Securities Exchange Board of India (SEBI): The Coram of Santosh Kumar Mohanty (Whole Time Member) lifted restrictions imposed on 10 Entities who were alleged in insider trading, though the Tribunal added that the said relaxation was being granted subject to the outcome of appeal proceedings filed by SEBI against SAT Order before Supreme Court.

For conducting a preliminary examination in the scrip of Zee Entertainment Enterprises Ltd., SEBI’s purpose was to ascertain as to whether certain entities have traded in the said scrip while they were in possession of unpublished price sensitive information pertaining to audited financial results of ZEEL for the quarter ended on June 30, 2020, in contravention of the provisions of the SEBI Act read with PIT Regulations.

Pursuant to SEBI’s interim order, Entities in compliance with the direction issued therein, opened escrow accounts and deposited the proceeds as directed in the said order.

Analysis, Findings and Decision

Tribunal noted that the preliminary examination revealed prima facie that certain persons/entities traded in the scrip of ZEEL while they were in possession of UPSI about the Company and the genesis to the said observation was in the fact that Mr Bijal Shah, was holding an important post of Head of Financial Planning and Analysis, Strategy and Investor Relations and was also a designated person of ZEEL.

Further, Mr Bijal Shah was also noted to have been dealing with the aspects of financial performance and was part of all important meeting/discussion pertaining to the financial results of the Company and therefor was an insider under the PIT Regulations. He was also said to have been in connection with Mr Gopal Ritolia and Mr Jatin Chawla

Adding to the above, interim recorded that the trading pattern of the Entities during the UPSI period was marked by abnormal positions in the scrip of ZEEL and all of their trading positions were largely unidirectional during the UPSI period which were noticed to have been squared off substantially after the disclosure of the UPSI.

As per the Interim Order, Mr Gopal Ritolia and Mr Jatin Chawla were noticed to have started taking a bullish position in the scrip of ZEEL from the same day onwards, i.e., August 11, 2020, and have followed a similar trading pattern in the scrip of ZEEL during UPSI period as has been followed by the other Entities in the present proceedings.

The interim order following the doctrine of preponderance of probabilities prima facie observed that Mr Bijal Shah had apparently communicated the UPSI to Mr Jatin Chawala who in turn communicated the said UPSI to Entity 1 who further communicated it to Entity 1. The said entities were cousin brother, thereby enhancing the probabilities of sharing of the said UPSI based on which, trades were executed in the trading accounts of entities 3 to 9, wherein consistently bullish position was taken in the scrip of ZEEL.

In view of the above-stated chain of events and trading activities in the scrip of ZEEL, the entities were prima facie found to be in violation of relevant provisions of SEBI Act and PIT Regulations.

Further, this Coram noted that the entities have deposited a sum of Rs 14.22 crores in terms of the directions issued in the Interim Order.

Subsequent to such deposit of funds, the bank accounts of Entities have been unfrozen and restored to normalcy for all kinds of banking transactions.

“…considering the fact that in today’s age of technology with mushrooming applications that enable seamless calls and messages which provide service of end- to-end encryption assuring complete anonymity, it will be a simplistic assumption to state that the Entities would have communicated the UPSI with each other through the regular telephone calls only.”

Entities did not bring forward any document before the Tribunal warranting to interfere with the Prima Facie observations about their inter se connection and close relationship, made in the Interim Order.

In the present case, the UPSI was prima facie seen to have been received by the Entities from Jatin Chawla, who was further seen to have received it from a person Mr Bijal Shah, a senior official of the ZEEL who was integrally associated with the said price sensitive information of the Company.

“….even in the absence of any direct evidence, such matters of insider trading allegations are to be tested on the circumstantial evidence including the facts surrounding the conduct of parties and abnormal trading practices adopted by them which defy normal logic and business prudence. What is needed in such matters, is to appreciate from a factual matrix, the preponderance of probabilities of happening of such an event.”

The explanations and documentary evidence adduced before the Coram by the Entities to justify their action of indulging in those trades in the scrip of ZEEL during the UPSI period, did not carry adequate strength to dislodge the factual and circumstantial evidence mustered in the Interim Order to make a Prima facie charge of violations of PIT Regulations against them.

Tribunal gave liberty to the entities to submit all such justification before the fact-finding authority so as to justify that the trading behavior displayed by them in the scrip of ZEEL is normal and similar to the trading strategy adopted by them in various other scrips and that their trading strategy of 50-day Exponential Moving Average had been followed by them consistently in several other scrips as well.

While concluding, the Tribunal found that entities in the present matter were all regular and habitual traders and the UPSI which was received by the two cousin brothers Mr Amit B Jajoo and Mr Manish K Jajoo was immediately put to use for monetary gain in as many as seven trading accounts, all belonging to their family members, which glaringly exposed the propensity an illicit intent of the entities to commit violations of securities law.

Therefore, the restrictions on the Entities vide the interim Order deserves to be continued.

Though, keeping in view the pendency of an appeal on this subject matter before the Hon’ble Supreme Court of India and pending completion of investigation in the matter and with a view to remain in compliance with the order of the SAT issued in the case of the aforesaid five entities, Tribunal was inclined to grant similar interim reliefs to the Entities from the restrain imposed on them vide directions no. 106.1 and 106.4 of the Interim Order.

Lastly, the Tribunal remarked that, 

“It is however clarified here that the funds deposited by the Entities in an interest-bearing escrow account will remain in the said account with lien in favour of SEBI until further orders”

[Insider Trading in the shares of Zee Entertainment Enterprises Ltd., In Re., 2022 SCC OnLine SEBI 19, decided on 18-2-2022]

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