Under the Securities and Exchange Board of India Act, 1992, is a disgorgement order under Section 11B affected by how a person used the proceeds of insider trading?

No. Where a person has engaged in insider trading and avoided a loss by trading while in possession of unpublished price sensitive information, an order under Section 11B directing disgorgement of the amount of loss avoided cannot be faulted merely because the proceeds were later applied to a stated purpose; the disgorgement order is restored.

Securities and Exchange Board of India Act, 1992 — s.12A — s.15G — s.15J — s.11B — SEBI (Prohibition of Insider Trading) Regulations, 2015 — Regulation 4(1) — Insider trading — Disgorgement — SEBI (Prohibition of Insider Trading) Regulations, 2015 — Regulation 4(1) — Purpose of trade proceeds irrelevant — Held: Under the note appended to Regulation 4(1) of the PIT Regulations 2015, once a person is shown to have traded in securities while in possession of unpublished price sensitive information, the purposes to which the proceeds of the transaction are applied are irrelevant to establishing insider trading. (¶9, 11) SEBI (Prohibition of Insider Trading) Regulations, 2015 — Regulation 4(1) — 'Including' does not attract ejusdem generis — Held further: The word 'including' preceding the listed defences in Regulation 4(1) does not attract the rule of ejusdem generis, since that rule applies to general words following specific words and not the reverse; it nonetheless signals that the enumerated defences are not exhaustive and other defences of a similar nature may be available. (¶13) Securities and Exchange Board of India Act, 1992 — s.11B — Disgorgement order restored — Held further: Since the transactions here are governed by the 2015 PIT Regulations, which unlike the 1992 Regulations considered in SEBI v. Abhijit Rajan contain the note barring consideration of the use of sale proceeds, the disgorgement ordered by the Whole Time Member is restored. (¶14, 15, 16) Securities and Exchange Board of India Act, 1992 — s.15G — Penalty reduced to statutory minimum — Held further: The penalty of Rs.25 Lakhs imposed on Respondent No.1 under Section 15G is excessive and is reduced to Rs.10 Lakhs, the minimum penalty as imposed on Respondent Nos.2 and 3; the appeal is allowed and the penalty modified to this extent. (¶18, 20)

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