Securities and Exchange Board of India (SEBI): S.K. Mohanty, Whole Time Member, in a detailed order held that the Managing Director, Abhay Bhutada along with the other entities, was involved in insider trading, and resultantly restrained the entities from the securities market, impounded their bank accounts among other things. Further stated that if the Entities had any open position in any exchange traded derivative contracts, they can square off such open positions within three months from the date of order or at the expiry of such contracts, which ever is earlier.
In the pertinent matter, SEBI conducted preliminary examination into the trading scrip of Magma (a non-banking finance company) to ascertain as to whether certain entities traded in the said scrip while they were in possession of the basis of Unpublished Price Sensitive Information ( UPSI) which were later alleged as contravention of the provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as “SEBI Act, 1992”) read with the SEBI (Prohibition of Insider Trading) Regulations, 2015 (hereinafter referred to as “PIT Regulations, 2015”).
The Tribunal in a detailed order of 46 pages, gave brief findings explaining the role of each entity in the manipulative, unusually abnormal trading pattern, wherein the relations between the entities was further established by the phone records and the transactions into the bank accounts.
The Court made several observations, such as:
– factual findings on the connections, phone calls and funds transfers amongst various Entities as well as transmission of UPSI from Entity no. 1 to other Entities as dealt with in detail in preceding paragraphs, it can now be prima facie held that the Entities, by pursuing a modus operandi, have carried out insider trading activities in the scrip of Magma, wherein each Entity has played his / her respective part in pursuance of the said modus operandi. Entity no. 1 by communicating UPSI to Entity nos. 2, 6 and 8 enabled them to engage themselves or facilitate other Entities to indulge in insider trading activities, and as is clearly borne out from the activities of Entity nos. 2, 6 and 8, they have quite apparently engaged themselves in insider trading activities.
-that this was a ‘compelling case of preponderance of probabilities leading to a prima-facie observation’.
-the sudden spurt of exuberance on the part of Entity no. 3 as an investor/trader in securities market towards a specific scrip i.e. the scrip of Magma and consequently such an abnormal trading in the scrip of the said Company during the UPSI period as demonstrated above, preponderantly indicates that the trades executed by Entity nos. 2 and 3 from the trading account of Entity no. 3 were prima facie based on or influenced by the possession of UPSI, by both the Entities.
-from the aforementioned business connections and financial dealings, apparently it becomes obvious that Entity no. 1 and 6 have known to each other for many years and both the Entities shared certain commercial relationships over the years.
-the trading done in the accounts of Entity nos. 6 and 7 in the scrip of the Company appears to be significantly influenced by the possession of UPSI by Entity no. 6.
-the fact that the trading account of Entity no. 6 with HDFC Securities from where the trades in the scrip of Magma were executed by Entity no. 6, was opened only on February 08, 2021 i.e. just one day prior to the trading in Magma, raises stoutly a bonafide suspicion about the abnormal trading pattern followed by these two Entities in the scrip of Magma.
-It is evident from the banking transactions noted in the paragraph above more so from such large amount of funds transfer in favour of Entity no. 1 from a company in which Entity no. 8 is the significant beneficial owner (SBO), that Entity no. 8 is sharing a close relationship with Entity no. 1.
-the funds for the buy trades executed in the scrip of Magma by Entity nos. 4 and 5 were sourced from premature withdrawal of Fixed Deposits and taking credit from the Overdraft account by Entity no. 4 and his wife
And held, “I find that the pictorial representation (Figure 2) given below this paragraph very well illustrates the connections enjoyed and funds transfers made by different Entities amongst themselves as well as the trades executed by certain Entities in the scrip of Magma during the UPSI period based on or influenced by possession of UPSI which was prima facie transmitted by Entity no. 1 to other Entities. In my view the pictorial illustration provided below is fairly self-speaking and makes a very strong prima facie case of insider trading indulged in by the Entities based on preponderance of probabilities emerging out of the factual details about possession as well as communication of UPSI and use thereof for the insider trading in the scrip of Magma which have been explained at length in the preceding paragraphs of this order”.
Ensuingly impounded the bank accounts:
(i) Entity nos. 1, 6, 7 and 8 shall be jointly and severally liable for an amount of ₹8,32,80,941.
(ii) Entity nos. 4, 5 and 6 shall be jointly and severally liable for an amount of ₹3,49,95,920.
(iii)Entity no. 2 and 3 shall be jointly and severally liable for an amount of ₹1,76,03,579.
[Magma Fincorp Limited (now known as Poonawalla Fincorp Limited), In re, WTM/SM/ISD /13379/2021-22,decided on 15-09-2021
Agatha Shukla, Editorial Assistant has reported this brief.