Sebi: Sebi seeks review of SC ruling in PC Jewellers insider trading case – Blue Barrows

Mumbai: The Securities and Exchange Board of India (Sebi) moved the Supreme Court last week seeking a review of the apex court’s ruling in the PC Jewellers insider-trading case in April. The court had rejected the capital markets regulator’s decision that estranged family members of a promoter – if they share the same residential address – must be considered connected persons under the insider-trading rules. The case pertains to the promoter family of PC Jewellers.

Sebi and the Securities Appellate Tribunal (SAT) took the view that the common address could be construed as “preponderance of probability” that price-sensitive information could be shared among parties. However, in April, a two-judge bench of the Supreme Court ruled that both Sebi and SAT had erred since they did not take into account family disputes.

Sebi didn’t respond to queries.

“The judgement was expected to have a broader impact on the insider trading rules, since it would set a precedent,” said a securities lawyer. “There is also concern on Sebi’s side – if the judgement holds up, it may provide a loophole for perpetrators in the future.”


According to various court documents, PC Jewellers (PCJ) was founded by brothers PC Gupta, Amar Chand Garg and Balram Garg. In 2011, the family of Amar Chand Garg broke ties with PCJ and reduced its stake to 0.7%. In 2015, due to a family dispute, PC Gupta’s son Sachin Gupta and daughter-in-law Shivani Gupta broke away from the business, relinquishing their roles in PCJ. However, as a settlement, they received 16 million shares of PCJ from founder PC Gupta. Even after the split, all the family members lived in various buildings on the same plot of land.

On April 25, 2018, PCJ’s board initiated discussions on a share buyback from public investors; the proposal got board approval on May 10. Since the proposal was not disclosed to investors until May 10, news of the buyback was unpublished price sensitive information (UPSI) under insider-trading rules. On July 7, 2018, the lead banker refused to give a no-objection certificate for the buyback and hence PCJ was forced to announce its withdrawal on July 13. Between July 7 and July 13, any tips on the withdrawal were deemed to be UPSI.

In its investigation, Sebi found that Shivani Gupta and related entities sold some of the PCJ shares between April 2 and July 13, 2018. Also, an entity 100% owned by Amar Chand Garg’s son Amit Garg took short positions in the PCJ stock just before July 13, when the company announced the withdrawal. Also, both Amit Garg and Sachin Gupta executed certain trades on behalf of Shivani Gupta.

Sebi held that in both cases, since the accused belonged to the promoter family and shared the same address, they were likely in possession of UPSI regarding the company and their trades during this period were an attempt to capitalise on this.

On May 11, 2021, Sebi passed an order finding the three in violation of insider trading rules and restrained them from accessing public markets or dealing with PCJ shares for a period of one year. The regulator also asked the accused to pay about ₹10 crore in disgorgement and penalties for violating insider trading rules. This order was upheld by SAT on October 21, 2021.

“It cannot be gainsaid that the appellants are residing at the same address,” SAT had said. “In our view, the reasoning of the Ld. WTM (whole-time member of Sebi) cannot be faulted with. The facts as highlighted… would show that… there was no estrangement… Additionally, in our view, the very fact that appellant Shivani had authorised 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.”

However, the Supreme Court rejected this interpretation in its April 19 ruling, pulling up the SAT for not conducting an independent assessment. The court said Sebi and SAT wrongly rejected the estrangement argument made by the family members “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.”

The two-judge bench said Sebi’s argument about sharing the same residential address “also falls flat as admittedly the parties were residing in separate buildings on a large tract of land… In our opinion, the SAT order suffers from nonapplication of mind and the same is a mere repetition of facts stated by the WTM.” The apex court added that SAT “was bound to independently assess the evidence and material on record, which it evidently failed to do.”