Originally published April 6, 2021
On March 22, 2021, the Securities Appellate Tribunal (SAT or the Tribunal) in the matter of Shruti Vora v. Securities and Exchange Board of India set aside the penalty imposed by the adjudicating officer (AO) of the Securities and Exchange Board of India (SEBI) for forwarding allegedly unpublished price sensitive information (UPSI) of six companies on WhatsApp. Whether a 'forwarded as received' WhatsApp message regarding the financial information of a company, shortly after the in-house finalization of the financial results, could be considered as UPSI under the provisions of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) was the primary question raised in the appeal.
Through the course of its investigation, SEBI had found messages relating to the earning data and financial information of around 12 companies, and the present set of appeals referred to quarterly financial results of six companies, including that of Wipro Limited and Bata India Limited among others. While holding that sharing such information is in violation of Section 12 of the SEBI Act, 1992 (SEBI Act) read with Regulation 3(1) of the PIT Regulations, the AO considered the proximity of the messages from the date of finalization of the financial results and the resemblance between the figures circulated through the WhatsApp messages and the actual financial results while passing the order.
In their defense, the appellants argued that they were not the originators of such messages but had merely shared messages in a 'forwarded as received' manner. Relying upon the concept of 'heard on street', the appellants also submitted that estimation of financial results based on publicly available information prior to disclosure is a common practice, and that reputed journalistic outfits such as Reuters, Bloomberg and the Wall Street Journal have dedicated platforms for sharing such information. It was further submitted that certain companies also provide forward guidance relating to their financial results before actually publishing the same. In fact, in the present case, the guidance issued by Wipro Limited exactly matched the information being shared through the WhatsApp messages.
The Tribunal, while considering the arguments made in the appeal, observed that the source of these messages could not be established by SEBI and the investigation carried out by SEBI, along with the legal teams and audit committees of the concerned companies, could not find any leakage of information. Acknowledging the appellants' argument that the messages may have originated from the brokerage houses, or platforms such as Bloomberg and be already be available in the public domain, the Tribunal remarked that UPSI, as defined in the PIT Regulations, does not encompass generally available information. The Tribunal also observed that while the AO had identified messages that closely matched the financial results finally published by the companies, it failed to consider several similar messages shared by the appellants where the information did not match the financial results published by the company.
The Tribunal further observed that 'information constitutes UPSI only when the person getting such information was aware that such information was unpublished, and price sensitive in nature' and that such knowledge can be established on the basis of preponderance of probabilities on attendant circumstances. The Tribunal placed reliance on its order passed in the matter of Samir Arora v. SEBI, wherein the Tribunal rejected the argument made by SEBI on the grounds that there was no connection between the potential source of the UPSI and the person in possession of such alleged UPSI. In regards to the facts at hand, the Tribunal observed that SEBI failed to prove any preponderance of probabilities as to the fact that the information in the messages qualified as UPSI or that the appellants were aware that such information might be UPSI while sharing such information with others, and set aside the order passed by the AO on the basis of the above observations.
The order passed by the Tribunal is a progressive step and lays down vital jurisprudence while holding that information qualifies as UPSI only when the recipient of such information is aware that it is UPSI and draws a necessary differentia between what might be considered as UPSI and market chatter.
Note: On September 26, 2022, the appeals by SEBI before the Supreme Court were dismissed purely on the facts and circumstances of the case, leaving all questions of law open.
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