Securities Exchange Board of India (SEBI): Madhabi Puri Buch (Whole Time Member), prima facie found two Infosys employees and 6 others violating the SEBI (Prohibition of Insider Trading) Regulations, 2015 [insider trading regulations] and hence all have been restrained from buying, selling or dealing in securities pending detailed examination and until further orders.
Background
SEBI alert system-generated insider trading alerts for the scrip of Infosys Limited for the period of July 15, 2020.
Based on the SEBI alerts, a preliminary examination was conducted to ascertain whether certain persons/entities traded in the scrip of INFY while they were in possession of/ on the basis of unpublished price sensitive information in contravention of provisions of SEBI Act read with SEBI (Prohibition of Insider Trading) Regulations, 2015 [PIT Regulations]?
INFY Scrip is in Future and Option Segment and a part of SENSEX and NIFTY.
As per the SEBI Examination, it was found that Noticee 1 to 5 had prima facie violated the provisions of SEBI Act and PIT Regulations.
Venkata/Noticee 8, Senior Principal, Corporate Accounting Group of INFY, had been identified as a Designated Person by INFY for the purpose of UPSI and by virtue of that he was reasonably expected to have access to and be in possession of the UPSI. Thus, Venkata is an insider. Pranshu who was connected with Venkata is also an insider.
Venkata had communicated the UPSI to Pranshu and Pranshu had procured UPSI from Venkata and thereby Venkata and Pranshu had prime facie violated the provision of SEBI Act and PIT Regulations.
Analysis & Finding
Issue No. 1: Whether information relating to the financial results of INFY including basic financial parameters of profit & loss (P&L) and balance sheet (BS) as well as key financial and operational parameters which contribute to various elements of the P&L and BS for the quarter ending June 30, 2020 was UPSI. If so, what was the UPSI Period?
Issue No. 2: Whether Pranshu, Amit and Bharath are insiders in terms of PIT Regulations, 2015?
Issue No. 3: Whether Amit and Bharath, while in possession of and on the basis of UPSI, had traded in the scrip of INFY on behalf of Capital One?
Issue No. 4: Whether Amit, while in possession of and on the basis of UPSI, had traded in the scrip of INFY on behalf of Tesora?
Issue No. 5: Based on the answers to issue Nos. 1 to 4, whether there are the relevant provisions of SEBI Act and PIT Regulations that have been violated by Noticee No. 1 to 5 and who all are prima facie liable for the same?
Issue No. 6: Whether Venkata is an insider and whether there is prima facie evidence that he had also communicated the UPSI to Pranshu? If yes, then what are the relevant provisions of SEBI Act and PIT Regulations that have been violated by them?
Issue No. 7: On the determination of the above issues, whether urgent directions, if any, should be issued in the present matter?
Understanding Price Sensitive Information & its implication
Positive UPSI:
If an insider was in possession of positive UPSI about a Company, and traded while in possession of such UPSI, he would be expected to buy the shares of the Company before such information became public. Once the information became public, since it was positive in nature, it would be expected that the share price of the company would go up and the insider would then sell the shares at such higher price, thereby making a profit using the UPSI.
It may be noted though, that the policy of the PIT Regulation is to prevent dealing in securities, while in possession of UPSI irrespective of whether the UPSI is positive or negative and irrespective of whether profit is made or not.
Negative UPSI:
If the UPSI happened to be negative, then the insider would be expected to sell the shares of the Company at a particular price before the UPSI became public (including short selling if he did not already hold the shares).
What is Delta?
A metric called the “Delta” of the positions is such a metric that is used by the market and the traders to monitor their overall net position across all their trades/positions.
This metric nets out all the camouflage and all the complexity, and gives a simple measure of how much approximate profit the insider stands to make if his directional view based on the UPSI turns out to be rights and equally, how much loss stands to make if his directional view turns out to be wrong.
Issue Wise findings
Issue No. 1:
Regulation 2(1)(n) of PIT Regulations defines “unpublished price sensitive information”.
Regulation 2(1)(n) of PIT Regulations:
“unpublished price sensitive information” means any information relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to the following: –
-
financial results; ……
Bench found that the information relating to the financial results of INFY which contributed to the various elements of the P&L and B&S for the quarter ended on June 30, 2020 was Price Sensitive Information and on account of the same being unpublished until July 25, 2020 it was Unpublished Price Sensitive Information (UPSI).
Pursuant to UPSI being available publicly on July 15, 2020 there was a sudden rise in price of INFY scrip that could not be attributed to a general risk in the market.
Based on Structured Digital Database (SDD) it was prima facie found that the UPSI had come into existence on June 29, 2020.
SEBI found no material on record to discredit the assertion of the Company about timing of existence of UPSI.
In Board’s opinion, UPSI was made public on July 15, 2020, hence the UPSI Period will be from June 29, 2020 to July 15, 2020.
Issue No. 2:
It was noted that frequent telephonic communication happened between Amit and Pranshu on 7 occasions and out of which the largest duration call was made on July 9, 2020.
On noting various factors, SEBI prima facie was of the view that:
(a) Pranshu is a connected person on account of being an officer/employee of INFY (Senior Corporate Counsel) that allows him, directly or indirectly, access to the UPSI / he is reasonably expected to have access to the UPSI and on the preponderance of probability basis he is in possession of the UPSI
(b) Pranshu has communicated the UPSI to Amit in some form and manner and Amit has procured the UPSI from Pranshu in some form and manner; and
(c) Amit has communicated the UPSI to Bharath and Bharath has procured the UPSI from Amit in some form and manner.
SEBI’s finding on this issue:
- Pranshu,being an officer/employeeofINFY(SeniorCorporateCounselofINFY),is a connected person under Regulation 2(1)(d) of PIT Regulations and is reasonably expected to have access to the UPSI and on preponderance of probability basis he is in possession of the UPSI. Therefore, Pranshu is an insider as per Regulation 2(1)(g)(i) & (ii) of PIT Regulations.
- Amit has been connected with Pranshu, (an employee of INFY) (a) through frequent telephonic communication; (b) Pranshu had fund transaction with Mahrishi and Mahrishi had fund transaction with Shyama Devi Bhutra (Mother of Amit) and (c) Ram Bilas Bhutra (Father of Pranshu) and Amit are directors in Mahrishi. Thus, Amit is a connected person under Regulation 2(1)(d) of PIT Regulations and is reasonably expected to have access to the USPI and on preponderance of probability basis he is in possession of the UPSI. Hence, Amit had procured UPSI from Pranshu and was in possession of the UPSI. Therefore, Amit is an insider as per Regulation 2(1)(g)(i) of PIT Regulations.
- Bharath and Amit are both working partners of Capital One Partners. Bharath, being in constant touch with Amit through (a) professional relationship and (b) telephonic communication. Thus, by virtue of that relationship it gives Bharath, directly or indirectly, access to unpublished price sensitive information through Amit. Hence, Bharath had procured the UPSI from Amit and on preponderance of probability basis he is in possession of the UPSI. Therefore, Bharath is an insider as per Regulation 2(1)(g)(ii) of PIT Regulations.
Issue No. 3:
Yes, Prima Facie it was observed that both Amit and Bharath being insiders, while in possession of the UPSI, during the UPSI period, had placed orders/trading instruction on behalf of Capital One for trading the securities of INFY.
Prima Facie, it was also found that trades of Capital Once in the securities of INFY were not only executed while in possession of the but also on the basis of the UPSI.
Issue No. 4:
Amit, Manish and Ankush are working partners of Tesora having 35%, 35% and 30% share respectively in profit or loss arising out of business income.
Board prima facie opined that Amit was an insider and had access to and possession of the UPSI. Amit being an insider, while in possession of the USPI, during the UPSI period, had placed orders / trading instructions on behalf of Tesora for trading in the securities of INFY.
Trades of Tesora in the securities of INFY were not only executed while in possession of the UPSI but also on the basis of the UPSI.
Issue No. 5
Pranshu a prima facie insider, on July 02, 2020 and on July 09, 2020 (i.e. one day prior to the start of trading by Capital One) had spoken to Amit (working partner of Capital One).
Coupled with Pranshu’s connection with Amit through Mahrishi and the fact that on July 10, 2020 Capital One started building significant position in the scrip of INFY, prima facie, it lead to the conclusion, on preponderance of probability basis, that Pranshu, who was prima facie had access to and in possession of the UPSI, had communicated the UPSI to Amit in some form or manner. Hence, Pranhsu Bhutra has prima facie violated the provision of Section 12A (e) of SEBI Act, 1992 and Regulations 3(1) of PIT Regulations.
Amit prima facie had procured the UPSI from Pranshu and communicated the same to Bharath. He traded on behalf of Capital Once and Tesora prima facie while in possession of an on the basis of the UPSI. Hence, Amit Bhutra violated the provisions of Section 12A (d) & (e) of SEBI Act, 1992 and Regulations 3(1), 3(2) & 4(1) of PIT Regulations.
Even Bharath C Jain prima facie violated the provision of Section 12A (d) & € of SEBI Act, 1992 and Regulations 3(2) & 4(1) of PIT Regulations.
Amit and Bharath were both working partners of Capital One and both had, prima facie, while in possession of and on the basis of the UPSI, placed orders / given trading instructions on behalf of Capital One.
From July 10, 2020, Capital One had started building a significant position / delta in the scrip of INFY. Due to the said trading, Capital One had generated proceeds of Rs. 2,79,51,432/-.
Hence, Capital One prima facie violated the provision of Section 12A (d) & (e) of SEBI Act, 1992 and Regulations 4(1) of PIT Regulations.
A partner of Capital One who indulges in such conduct / omission, is also liable under securities laws, if his act/omission is in violation of any provision under securities law.
Board noted that,
As per Section 27 of SEBI Act, for a contravention of law committed by the firm, apart from the firm, the partners of firm, who, at the time of contravention was committed
(a) were in charge of, and responsible to the firm for the conduct of the business of the firm; or
(b) were having knowledge of the said contravention of law; or
(c) had failed to exercised due diligence to prevent the said contravention of law; or
(d) had contributed to the contravention of law through their consent or connivance of or neglect, are also liable for said contravention of law committed by the firm and punished accordingly.
Prima Facie in respect of trading carried out in the name of Capital One in the scrip of INFY was a violation of securities laws and the partners Amit Bhutra and Bharath C Jain were in charge of the affairs. Hence as per Section 27 of SEBI Act both of them were severally and jointly liable with Capital One for the violations of provisions of SEBI Act and PIT Regulations committed by Capital One and consequently for impounding of proceeds generated through prima facie insider trading.
Tesora Capital
Amit was the working partner of Tesora and prima facie while in possession of and on the basis of the UPSI had placed orders/given trading instructions on behalf of Tesora. Hence, prima facie Tesora had violated the provisions of Section 12A (d) & (e) of SEBI Act, 1992 and Regulations 4(1) of PIT Regulations.
Section 25 of IPA deals with situations where the act of the firm has caused loss / injury to a third party.
The liability of acting partners and non-acting partners (collectively known as firm) for the injury to the third party is an outcome of joint and several liability of such partners under IPA, irrespective of whether that the conduct (act of omission or commission of the firm) which gave rise to the loss/injury to the third party is also in violation of any provision under securities law.
In view of Section 27 of SEBI Act, Mr. Amit Bhutra is, prima facie, liable, jointly and severally with Tesora for proceeds of Rs 26,81,916/- generated by Tesora through prima facie insider trading activity.
As per Section 25 of IPA read with Section 2(a) of IPA, Mr Manish C Jain and Mr.Ankush Bhutra were, prima facie, liable, jointly and severally with Tesora and Mr Amit Bhutra for proceeds of Rs 26,81,916 /- generated by Tesora through prima facie insider trading activity.
Issue 6:
Prima facie Venkata was a connected person under Regulation 2(1)(d) of PIT Regulations and also a Designated Person for the UPSI, and thus had access to and possession of the UPSI, hence prima facie was also an insider as per Regulation 2(1)(g)(i) of PIT Regulations.
Further, long duration call between Venkata and Pranshu on July 02, 2020 (i.e. few days after the UPSI came into existence) and on July 09, 2020 (i.e. one day prior to the start of trading by Capital One), prima facie lead to the conclusion on preponderance of probability basis, that Venkata, who was in possession of the UPSI, had prima facie communicated the UPSI to Pranshu in some form or manner.
Therefore, Venkata Subramaniam V. V. prima facie violated the provision of Section 12A(e) of SEBI Act, 1992 and Regulation 3(1) of PIT Regulations.
Pranshu, who was prima facie in frequent communication with Venkata through phone calls during the UPSI period, prima facie was a connected person under Regulation 2(1)(d) of PIT Regulations. Pranshu had a long duration call with Venkata on July 02, 2020 (i.e. few days after the UPSI came into existence) and on July 09, 2020 (i.e. one day prior to the start of trading by Capital One). This prima facie leads to the conclusion, on preponderance of probability basis that Pranshu had prima facie procured UPSI from Venkata.
Therefore, Pranshu was once again found to be an insider under Regulation 2(1)(g)(ii) of PIT Regulations and Pranhsu Bhutra prima facie violated the provision of Section 12A (e) of SEBI Act, 1992 and Regulations 3(2) of PIT Regulations.
Issue 7:
Coram held that since the conduct of the aforementioned entities, do not, prima facie, appear to be in the interest of investors and the securities market, necessary action has to be taken against them immediately, else it may lead to loss of investors’ trust in the securities market.
Board observed that considering the facts and circumstances of this case and violations as prima facie found in this case and prima facie repetitive trading pattern in the scrip of INFY by Capital One and Tesora during the period close to the announcement of financial results for the quarters ended December 31st 2019, March 31st 2020, June 30th 2020 and September 30th 2020, this is a fit case where, pending detailed examination, effective and expeditious preventive and remedial action is required to be taken by way of ad interim ex – parte order to protect the interests of investors and preserve the safety and integrity of the securities market.
Order
SEBI issued the following directions:
71.1. Mr. Pranshu Bhutra, Mr. Amit Bhutra, Mr. Bharath C Jain, Capital One Partner, Tesora Capital and Mr. Venkata Subramaniam V. V are restrained from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until further orders;
71.2. Mr. Manish C Jain and Mr. Ankush Bhutra are restrained from buying, selling or dealing in securities, either directly or indirectly, in any manner whatsoever until the compliance of direction mentioned at paragraph 71.5 below;
71.3. If Mr. Pranshu Bhutra, Mr. Amit Bhutra, Mr. Bharath C Jain, Capital One Partner, Tesora Capital,Mr. Venkata Subramaniam V. V,Mr. Manish C Jain and Mr. Ankush Bhutra have any open position in any exchange traded derivative contracts, as on the date of the order, they can close out / square off such open positions within 3 months from the date of order or at the expiry of such contracts, whichever is earlier. The said entities are permitted to settle the pay-in and pay-out obligations in respect of transactions, if any, which have taken place before the close of trading on the date of this order;
71.4. The bank accounts of Capital One Partners, Mr. Amit Bhutra and Mr.Bharath C Jain to the extent of amount mentioned above is impounded. Further, Capital One Partners, Mr. Amit Bhutra and Mr. Bharath C Jain are directed to open an escrow account with a nationalized bank, jointly and severally and deposit the impounded amount mentioned therein which has been prima facie found to be proceeds generated from the prima facie insider trading, in this Order, within 15 days from the date of service of this order. The escrow account/s shall be an interest-bearing escrow account and shall create a lien in favour of SEBI. Further, the monies kept therein shall not be released without permission from SEBI;
71.5. The bank accounts of Tesora Capital, Mr. Amit Bhutra, Mr. Manish C Jain and Mr. Ankush Bhutra to the extent of amount mentioned in table no. 13 at paragraph 58 above is impounded. Further, Tesora Capital, Mr. Amit Bhutra, Mr. Manish C Jain and Mr. Ankush Bhutra are directed to open an escrow account with a nationalized bank, jointly and severally and deposit the impounded amount mentioned therein which has been prima facie found to be proceeds generated from the prima facie insider trading, in this Order, within 15 days from the date of service of this order. The escrow account/s shall be an interest bearing escrow account and shall create a lien in favour of SEBI. Further, the monies kept therein shall not be released without permission from SEBI;
71.6. Mr. Amit Bhutra, Mr. Bharath C Jain, Capital One Partner, Tesora Capital, Mr. Manish C Jain and Mr. Ankush Bhutra are directed not to dispose of or alienate any assets, whether movable or immovable, or any interest or investment or charge on any of such assets held in their name, jointly or severally, including money lying in bank accounts except with the prior permission of SEBI until the impounded amount is deposited in the escrow account..
71.7. Mr. Amit Bhutra, Mr. Bharath C Jain, Capital One Partner, Tesora Capital, Mr. Manish C Jain and Mr. Ankush Bhutra are directed to provide a full inventory of all assets held in their name, jointly or severally, whether movable or immovable, or any interest or investment or charge on any of such assets, including details of all bank accounts, Demat accounts and mutual fund investments, immediately but not later than 5 working days from the date of receipt of this order;
71.8. The banks where Capital One Partners, Tesora Capital, Mr. Amit Bhutra, Mr. Bharath C Jain, Mr. Manish C Jain and Mr. Ankush Bhutra are holding bank accounts, jointly or severally, are directed to ensure that till further directions, except for compliance of direction at paragraph 71.4 & 71.5, no debits are made in the said bank accounts without the permission of SEBI. The banks are directed to ensure that all the above directions are strictly enforced. On production of proof of deposit of entire amount mentioned in column 4 of table no. 13 in respect of serial No.1 entities by any of the entities mentioned in column 2 corresponding to serial No.1 of table no. 13, in the escrow account, SEBI shall communicate to the banks to defreeze the accounts corresponding to all the entities mentioned in the column No. 2 of table no. 13 corresponding to serial No.1. Similarly on production of proof of deposit of entire amount mentioned in column 4 of table no. 13 in respect of serial No.2 entities by any of the entities mentioned in column 2 corresponding to serial No.2 of table no. 13, in the escrow account, SEBI shall communicate to the banks to defreeze the accounts corresponding to all the entities mentioned in the column No. 2 of table no. 13 correspondings to serial No.2. However, in case of entities who are falling in both serial no.1 and 2 and full deposit of amount mentioned in column no.4 of serial no.1 and 2 has not been made, such persons bank account shall remain frozen till the entire amount mentioned in column no.4 of serial no.1 and 2 are deposited.
71.9. The Depositories are directed to ensure, that till further directions, no credits are made in the demat accounts of the Noticee No. 1 to 8, held individually or jointly. The depositories are further directed to ensure that till further direction except for compliance of direction mentioned at paragraphs 71.3, 71.4 and 71.5, no debits are made in the demat accounts of the said Noticees, held individually or jointly.
71.10.The Registrar and Transfer Agents are also directed to ensure that till further directions, no credits are permitted and that except for compliance of direction at paragraph 71.4 and 71.5 the securities / mutual funds units held in the name of the Noticee No. 1 to 8, jointly or severally, are not transferred/redeemed.
[Insider Trading in Shares of Infosys Ltd., In Re., 2021 SCC OnLine Sebi 126, decided on 31-05-2021]
