Insider Trading Case: SAT Lifts Restrictions Imposed By SEBI On Infosys Employees

The SEBI conducted an examination in respect of the trading activities of two partnership firms, namely, M/s Capital One Partners and M/s Tesora Capital, in the scrip of M/s Infosys Ltd. In the preliminary examination, it was observed that the corporate announcement of audited financial results for the quarter ended June 30, 2020 was made by Infosys on July 15, 2020. The information relating to the financial results was unpublished price sensitive information (UPSI) which came into existence on June 29th, 2020 and came to an end on July 15th, 2020 when the final results were announced.

It was also found that the appellant was a Senior Corporate Counsel of Infosys and, being an officer/employee of Infosys, was reasonably expected to have access to the UPSI and, on a preponderance of probability basis, the appellant was in possession of the UPSI and, thus, was an insider under Regulation 2(1)(g) of the PIT Regulations.

The preliminary examination revealed that Senior Corporate Counsel was in close connection with another employee, Mr. Venkata Subramaniam, who was a Senior Principal, Corporate Accounting Group, and was a designated person, who was reasonably expected to have access to and be in possession of UPSI, and, therefore, Mr. Venkata was also an insider.

It was alleged that Mr. Venkata had been in frequent communication with the appellant through telephonic communication and, therefore, on a preponderance of probability, being in possession of UPSI, must have communicated the UPSI to the appellant. The examination further revealed that the appellant was closely connected to Mr. Amit Bhutra through frequent telephonic communication and that Mr. Amit Bhutra was a partner in Capital One Partners and Tesora Capital, and it was reasonably expected that the appellant had passed on the UPSI to his cousin, Mr. Amit Bhutra, who in turn traded in the scrip of the company prior to the announcement of the financial results.

The examination revealed that the two partnership firms, through their trading, had generated proceeds of Rs. 279.51 lakhs in Capital One Partners and Rs. 26.82 lakhs in Tesora Capital.

The SEBI issued an ex parte interim order preventing the appellant from buying, selling, or dealing in securities in any way, directly or indirectly, until further orders were issued.

The appellant contended that his role in the company was to advise the company and its subsidiaries relating to employment law issues and that he was not required to interact with any team involved in the formulation or tracking of financial results, such that he would be reasonably expected to have access to UPSI related to financial results.

The appellant submitted that he did not possess any UPSI, nor could it be reasonably expected that he had access to UPSI.

The appellant admitted that he was related to Mr. Amit Bhutra, who was his second cousin, but denied passing on any sensitive information relating to Infosys to Mr. Amit Bhutra. The appellant also denied knowing anything about Amit's transactions at Infosys or any other company.

The SAT, while quashing the ex parte order, held that a telephone conversation between the appellant and Mr. Venkata, along with proof of certain emails exchanged between them, indicates that the telephone calls were relating to some official matters regarding their respective domains of responsibilities in the company. The telephone call discussions were relating to maternity benefits through Employees State Insurance Corporation rather than through Infosys and, consequently, the initial burden upon the appellant was discharged, namely, that he was not having any UPSI nor was UPSI passed on from Mr. Venkata to the appellant in this telephone conversation.

The Tribunal observed that the burden of proof was wrongly placed upon the appellant that he did not pass on UPSI to Mr. Amit Bhutra. It is settled law that the burden of proof is always upon the prosecution, namely, SEBI, to prove that he had access to UPSI or that he was an insider.

The SAT observed that "in the absence of any direct or indirect evidence coming forth at this stage and the fact that the investigation is still continuing, which may take time for the issuance of a show cause notice, we are of the opinion that the continuation of the interim order against the appellant is unjustified, especially when the appellant has not traded in the scrip nor is there any finding that he is a party to the unlawful gain."

The tribunal further added that the investigation has not yet concluded and, therefore, it would take some time to issue a show cause notice. Final orders will come much later. Only prima facie observations are being made, which the appellant has sufficiently explained and discharged his burden. At this stage, barring a person from accessing the securities market is not justified.

Case Title: Mr. Pranshu Bhutra Versus SEBI

Citation: Appeal No.689 of 2021

Dated: 25.4.2022

Counsel For Appellant: Mr. Mustafa Doctor, Senior Advocate with Mr. Anirudh Hariani, Mr. Anil Choudhary, Mr. Rahul Das and Ms. Sudarshana Basu, Advocates i/b. Finsec Law Advisors

Senior Advocate Pramod Nair with Advocates Aakansha. Luhach And Payal Sarogi argued for the Appellant in the connected Appeal

Counsel For Respondent: Mr. Shiraz Rustomjee, Senior Advocate with Ms. Nidhi Singh, Ms. Deepti Mohan, Ms. Binjal Samani, Ms. Aditi Palnitkar and Ms. Moksha Kothari, Advocates i/b. Vidhii Partners

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