PC Jeweller case: SEBI seeks review of the Supreme Court ruling

13 Sep 2022 , 08:07 AM

Last week, the Securities and Exchange Board of India (SEBI) petitioned the Supreme Court to review its April decision in the PC Jewellers insider trading case. The court had overturned the capital markets regulator’s ruling that separated family members of a promoter must be regarded as related individuals for purposes of the insider trading laws if they reside at the same address. The promoter family of PC Jewellers is involved in the lawsuit.

According to SEBI and the Securities Appellate Tribunal (SAT), there is a “preponderance of possibility” that parties could share price-sensitive information at the common location. However, a two-judge Supreme Court panel found in April that both the SEBI and the SAT were wrong because they failed to consider family problems.

PC Gupta, Amar Chand Garg, and Balram Garg, who are brothers, are said to have created PC Jeweller (PCJ), according to numerous court filings. The Amar Chand Garg family severed relations with PCJ in 2011 and decreased its holding to 0.7%. Due to a family disagreement, PC Gupta’s son Sachin and daughter-in-law Shivani left the company in 2015 and stepped down from their positions at PCJ. They did, however, receive 16 million PCJ shares as payment from the company’s founder PC Gupta. All the family members continued to reside on the same property in various structures even after the breakup.

The PCJ board began deliberations on a share buyback from public investors on April 25. On May 10, the board approved the proposal. According to insider trading regulations, the news of the buyback qualified as unpublished price-sensitive information (UPSI) because the proposal was not made public until May 10. The lead banker declined to provide a certificate of no objection on July 7, 2018, which forced PCJ to announce its withdrawal on July 13. Any withdrawal-related tips received between July 7 and July 13 were considered UPSI.

Since the accused in both cases related to the promoter family and lived at the same home, SEBI determined that they likely had access to UPSI regarding the company, and their trading during this time was an attempt to profit from this.

The Supreme Court, in its decision on April 19, rejected this view and criticised the SAT for not undertaking a separate evaluation. The court ruled that SEBI and SAT incorrectly disregarded the family members’ claim of estrangement “without acknowledging the facts and supporting documentation that had been put forth. The WTM and SAT should have recognised the necessary information for determining the parties’ actual connection.”

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