1. Background of the case:
The case relates to Apex Frozen Foods Ltd., which was listed on NSE and BSE on 4 September
2017. The main appellant, Satyanarayana Murthy Karuturi, was the Chairman and Managing
Director (CMD) and promoter of the company. His wife was also a promoter, while his son-in-
law was the third appellant.
The company announced its quarterly financial results on 14 November 2017. The results
showed a significant increase of 32.45% in profit, after which the company's share price
increased substantially.
2. What did SEBI allege?:
SEBI investigated the company's shares to determine whether the appellants had traded while
having Unpublished Price Sensitive Information (UPSI).
The appellants had purchased shares between 3 October and 26 October 2017. SEBI considered
this period to be the UPSI period because it believed that financial information was available to
the promoters before the results were publicly announced.
SEBI alleged that the appellants had used this confidential financial information to purchase
shares and therefore committed insider trading in violation of the SEBI (Prohibition of Insider
Trading) Regulations, 2015.
3. SEBI's action:
SEBI passed an order on 28 March 2023 and:
Debarred the appellants from accessing the securities market for 2 years.
Directed them to disgorge the alleged gains along with 12% interest.
Imposed monetary penalties of ₹11 lakh each on Appellants 1 and 2 and ₹10 lakh on Appellant
4. What was the defence of the appellants?:
The appellants argued that they did not have UPSI when they purchased the shares.
They stated that the accounting entries for the quarter were mostly completed only from 4
November 2017, and the financial results were finalized and reviewed by auditors on 14
November 2017. Therefore, according to them, the UPSI period should not be considered to
have started on 3 October 2017.
They also pointed out that the company had specifically informed SEBI that no material
financial information was shared with promoters/promoter group during the relevant quarter,
except executive directors. There was therefore no clear evidence that the appellants actually
received the UPSI.
5. What did SAT observe?:
SAT found that there was no definite evidence showing that the MIS reports containing
important financial information were actually shared with the appellants.
The Tribunal also noted that, under the law applicable before the 2018 amendment, the
Compliance Officer had discretion to determine the trading-window closure period. In this case,
the Compliance Officer had fixed 4 November 2017 as the relevant date. The appellants had
also obtained clearance from the Compliance Officer before purchasing the shares.
6. Small quantity of shares purchased:
SAT also considered the quantity of shares purchased. Appellant No. 1 already held 88.75 lakh
shares but purchased only 23,500 shares during the alleged UPSI period. Appellant No. 2
already held 39.79 lakh shares and purchased 70,183 shares, while Appellant No. 3 purchased
30,947 shares.
The Tribunal found some force in the argument that if the appellants really possessed UPSI and
wanted to make an unfair profit, they could have purchased a much larger quantity of shares.
This supported their argument that the purchases were not motivated by UPSI.
7. Final decision of SAT:
SAT held that the purchases could not be treated as trades based on UPSI. There was
insufficient evidence that the appellants possessed the UPSI, and the relevant trading period
was also not correctly established by SEBI.
Therefore, SAT allowed the appeal and set aside SEBI's order dated 28 March 2023. The two-
year debarment, disgorgement and penalties imposed by SEBI were consequently set aside.
Learning from the case
Mere purchase of shares during a period alleged to be a UPSI period does not automatically
establish insider trading. SEBI must have sufficient material to show that the person actually
possessed UPSI and that the trading was based on that information.