Case: BALRAM GARG &amp; ORS Vs. SECURITIES AND EXCHANGE BOARD OF INDIA

2. Brief facts relevant for the purpose of the present appeals are that P. Chand Jeweller Pvt. Ltd. was incorporated on April 13, 2005 under the Companies Act, 1956 as a Private Limited Company. However, pursuant to a resolution passed by the shareholders on July 5, 2011, the company was converted into a Public Limited Company, following which the name of the company was changed to PC Jeweller Ltd. (for short PCJ) and a fresh certificate of incorporation was issued.3. The genesis of the present dispute is rooted in the action of Respondent/SEBI against the appellants vide an impounding order dated 17.12.2019 and a show--cause notice dated 24.04.2020. The crux of the allegations of the impounding order and the show--cause notice are as follows:i. Padam Chand Gupta (P.C. Gupta) was the Chairman of PCJ during the relevant period and was a connected person in terms of Regulation 2(1)(d)(i) and an insider under Regulation 2(1)(g) of the SEBI (Prevention of Insider Trading Regulations), 2015 (for short PIT Regulations).ii. Balram Garg, who is the brother of P.C. Gupta and the Managing Director of PCJ is also a connected person in terms of Regulation 2(1)(d)(i) and an insider under Regulation 2(1)(g) of the PIT Regulations.iii. That allegedly, the appellants in C.A. No.7590/2021, namely, Sachin Gupta, Smt. Shivani Gupta and Amit Garg traded on the basis of Unpublished Price Sensitive Information (for short UPSI) received by them on account of their alleged proximity to P.C. Gupta and Balram Garg between the period from 01.04.2018 to 31.07.2018.iv. The above proximity was alleged on the basis of the fact that Sachin Gupta and Smt. Shivani Gupta are the son and daughter--in--law of Balram Gargs deceased brother late P.C. Gupta. Moreover, Amit Garg is the son of Amar Garg, who was also the brother of Balram Garg. It was also alleged that all the appellants shared the same residence.4. Balram Garg, the appellant in C.A. No.7054/2021, filed his reply (dated 07.08.2020) to the allegations made against him, wherein he stated the following:i. That the foundational facts were not there to prove or raise the alleged presumption. SEBI failed to place on record any material to prove that the appellants in C.A. No.7590/2021 were connected persons to Mr. Balram Garg as required by Regulation 2(1)(d)(ii)(a) read with Regulation 2(1)(f) of the PIT Regulations, as none of the appellants C.A. No.7590/2021 were financially dependent on Balram Garg or consulted Balram Garg in any decision related to trading in securities. Presumption is a rule of evidence which cannot be drawn unless and until such foundational facts are proved.ii. That no material was brought on record to prima facie show any transfer of information to the appellants in C.A. No.7590 of 2021iii. That merely being a family/relative cannot by itself be a ground for the offence of insider trading, especially when in furtherance of a family agreement, the family was partitioned in 2011 and there had been no connection between them ever since.iv. Moreover, Sachin Gupta resigned from the post of President (Gold Manufacturing) held by him in the company on 31.03.2015 pursuant to the family partition. Since then, neither Sachin Gupta nor his wife Mrs. Shivani Gupta had anything to do with the business of the PCJ.5. After granting an opportunity of personal hearing to the appellant on 24.12.2020, the Whole Time Member of SEBI passed final order dated 11.05.2021, imposing a penalty of Rs.20 lakhs on the Appellants along with restraining the appellants from accessing the securities market and buying, selling or dealing in securities, either directly or indirectly, in any manner for a period of 1 year from the date of the order and also restrained the appellants from dealing with the scrip of PCJ for a period of 2 years.6. Aggrieved by the order of the WTM of SEBI, the Appellants filed appeals before the SAT. The Tribunal, vide its common judgement and order dated 21.10.2021, dismissed the Appeals preferred by the Appellants and held that:Upon hearing both the sides, in our view, the reasoning of the Ld. WTM cannot be faulted with. The facts as highlighted by the Ld. WTM would show that though there was a family arrangement within the family on two occasions, there was no estrangement, as can be seen from the facts highlighted by the Ld. WTM (supra). Additionally, in our view, the very fact that appellant Shivani had authorized her cousin brother-in-law i.e. appellant Amit to trade on her behalf, would belie the case of the appellants that family settlements means family estrangement. It cannot be gainsaid that the appellants are residing at the same address and even appellant Mr. Balram Gargs address is the front side of the premise. The trading pattern of the concerned appellant i.e. withholding of the selling of trade once buy back talk started within the company and again selling spree the shares by them once the buy back offer was made public till the rejection of the proposal by the State Bank of India was made known to the public, would clearly show that the concerned appellants were aware of both the UPSI.It is true that there is no direct evidence as to who had disseminated this insider information to the appellants in Appeal no. 376 of 2021. Late Shri Padam Chand Gupta was the father of the appellant Mr. Sachin Gupta and father-in-law of the appellant Ms. Shivani Gupta and uncle of appellant Mr. Amit Garg. Similarly, appellant Mr. Balram Garg is the uncle of appellant Mr. Sachin Gupta and appellant Mr. Amit Garg. All of them were residing in the same address. Appellant Mr. Sachin Gupta had financial transactions with the company of which appellant Mr. Balram Garg was Managing Director. Considering all of the above facts, on preponderance of probability, it can very well be concluded that Late Padam Chand as well as appellant Mr. Balram disseminated both UPSI to the appellants in appeal no. 376 of 2021.7. Aggrieved by the above order of the SAT dated 21.10.2021, the appellants filed the present appeals (C.A. No.7054/2021 by Balram Garg and C.A. No.7590/2021 by Mrs. Shivani Gupta, Sachin Gupta, Amit Garg and Quick Developers Pvt. Ltd.) under section 15Z of the Securities and Exchange Board of India Act, 1992. Since, P.C. Gupta expired in January 2019 after the notices were issued, hence the case was dropped as against him.

Court's reasoning:
24. The submission of the Respondent that appellant Balram Garg contravened Regulation 3(1) of the PIT Regulations and section 12A(c) of the SEBI Act, by communicating the UPSI to the appellants in C.A. No.7590 of 2021, being an insider and connected person within the meaning of PIT Regulations is not worthy of acceptance. The Securities Appellate Tribunal has erred in upholding the order of the Whole Time Member of SEBI as it has failed to independently assess the evidence and material on record while exercising its jurisdiction as the first appellate court. As reiterated by this Court in a catena of judgements, it is the duty of the first court of appeal to deal with all the issues and evidence led by the parties on both, the questions of law as well as questions of fact and then decide the issue by providing adequate reasons for its findings. Unfortunately, the SAT failed to apply its mind on the issues raised by the parties and routinely affirmed the findings of the WTM without dealing with the issues at hand. In this context, this Court has held in H.K.N. Swami v. Irshad Basith [(2005) 10 SCC 243] that:The first appeal has to be decided on facts as well as on law. In the first appeal parties have the right to be heard both on questions of law as also on facts and the first appellate court is required to address itself to all issues and decide the case by giving reasons. Unfortunately, the High Court, in the present case has not recorded any finding either on facts or on law. Sitting as the first appellate court it was the duty of the High Court to deal with all the issues and the evidence led by the parties before recording the finding regarding title.The above position was reiterated by this Court in UPSRTC vs Mamta [(2016) 4 SCC 172] .25. The SAT again fell in error when in spite of observing that there is no direct evidence which suggests as to who had disseminated the insider information to the appellants in C.A. No.7590 of 2021, it concluded on mere preponderance of probability that it was late P.C. Gupta as well as appellant Balram Garg who disseminated both UPSI to the appellants in C.A. No.7590 of 2021.26. Importantly, the WTM arrived at the finding that the appellants in C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta, Amit Garg and Quick Developers Pvt. Ltd. were not connected persons qua the appellant Balram Garg. The WTM held that:I also note that it is not the case in the SCN that Noticee no.1, 2 and 3 were in any contractual, fiduciary or employment relationship with the company, or were the director or officer of the company, during the past 6 months of the alleged act of insider trading. Noticee No. 1 and 2 seem to be in the employment of the company but that was way back in 2015. I also note that the SCN has also not identified that Noticee no. 1,2,3 or 4 had any professional or business relationship with the company, that allows the said Noticees, directly or indirectly, access to unpublished price sensitive information. In view of the above, I find that Noticee no. 1,2,3 and 4 cannot be treated as connected persons in terms of Reg. 2(1)(d)(i) of PIT Regulations, 2015.27. In our opinion, two important findings of the WTM and SAT need to be re-examined by this Court to adequately decide the present set of appeals. Firstly, Whether the WTM and SAT rightly rejected the claim of estrangement of the appellants in C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta and Amit Garg? Secondly, could the aforementioned appellants be rightly held to be insiders in terms of Regulation 2(1)(g)(ii) of the PIT Regulations, only and entirely on the basis of circumstantial evidence?28. The appellants in C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta and Amit Garg, claimed before the WTM and SAT that they were estranged from the family and did not have the required connection with the appellant Balram Garg, who was the MD of the PCJ at the relevant time period. However, we are of the opinion that the WTM and SAT wrongly rejected this claim of the Appellants in C.A. No.7590 of 2021 without appreciating the facts and evidence as was produced before them. The WTM and SAT ought to have appreciated the relevant facts for ascertaining the true nature of relationship between the parties.29. To understand the abovementioned relationship, it is pertinent to note that PCJ was promoted in 2005 by three brothers viz. P.C. Gupta [since deceased], Amar Chand Garg and Balram Garg (Appellant in C.A. No.7054 of 2021). Subsequently, due to certain differences, Amar Chand Garg and his branch of the family exited the Company by entering into a family arrangement dated 01.07.2011 whereby their shareholding in the company was reduced to a meagre 0.70%. In September, 2011, Amar Chand Garg also resigned as the Vice Chairman of the company and disassociated himself from the company. Further, the record reveals that the son of Amar Chand Garg, i.e. Amit Garg (3rd Appellant in C.A. No.7590 of 2021) was never associated with the company. On 31.03.2015, on account of certain disputes that had arisen between Sachin Gupta (2nd Appellant in C.A. No.7590 of 2021) and his parents P.C. Gupta and Smt. Krishna Devi, Sachin Gupta, so as to exit the company along with his family, resigned from his position as President (Gold Manufacturing) of the Company and Mrs. Shivani Gupta (1st Appellant in C.A. No.7590 of 2021 and wife of Sachin Gupta) also resigned from her post of Senior Assistant Manager, Karol Bagh Store of PCJ. Importantly, both Sachin Gupta and Smt. Shivani Gupta were, at no point of time, Directors of PCJ.30. Subsequently, late P.C. Gupta and his son Sachin Gupta entered into another family arrangement dated 10.04.2015 whereby P.C. Gupta and his wife agreed to transfer at least 1,60,00,000 shares of the company to Sachin Gupta and his family, and in lieu thereof Sachin Gupta and his family agreed not to have any right whatsoever in the immovable and movable property of P.C. Gupta and his wife. However, Sachin Gupta and his wife Smt. Shivani Gupta were permitted to use the property at 1-C, Court Road, Civil Lines, Delhi for residential purposes only. It is pertinent to note here that the said plot of land is a large tract of land and separate buildings were constructed thereon. P.C. Gupta and Sachin Gupta, along with their families, resided in separate floors of the same building, whereas Amit Garg and Balram Garg resided in separate buildings.31. Post the agreed transfer of shares by P.C. Gupta and his wife, Sachin Gupta and his wife Smt. Shivani Gupta inter alia, sold some shares of the company from 02.04.2018 to 13.07.2018. This aforesaid trade in shares was the subject matter of investigation by the Respondent/SEBI as it was contented by SEBI that the abovementioned trade was based on UPSI and hence was in contravention of SEBI Act and PIT Regulations. The WTM and SAT erred in not appreciating the aforementioned facts which adequately establish that the there was a breakdown of ties between both the parties, both at personal and professional level, and that the said estrangement happened much prior to the two UPSI. Hence, we are of the opinion that when the two family arrangements (dated 01.07.2011 and 10.04.2015) are considered in their right perspective, it adequately demonstrates that there was a breakdown of relations between the parties. Additionally, given the fact that the entire case against the appellants for the offence of insider trading was based on the nature of close relationship between the parties, once it has been rightly held by the WTM that the appellants are neither connected persons within the meaning of Regulation 2(1)(d) nor immediate relatives within the meaning of Regulation 2(1)(f) of PIT Regulation, the question of ipso facto relying on the nature of relationship between the parties to come to the conclusion that they were in possession of or having access to UPSI while trading with the shares of the company is legally unsustainable.32. Moreover, we find merit in the submission of the counsel for the appellants in C.A. No.7590 of 2021 that even assuming that the said family arrangements did not result in complete estrangement of social relations between the parties, the SAT could not, by virtue of this very fact, discharge SEBI of the onus of proof placed on them to prove that the Appellants were in possession of UPSI. In our opinion, the approach adopted by the SAT turns the SEBI Act on its head as it places the burden of proving that there was a complete breakdown of ties between the parties on the Appellants in C.A. No.7590 of 2021 while conveniently ignoring the fact that the onus was actually on SEBI to prove that the appellants were in possession of or having access to UPSI. The legislative note to Regulation 2(1)(g) makes the above position of law explicitly clear. It states that:... The onus of showing that a certain person was in possession of or had access to unpublished price sensitive information at the time of trading would, therefore, be on the person leveling the charge after which the person who has traded when in possession of or having access to unpublished price sensitive information may demonstrate that he was not in such possession or that he has not traded or he could not access or that his trading when in possession of such information was squarely covered by the exonerating circumstances.34. In this context, it is important to highlight that the two major Corporate Announcements, purportedly related to a change in companys capital structure, which were:i. UPSI--1 [Period between 25.04.2018 to 10.05.2018]:The announcement of the Company on 10.05.2018 to buy back up to 1,21,14,285 fully paid up equity shares of Rs. 10/- each at a price of Rs. 350/- per equity share.ii. UPSI--2 [Period between 07.07.2018 to 13.07.2018]:The announcement of the company withdrawing their buy--back offer due to non--receipt of NOC from State Bank of India.35. After carefully and extensively perusing the records, we have come to the conclusion that the SAT erred in holding the appellants in C.A. No.7590 of 2021 to be insiders in terms of Regulation 2(1) (g)(ii) of the PIT Regulations on the basis of their trading pattern and their timing of trading (circumstantial evidence). The reasoning of the SAT is ex facie contrary to the records, as would be evident from the forthcoming discussion wherein our analysis of the alleged transactions has been divided into three phases viz. Phase--I [Period from 02.04.2018 to 24.04.2018], Phase--II [Period from 22.06.2018 to 06.07.2018] and Phase--III [Period from 07.07.2018 to 13.07.2018].36. Phase--I [02.04.2018 to 24.04.2018 i.e. Pre UPSI--1 Period]: Appellant Mrs. Shivani Gupta sold shares gifted to her by P.C. Gupta and Smt. Krishna Devi (as part of the family arrangement dated 10.04.2015) for personal and commercial reasons. The said shares were sold for a price of Rs. 300 per share during the said period. However, since the price of the shares kept falling, Mrs. Shivani decided to stop selling shares on 24.04.2018. Further, if we presume that she had internal knowledge of the companys affair including the impending buy--back offer, it would be reasonable to assume that she would not have sold such a large chunk of shares (74,35,071 shares) in the pre--UPSI--1 period when the prices of the shares were falling and would have instead chosen to wait for the buy--back offer. This also assumes importance since SEBI itself, vide its show--cause notice dated 24.04.2020 had dropped the charges with respect to the UPSI--1 period. This would mean that the notional loss purportedly avoided by appellant Mrs. Shivani Gupta was only for the shares traded during the UPSI-II Period, and even according to SEBI, there was no case that she made any money or avoided any loss by trading in the shares of the company during the UPSI--1 Period.37. Phase--II [22.06.2018 to 06.07.2018 i.e. Pre- UPSI-II Period]: PCJ had requested SBI to issue a NOC for the proposed buy--back offer on 07.07.2018 and the said request was rejected on the same day by the SBI. However, even before the said refusal by the SBI, the appellant Mrs. Shivani Gupta had sold 1,00,000 shares on 06.07.2018 at a much lower price than the price at which the shares were sold earlier. On the date on which these shares were sold, the UPSI--2 had not even come into existence. If the arguments of the respondent hold any water, the Appellants should have waited till UPSI--2 and would only have subsequently offloaded maximum number of shares during the said period to avoid any notional loss. However, the records undercut the logic adopted by the respondent/SEBI for the reason that the appellants were not in possession of the UPSI--2 and hence the appellants started selling the shares even before the UPSI--2 came into existence.38. Phase--III [07.07.2018 to 13.07.2018 i.e. UPSI-II Period]: The Appellant Mrs. Shivani Gupta sold only 15,00,000 shares during this period as opposed to the 74,35,071 shares that were sold at an earlier point of time (Pre--UPSI--1 Period). Importantly, notwithstanding the fact that the appellant Mrs. Shivani Gupta sold 15,00,000 shares, she continued to hold 12,84,111 shares of the company, out of the total that were transferred to her by way of the family arrangement. These above factors undercut the argument of SEBI that the appellants sold huge number of shares during UPSI--2 period because they had the information that once the information of withdrawal of buy--back offer by PCJ was made public, the price of the shares would drastically fall. Moreover, the data reveals that the share price of the PCJ shares consistently fell during the investigation period and therefore it would be incorrect to say that the price of the shares fell only upon announcement of the withdrawal of the buy-back offer. In fact, the records reveal that even after the announcement of the buy--back offer, there was no increase in the share prices of the company. Resultantly, the appellants stopped selling shares on 13.07.2018 because they believed that the market price continued to fall so badly that the shares possessed by them were not being valued accurately in the market. Hence, the appellants decided to constitute to hold their shareholdings.39. In such view of the matter, we are of the opinion that there is no correlation between the UPSI and the sale of shares undertaken by the appellants in C.A. No.7590 of 2021. The said decisions of selling the shares and the timings thereof were purely a personal and commercial decision undertaken by them and nothing more can be read into those decisions. If the appellants did possess the UPSIs, we are unable to understand that why would the appellant Mrs. Shivani Gupta sell only 15,00,000 shares during this period as opposed to the 74,35,071 shares that were sold at an earlier point of time (Pre--UPSI--1 Period) and still continue to hold 12,84,111 shares of the company that could have also been sold along with the 15,00,000 shares that were sold during the UPSI--2 period.40. We are also of the opinion that in the absence of any material available on record to show frequent communication between the parties, there could not have been a presumption of communication of UPSI by the appellant Balram Garg. The trading pattern of the appellants in C.A. No.7590 of 2021 cannot be the circumstantial evidence to prove the communication of UPSI by the appellant Balram Garg to the other appellants in C.A. No.7590 of 2021. It would also be pertinent to note here that Regulation 3 of the PIT Regulations, which deals with communication of UPSI, does not create a deeming fiction in law. Hence, it is only through producing cogent materials (letters, emails, witnesses etc.) that the said communication of UPSI could be proved and not by deeming the communication to have happened owing to the alleged proximity between the parties. In this context, even the show--cause notices do not allege any communication between the Appellant Balram Garg and the other appellants in C.A. No.7590 of 2021. This is evident from the following extract of the order of the WTM:A perusal of the SCNs shows that allegations of Noticees no. 1 to 4 being connected person under Regulation 2(1)(d)(i) seems to have been proceeded on the basis of inference drawn that Noticees no. 1 to 3 being relatives of Late Shri Padam Chand Gupta who was promotor and chairman of PC Jewellers, and Noticee no. 5 who was the MD of PC Jewellers, would be having frequent communication with Late Shri Gupta and Noticee No. 5. However, here I note that as per Regulation 2(1)(d)(i) , association by virtue of frequent communication with the officer of the company must be arising in the discharge of his/her duty towards the company. The SCNs does not allege that there was any communication between Noticee no. 5 and Noticee no. 1 to 4, arising out discharge of any duty owed by Noticee no. 1,2,3 or 4 to the compoany. [emphasis supplied]41. This Court in Hanumant vs. State of Madhya Pradesh [AIR 1952 Supreme Court 343] has held that:Assuming that the accused Nargundkar had taken the tenders to his house, the prosecution, in order to bring the guilt home to the accused, has yet to prove the other facts referred to above. No direct evidence was adduced in proof of those facts. Reliance was placed by the prosecution and by the courts below on certain circumstances, and intrinsic evidence contained in the impugned document, Exhibit P-3A. In dealing with circumstantial evidence the rules specially applicable to such evidence must be borne in mind.In such cases there is always the danger that conjecture or suspicion may take the place of legal proof and therefore it is right to recall the warning addressed by Baron Alderson, to the jury in Reg v. Hodge ((1838) 2 Lew. 227), where he said :-The mind was apt to take a pleasure in adapting circumstances to one another, and even in straining them a little, if need be, to force them to from parts of one connected whole; and the more ingenious the mind of the individual, the more likely was it, considering such matters to overreach and mislead itself, to supply some little link that is wanting, to take for granted some fact consistent with its previous theories and necessary to render them complete.It is well to remember that in cases where the evidence in of a circumstantial nature, the circumstances from which the conclusion of guilt is to be drawn should in the first instance be fully established, and all the facts so established should be consistent only with the hypothesis of the guilt of the accused. Again, the circumstances should be of a conclusive nature and pendency and they should be such as to exclude every hypothesis but the one proposed to be proved. In other words, there must be a chain of evidence so far complete as not to leave any reasonable ground for a conclusion consistent with the innocence of the accused and it must be such as to show that within all human probability the act must have been done by the accused. In spite of the forceful arguments addressed to us by the learned Advocate--General on behalf of the State we have not been able to discover any such evidence either intrinsic within Exhibit P-3A or outside and we are constrained to observe that the courts below have just fallen into the error against which warning was uttered by Baron Alderson in the above mentioned case. [emphasis supplied]42. This Court in Chintalapati Srinivasa Raju vs Securities and Exchange Board of India [(2018) 7 SCC 443]  has further held that:Further, under the second part of Regulation 2(e) (i), the connected person must be reasonably expected to have access to unpublished price sensitive information. The expression reasonably expected cannot be a mere ipse dixit – there must be material to show that such person can reasonably be so expected to have access to unpublished price sensitive information.We have already demonstrated that the minority judgment is much more detailed and correct than the majority judgment of the Appellant Tribunal. We accept Shri Singhs submission that in cases like the present, a reasonable expectation to be in the know of things can only be based on reasonable inferences drawn from foundational facts. This Court in SEBI v. Kishore R. Ajmera, (2016) 6 SCC 368 at 383, stated:26. It is a fundamental principle of law that proof of an allegation leveled against a person may be in the form of direct substantive evidence or, as in many cases, such proof may have to be inferred by a logical process of reasoning from the totality of the attending facts and circumstances surrounding the allegations/charges made and leveled. While direct evidence is a more certain basis to come to a conclusion, yet, in the absence thereof the Courts cannot be helpless. It is the judicial duty to take note of the immediate and proximate facts and circumstances surrounding the events on which the charges/allegations are founded and to reach what would appear to the Court to be a reasonable conclusion therefrom. The test would always be that what inferential process that a reasonable/prudent man would adopt to arrive at a conclusion.We are of the view that from the mere fact that the appellant promoted two joint venture companies, one of which ultimately merged with SCSL, and the fact that he was a co-brother of B. Ramalinga Raju, without more, cannot be stated to be foundational facts from which an inference of reasonably being expected to be in the knowledge of confidential information can be formed. The fact that the appellant was to be continued as a director till replacement again does not take us anywhere. Shri Viswanathan has shown us that two other independent non--executive directors were appointed in his place on and from 23.1.2003. What is clear is that the appellant devoted all his energies to the businesses he was running, on and after resigning as an executive director of SCSL, as a result of which the salary he was being paid by SCSL was discontinued.43. This Court has also held in a catena of cases that the foundational facts must be established before a presumption is made. In this context, in Seema Silk & Sarees vs. Directorate of Enforcement [(2008) 5 SCC 580]  this Court has held that:The presumption raised against the trader is a rebuttable one. Reverse burden as also statutory presumptions can be raised in several statutes as, for example, the Negotiable Instruments Act, Prevention of Corruption Act, TADA, etc. Presumption is raised only when certain foundational facts are established by the prosecution. The accused in such an event would be entitled to show that he has not violated the provisions of the Act.In the present case, as rightly argued by the learned counsel of the appellant, the foundational facts were not proved which could raise the alleged presumption. SEBI failed to place on record any material to prove that the appellants in C.A. No.7590/2021 were connected persons to Balram Garg as required by Regulation 2(1)(d)(ii)(a) read with Regulation 2(1)(f) of the PIT Regulations as none of the appellants C.A. No.7590/2021 were financially dependent on Balram Garg or even alleged to have consulted Balram Garg in any decision related to trading in securities.44. In light of the above principles of law laid down by this Court, it was imperative on the Respondent/SEBI to place on record relevant material to prove that the appellants in C.A. No.7590 of 2021, namely, Mrs. Shivani Gupta, Sachin Gupta, Amit Garg and Quick Developers Pvt. Ltd. were immediate relatives who were dependent financially on appellant Balram Garg or consult Balram Garg in taking decisions relating to trading in securities. However, SEBI failed to do so as has been already recorded by the WTM in its order dated 11.05.2021. The said appellants in C.A. No.7590 of 2021 were not immediate relatives and were completely financially independent of the appellant Balram Garg and had nothing to do with the said Balram Garg in any decision making process relating to securities or even otherwise.45. In the context of appellant no. 4 (in C.A. No.7590 of 2021), namely Quick Developers Pvt. Ltd., the record clearly reveals that it is neither a holding company or an associate company or a subsidiary company of PCJ nor the appellant Balram Garg has ever been the Director of Quick Developers Pvt. Ltd. Therefore, Quick Developers Pvt. Ltd. cannot be held to be a connected person vis--à--vis the appellant Balram Garg.46. Furthermore, reliance of the Respondent/SEBI on transactions between appellant Sachin Gupta and PCJ and the subsequent payments of rent by PCJ is against the principles of natural justice as these allegations were not part of the Show Cause Notices. To cement this proposition, reference could be made to Tarlochan Dev Sharma vs State of Punjab [(2001) 6 SCC 260]  wherein this Court has held that:We are, therefore, clearly of the opinion that not only the principles of natural justice were violated by the factum of the impugned order having been founded on grounds at variance from the one in the show cause notice, of which appellant was not even made aware of let alone provided an opportunity to offer his explanation, the allegations made against the appellant did not even prima facie make out a case of abuse of powers of President.Similar observations have also been made by this Court in Hindustan Lever Ltd. vs. Director General (Investigation and Registration) [(2001) 2 SCC 474] .47. Lastly, we have given our anxious consideration to the judgements relied upon by the learned counsel of the Respondent viz. SEBI vs Kishore R. Ajmera [(2016) 6 SCC 368]  and Dushyant N. Dalal vs. SEBI [(2017) 9 SCC 660] . Suffice it to hold that these cases are distinguishable on the facts of the present case, as the former is not a case of insider trading but that of Fraudulent/Manipulative Trade Practices; and the latter case relates to Interests and Penalty rather than the subject matter at hand. Reliance placed on the case of Kishore R. Ajmera (supra) to show that presumption can be drawn on the basis of immediate and relevant facts is contrary to law already settled by this Court in the case of Chintalapati Srinivasa Raju (supra) where it is held that a reasonable expectation to be in the know of things can only be based on reasonable inference drawn from foundational facts. It has further been held that merely because a person was related to the connected person cannot by itself be a foundational fact to draw an inference.48. To conclude, the entire case of the Respondents was premised on two important propositions, that firstly, there existed a close relationship between the appellants herein; and secondly, that based on the circumstantial evidence (trading pattern and timing of trading), it could be reasonably concluded that the appellants in C.A. No.7590 of 2021 were insiders in terms of Regulation 2(1)(g)(ii) of the PIT Regulations. However, as the discussion above would reveal, the WTM and SAT wrongly rejected the claim of estrangement of the Appellants in C.A. No.7590 of 2021, without appreciating the facts and evidence as was produced before them. The records and facts adequately establish that the there was a breakdown of ties between the parties, both at personal and professional level and that the said estrangement happened much prior to the two UPSI. Secondly, as has already been discussed, the SAT erred in holding the appellants in C.A. No.7590 of 2021 to be insiders in terms of regulation 2(1)(g)(ii) of the PIT Regulations on the basis of their trading pattern and their timing of trading (circumstantial evidence). We are of the firm opinion that there is no correlation between the UPSI and the sale of shares undertaken by the appellants in C.A. No.7590 of 2021. Moreover, in the absence of any material available on record to show frequent communication between the parties, there could not have been a presumption of communication of UPSI by the appellant Balram Garg. The trading pattern of the appellants in C.A. No.7590 of 2021 cannot be the circumstantial evidence to prove the communication of UPSI by the appellant Balram Garg to the other appellants in C.A. No.7590 of 2021. There is no material on record for the WTM and the SAT to arrive at the finding that both late P.C. Gupta and the appellant Balram Garg communicated the UPSI to the other appellants in C.A. No.7590 of 2021. The said appellants in C.A. No.7590 of 2021 were not immediate relatives and were completely financially independent of the appellant Balram Garg and had nothing to do with the him in any decision making process relating to securities or even otherwise. The submission of the learned counsel of the respondent regarding the same residential address of the appellants also falls flat as admittedly the parties were residing in separate buildings on a large tract of land. Lastly, in our opinion, the SAT order suffers from non--application of mind and the same is a mere repetition of facts stated by the WTM. The Appellate Tribunal was exercising jurisdiction of a First Appellate Court and was bound to independently assess the evidenced and material on record, which it evidently failed to do.