COURSE: CAPITAL MARKETS AND SECURITIES REGULATION

COURSE CODE: LAW 5034

SEMESTER: WIN ’2021-22’

CASE ANALYSIS ON
KEMEFS SPECIALTIES PVT. LTD. V SEBI

SUBMITTED TO
PROF. DR. JAYENDRA KASTURE
ASSISTANT PROFESSOR
VIT LAW SCHOOL

NAME: CA THARUN PRANAV

REGISTER NO:19BLB1123
COURSE: BBA.LLB
 CONTENTS

S.NO TITLE PAGE

NO
1 Facts 1
2 Issues 1
3 Holdings 2
4 Reasoning 2
5 Evaluation Of Case: Present Law 3
- ‘Unpublished Price Sensitive Information’
- Offence Of Insider Trading
6 Analysis
7 Conclusion
8 References

CASE NAME: KEMEFS SPECIALTIES PVT. LTD. V

SEBI

FACTS
The appellant is a private limited company whose managing director is one Rajeev Sawhney.
He along with his wife and daughter are the shareholders and they are also the directors of
this company Rajeev Sawhney is also a substantial shareholder and promoter of vMoksha
group of companies which consists of vMoksha Technologies Ltd. Mauritius, vMoksha
Technologies Private Ltd. India, vMoksha Inc. USA and vMoksha Technologies Pte. Ltd.
Singapore.
Rajeev Sawhney was keen to exit from the vMoksha group and wanted to sell his stake
therein. On July 12, 2004, he engaged the services of Pricewaterhouse Coopers Pvt. Ltd. to
sell his stake on a best effort basis and find a buyer. It is common case of the parties that
Price Waterhouse Coopers introduced the appellant to the company and they started
negotiations in regard to the sale of Rajeev Sawhney’s stake in the vMoksha group and also
for acquiring three of its entities by the company
During the course of the negotiations, the company and the vMoksha group and their
respective shareholders signed a Term Sheet on April 8, 2005 laying down the modalities for
the acquisition by the company of the three entities of vMoksha group and the stake of
Rajeev Sawhney including the fixed consideration and additional value to promoters.
Subsequently, on May 11, 2005 the parties executed, among others, a share purchase
agreement firmly laying down the terms and conditions on which the company was to acquire
the three entities of v Moksha group. While negotiations were going on for the acquisition of
three entities of vMoksha group and the stake of Rajeev Sawhney, the appellant purchased on
April 6, 2005 and April 11, 2005 5791 shares of the company.
The contract notes had been furnished to Rajeev Sawhney in the name of the appellant
company. As already noticed above, the question for our consideration is whether the
appellant purchased these shares when it was in possession of unpublished price sensitive
information. We are of the view that the appellant was in possession of such information as a
result whereof it indulged in insider trading and violated Regulation 3 of the regulations.

ISSUES

 Whether appellant company is guilty of insider trading which amounts to violation of

Section 15A(a) of the Act.

 Whether the decision of adjudicating authority in charge of furnishing misleading

information by the appellant company is satisfied or not?

HOLDINGS

In the first issue he is guilty of insider trading but as the charge of insider trading in regard to
sale transaction is not established the penalty ordered by adjudicating authority is reduced to
7 lakhs. In the second issue where the other charge of furnishing misleading information has
not been established against the appellant and no penalty in this regard is called for.
In the result, the appeal is partly allowed as aforesaid and the penalty levied on the appellant
reduced to 7.5 lakhs in all. There is no order as to costs.

REASONING

As per presiding officer Sodhi and the other two members: -We are satisfied that he
purchased the shares when in possession of the unpublished price sensitive information and
thereby violated Regulation 3. In this view of the matter, no fault can be found with the
finding recorded by the adjudicating officer in this regard.
There is yet another charge of insider trading. Before we discuss this charge, it is necessary to
mention that the deal regarding acquisition of three entities of Moksha group of companies by
the company did not go through despite their having executed the memorandum of
understanding and the share purchase agreement on May 11, 2005 along with other connected
agreements / documents. It is not necessary for us to go into the question as to who is to
blame for the deal not going through. What is material for us is that just as the information
regarding acquisition of the entities by the company was price sensitive in nature, the
information regarding the deal falling through was equally price sensitive.
The We are inclined to agree with the learned counsel for the respondent that if the
information furnished is incorrect or misleading, the aforesaid provisions would come into
play and it could be said that the delinquent had failed to furnish the required information.
However, in the facts and circumstances of this case, we are inclined to hold that the reply
that was given by the appellant to the investigating officer stating that it had traded on the
advice of JMM was not misleading or incorrect.
Also, the presiding officer stated that with regard to the 2nd issue Since a serious charge of
misrepresentation has been levelled against the appellant which is a private limited company,
it becomes necessary to lift the corporate veil and see who is controlling it. When we do that,
it is clear that it is Rajeev Sawhney who is lurking behind the veil. We are, therefore, of the
view that 8 when the appellant stated that it was receiving advice from JMM, it obviously
meant that the advice was being taken by Rajeev Sawhney on its behalf. The letter of May
30, 2007 also makes it clear that Rajeev Sawhney was being advised by JMM being one of its
portfolio management clients. In this view of the matter, we don’t think that the reply
furnished by the appellant was misleading. We cannot, therefore, hold the appellant guilty of
violating Section 15A(a) of the Act. The charge in this regard must fail.

EVALUATION OF CASE WITH PRESENT LAW

WHAT IS ‘UNPUBLISHED PRICE SENSITIVE INFORMATION’?

Before, analysing the provisions of law which determine what exactly would constitute
‘insider trading’, it is important to first establish what exactly constituted ‘unpublished price
sensitive information’. The SEBI regulations as they stand today do not define ‘unpublished
price sensitive information’, as was the case prior to the 2002 amendment regulations, but
define the terms ‘price sensitive information’ and ‘unpublished’ separately. Regulation 2(ha)
defines ‘price sensitive information’ to mean any information which relates directly or
indirectly to a company and which if published is likely to materially affect the price of
securities of company. Further, certain information has been deemed to be price sensitive
information firstly, periodical financial results of the company; secondly, intended
declaration of dividends (both interim and final); thirdly, issue of securities or buy-back of
securities; fourthly, any major expansion plans or execution of new projects; fifthly,
amalgamation, mergers or takeovers; sixthly, disposal of the whole or substantial part of the
undertaking; and lastly, significant changes in policies, plans or operations of the company.
Further, Regulation 2(k) has defined ‘unpublished’ information to mean information which is
not published by the company or its agents and is not specific in nature. Further, the
Explanation to the Regulation has specifically clarified that speculative reports in the print or
electronic media would not be considered ‘published information’. Thus, the 2002
amendment sought to take away the defence which was provided by the un-amended
definition i.e., that any information which was generally known in the media or otherwise
could not have qualified as unpublished price sensitive information.

WHICH ACTIONS CONSTITUTE THE OFFENCE OF INSIDER

TRADING?

In order to highlight the functioning of the regulatory mechanism in India and its various
advantages and shortcomings, it is essential to examine the various instances of insider
trading in India and the extent to which the laws which existed at the relevant time were able

ANALYSIS

The new law is more clear, precise and in line with global standards. For example, in the US
the Courts do not make distinction between information about a Company’s assets or earning
power and Market information (often referred to as outside information) which is information
that affects the market for a company’s security257 the new regulations have adopted the
same policy. By clearly specifying that securities are also included it has removed the
ambiguity in that aspect and including “generally available information” into the ambit has
made it easier to determine what would qualify as UPSI. In the author’s opinion it would now
be easier to prove that information was published as the explicit requirement of the
information being published by the company or its agents in a specific nature has been done
away with.
This would in turn facilitate in disposing off cases quickly as it is now “easier to crystallize
and appreciate what Unpublished Price Sensitive Information is. Additionally, disclosures of
the same has been made mandatory so as to eliminate any privilege that another person might
have. The new concept of “pre trading plans” have been provided for insiders who possess
UPSI all year round.
The last change in the new regulations, the 6 categories given are merely illustrative in nature
has widened the scope of what UPSI may be as now it is not a requirement that UPSI must
relate to only the categories mentioned in the Regulation. However, the definition given by
SEBI is exclusionary in nature, even though the list appended includes certain specific
matters it is illustrative in nature which leaves room for judicial interpretation The changes
brought about in the new law are for the benefit of both the investor and those accused of
insider trading. For the investors it is advantageous as UPSI has been clearly defined and its
scope has been widened.
Now, it would be harder for the insiders to bend the law. For those accused of insider
trading, clear definition of UPSI is advantageous to them too as it would be easier to establish
that they were trading on information that was generally known to the public even though
there was no official communication from the company thereby showing that the investors
were not really in a disadvantageous position.

CONCLUSION

REFERENCES