The authenticated inspector’s report was admissible as evidence of the inspector’s opinion, enabling consideration of the SFIO findings concerning Suryanarayana Raju. (¶¶ 36, 37, 38)
- Section 42, Indian Evidence Act, 1872The Special Court judgment concerning matters of public nature was relevant, though not conclusive, to whether the particular appellant could reasonably be expected to have access to the information. (¶¶ 39, 40)
Held
- Regulation 2(e)(i) of the 1992 Regulations required both connection and a reasonable expectation of access to UPSI. The latter could be inferred from foundational facts but could not rest on assertion or status alone; the differently worded 2015 definition could not replace that historical test. (¶¶ 10, 11, 20, 21)
- The evidence supported the tribunal minority’s exoneration of Chintalapati Srinivasa Raju. His former executive role, later non-executive directorship, joint ventures and family relationship did not establish the necessary access; the Court also rejected a case exceeding the show-cause notice’s promoter basis. (¶¶ 12, 13, 14, 15, 16, 17, 18, 19, 20, 21, 22)
- The closely held company’s sales preceded the identified UPSI, and unsold shares could not support disgorgement. Its appeal was allowed. The father’s later sales also could not be linked through connected status that had already ceased; his appeal was allowed. (¶¶ 23, 24, 25, 26, 27, 28, 29)
- The mother and two sons were not shown to satisfy the access limb merely through relationship. Their independent circumstances and trading evidence did not establish the alleged insider violations, and their appeals were allowed. (¶¶ 30, 31)
- SRSR was a family-controlled front entity whose transfer, pledge and funding transactions supported the inference of access to UPSI and violation of the regulations. Its appeal was dismissed. (¶¶ 32, 33, 34)
- The SFIO report and Special Court judgment supported Suryanarayana Raju’s active role, distinguishing him from other family members. Their evidentiary relevance did not collapse the distinction between criminal and adjudicatory proceedings; his appeal was dismissed. (¶¶ 35, 36, 37, 38, 39, 40)
Result
Six appeals allowed: those of Chintalapati Srinivasa Raju, his closely held company and father, and the mother and two sons of B. Ramalinga Raju. Tribunal findings set aside accordingly. SRSR’s and B. Suryanarayana Raju’s appeals dismissed.