Case: S.E.B.I Vs. Sujit Karkera

3. A brief factual background would be necessary before we deal with the question of law that has arisen in this case instant. Broadly to understand the issue at hand, the facts in CIVIL APPEAL NO. 2595 OF 2013 AND 2596 OF 2013 (related cases) may be stated in brief. SEBI investigated into the activities of Shri Kanaiyalal Baldevbhai Patel [herein after `KB for brevity] an individual trader. During the investigation, it was found that KB was putting orders ahead of orders placed by Passport India Investment (Mauritius) Ltd. [herein after `PII for brevity]. One Dipak Patel, was the portfolio manager of PII, who also happens to be a cousin of KB and one Shri Anandkumar Baldevbhai Patel [herein after `AB for brevity]. It was alleged that Dipak Patel provided information to KB and AB regarding forthcoming trading activity of the PII. It is to be noted that trades were executed using the telephone number registered in the name of AB at the common residential address of KB and AB. Taking advantage of the information received from Dipak Patel, KB had indulged in trading before the PII and consequently squared off the position when the order of PII were placed in the market. It was estimated that the KB earned a total profit of Rs. 1,56,32,364.01/from the alleged trades. This Court in CIVIL APPEAL NO. 2594 OF 2013, by order dated 05.04.2017, while remanding the matter back to the Appellate Tribunal with respect to AB, held that there is no finding or conclusion recorded with respect to AB in the followingIn CIVIL APPEAL NO.2666 OF 2013, Sujit Karkera and Group were trading through B.P. Equity Pvt. Ltd. SEBI alleges that they were trading ahead of the trades of CITIGROUP Global Markets Mauritius Pvt. Ltd.(CGMMPL) on the basis of information provided by Suresh Menon (trader of CGMMPL) who was in possession of the orders of CGMMPL for 6 scrip days. SEBI in its investigation had found that there were several calls made between Suresh Menon and his family friend Sujit Karkera during this time period of 6 days. In these telephonic conversations, it was alleged that there was exchange of information related to scrip name, order quantity, order timing, and order price of the orders placed by Suresh Menon for CGMMPL. Sujit Karkera utilized the information provided by Suresh Menon to trade thereby making huge profits.5. In CIVIL APPEALOF 2014, Jitendra Kumar Sharma was an equity dealer employed by the Central Bank of India. His responsibilities entailed preparation of charts for the chief equity dealer and placing of orders based on instructions of the chief equity dealer. Vibha Sharma, who is the wife of Jitendra Kumar Sharma, was a regular trader in the stock market and this fact was disclosed to Central Bank of India as a good practice of making disclosure to the employer. It is the allegation of SEBI that Vibha Sharma engaged herself in front running Central Bank of Indias large scale orders allegedly with the knowledge obtained from her husband. Further the SEBI had alleged that Vibha Sharmas trades substantially matched with the trades of the bank during the relevant period thereby violating regulations 3(a), (b), (c), (d) and 4(1) of FUTP 2003.6. In CIVIL APPEAL NO. 5829 OF 2014, facts of the case are that appellant used to trade in scrips of four companies namely Amtek Auto Ltd., Amtek India Ltd., Monnet Ispat Ltd. and Ahmednagar Forgings Ltd. through Religare Securities Ltd., ISF Securities Ltd., India Infoline Securities Ltd. and Narayan Securities Private Ltd. It is alleged against the appellant that, she had bought and sold equal quantities of shares in large volume in these four scrips by utilizing the information provided by Deepak Khurana who was privy to certain confidential information of Religare. SEBI conducted an investigation in the trading of appellant from June 1, 2008 to January 12, 2009. During the investigation, SEBI noticed irregularities in her dealings in the scrips of above mentioned four companies. A general trend of trading was noticed which further revealed that the appellant was indulged in Front Running. It was found that the appellants sell orders (quantity and price) substantially matched with the buy orders (quantity and price) of other traders and that her sell order limit price was always above the sell LTP but was same or very close to the buy limit price of other traders. Moreover the selling price, quoted by her, was close to the highest price reached on market on those days.

Reasoning:
We disagree with the aforesaid contention urged by the learned counsel for the appellant. In the appeal(s) filed by the aggrieved person(s) against the order(s) of the Adjudicating Officer, the learned Appellate Tribunal was expected to record its own independent findings and arrive at its own conclusions for holding the respondent liable for the penalty imposed. It seems that the learned Appellate Tribunal has proceeded on the basis that the case of the respondent is same and similar to the case of Kanaiyalal Baldev Patel and Dipak Patel which, evidently, is not.From the line of decisions cited herein above, it can be inferred that as a matter of principle, while interpreting this regulation, the court must weigh against an interpretation which will protect unjust claims over just, fraud over legality and expediency over principle. Once this rule is clearly established, individual cases should not pose any problem.23. It is equally well settled that in interpreting a statute, effort should be made to give effect to each and every word used by the Legislature. The Courts should presume that the Legislature inserted every part for a purpose and the legislative intention is that every part of the statute should have effect. It must be kept in mind that whenever this Court is seized with a matter which requires judicial mind to be applied for interpreting a law, the effort must always be made to realize the true intention behind the law.Although unfair trade practice has not been defined under the regulation, various other legislations (Monopolies and Restrictive Trade Practices Act, 1969, Section 36A; The Consumer Protection Act, 1986, Section 2(1)(r); The Competition Act, 2002, Section 3; The Food Security and Standards Act, 2006, Section 24(2); Specific Relief Act, 1963, Section 20; Usurious Loans Act, 1918, Section 3.]) in India have defined the concept of unfair trade practice in different contexts. A clear cut generalized definition of the `unfair trade practice may not be possible to be culled out from the aforesaid definitions. Broadly trade practice is unfair if the conduct undermines the ethical standards and good faith dealings between parties engaged in business transactions. It is to be noted that unfair trade practices are not subject to a single definition; rather it requires adjudication on case to case basis. Whether an act or practice is unfair is to be determined by all the facts and circumstances surrounding the transaction. In the context of this regulation a trade practice may be unfair, if the conduct undermines the good faith dealings involved in the transaction. Moreover the concept of `unfairness appears to be broader than and includes the concept of `deception or `fraud.30. Although learned counsel for SEBI has admitted that there is no difference between fraud and unfair trade practice under regulation 4 (1), but we are of the opinion that such submission may not be conclusive. As these cases do not require further investigation, the question regarding the scope of prosecution for unfair trade practice is kept open.The reliance on `expressio unius est exclusio alterius may not be appropriate in this case instant as the intention of the regulation is apparent in this case. Moreover, it has been well established that `expressio unius est exclusio alterius is not a rule of law but a tool of interpretation which must be cautiously applied.v. Brooks, (1887) 19 Q.B.D. 400; Lowe v. Darling & Sons, (1906) 2 K. B.772) In light of the above discussion, this rule of interpretation does not help the case of the violators.36. A crucial aspect which needs to be observed at this point is the element of causation which is embedded under regulation 2(1)(c) read with regulations 3 and 4. In order to establish the aforesaid charges in this case, it is required by the SEBI to establish that the harm was induced by the materialization of a risk that was not disclosed because of the tippees fraudulent practice. Further the charges under the FUTP 2003 needs to be established as per the applicable standards rather than on mere conjectures and surmises.37. It should be noted that the provisions of regulations 3 (a), (b), (c), (d) and 4(1) are couched in general terms to cover diverse situations and possibilities. Once a conclusion, that fraud has been committed while dealing in securities, is arrived at, all these provisions get attracted in a situation like the one under consideration. We are not inclined to agree with the submission that SEBI should have identified as to which particular provision of FUTP 2003 regulations has been violated. Aapproach may not be applicable in this case instant.38. Before we conclude, it would be useful to have a look at American jurisprudence which has developed around Title 17, Code of Federal Regulations, Part 240, Rule(Prohibition of use of manipulative or deceptive devices or contrivances with respect to certain securities exempted from registration). It is to be noted that much of Indian securities laws have similar provisions and a brief survey of jurisprudence might be useful for the discussion herein. The complexity of the subject we are dealing is reflected even in the American jurisprudence as the U.S Supreme Court seems to have accepted the aforesaid provision to be the most litigated ones. (Securitiesand Exchange Commission v. National Securities, Inc., et al., 393 U.S. 453(1969)`Although section 10(b) and 10may well be the most litigated provisions in the federal securities laws, this is the first time this Court has found it necessary to interpret them. We eneter the virgin territory cautiously...]) In David Carpenter, Kenneth P. Felis and R. Foster Winans, v. United States, 484 U.S. 19, the United States Supreme Court dealt with the matter of fraud under section 10(b). In this case, the Petitioner, who was ain a Journals investment advice column, entered into a deal with a stock broker wherein he providedinformation on the content of the column. Further the stockbroker bought and sold shares based on such information and shared the profits made therein with the Petitioner. The Court, while convicting the Petitioner, elaborated the meaning of fraud in followingNow we come back to the regulations 3 and 4 (1) which bars persons from dealing in securities in a fraudulent manner or indulging in unfair trade practice. Fairness in financial markets is often expressed in terms of level playing field. A playing field may be uneven because of varied reasons such as inequalities in information etc. Possession of different information, which is a pervasive feature of markets, may not always be objectionable. Indeed, investors who invest resources in acquiring superior information are entitled to exploit this advantage, thereby making markets more efficient. The unequal possession of information is fraudulent only when the information has been acquired in bad faith and thereby inducing an inequitable result for others.42. The law of confidentiality has a bearing on this case instant. "Confidential information acquired or compiled by a corporation in the course and conduct of its business is a species of property to which the corporation has the exclusive right and benefit, and which a court of equity will protect through the injunctive process or other appropriate remedy." (3 W. Fletcher, Cyclopedia of Law of Private Corporations § 857.1, p. 260 (rev. ed. 1986) The information of possible trades that the company is going to undertake is the confidential information of the company concerned, which it has absolute liberty to deal with. Therefore, a person conveying confidential information to another person (tippee) breaches his duty prescribed by law and if the recipient of such information knows of the breach and trades, and there is an inducement to bring about an inequitable result, then the recipient tippee may be said to have committed the fraud.43. Accordingly,front running may be brought under the prohibition prescribed under regulations 3 and 4 (1), for being fraudulent or unfair trade practice, provided that the ingredients under those heads are satisfied as discussed above. From the above analysis, it is clear that in order to establish charges against tippee, under regulations 3 (a), (b), (c) and (d) and 4 (1) of FUTP 2003, one needs to prove that a person who had provided the tip was under a duty to keep theinformation under confidence, further such breach of duty was known to the tippee and he still trades thereby defrauding the person, whose orders wereby inducing him to deal at the price he did.44. Taking into consideration the facts and circumstances of the case before us and the law laid down herein above and SEBI v. Kishore R. Ajmera (Supra) can only lead to one conclusion that concerned parties to the transaction were involved in an apparent fraudulent practice violating market integrity. The parting of information with regard to an imminent bulk purchase and the subsequent transaction thereto are so intrinsically connected that no other conclusion but one of joint liability of both the initiator of the fraudulent practice and the other party who had knowingly aided in the same is