Comprehension
…If a person enters into a transaction which is surely likely to result in loss, he cannot be accused of insider trading. In other words, the actual gain or loss is immaterial, but the motive for making a gain is essential.
The words, “likely to materially affect the price” appearing in the main part of Regulation 2(ha) gain significance for the simple reason that profit motive, if not actual profit should be the motivating factor for a person to indulge in insider trading. This is why the information in Item No.(vii) of the Explanation under Regulation 2(ha) may have to be examined with reference to the words “likely to materially affect the price”. Keeping this in mind let us now come back to the facts of the case.
Gammon Infrastructure Projects Limited (“GIPL”) was awarded a contract for the execution of a project, whose total cost was admittedly ₹ 1,648 crores. Simplex Infrastructure Limited (“SIL”) was awarded a contract for a project whose cost was ₹ 940 crores. Both GIPL and SIL created Special Purpose Vehicles and then they entered into two shareholders Agreements. Under these Agreements, GIPL and SIL will have to make investments in the Special Purpose Vehicles created by each other, in such a manner that each of them will hold 49% equity interest in the other’s project.
It means that GIPL could have acquired 49% equity interest in the project worth ₹ 940 crores and SIL would have acquired 49% equity interest in a project worth ₹ 1,648 crore.
In arithmetical terms, the acquisition by GIPL, of an equity interest in SIL’s project was worth ₹ 460 crores approximately. Similarly, the acquisition by SIL, of the equity interest in GIPL’s project was worth ₹ 807.52 crores. Therefore, the cancellation of the shareholders Agreements resulted in GIPL gaining very hugely in terms of order book value. In such circumstances an ordinary man of prudence would expect an increase in the value of the shares of GIPL and would wait for the market trend to show itself up, if he actually desired to indulge in insider trading. But the respondent did not wait for the information about the market trend, after the information became public. The reason given by him, which is also accepted by the Whole-Time Member (“WTM”) and the Tribunal is that he had to dispose of his shares as well as certain other properties for the purpose of honouring a Corporate Debt Restructuring (“CDR”) package. It is on record that if the CDR package had not gone through successfully, the parent company of GIPL namely, Gammon India Ltd., could have gone for bankruptcy.
Therefore, the Tribunal was right in thinking that the respondent had no motive or intention to make undeserved gains by encashing on the unpublished price sensitive information that he possessed.
As a matter of fact, the Tribunal found that the closing price of shares rose, after the disclosure of the information. This shows that the unpublished price sensitive information was such that it was likely to be more beneficial to the shareholders, after the disclosure was made. Any person desirous of indulging in insider trading, would have waited till the information went public, to sell his holdings. The respondent did not do this, obviously on account of a pressing necessity.
[Excerpted from the judgment delivered by Ramasubramanian, J., in Securities and Exchange Board of India v. Abhijit Rajan, CA No. 563 of 2020 (hereafter ‘A Rajan’)]
The words, “likely to materially affect the price” appearing in the main part of Regulation 2(ha) gain significance for the simple reason that profit motive, if not actual profit should be the motivating factor for a person to indulge in insider trading. This is why the information in Item No.(vii) of the Explanation under Regulation 2(ha) may have to be examined with reference to the words “likely to materially affect the price”. Keeping this in mind let us now come back to the facts of the case.
Gammon Infrastructure Projects Limited (“GIPL”) was awarded a contract for the execution of a project, whose total cost was admittedly ₹ 1,648 crores. Simplex Infrastructure Limited (“SIL”) was awarded a contract for a project whose cost was ₹ 940 crores. Both GIPL and SIL created Special Purpose Vehicles and then they entered into two shareholders Agreements. Under these Agreements, GIPL and SIL will have to make investments in the Special Purpose Vehicles created by each other, in such a manner that each of them will hold 49% equity interest in the other’s project.
It means that GIPL could have acquired 49% equity interest in the project worth ₹ 940 crores and SIL would have acquired 49% equity interest in a project worth ₹ 1,648 crore.
In arithmetical terms, the acquisition by GIPL, of an equity interest in SIL’s project was worth ₹ 460 crores approximately. Similarly, the acquisition by SIL, of the equity interest in GIPL’s project was worth ₹ 807.52 crores. Therefore, the cancellation of the shareholders Agreements resulted in GIPL gaining very hugely in terms of order book value. In such circumstances an ordinary man of prudence would expect an increase in the value of the shares of GIPL and would wait for the market trend to show itself up, if he actually desired to indulge in insider trading. But the respondent did not wait for the information about the market trend, after the information became public. The reason given by him, which is also accepted by the Whole-Time Member (“WTM”) and the Tribunal is that he had to dispose of his shares as well as certain other properties for the purpose of honouring a Corporate Debt Restructuring (“CDR”) package. It is on record that if the CDR package had not gone through successfully, the parent company of GIPL namely, Gammon India Ltd., could have gone for bankruptcy.
Therefore, the Tribunal was right in thinking that the respondent had no motive or intention to make undeserved gains by encashing on the unpublished price sensitive information that he possessed.
As a matter of fact, the Tribunal found that the closing price of shares rose, after the disclosure of the information. This shows that the unpublished price sensitive information was such that it was likely to be more beneficial to the shareholders, after the disclosure was made. Any person desirous of indulging in insider trading, would have waited till the information went public, to sell his holdings. The respondent did not do this, obviously on account of a pressing necessity.
[Excerpted from the judgment delivered by Ramasubramanian, J., in Securities and Exchange Board of India v. Abhijit Rajan, CA No. 563 of 2020 (hereafter ‘A Rajan’)]
Question: 1
In A Rajan, which of the following are essential prerequisites for an insider to fall within the mischief of “insider trading” under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (the “Insider Trading Regulations”)?
In A Rajan, which of the following are essential prerequisites for an insider to fall within the mischief of “insider trading” under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (the “Insider Trading Regulations”)?
Updated On: Aug 22, 2024
- Lack of access to price sensitive information
- A profit motive
- Mens rea
- Abstaining from dealing in securities of a company about which the insider has price sensitive information
Hide Solution
Verified By Collegedunia
The Correct Option is B
Solution and Explanation
The correct option is (B): A profit motive.
Was this answer helpful?
0
0
Question: 2
Which of the following are the key facts in A Rajan?
Which of the following are the key facts in A Rajan?
Updated On: Jul 17, 2024
- The respondent sold the shares of the company about which he had unpublished price sensitive information (“UPSI”) after the rise in price of the shares consequential to the disclosure of the UPSI.
- The respondent did not possess any UPSI about the company whose shares he sold.
- The respondent sold the shares of the company about which he had UPSI before the rise in price of the shares consequential to the disclosure of the UPSI in his possession.
- The response did not sell any shares of the company about which he had UPSI.
Hide Solution
Verified By Collegedunia
The Correct Option is C
Solution and Explanation
The correct option is (C): The respondent sold the shares of the company about which he had UPSI before the rise in price of the shares consequential to the disclosure of the UPSI in his possession.
Was this answer helpful?
0
0
Question: 3
Based on the passage, what is ‘insider trading’ under the Insider Trading Regulations?
Based on the passage, what is ‘insider trading’ under the Insider Trading Regulations?
Updated On: Jul 17, 2024
- Dealing in the securities of a company about which one does not have UPSI, without any desire to make a profit.
- Dealing in the securities of a company about which one has UPSI, without any desire to make a profit.
- Dealing in the securities of a company about which one does not have UPSI, with the desire to make a profit.
- Dealing in the securities of a company about which one has UPSI, with the desire to make a profit.
Hide Solution
Verified By Collegedunia
The Correct Option is D
Solution and Explanation
The correct option is (D): Dealing in the securities of a company about which one has UPSI, with the desire to make a profit.
Was this answer helpful?
0
0
Question: 4
Based on the passage, what was the impact of the cancellation of the shareholders’ agreements between SIL and GIPL?
Based on the passage, what was the impact of the cancellation of the shareholders’ agreements between SIL and GIPL?
Updated On: Jul 17, 2024
- There was a decrease in the closing prices of the shares after this information was disclosed.
- There was an increase in the closing prices of the shares after this information was disclosed.
- There was no change in the closing prices of the shares after this information was disclosed.
- The company’s securities were delisted from the stock exchange.
Hide Solution
Verified By Collegedunia
The Correct Option is B
Solution and Explanation
The correct option is (B): There was an increase in the closing prices of the shares after this information was disclosed.
Was this answer helpful?
0
0
Question: 5
Which of the following approaches has been adopted in several jurisdictions, including India, to determine cases of insider trading?
Which of the following approaches has been adopted in several jurisdictions, including India, to determine cases of insider trading?
Updated On: Jul 17, 2024
- Parity of information
- Lifting the corporate veil
- Indoor management
- Constructive notice
Hide Solution
Verified By Collegedunia
The Correct Option is A
Solution and Explanation
The correct option is (A): Parity of information.
Was this answer helpful?
0
0
Question: 6
What reason did A Rajan give for selling his shares in the company about which he had UPSI?
What reason did A Rajan give for selling his shares in the company about which he had UPSI?
Updated On: Jul 11, 2024
- He expected a huge rise in the share price of GIPL upon the disclosure of the UPSI in his possession.
- It was a compulsory requirement under the shareholders’ agreement with SIL.
- He needed funds to buy the securities of SIL.
- He needed funds to honour a CDR package.
Hide Solution
Verified By Collegedunia
The Correct Option is D
Solution and Explanation
The correct option is (D): He needed funds to honour a CDR package..
Was this answer helpful?
0
0
Question: 7
Which of the following did the court in A Rajan say was clarified in SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1, as regards the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (the “FUTP Regulations”)?
Which of the following did the court in A Rajan say was clarified in SEBI v. Kanaiyalal Baldevbhai Patel, (2017) 15 SCC 1, as regards the SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 2003 (the “FUTP Regulations”)?
Updated On: Jul 11, 2024
- That mens rea is an indispensable requirement to attract the rigour of the FUTP Regulations
- That mens rea is not an indispensable requirement to attract the rigour of the FUTP Regulations
- That mens rea is not an indispensable requirement to attract the rigour of the Insider Trading Regulations
- That mens rea is an indispensable requirement to attract the rigour of the Insider Trading Regulations
Hide Solution
Verified By Collegedunia
The Correct Option is B
Solution and Explanation
The correct option is (B): That mens rea is not an indispensable requirement to attract the rigour of the FUTP Regulations.
Was this answer helpful?
0
0
Question: 8
The Insider Trading Regulations are no longer in force. Which of the following is the current set of regulations governing insider trading in India?
The Insider Trading Regulations are no longer in force. Which of the following is the current set of regulations governing insider trading in India?
Updated On: Jul 17, 2024
- The FUTP Regulations
- The SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018
- The SEBI (Prohibition of Insider Trading) Regulations, 2015
- The SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015
Hide Solution
Verified By Collegedunia
The Correct Option is C
Solution and Explanation
The correct option is (C): The SEBI (Prohibition of Insider Trading) Regulations, 2015.
Was this answer helpful?
0
0
Question: 9
What did A Rajan hold regarding the information related to the termination of the shareholders’ agreements between GIPL and SIL?
What did A Rajan hold regarding the information related to the termination of the shareholders’ agreements between GIPL and SIL?
Updated On: Jul 17, 2024
- It was not in the respondent’s possession
- It had no impact on the closing price of GIPL’s shares
- It was not price sensitive information
- It was price sensitive information
Hide Solution
Verified By Collegedunia
The Correct Option is D
Solution and Explanation
The correct option is (D): It was price sensitive information.
Was this answer helpful?
0
0
Question: 10
In A Rajan, the court opined that a person who wanted to indulge in insider trading would have:
In A Rajan, the court opined that a person who wanted to indulge in insider trading would have:
Updated On: Jul 17, 2024
- Held on to the shares, and only sold them after the news about the termination of the shareholders’ agreements with SIL was made public.
- Sold the shares before the news about the termination of the shareholders’ agreements with SIL was made public.
- Held on to the shares and not sold them under any circumstances whatsoever.
- Never have bought GIPL’s shares in the first place.
Hide Solution
Verified By Collegedunia
The Correct Option is A
Solution and Explanation
The correct option is (A): Held on to the shares, and only sold them after the news about the termination of the shareholders’ agreements with SIL was made public.
Was this answer helpful?
0
0
Top Questions on Company Law
- Pick the correct statement:
- AILET LLM - 2025
- Legal Studies
- Company Law
- “Associate company” in relation to another company means a company:
- AILET LLM - 2025
- Legal Studies
- Company Law
- Pick the incorrect option under the Companies Act, 2013:
- AILET LLM - 2025
- Legal Studies
- Company Law
- A company may issue fully paid bonus shares to its shareholders and use the following funds:
- AILET LLM - 2025
- Legal Studies
- Company Law
- A class action suit may be filed by prescribed number of members of a company before the Tribunal on behalf of the members or depositors for seeking any of the following orders except:
- AILET LLM - 2025
- Legal Studies
- Company Law
View More Questions
Questions Asked in CLAT PG exam
- The Hon’ble Supreme Court in the case of ‘Nil Ratan Kundu and another v. Abhijit Kundu’ 2008(3) Apex Court Judgements 232 (SC), while granting the custody to the maternal grandparents observed: In our judgement, the law relating to custody of a child is fairly well settled and it is this. In deciding a difficult and complex question as to custody of minor, a Court of law should keep in mind relevant statutes and the rights flowing therefrom. But such cases cannot be decided solely by interpreting legal provisions. It is a humane problem in live in relationship and is required to be solved with human touch. A Court while dealing with custody cases, is neither bound by statutes nor by strict rules of evidence or procedure nor by precedents. In selecting proper guardian of a minor, the paramount consideration should be the welfare and well-being of the child. In selecting a guardian, the Court is exercising parens patriae jurisdiction and is expected, may bound, to give due weight to a child’s ordinary comfort, contentment, health, education, intellectual development and favorable surroundings. But over and above physical comforts, moral and ethical values cannot be ignored. They are equally, or we may say, even more important, essential and indispensable consideration. If the minor is old enough to form an intelligent preference or judgement, the Court must consider such preference as well, though the final decision should rest with the Court as to what is conducive to the welfare of the minor.
The Hon’ble Supreme Court in the case of ‘Gaurav Nagpal v. Semedha Nagpal’-(2009)1 SCC 42, while giving paramount importance to the welfare of the child, which should include moral and ethical values, besides ethical well-being, observed as under:
When the court is confronted with conflicting demands made by the parents, each time it has to justify the demands. The Court has not only to look at the issue on legalistic basis, in such matters human angles are relevant for deciding those issues. The Court then does not give emphasis on what the parties say, it has to exercise a jurisdiction which is aimed at the welfare of the minor. As observed recently in Mausami Moitra Ganguli case, the Court has to give due weightage to the child’s ordinary contentment, health, education, intellectual development and favorable surroundings, but over and above physical comforts, the moral and ethical values have also to be noted. They are equal if not more important than the others.
(Extracts from Jaswinder Singh and Another vs Surjit Singh, AIR 2010 (NOC) 425 (P. & H.))- CLAT PG - 2025
- Family Laws
- Ahmadi, J. (as he then was) speaking for himself and Punchhi, J., endorsed the recommendations in the following words-The time is ripe for taking stock of the working of the various Tribunals set up in the country after the insertion of Articles 323-A and 323-B in the Constitution. After the incorporation of these two articles, Acts have been enacted where-under tribunals have been constituted for dispensation of justice. Sufficient time has passed, and experience gained in these last few years for taking stock of the situation with a view to finding out if they have served the purpose and objectives for which they were constituted. Complaints have been heard in regard to the functioning of other tribunals as well and it is time that a body like the Law Commission of India has a comprehensive look-in with a view to suggesting measures for their improved functioning. That body can also suggest changes in the different statutes and evolve a model on the basis whereof tribunals may be constituted or reconstituted with a view to ensuring greater independence. An intensive and extensive study needs to be undertaken by the Law Commission in regard to the Constitution of tribunals under various statutes with a view to ensuring their independence so that the public confidence in such tribunals may increase and the quality of their performance may improve.
Before parting with the case, it is necessary to express our anguish over the ineffectiveness of the alternative mechanism devised for judicial review. The judicial review and remedy are the fundamental rights of the citizens. The dispensation of justice by the tribunal is much to be desired.
(Extracted with Edits from R.K. Jain v. Union of India, 1993 (4) SCC 119)- CLAT PG - 2025
- Constitutional Laws
- The elements of tort of negligence consist in – (a) duty of care; (b) duty is owed to the plaintiff; (c) the duty has been carelessly breached. Negligence does not entail liability unless the exacts a duty in the given circumstances to observe care. Duty is an obligation recognised by law to avoid conduct fraught with unreasonable risk of damage to others. The question whether duty exists in a particular situation involves determination of law. Hence, three ingredients are necessary for the existence of a duty of care: (i) foreseeability of the damage, (ii) proximity of relationship between the parties; and (iii) whether it is “just, fair and reasonable” that the law should impose a duty of care. In Caparo Industries Plc. v. Dickman, 1990 2AC 605, the court held that breach of duty is concerned with the standard of care that ought to have been adopted in the circumstances and whether the defendant’s conduct fell below that standard i.e., whether he was careless.
The court while quoting Rajkot Municipal Corporation v. Manjulben Jayantilal Nakum, 1997 stated that as a tort, negligence consists of legal duty to take care and breach of that duty. Duty determines whether the type of loss suffered by the plaintiff in the particular way in which to occurred can ever be actionable. The division of negligence into duty, breach and consequent damage is convenient for the purpose of exposition but it can be confusing because the issues will often overlap. The process of determining a breach of duty involves three steps: First, it is necessary to ascertain the qualities of the reasonable person, given the qualities attributed to him, would have taken in the circumstances. The factors that are permissible to take into account in this regard are prescribed by law, but the amount of care that the reasonable person would have taken is a question of fact. Thirdly, it must be determined whether the defendant took less care than the reasonable person would have taken.
(Extracts from Managing Director, Kerala Tourism Development Corporation Limited v. Deepti Singh and Ors., 2019 SC)- CLAT PG - 2025
- Law of Torts
- Article 14 of the Constitution stipulates that the State shall not deny to any person equality before the law or the equal protection of laws within the territory of India. Article 15(1) states that the State should not discriminate against any citizen on grounds only of religion, race, caste, sex, place of birth or any of them. Article 15(4) stipulates that nothing in Article 15 shall prevent the State from making any special provision for the advancement of any socially and educationally backward classes of citizens or for the Scheduled Castes and the Scheduled Tribes. Article 16 deals with equality of opportunity in matters of public employment. Clause (1) of Article 16 guarantees equality of opportunity for all citizens in matters relating to employment or appointment to any office under the State. Clause (2) stipulates that no citizen shall be discriminated in or be ineligible for any employment or office under the State on the grounds only of religion, race, caste, sex, descent, place of birth, residence or any of them. Clause (4) of the provision states that nothing in Article 16 shall prevent the State from making any provision for the reservation of appointments or posts in favour of any backward class of citizens, which in the opinion of the State, is not adequately represented in the services under the State. The purpose of the equal opportunity principle in Article 16(1) and the reservation provision in Article 16(4) has emerged as a focal point of the jurisprudence on reservations in this Court. A discussion of the journey of the competing models of equality that the Court has espoused and their evolution over the course of the years is necessary to understand the constitutional vision on equality.
The impugned constitutional amendments by which Article 16 (4-A) and 16 (4-B) have been inserted, flow from Article 16 (4). They do not alter the structure of Article 16 (4). They retain the controlling factors or the compelling reasons which enables the State to provide for reservation keeping in mind the overall efficiency of the state administration under article 335. Sub-categorization within a class is a constitutional requirement to secure substantive equality in the event that there is a distinction between two sections of a class; Sub-classification must not lead to the exclusion of one of the categories in the class. A model that provides sufficient opportunities to all categories of the class must be adopted; and Sub-classification among a class must be on a reasonable basis.
Justice Bela Trivedi opined, in dissent, that presidential list of scheduled castes notified under Article 341 cannot be altered by the States. Any change to this list can only be made by a law enacted by Parliament. Sub-classification, according to her would amount to tampering with the Presidential List and undermine the object Article 341, which aims to eliminate political influence in the SC-ST List. Further, she emphasised the importance of adhering to the rule of plain and literal interpretation. She mentions that any preferential treatment for a sub-class within the presidential list would deprive other classes within the same category of their benefits. In the absence of executive or legislative power, state lack the competence to sub-classify castes and the benefit reserved for all SCs. Allowing states to do so would constitute a colourable exercise of power, which is impermissible under law. Justice Trivedi concluded by affirming that affirmative action by States must remain within constitutional boundaries and held that the law laid down in E.V. Chinnaiah case was correct and should be upheld.
(Extract from The State of Punjab & Ors. v. Davinder Singh & Ors. 2024 SC)- CLAT PG - 2025
- Constitutional Laws
- Live-in relationship, as such, as already indicated, is a relationship which has not been socially accepted in India, unlike many other countries. In Lata Singh v. State of U.P. [(2006) 5 SCC 475: (2006) 2 SCC (Cri) 478] it was observed that a live-in relationship between two consenting adults of heterosexual sex does not amount to any offence even though it may be perceived as immoral. However, in order to provide a remedy in civil law for protection of women, from being victims of such relationship, and to prevent the occurrence of domestic violence in the society, first time in India, the DV Act has been enacted to cover the couple having relationship in the nature of marriage, persons related by consanguinity, marriages, etc. We have few other legislations also where reliefs have been provided to woman placed in certain vulnerable situations. Section 125 Cr.P.C. of course, provides for maintenance of a destitute wife and Section 498-A IPC is related to mental cruelty inflicted on women by her husband and in-laws. Section 304-B IPC deals with the cases relating to dowry death. The Dowry Prohibition Act, 1961 was enacted to deal with the cases of dowry demands by the husband and family members. The Hindu Adoptions and Maintenance Act, 1956 provides for grant of maintenance to a legally wedded Hindu wife, and also deals with rules for adoption. The Hindu Marriage Act, 1955 refers to the provisions dealing with solemnisation of marriage also deals with the provisions for divorce. For the first time, though, the DV Act, Parliament has recognised a “relationship in the nature of marriage” and not a live-in relationship simpliciter. We have already stated, when we examine whether a relationship will fall within the expression “relationship in the nature of marriage” within the meaning of Section 2(f ) of the DV Act, we should have a close analysis of the entire relationship invariably, it may be a question of fact and degree, whether a relationship between two unrelated persons of the opposite sex meets the tests judicially evolved.
(This extract is taken from Indra Sarma v. V.K.V. Sarma, (2013) 15 SCC 755)- CLAT PG - 2025
- Family Laws
View More Questions