Summary
PC Jeweller’s managing director and related traders challenged SEBI findings of communication and use of unpublished price-sensitive buy-back information. The Court held that the family relationship and trading pattern did not establish access or communication on the record. The traders were not connected persons on the findings, the estrangement evidence had been wrongly rejected, and SEBI retained the burden of proving possession. Both challenged orders were set aside and deposits ordered refunded.
Issues
- Whether family proximity and the particular trading pattern established communication or possession of UPSI.
- Whether SEBI could shift the burden without establishing the regulatory foundational facts.
- Whether SAT independently assessed the evidence and the noticed allegations.
Provisions considered
- Regulations 2(1)(d), (f) and (g), and 4(2), SEBI (Prohibition of Insider Trading) Regulations, 2015The traders’ connected-person status was not established; for these non-connected persons SEBI had to establish possession or access rather than presume it from kinship. (¶¶ 26-32, 43-45)
- Regulation 3(1), SEBI (Prohibition of Insider Trading) Regulations, 2015The communication prohibition did not create a deeming fiction; communication required cogent supporting material, which was absent here. (¶¶ 24, 40, 48)
Held
- The family arrangements, earlier resignations and separate residences demonstrated a breakdown of personal and business ties predating the relevant information. Neither common address nor kinship alone established access to UPSI, particularly where the finding that the traders were not connected persons stood on the record. (¶¶ 26-32, 43-45, 48)
- Even assuming incomplete social estrangement, the burden could not be reversed merely on that basis. SEBI had to establish the foundational facts supporting possession or access in these circumstances. Reasonable inference must rest on proved facts rather than conjectural proximity. (¶¶ 32, 41-44, 47)
- The detailed trading chronology did not support the inference drawn. Sales occurred before the relevant information existed, substantial holdings remained, and the broader price trend contradicted the asserted correlation. The Court rejected the particular circumstantial case; it did not dispense with the need to assess properly supported inferential evidence. (¶¶ 34-39, 41-42, 48)
- Regulation 3 supplied no automatic presumption that the managing director communicated information to relatives. No cogent material established the alleged communication, and the particular trading pattern could not fill that evidentiary gap. (¶¶ 40, 48)
- Reliance on transactions and rental payments not alleged in the show-cause notices violated natural justice. SAT also failed its first-appellate duty to independently assess the issues and evidence, instead substantially repeating the WTM’s account. (¶¶ 24, 46, 48)
Result
Appeals allowed. The SAT judgment and WTM final orders were set aside. Deposits made under the impugned orders or the Supreme Court’s interim orders were directed to be refunded to the respective appellants. No order as to costs.