Case-1

Securities Appellate Tribunal

Rakesh Agrawal vs Securities Exchange Board Of ... on 3 November, 2003
Equivalent citations: (2004) 1 CompLJ 193 SAT, 2004 49 SCL 351 SAT
Bench: C Achuthan

ORDER C. Achuthan, Presiding Officer

1. Order passed by the Securities and Exchange Board of India, the Respondent herein (SEBI) on 10.6.2001, under sections 11 and 11B of the Securities
and Exchange Board of India Act, 1992 (the SEBI Act) read with regulation 11 of the Securities and Exchange Board of India (Insider Trading)
Regulations, 1992 (the SEBI Regulations) against Shri Rakaesh Agrawal, the Appellant herein, is under challenge in the present appeal. By the said order
SEBI had directed that:

"Shri Rakesh Agrawal deposit Rs.34,00,000 with Investor Protection Funds of Stock Exchange , Mumbai and NSE (in equal proportion i.e. Rs.17,00,000 in
each exchange) to compensate any investor which may make any claim subsequently. Any investor who is aggrieved with sale of shares of ABS Industries
to Mr. I.P. Kedia during September 9, to October 1, 1996 can approach SEBI within 15 days of this order."

2. By the same order SEBI directed to (i) initiate prosecution under section 24 of the SEBI Act and (ii) adjudication proceedings under section 15I read with
section 15 G of the SEBI Act against the Appellant

3. The Appellant is the Managing Director of ABS Industries Ltd., Vadodara (ABS) a company incorporated under the Companies Act 1956 (name of the
company has been subsequently changed to Bayer ABS Ltd.). The main business of ABS is manufacture of ABS resins (Acrylonitrile Butadiene Styrene)
and SAN, (Styrene Acrylonitrile resins). Shares of ABS are listed on Bombay Stock Exchange National Stock Exchange, Ahmedabad Stock Exchange and
Vadodara Stock Exchange. Bayer AG (Bayer) is a company registered in Germany having many subsidiaries in various parts of the world. Bayer took
controlling stake in ABS in October 1996 by acquiring

(a) 55,80,000 shares in the allotment made on a preferential basis by ABS (@ Rs.70/-)

(b) 20% shares from the existing shareholders @ Rs.80/- per share in a public offer.

4. It has been stated by SEBI that there were allegations of purchases being made prior to announcement of Bayer acquiring controlling stake in ABS, on
the basis of inside information. In that context investigations were undertaken by SEBI to ascertain the truth or otherwise of those allegations. SEBI's
investigation is stated to have revealed that one Mr. I. P. Kedia, brother in law of the Appellant had purchased shares preceding Bayer's acquisition of ABS
and that the said acquisition was made at the behest of the Appellant and the Appellant funded the acquisition. The investigation is also stated to have
revealed that the shares were acquired on the basis of the unpublished price sensitive information relating to impending takeover of ABS by Bayer,
available to the Appellant by virtue of his position as the Managing Director of ABS and also as the negotiator from the side of ABS, in the negotiations
with Bayer.

5. The findings of the investigation was forwarded to the Appellant asking him to show cause as to why action should not be taken against him for violation
of the SEBI Regulations. The Appellant replied to the notice denying the charges. SEBI thereafter adjudicated the notice. SEBI held the Appellant guilty of
violating the provisions of regulation 3(i) of the SEBI Regulations and passed the impugned order.

6. Shri Amit Desai, learned Counsel appearing for the Appellant argued at length defending the Appellant. Shri Rafiq Dada, learned Senior Counsel
appearing for the Respondent also advanced detailed arguments in support of the Respondent's order. Both the parties had referred several authorities -
Indian and Foreign -- to support their contentions. Detailed written submissions have also been filed. The submissions made by the parties are furnished
party wise, herein below:

Appellant's Submissions:
7. The Chairman by his order dated 10.6.2001 has held the Appellant in breach of Regulation 3(i) of the SEBI (Insider Trading) Regulations, 1992. In
particular the impugned order has made the following findings:-

(a) the Appellant, being the Managing Director of ABS is a "connected person" pursuant to Regulation 2(c). Further, that the Appellant is an
insider within the meaning of regulation 2(e) of the Regulations;

(b) the Appellant instructed his brother-in-law, Mr. I. P. Kedia to purchase, 1,82,500 shares of ABS on the basis of unpublished price sensitive
price information that the said company was to be taken over/merged with Bayer prior to the public announcement to the NSE, BSE and VSE on October 1,
1996 in this regard;

(c) this purchase was financed by the Appellant;

(d) while holding that there was requirement to establish "profit" for the purpose of establishing a violation of Regulation 3 read with Regulation 4
of the SEBI Regulations and accordingly making no specific finding that the Appellant had made any profit from the said transaction, and further finding
that in fact the action of the Appellant in this regard were beneficial to the Company, the Chairman found the Appellant in breach of Regulation 3, and in
violation of the Regulation, pursuant to the provisions of Regulation 4 thereof;

(e) while finding that issuance of directions under the Regulation 11 would be "inoperative and infructuous" in the facts and circumstances,
pursuant to section 11(1) Read with Section 11 B of the SEBI Act, the Chairman who Suo motu directed the Appellant to deposit a sum of Rs.34,00,000
with the Investor Protection Funds of BSE and NSE to compensate the investors who may come forward at a later period of time seeking compensation for
the loss incurred by them in selling at price which were lower than the offer price;

8. While making the above findings and in particular finding the Appellant in breach of Regulations 3 and 4 of the SEBI Regulations, the Chairman called
upon case law from the United States of America to explain the Philosophy of Insider trading and to give conceptual clarity and to reinforce the said order.
The Appellant submitted that the said order proceeds on a mis-reading of the said U.S. case law. The impugned order directs the initiation of adjudication
proceedings pursuant to Section 15I read with Section 15G of SEBI Act against the Appellant. Further the impugned order holds that this is a fit case for
invoking the provisions of Section 24 of the SEBI Act, which provides for criminal action against any person in contravention of the provisions of the said
Act and any rules or regulations made thereunder. The Appellant denied any violation of the SEBI Regulations and submitted that the said order should be
quashed and/or set aside. Further that in so far as the said Order directs the Appellant to pay the said sum of Rs.34,00,000/- by way of compensation, the
said order is ultra vires the provisions of the SEBI Regulations and the SEBI Act, and illegal. Further the impugned order in ordering prosecution should be
launched against the Appellant is illegal and excessive. SEBI had issued a Show Cause Notice dated June 18, 1999 to the Appellant. In response to that the
Appellant filed a reply dated September 24, 1999. Written submissions were also submitted to SEBI on 24.8.1999 pursuant to receipt of the investigation
report under Regulation 9(1) of the said Regulations. The Appellant had clearly explained that there was no violation of the Regulations on his part.

Brief facts submitted by the Appellant:

9. The Appellant has been the Managing Director of ABS for more than 25 years. ABS was incorporated under the Companies Act, 1956, in the year 1973
in the name of ABS Plastics Limited for the purpose of setting up an ABS manufacturing facility in India. ABS was managed in a professional manner and
the sole motivating criterion of the promoter, the Appellant, has been the growth and reputation of the Company. The Appellant has always acted with the
best interest of the Company in mind. In the post economic liberalisation, several of the end-user industries of the products manufactured by the company
(ABS and SAN resins), including automobiles, consumer durables, telecommunication instruments, were planning to put up facilities in India. The
Appellant was aware of the importance of technological arrangements with foreign companies so as to remain an important market player in the new
economic scenario. In this regard, ABS had serious dialogues with reputed global manufacturers of ABS resin, including Japan Synthetic Rubber ("JSR")
(which was also the Company's existing technical collaborator), Mitsubishi Rayon, Toyo Engineering, Dow Chemicals, Monsanto Chemicals, etc. since
1994. There had been several frequent reports and articles in various newspapers and magazines from late 1994, all through 1995 and most of 1996 that
ABS was seriously contemplating association with a foreign company. In this context paginated index copy of the relevant press clippings filed in the
Tribunal was referred to. In mid - July 1995, the Company signed a secrecy agreement with Monsanto to explore the possibility of technical/foreign
collaboration, while dialogues with other foreign companies continued. In November 1995, Monsanto's styrenic business worldwide was taken over by
Bayer. As a result of this, the contractual rights and obligations under the secrecy agreement entered into by ABS with Monsanto were transferred to Bayer.
Bayer approached ABS in February, 1996 as to the possibility of synergising the technical expertise of both the companies. The two companies had been in
continuous discussions since on this aspect. In May 1996, the Technical Adviser to the Company and the Appellant had further discussions with Bayer. The
discussion with Bayer and the Company since early May 1996 were at a preliminary stage with both companies only investigating the possibility of
combining their expertise. However, ABS had kept all its options open in as much as it continued discussions with the other potential collaborators as well.
In the month of July 1996, a team from Bayer visited the Company's plant to conduct a technical evaluation together with a preliminary due diligence. In
September 1996, the Appellant was requested to visit Germany by Bayer on his way back from the USA, where he had gone with his family for a personal
visit. The Appellant accordingly stopped over in Germany on his way back to India between September 6, 1996 and September 8, 1996 for discussions with
Bayer. This was the first meeting in Germany and there were initial discussions with the senior management and officers of Bayer, after Bayer had
conducted a technical evaluation and due diligence. During these discussions, Bayer indicated that as per the worldwide policy of Bayer, any joint venture
with Bayer would require that Bayer control 51% in the joint venture company. This firm pre-condition of Bayer was made known to the Appellant and
ABS for the first time during his visit to Germany. However, the discussions for the proposed joint venture were still under way, and the method or
modality of the investment by Bayer had not been initiated.

10. The pre-condition of Bayer that it always has had a majority stake in any company to which it licenses its technology is information in the public
domain. In fact it is well known that Bayer has never licensed any technology in the world where they do not have a majority stake.

11. Subsequently, the proposal with Bayer was discussed by the Board of directors of the Company at its meeting held on September 20, 1996. The
company and Bayer had merely discussed the viability of a possible joint venture but not the details thereof. The Appellant appraised the Board
accordingly. At that stage, there was no agreement or understanding between the parties and there was no certainty that the parties would infact agree to go
ahead with the joint venture. Accordingly the Board authorised the Appellant to undertake further discussions in the matter. There was no concrete proposal
whatsoever before the Board on which it could take a decision, at that stage. The resolutions passed by the Extraordinary General Meeting were subject to
the approval by the financial institutions. On September 29, 1996, the Appellant visited Germany again, with a view to obtain a definite commitment from
Bayer to enter into the said joint venture/merger and to agree on the terms and conditions on the basis of which the parties would do so. The experts were
involved for the first time at this stage to iron out the methodology and modality of investment. Appellant travelled with the Company's legal counsel for
this purpose. Bayer had invited their merchant bankers and legal advisors to be present at the said discussions in Germany. This was the first time that the
said experts were involved in the discussions, as it was hoped that the discussions would for the first time culminate in a definite proposal. At the said
meetings, several suggestions were made as regards the modalities of the transaction, including making a preferential allotment to Bayer and also a public
offer by Bayer to the other shareholders of ABS to purchase their shares under the provisions of the SEBI (Substantial Acquisition and Takeovers)
Regulations, 1994 (the "Takeover Regulations"). An understanding to proceed with the said joint venture/merger was arrived at in Germany only on
October 1, 1996 for the first time. As soon as an understanding of the transaction was reached, the Bombay Stock Exchange, National Stock Exchange and
Vadodara Stock Exchange were informed (i.e. on October 1, 1996 itself) of the Board Meeting that was going to be convened to discuss and decide o the
raising of further capital through preferential offer, if any.

12. Between October 2, 1996 and October 3, 1996 the legal consultants of both parties prepared a share subscription agreement and shareholders agreement
detailing the terms and conditions of the parties to the transaction. The subscription agreement was entered into on October 5, 1996. The said agreement
contained a covenant on the Board of Directors of ABS as well as the Indian Promoters (being the Appellant) to co-operate with Bayer in enabling it to
acquire 20% additional shares in the public offer. Further, the acquisition of 51% shares by Bayer (with 31% being through preferential allotment and 20%
being through public offer) was a condition precedent to the successful completion of the joint venture/merger, including the execution of the shareholders
agreement.

13. On October 5, 1996 the board of directors of Bayer and ABS approved the preferential allotment of shares to Bayer as also the notice for the
extraordinary general meeting (EGM) of the Company to be convened on October 30, 1996. On October 8, 1996, a public announcement was made in the
newspapers by Bayer (and their merchant bankers) offering to acquire 20% shares of ABS from the existing shareholders of ABS under the Takeover
Regulations at a price of Rs.70/- per share. In the said public announcement, the Appellant's obligation to co-operate with Bayer Industries to acquire 20%
shares from the public was clearly disclosed. In the event that Bayer was unable to acquire the said 20% shares under the public offer, the entire transaction
would have become null and void. Subsequently, the shareholders passed a special resolution on October 30, 1996 approving the preferential allotment of
shares to Bayer. At this meeting, UTI categorically opposed the preferential allotment to be made to the promoters. This is recorded in the minutes of the
meeting.

14. In the last week of December, 1996, owing to considerable pressure from the financial institutions, Bayer was forced to increase the offer price from
Rs.70/- per share to Rs.80/- per share. The announcement to increase in the offer price appeared in the news papers on December 27, 1996. However, this
decision was taken by Bayer and its merchant bankers pursuant to their discussions with the financial institutions. The Appellant was not involved in any
manner in that decision.

15. The Company has significantly benefited by the induction of Bayer. All creditors continue to rate the Company with the highest creditworthiness having
the entire loan repayments and schedules being met in a timely manner. It has also strengthened the relations with vendors, suppliers, and employees and
also in relation to research and development. If the joint venture/merger was not successful, the Company would have been unable to remain prosperous.
Therefore, the acquisition of 51% shares by Bayer was critical to its induction.

16. As regards the transactions carried out by Rakesh Agrawal's brother-in-law, Shri I. P. Kedia, the position was stated that:
 (a) The Appellant has been holding shares in the Company since its inception. Neither the Appellant nor any of his investments companies have
ever sold any shares in the Company (except once in December, 1994). The Appellant and his family have constantly held approximately 40% shares in the
Company (till February 1997).

(b) During the period between September 9, 1996 and October 1, 1996 , the Appellant's brother-in-law, Shri I. P. Kedia purchased about 1,82,500
shares in the Company. Pursuant thereto the Appellant had informed Shri Kedia that if shares are offered by any of his relatives or any other person, he can
procure shares on his behalf. However, at no stage did the Appellant express any reason or any objective thereto for requesting Shri Kedia to purchase the
said 1,82,500 shares. The Appellant did not inform Mr. I. P. Kedia about any discussion with Bayer for any possible joint tie up. There was never a
communication of price sensitive information by the Appellant to his brother-in-law.

(c) Although during the period between September 9, 1996 and October 1, 1996 the Appellant was conscious of the pre-condition imposed by
Bayer that Bayer would not enter into any transaction unless it was successful in attaining 51% shareholding in the company, the discussions/ negotiations
with Bayer, which were not in the Appellant's control, were still in progress and not conclusive. There was no certainty as to whether the transaction would
occur at all and was in the realm of possibility. The discussions relating to the modalities of investment had not yet taken place. It was only on October 1,
1996 that the basic agreement of the tie-up was finalised, namely that Bayer would participate in ABS through its wholly owned subsidiary in India - M/s.
Bayer Industries Ltd., upon which the stock exchange was immediately informed and a board meeting was convened to consider the matter.

(d) Shri Kedia continued to acquire shares during the period between October 1, 1996 and October 7, 1996 at an average price of more than
Rs.70/- per share i.e. after intimation had been given to the stock exchanges that a Board meeting was going to be convened to discuss and decide on raising
of further capital through preferential offer, if any.

(e) Further, the Appellant had instructed Shri Kedia again to purchase further shares from the market. In fact, after the press advertisement on
October 8, 1996 1,24,250 shares were purchased at a price of over Rs.80/- Therefore, clearly the shares were acquired only to fulfill the obligation
undertaking by the Appellant to Bayer to ensure that it obtains 51% shares in the Company. The Appellant did not seek to acquire the shares in order to
make any profit therefrom. Bayer's induction was extremely critical to the Company, and it is only with this objective in mind, i.e. in order to ensure that
Bayer succeeds in obtaining 51% shares in the Company, that the Appellant requested Shri Kedia to acquire the shares.

The Principles of Insider Trading

17. The SEBI Regulations on insider trading seek to prohibit persons who by virtue of their connection with a company received unpublished sensitive
information from using such information/dealing in the securities of the company on the basis of such information to make secret profits / person gains.
SEBI has extensively referred to the US Law while interpreting the Insider Trading Regulations not only in the case of the Appellant but also in the case of
SEBI Vs. Hindustan Lever Ltd. Even upon perusal of the High Powered Committee Report, it is apparent that the Committee has considered the US Law
on insider trading. The jurisprudential principles behind the prohibition of insider trading were enunciated by the Securities and Exchange Commission
(SEC) in its decision rendered in the matter of Cady Roberts & Co., on November 8, 1961.(40 SEC 907 1961) The SEC while considering Section 1(a) of
the Securities & Exchange Act and Rule 10(b-5) of the Rules thereunder inter alia of particular acts or practices which constitute fraud but rather we
designed to encompass the infinite variety of devices by which undue advantage may be taken of investors and others. The SEC went on to observe that an
insider must disclose material fact known to them by virtue of his position, but which are not known to persons with whom he deals and which if made
known could affect their investment/judgement. They also observed that if the disclosure prior to effecting a purchase or sale of shares could be improper or
unrealistic, the alternative is to forgo the transaction. The SEC went to observe "Analytically, the obligation rests on two principle elements;

1) The existence by a relationship giving access, directly or indirectly, to information intended to be available only for a corporate purpose and
not for the personal benefit of any one,

2) Inherent unfairness involved where the party takes advantages of information knowing it is not available to others with whom he is dealing"

18. It was this decision which introduces the 'disclose or abstain' rule in securities transactions. It is submitted that the disclose or abstain rule is not an
absolute rule and there is no contravention of Regulation 3 merely because there may be purchase or sale of securities without a disclosure by the corporate
insider. The disclose or abstain rule has been misrepresented to suggest that in law, there is no absolute obligation or duty to either disclose the material
information or to abstain from dealing the securities.

19. The aforesaid observations in Cady Roberts & Co., clearly indicate that the prohibition on trading on undisclosed information is only when information
is entrusted for a corporate purpose and should not be used for personal benefit on the principle that there is inherent unfairness when the party takes
advantage of such information knowing that it is unavailable to others. Consequently it is only when the information is being misused for personal benefit
or where a person takes advantage of such information that there would be a contravention of fiduciary obligation cast upon the corporate insider who is in
possession of the material information. The decision of the SEC does not suggest that the information cannot be used even for a corporate purpose. In fact,
the SEC has recognised that if there are conflicting fiduciary obligations the obligation to the company is paramount and there is no compulsory bar to the
use of such information. In the context in Cady Roberts at page 11 it is stated that "even if we assume the existence of conflicting fiduciary obligations,
there can be no doubt which is primary here." Additionally on page 12 the court has considered what fiduciary duty was owed and in this context stated: "
In the circumstances, Gintel's relationship to his customers was such that he would have a duty not to take a position adverse to them, not to take secret
profits at their expense, not to misrepresent facts to them, and in general to place their interests ahead of his own."

20. The aforesaid decision was considered by the US Supreme Court in Chiarella Vs. United States (445 US 222) in its decision rendered on March 18,
1980. The Supreme Court while considering the argument that there is an absolute duty to 'disclose or abstain' and while dealing with the decision of the
SEC, inter alia observed the decision which solely rested upon its belief that federal securities laws have "created a system providing equal access to
information necessary for reasoned and intelligent investment decision" id. At 1362. The use by anyone of material information not generally available is
fraudulent, this theory suggests, because such information gives certain buyers or sellers an unfair advantage over less informed buyers and sellers.

21. This reasoning suffers from two defects. First, not every instance of financial unfairness constitute fraudulent activity under Section 10(b). (Santa Fe
Industries Inc. Green 430 US 462, 474, 477 (1977). Second the element required to make silence fraudulent - a duty to disclose - is absent in this case. No
duty could raise from the petitioner's relationship with the sellers of the target company's securities, for petitioner had no prior dealings with them. He was
not their agent, he was not a fiduciary, he was not a person in whom the sellers had placed their trust and confidence. He was in fact a complete (455 US
233) stranger who dealt with the sellers only through impersonal market transactions.

..... "As we have seen, no such evidence emerges from the language or legislature history of S.10(b). Moreover, neither the Congress nor the Commission
ever has adopted a pairty-of-information rule. Instead, the problems caused because by misuse of market information have been addressed by detailed and
sophisticated regulation that recognizes when use of market information may not harm operation of the securities markets...."

22. The dissent of Mr. Chief Justice Burger J. of the US Supreme Court also reiterates this underlined principle. Burger J. in his descent, inter alia observed
"Finally, it bear emphasis that this reading of Section 10(b) and Rule 10b-5 would not threaten legitimate business practices. So read, the anti fraud
provisions would not impose duty on a tender offeror to disclose its acquisition plans during the period in which it "tests the water" prior to purchasing the
full 5% of the target co.'s stock. Nor would it proscribe "warehousing". Likewise, market specialists would not be subject to a disclosure or refrain
requirement in the performance of their every day (455 US 243) market functions. In each of these instances, trading is accomplished on the basis of
material non-public information, but the information has not been unlawfully converted for personal gain.

23. Justice Blackmun in his dissent inter alia observes "The duty to abstain or disclose arose, not merely as an incident of fiduciary responsibility, but as a
result of the "inherent unfairness" of turning secret information to account for personal profit." He went on to observe "the concept of 'insider' itself has
been flexible; wherever confidential information has been abused prophylaxis has followed.

24. The US Supreme Court had once again considered the principle of disclose or abstain in Dirks v. Securities and Exchange Commission. (463 us 646)
The Supreme Court in its decision rendered on July 1, 1983, has inter alia, made the following observations in the context of the arguments of an absolute
principle of disclose or abstain. "Not all breaches of fiduciary duty in connection with a securities transaction" however, come within the ambit of Rule
10(b)-5. Santa Fe Industries v. Green 430 US 462, 472, (1977). There must be "manipulation or deception" id, at 473. In an insider trading cause this fraud
derives from the "inherent unfairness involved where one takes advantage" of "information intended to be available only for a corporate purposes and not
for the personal benefit of any one", In re Merrill Lynch, Pierce, Fenner & Smith 438 SEC 933, 936 (1968). Thus, an insider will be liable under Rule 10 b-
5 for insider trading only where he fails to disclose material non-public information before trading on it and thus make "secret profit" Cady Roberts Supra
916 n.31". The Supreme Court went on to observe "Whether disclosure is a breach of duty depends in large part of the personal benefit the insider receives
as a result of the disclosure. Absent an improper purpose, there is no breach of duty to stockholders. Performance of the disclosure. SEC argues that, if
insider trading liability does not exist when the information is transmitted for a proper purpose, but is used for trading, it would be a rare situation when the
parties could not fabricate the same ostensibly legitimate business justification for transmitting the information. We think the SEC is unduly concerned. In
determining whether the insider's purpose in making a particular disclosure is fraudulent, the SEC and the Courts are not required to read the parties mind.
Scienter in some case is relevant in determining whether the tipper has violated his Cady Roberts duty. N. 23 But to determine whether the disclosure itself
"deceives, manipulates pr defrauds shareholders. The initial inquiry is whether there has been a breach of duty by an insider. This requires courts to focus
on objective criteria, whether the insider receives a direct or indirect personal benefit from the disclosure, such as a pecuniary gain or a reputational benefit
that will translate into future earnings." In the context of the facts of that case, the Supreme Court went on to observe "As the facts of this case clearly
indicate, the tippers were motivated by the desire to expose the fraud see supra 648-649. In the absence of a breach of duty to shareholders by the insider,
there was no derivative breach by Dirks. Blackman J. in his descent in footnote 11 explained requirement of scienter in insider trading cases. The Court
observed "....when the disclosure to an investment banker or some other advisers, however, there is normally no breach because the insider does not have
scienter; he does not intend that the insider information be used for trading purpose to the disadvantage of shareholders. Moreover, if the insider in good
faith does not believe that information material or non-public, he lacks the necessary scienter, Earnst & Earnst v. Hochfelder 425 US, at 197. In fact, the
scienter requirement functions in part to protect good faith errors by this type Id, at 211, n.31"

25. In the context of the facts and circumstances of the case, and in view of the said legal position it cannot by any stretch of imagination have been said
that the Appellant had breached Regulation 3 and rendered himself liable for penalty. In this regard, the Appellant submitted that:

(a) There is no allegation or averment that the Appellant made profit, direct or indirect, as a result of the impugned share transaction;

(b) There is no allegation or averment that the Appellant undertook the impugned share transaction for the purpose of making any profit;

(c) There is no allegation or averment that the Appellant has acted in a manner disadvantageous to the shareholders;

(d) There is no allegation or averment that in all, the actions of the Appellant has caused detriment to the shareholders of the Company;

(e) The averment in the findings of investigation relied upon in the Show Cause Notice, issued by the Adjudicating Officer, on the basis of
directions issued by the Chairman dated June 21, 2000 (the "Show Cause Notice") indicates that even according to the Department, the acquisition of the
impugned shares was undertaken with a view to enable Bayer in reaching its 51% target. The Show Cause Notice also relied upon the statement dated
April 7, 1996 of the Appellant in support of its allegations. In that statement in response to question 4, the Appellant had inter alia stated "I realized looking
into the future that it was pertinent to our Company to enter into a technological tie-up with any of these companies for sustained growth and even for
survival" Again in response to a question 4, the Appellant inter alia stated ".....our share subscription agreement which was arrived and which was
approved by the Board of Directors and subsequently sent to financial institutions for their approval had a clear condition that the whole agreement was
conditional upon Bayer acquiring open 51% share in ABS. It also meant that if they do not have 51%, the whole agreement would become null
and void. That was a very scaring scenario in the light of the development in industry in the country, and particularly the heavy
capacity being created in South East Asia."

(f) In the inquiry under Regulation 9, the Appellant in his submission dated August 24, 1999 had further elaborated that in the past liberalization
scenario, the polymer industry was reeling under a negative bottom line due to lack of demand and loss of margin, and the producers of ABS resin in the
country were suffering heavily. It was also pointed out that the other three competitors of ABS viz. (1) M/s. Rajasthan Polymer & Resin Ltd., (2) M/s.
Polychem Ltd., and (3) M/s. Bhansali Engineering and Polymer Ltd., have suffered significant loss and that their networth had been wiped out significantly
and they were nearly sick companies for the past several years. It was also pointed that in this background it was imperative and in the interests of
company and its stakeholders, such as shareholders, lenders, employees, suppliers, etc., that the company survived. The only way for ABS to survive was
the introduction of a foreign partner. Bayer was one of the largest and most reputable global conglomerates in this business and their induction into the
company would go a long way in the survival and growth of the Company.

(g) The Chairman in his decision of 1st June 2001, appreciated the fact that the Company gained substantially from the take over by Bayer AG, as
mentioned in para 14(x) of the Reply. The Chairman went on to observe "however, there are many advantages (some of which are listed in para 14 above)
which are not possible to quantify in terms of gain, there is no doubt ABS Industries really gained immensely from the take over by Bayer AG."

(h) The Appellant made no profits from the said transactions and did not receive any personal profits from the same. The question of the
Appellant making a profit was alleged by the Respondents for the first time during the hearing before the Hon'ble Tribunal.

(i) All the impugned shares were submitted in the open offer by Bayer to enable and assist Bayer in the acquisition of 51% control over the
company.

(j) The Appellant also tendered 9 lakhs and odd shares from his own promoter quota to enable Bayer to acquire 51% on account of shortfall in
the target of the open offer. Thus not only was there no personal profit made by the Appellant, but the whole purpose of the impugned acquisition was a
corporate purpose, namely to ensure the induction of Bayer AG into the Company for the very survival of the company. This induction, infact, resulted in
the survival of the company in as much as the other three competitors of the Company named earlier have been ultimately gone under and became sick. The
stakeholders of the Company, including the shareholders, have benefited from that induction. Consequently in view of the law set out above and especially
observations of the US Supreme Court in Dirks Vs, Securities and Exchange Commission it cannot be said that Appellant has breached his fiduciary duty to
the shareholders or misused any information in his possession and thereby contravened regulation 3 and Section 15-G of the SEBI Act and rendered
himself liable for penalties in that regard.

26. The underlying principle enunciated by the US Supreme Court in the aforementioned two decisions, which interpreted the decision of the Commission
in Cady Roberts & Co., was reported once again by the US Supreme Court in united State v. O'Hagan (521 us 642)in its decision rendered on June 25,
1997. The US Supreme Court while extending the prohibition of the US Securities Laws from a fiduciary to a person in possession of information and who
misappropriated this information reiterates the underlying principles of the prohibition on insider trading stated earlier. The Court made the following
observations:

"9....two theories are complementary, each addressing efforts to capitalize on nonpublic information through the purchase or sale of the securities. The
classical theory targets a corporate insider's breach of duty to shareholders with whom the insider transacts; the misappropriation theory outlaws trading on
the basis of non-public information by a corporate 'outsider' in breach of a duty owed not to a trading party, but to the source of the information."

11 and 12 The misappropriation theory advanced by the Government is consistent with Santa Fe Industries Inc Vs. Green 430 US 462, a decision
underscoring that section 10(b) is not an all purpose breach to fiduciary duty ban; rather it trains on conduct involving manipulation or deception."

27. The Court while considering the earlier decisions of the US Supreme Court in Chiarella and Dirks observed:

"......This Court found no obligation, see id., at 665 - 667, 103 S.Ct. at 3266 - 3268, and repeated the key point made in Chiarella; There is no "general duty
between all participants in market transactions to forego action based on material, the non-public information."

28. Consequently even while continuing with the misappropriation theory in the context of insider theory the US Supreme Court did not lose sight of the
underlying principles of insider trading and breach of fiduciary duty which it settled in its earlier decision while dealing with the classical theory on insider
trading.

29. It has been held by SEBI in several decisions, US Law on insider trading is invaluable in interpreting the Regulations. Regulation 3 must be interpreted
bearing in mind the underlying principles of insider trading and without losing sight of the reasons why the obligations for disclosing the information or
abstaining from trading were imposed.

30. The law in England relating to insider trading is no different. In Attorney-General's Reference (1) of 1988,(1988) IAC 971) Lord Lane while referring to
White Paper on the conduct of a company director (1977) referred to paragraph 22 of the Paper which is inter alia stated:

"....Public confidence in directors and others closely associated with companies requires that such people should not use inside information to further their
own interests. Furthermore, if they were to do so, they would frequently be in breach of their obligations to the companies, and could be held to be taking
an unfair advantage of the belief with whom they were dealing".

31. Lord Lane then went on to observe:

"What is in our view much more significant is obvious and understandable concern which the Paper shows about the damage to public confidence which
insider dealing with, is likely to cause and the clear intention to prevent so far as possible what amounts to cheating when those with inside knowledge use
that knowledge to make a profit in their dealing with others. This is the reason for the proposal in paragraph 25 of Paper."

.......The prosecution will need to show that the insider knew or had reasonable grounds to believe that the information was not generally known and was
price sensitive and that he dealt nevertheless. Also, it will be possible for a person to offer a defence that his purpose in dealing was not to make a profit or
avoid a loss by the use of his insider information."

An Appeal against the decision of the Court of Appeal was turned down by the House of Lords.

32. The Hon'ble Supreme Court of India in K. P. Verghese Vs. Income Tax Officer, Ernakulam & Another (1981) 3 SCC 173 observed that while dealing
with interpretation on statutory provisions "The task of interpretation of a statutory enactment is not a mechanical task. It is more than a mere reading of
mathematical symbols. It is an attempt to discover the intent of the legislature from the language used by it and it must always be remembered that
language is at best an imperfect instrument for the expression of human thought and as pointed by Lord Denning, it would be idle to expect every statutory
provision to be "drafted with devine prescience and perfect clarity. We can do no better than to repeat the famous words of Judge Learned Hand when he
said:

..."it is true that the words used, in another literal sense, are the primary and ordinarily less reliable source of interpreting and meaning of any writing; be it
a statute, a contract or anything else. But it is one of the surest indexes of a mature and developed jurisprudence not to make a fortress out of the dictionary;
but to remember that statutes always have some purpose or object to accomplish, whose sympathetic and imaginative discovery is the surest guide to their
meaning"

6.It is a well recognized rule of construction that a statutory provision must be so construed, if possible, that absurdity and mischief may be avoided."

33. Considering the settled principles of interpretation, Regulation 3 must be interpreted bearing in mind the basic underlying assumption and the intent of
the legislature in introducing such Regulations. The Regulations was never intended as an all purpose ban on trading. Legitimate transactions undertaking
to achieve a corporate purpose or to discharge a fiduciary duty or in the interest of a body of public shareholders or stakeholders in a company or
transactions in the public interest or transactions undertaken without an intent to make profit or to gain unlawfully or without a view to misuse information,
or the like, would not be hit by the prohibition contained in the Regulations. The whole function of the Regulation is to regulate, not to stop transactions
from taking place. Any other interpretation will lead to stifling the genuine transactions undertaken for legitimate corporate purpose or the like. The whole
Regulation is an anti-fraud regulation.

34. The Regulation was preceded by a High Powered Committee on Stock Exchange Reforms which in its report has explained insider trading as follows:

"Insider trading generally means trading in the shares of a company by the persons who are in the management of the company or are to close to them, on
the basis of undisclosed price sensitive information regarding the working of the company which they possess but are not available to others. Such trading
as it involves misuse of confidential information, is unethical tantamounting to betrayal of fiduciary position of trust and confidence.

The preface to the draft regulations on insider trading which was circulated to the various intermediaries associated with the securities market, gives a fair
idea of the rationale for the regulations that:

"The smooth operation of the securities market and its healthy growth and development, depend to a large extent on the quality and integrity of the market.
Such a market can alone inspire confidence in investors. Factors on which such confidence depend include, among others, the assurance the market can
afford to all investors, that they will be protected against improper use of inside information. Inequitable and unfair practices such as insider trading, market
manipulation and other security frauds affect the integrity, fairness and efficiency of the securities market, and impair the confidence of investors.

Insider trading takes place when insiders or other persons, who by virtue of their position in office or otherwise, have access to unpublished price sensitive
information relating to the affairs of a company, and deal in securities of such company or cause the trading of securities while in possession of such
information or communicate such information to others who use it in connection with the purchase or sale of securities. Thus, by benefiting certain
investors as compared to others. Insider trading prejudices smooth functioning of the securities market and undermines investor's confidence."

35. In the light of the underlying principles relating to the prohibition of insider trading as well as the objects and reasons and intention behind the
Regulations, it is abundantly clear that what was intended to be prohibited under Regulation 3 was the dealing in securities which was with a view to
misuse information for obtaining unfair advantage. One of the indicia of that unfair advantage was making of profit. Consequently if the dealing in
securities was not with a view to misuse the information or gain unfairly from the use of the information or to use information to make profit, that dealing
in securities was not prohibited or covered by Regulation 3.

36. The impugned transactions were undertaken by the Appellant in discharge of his fiduciary obligations as director with a view to save the company and
to ensure its survival as going concern. The object of the transaction was clearly bonafide and to achieve the Corporate purpose. The Hon'ble Supreme
Court of India in Needle Industries (India) Ltd. and Ors. Vs. Needle Industries Newey (India) Holders Ltd., & Ors. AIR 1981 SC 129, while dealing with
director's fiduciary obligations and the discharge of such fiduciary obligations has held as under:

"the fact that by the issue of shares the Directors succeed, also or incidentally, in maintaining their control over the Company or in newly acquiring it, does
not amount to an abuse of their fiduciary power. What is considered objectionable is the use of such powers merely for an extraneous purpose like
maintenance or acquisition of control over the affairs of the Company.

37. Admittedly the intention of the transactions being to ensure the Bayer acquires 51% and there being no other intentions in undertaking transactions,
none of the indicia set out above has been satisfied.
38. Such actions are proscribed because the information is given to such persons, by virtue of their connection with company, for corporate purposes and
not for personal benefit. Further, that it is inherently unfair for such "insiders" to personally benefit from the use of such information at the expense of other
shareholders, who are disadvantaged by lack of such information (Cady Robert & Company 40 SEC 907 1961).

39. Since the insiders receive unpublished price sensitive information by virtue of their connection with the company and for corporate purposes only, such
insiders owe a fiduciary duty (or a duty akin to a fiduciary duty) to the company not to misuse or misappropriate such information for an unlawful purpose
i.e. to make secret profits or personal gains for themselves. (Chiarella v. US 455 US 222).

40. Such insiders are therefore either required to disclose the said unpublished price sensitive information to other transacting parties or to abstain from
acting on the said information/dealing in such securities altogether. This requirement has come to be known as the 'disclosure or abstain' rule.

41. To establish the offence of insider taking, it is essential to establish a breach of such duty owed to the company by the insider. This necessarily requires
some "manipulation or deception" by the insider (Dirks v. US SEC 403 (646), that proof of mens rea to manipulate or deceive is therefore necessary. The
clearest evidence of the "manipulation" or "deception" being perpetrated by a corporate insider is when an insider uses the unpublished price sensitive
information to make secret profit/personal gains. The necessary circumstance for liability is to ascertain whether the insider has made any secret profits or
personal gains. If such benefit can be established, the insider is liable for the offence for insider trading (Dirks v. SEC 406 US 646).

42. The U.S. Supreme Court, while considering the Appeal in the case of Dirks v. SEC, while holding that personal benefit/personal gains form the basis of
liability of insider trading stated:

"In some situations the insider will act consistently with his fiduciary duty to shareholders and yet release of the information may affect the market. For
example, it may not be clear - either to the Corporation insider or to the recipient analyst - whether the information be viewed as material non-public
information. The Corporation Official may mistakenly think information already has been disclosed or that it is not materially enough to affect the market.
Whether disclosure is a breach of the duty therefore depends in large part on the purpose of the disclosure. This standard was identified by the SEC in Cady
Robert's purpose of securities laws to eliminate use of the inside information for personal advantage. 40 SEC 1912, n d15.seen d 10, supra. Thus the test is
whether an insider personally will benefit directly or indirectly from his disclosure. Absent some personal gain, there has been no breach of duty to
shareholders. And absent a breach by the insider there is no derivative breach"

43. The duty to disclose or abstain is not an absolute duty. When the insider acts / uses unpublished price sensitive information for a corporate purpose, he
is not subject to such duty. In any event, the failure to either to disclose or abstain cannot in such circumstances give rise to liability. ( Burger J while
dissenting on the principle established in Chiarella's case (Supra) Page 13).

44. In US v. O'Hagan 521 US 642, the US Supreme Court, while holding that liability for insider trading of a tipper/tippee was also based on the
'misappropriation theory', reiterated and restated the aforesaid principles on the basis of which corporate insiders are liable.

45. In the case of SEC v. David E. Lipson (U.S.Court of appeal (7th circuit) Docket No.01-1226) it was held that merely because an insider had two
purposes further to which he dealt in securities, one being legitimate, and the other merely for the purpose of making unlawful gains, the existence of the
legitimate purpose would not 'sanitize' the illegitimate one. In this case there was a clear benefit by the father in favour of his son and the Appellant had not
benefited from the present transaction. In Lipson the primary or principal purpose was personal benefit not the corporate purpose for the benefit of the
larger body of shareholders.

46. In the facts of the matter, both purposes were motivated by the desire to make personal gains by the diversion of unpublished price sensitive information
to private ends, and not further to any corporate purpose. Lipson's case does not in any manner contradict the aforesaid principles on the basis of which
insiders are held liable.

47. The necessary requirement to successfully establish liability for insider trading is unlawful conversion of unpublished price sensitive information
resulting in secret profits/ personal gains.

The Regulations

48. The prohibition against Insider Trading in India is provided for in Regulation 3 of the said Regulations which so far as relevant, reads :

Prohibition on dealing, communicating or counseling on matters relating to insider trading - No insider shall - either on his own behalf or on behalf of any
other person, deal in securities of a company listed on any stock exchange on the basis of any unpublished price sensitive information"

Regulation 2(e) defines an insider :

"Insider means any person who is or was connected with the company or is deemed to have been connected with the company, and who is reasonably
expected to have access, by virtue of such connection, to unpublished price sensitive information in respect of securities of the company or who has
received or has had access to such unpublished price sensitive information."

Connected person is defined by a Regulation 2 (c ):

"Connected person" means any person who -

(i) is a director, as defined in clause 13 of section 2 of the Companies Act, 1956 (1 of 1956) of a company, or is deemed to be director of that
company by virtue of sub-clause (10) of section 307 of that Act, or

(ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship
between himself and the company and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that
company."

Regulation 2(5) enumerates a class of persons who shall for the purpose of the Regulation to be regarded to be "deemed connected persons".

49. The requirement for establishing a breach of fiduciary duty to successfully make out a violation of insider trading under Regulation 4 is implicit in the
provisions of Regulation 3, and necessarily needs to be read into the same, that this requirement is imported into R 3, by the use of the defined term
"insider", that an insider is necessarily a "connected person" or "a person deemed to be connected" with the company. A "connected person" is a person who
owes the company a fiduciary duty (or a duty akin to a fiduciary duty) not to misappropriate or to divert unpublished price sensitive information for the
purpose of making secret profits or personal gains as is apparent from the nature and class of persons enumerated in S. 2( c ) above. Section 2( h) (a person
deemed to be connected) is a deeming provision by which the said duty is extended to the class of persons mentioned therein.

50. Regulation 3 merely aims to prohibit the insider from breaching this duty to the company. The breach of this duty necessarily involves an element of
"manipulation" or "deceit", and the making of some secret profits or personal gain / benefit by the insider.

51. The predominant purpose of the transaction was the corporate purpose. The object of the transaction was not to secure personal benefits or secret
profits. The position of SEBI that absolute disclosure or complete abstention is the only option is not tenable. For example, SEBI has in fact provided for
creeping acquisitions under the Takeover Regulations, by inter alia promoters and other existing shareholders who would qualify as insiders under the said
Regulations. Therefore, it is clear that transactions entered into even on the basis of unpublished price sensitive information would not be in breach of the
Regulations if they are undertaken for a corporate purpose, that any other interpretation of Regulation 3 would render the same absurd for inter alia the
following reasons:

a) All corporate activities on the basis of unpublished price sensitive information would stand proscribed.

b) Corporate insiders would be subject to a form of strict liability against dealing in securities even if they act in furtherance of their duty to the
Company.

c) A corporate insider would be liable although he has committed no breach of his fiduciary duties, to the Company.

d) Promoters cannot consolidate their holdings in their company subject to limit prescribed by the SEBI (Substantial Acquisition of Shares and
Takeovers) Regulations, 1997, on basis of unpublished price sensitive information.

52. Chapter III of the SEBI Regulations on insider trading sets out SEBI's powers to investigate into suspected breaches of the said Regulation. Regulation
5 empowers SEBI to inter alia investigate and inspect the books of account and other records and documents of the insider. Regulation 6 prescribes the
procedure to be followed for the purpose of investigation. Regulation 7 obliges of the insider to assist the said investigation. Regulation 8 provides for the
submission of an investigation report, by the investigating authority to SEBI upon the conclusion of the investigation.
53. Regulation 9 provides inter alia for the communication of the findings of the investigation to the insider. Regulation 9 provides that the insider shall be
given an opportunity of being heard before any action is taken by the Board on such findings. Further, that upon the receipt of an explanation, if any, from
the insider the Board may take such measures as it deems fit to protect the interest of the investors and in the interest of the securities market and for due
compliance with the provisions of the Act, Rules and said Regulations.

54. Regulation 11 provides for the directions that may be given by the Board to the alleged insider in the course of investigation, and read as under:

"11. Directions by the Board On receipt of the explanation, if any, from the insider under sub-Regulation(2) of Regulation 9, the Board may without
prejudice to its right to initiate criminal prosecution under Section 24 of the Act, give such directions to protect the interest of the investors and in the
interest of the securities market and for due compliance with the provisions of the Act, rules made thereunder and these regulations, as it deems fit for all or
any of the following purposes namely:-

(a) directing the insider not to deal in securities in any particular manner;

(b) prohibiting the insider from disposing of any of the securities acquired in violation of these regulations;

(c) restraining the insider to communicate or counsel any person to deal in securities;

55. Regulation 11 therefore empowers the board to give directions only for the purposes enumerated therein viz. to prevent the insider from dealing in
securities in any particular manner, to prohibit the insider from disposing of any securities acquired in violation of these Regulations and restraining the
insider from communicating or counseling any other person to deal in securities. Regulation 11 does not empower the Board to pass any other wider
directions. The power under regulation 11 is only to pass necessary interim directions for the purpose of preserving the status quo during or immediately
after the investigation. Regulation 11 does not empower the Board to make any final and/or conclusive determination as to whether the insider has acted in
breach of the Regulations. It is for that reason that advisedly the Regulation does not empower the Board to call for any Documentary evidence or to
summon any persons it considers necessary as witnesses before passing the said directions provided for therein. It is significant to note that in
contrast Section 15-I(Power to Adjudicate) of the said Act expressly confers upon the Adjudication Officer the power to summon and enforce the
attendance of any person acquainted with the facts and circumstances of the case to give evidence or to produce any document which in the opinion of the
Adjudicating Officer may be useful for or relevant to the subject matter of the inquiry.

56. From the scheme of the SEBI Act read with the Regulations it is apparent that a final and conclusive determination as to whether an insider has
breached the Regulations can only be done by the Adjudicating Officer, pursuant to the provisions of Sections 15- G, 15-I and 15-J of the said Act and not
by the Board pursuant to Regulation 11.

57. The fact that SEBI, while framing the said Regulations did not intend to confer upon the Board any wider power, is clear from the language of the said
Regulation 11 which states that the directions pursuant thereto may be passed "for all or any of the following purposes namely -". This language be
contrasted with language or Regulation 44 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 that:

"The Board may, in the interests of the securities market, without prejudice to its right to initiate action including criminal prosecution under Section 24 of
the Act give such directions as it deems fit including;

(a) directing the person concerned not to further deal in securities;

(b) prohibiting the person concerned from disposing of any of the securities acquired in violation of these Regulations;

(c) directing the person concerned to sell the shares acquired in violation of the provisions of these Regulations;

(d) taking action against the person concerned'"

58. From the said Regulation 44, it is clear that when SEBI intends to confer a wider power upon itself it uses express language to that effect. For example
under Regulation 44 it has expressly empowered the board to "give such direction as it deems fit including" for the purposes enumerated therein below.
Regulation 44 of the SEBI Takeover Code therefore is unlike Regulation 11, being inclusive is merely illustrative of the various purposes for which the
Board may pass directions and not exhaustive.

59. The impugned order, in so far as it purports to make a final and/or conclusive determination of whether the Appellant has acted in breach of the said
Regulation is ultra vires the said Regulation, and in particular Regulation 11. The impugned order is illegal and should be quashed and set aside on this
ground alone.

Unpublished price sensitive information:

Paragraphs 16 and 17 of the Impugned order:

"16. Mr. Agarwal being a Managing Director of ABS Industries is a "connected person" under the Regulation 2 ( c ). He was also an "insider" under
Regulation 2 (e) as he being a person negotiating on behalf of his company, was in a position to know about the impending tie up/takeover with/by Bayer
Industries.

The information about takeover, amalgamation, mergers, etc. is a price sensitive information within the meaning of Regulation 2 (k) (v) of the SEBI
(Insider Trading) Regulations, 1992 and this information was not available to sellers and public at large.

17. The information about the "takeover" is price sensitive information, this can be seen from expression "unpublished price sensitive information" which is
defined in Regulation 2 (k) of the Regulations.

This expression reads as under:

"unpublished price sensitive information" means any information which relates to the following matters or is of concern directly or indirectly, to a
company, and is not generally known or published by such company for general information, but which it published, is likely to materially affect the price
of securities of that company in the markets-

(i) financial results (both half yearly and annual) of the company

(ii) intended declaration of dividends (both interim and final);

(iii) issue of shares by way of public rights, bonus shares

(iv) any major expansion plans or execution of new projects;

(v) amalgamation, mergers and takeovers;

(vi) disposal of the whole or substantially the whole of the undertaking;

(vii) such other information as may affect the earning of the company;

(viii) any changes in the policies, plans or operations of the company."

60. Similarly the fourth paragraph on page five at the Show Cause Notice reads that: "From the above it is unequivocally clear that it has always been
SEBI's case that the alleged unpublished price sensitive information on the basis of which the Appellant is purported to have entered into the said
transaction was information about the said tie up/take over by Bayer AG".
61. Regulation 2 (k) defines the information on the basis of which the insider is prohibited from dealing in shares to make secret profits or personal gains.
The unpublished information relating to mergers and takeovers may be construed to be price sensitive. But all unpublished information regarding mergers,
etc. need not necessarily be price sensitive. To be price sensitive the information should be of such quality that it is likely to "materially" affect the price of
securities of the company in the market, that this requirement is inherent in the concept of price sensitivity. In view of the definition in Regulation 2(k), it is
only upon crystallization of the decision of the merger/takeover that the information would be price sensitive. At no point of time prior to 1st October, 1996
was the fact of merger / joint venture between the said companies certain or definite, that this fact became certain and definite only on 1st October 1996
when the Appellant visited the head quarters of Bayer AG in Germany.

62. The lack of certainty regarding the Company's merger with Bayer is apparent from the fact that between June and September, 1996 merger discussions
were in fact progressing not only with Bayer but also with JSR Further that, as late as September 20, 1996, the Board of ABS merely authorized the
Appellant to undertake further discussion with Bayer in this regard. The Appellant reiterated that at that Board meeting, no concrete proposal whatsoever
regarding the merger was discussed with the Board. In fact the minutes of September 20, 1996 meeting did not indicate that any informal understanding had
already been arrived at in this regard, that the minutes in fact, clearly state that the salient features of the agreement are in the process of being discussed.

63. From the very day i.e. October 1, 1996 when ABS and Bayer entered into the said share subscription agreement, the said stock exchanges were
informed that a Board Meeting was to be convened to discuss and decide raising of further capital through a preferential offer, for the purpose of the said
merger/takeover. Further, it is empirically able to establish that the general information that the company was merging/entering into a joint venture with
another company and/or Bayer AG was not price sensitive information and did not materially affect the price of securities of ABS Industries in the market,
e.g. in February 1996, the Express Weekly (Edition of 8th January to 14th January, 1996) carried an article wherein it was mentioned that ABS Industries
was contemplating a tie-up with Monsanto (subsequently, publicly taken over by the Bayer AG). On the very next day after the article was published, the
price of ABS's share on the Bombay Stock Exchange dropped to Rs.72.28 from prior high of Rs.84.74 as on 2nd January 1996. The share price continued to
decline and as at 31st January 1996, stood at Rs.76.80. Similarly the price of ABS share on the NSE on 9th January 1996 dropped to Rs.73 from a high of
Rs.83 on 1st January, 1996. Similarly, when ABS Industries informed the Stock Exchanges that Board will be meeting to consider the investment of Bayer
on October 1, 1996 the price of ABS's share was materially unaffected. The share opened at a price of Rs.62/- and closed at Rs.64/- on that very day.
Similarly during February - March 1995, there were several reports and press notes appearing in various capital market related and other
newspapers/magazines in regard to the Katol Plant expansion and other technical tie-up news. During this period the price of ABS Industries share
fluctuated between Rs.152.50 on 9th February 1995 and Rs.136 on March 101, 1995. Similarly, on Maya 28, 1996 and June 2, 1996, there was an article in
Business India, discussing the future expansion plans of ABS Industries, however the prices dropped from Rs.71.78 on 31st May 1996 to Rs.68.79 on 6th
June 1996. The Board of Directors on September 20, 1996 declared dividend at the rate of Rs. 3 per share for the year ended June 30, 1996. This news did
not in any manner affect the price of ABS..

64. Prior to October 1, 1996, the quality of information regarding the merger / joint venture between ABS and Bayer that was available to the Appellant,
was not appreciably different from the type of information which was in public domain and which had failed to materially affect the price of ABS's shares.
Prior to October 1, 1996, he did not possess any price sensitive information, that prior to October 1, 1996 the fact that ABS Industries was negotiating with
Bayer AG for a possible collaboration was published and/or generally known and in the public domain. For example in a Article dated March 20, 1995, the
Financial Express 'investor' expressly mentioned that the company is negotiating with Bayer Germany for possible collaboration in the manufacture of ABS
Alloys.

65. Although it has never been SEBI's case nor was it a point even considered by the Chairman in his order, it was argued on behalf of SEBI that the
information regarding Bayer's said requirement to hold 51% equity of the said company was the unpublished price sensitive information on the basis of
which the Appellant entered into the said transactions. This argument was for the first time taken during the course of the said hearing and is contrary to the
notice issued by SEBI and the impugned Order, which proceeded on the basis that the information regarding the take-over/merger was the relevant
unpublished price sensitive information. It is not open to SEBI to make the said submission and the same should be struck off from the record of the
proceedings. If the same is considered at this stage the same would violate natural justice as the Appellant has had no opportunity to place on record and
plead that the said information was neither material nor price sensitive no unpublished. It was Bayer's world wide policy that it required to hold 51% equity
of any company it enters into a tie-up/ merger / take-over with, which fact is widely known, therefore the said information can not be regarded to be
unpublished.

Power to direct disgorgement / compensation

66. The impugned order directs the Appellant to deposit a sum of Rs.34.00,000/- with the Investor Protection Funds of BSE and NSE, purportedly to
compensate investors who may come forward at a later period of time seeking compensation for the alleged loss incurred by them in selling the said shares
to I. P. Kedia at a price lower that the aforesaid price. The said direction is in breach of principles of Natural Justice, unreasonable, arbitrary and ultra vires
the provisions of Regulation 11 and /or Section 11 read with Section 11 B of the SEBI Act on the ground that: (i)that no point of time prior to the impugned
order have the Respondent put the Appellant on notice that any such order was contemplated against him, (ii) in any event, the Appellant has not been given
any opportunity whatsoever to present his case on the matter of quantification of the purported compensation, payable by him if any, therefore the
impugned order in so far as it directs the Appellant to pay the said sum of Rs.34,00,000/- purportedly by way of compensation, is in breach of the principle
of Natural Justice, that on this ground alone the impugned order is liable to be quashed and set aside. (iii) further, the impugned order, in so far as it directs
the Appellant to deposit a sum of Rs.17,00,000/- each with the Investor Protection Fund of both the BSE and NSE is unreasonable and arbitrary. The said
purchases of shares by I. P. Kedia, during the said period from the BSE and the NSE were unequal, that accordingly, even if it is assumed, that
compensation is payable by the Appellant, it is unreasonable and arbitrary to direct the Appellant to deposit Rs.17,00,000/- each with the Investor
Protection Fund of both the said exchanges, (iv) that paragraphs 31 and 32 of the impugned order so far as relevant read that:

"31 Regulation 11 of SEBI (Insider Trading Regulations, 1992 empowers SEBI to issue directions for the purpose of prohibiting the insider from dealing in
the securities, and prohibiting an insider from disposing of the securities acquired, in violation of the Regulations. These securities were given in the open
offer of Bayer Industries by Mr. Kedia and they are no more with Mr. Kedia. Therefore, issuance of directions under this Regulation would be inoperative
and infructuous.

67. In view of the above, reliance is now placed on section 11B of the SEBI Act which reads as under:-

"Save as otherwise provided in section 11, if after making or causing to be made an enquiry, the Board is satisfied that it is necessary;
(i) in the interest of investors, or orderly development of securities market, or;

(ii) to prevent the affairs of any intermediary or other persons referred to in section 12 being conducted in a manner detrimental to the interest of
investors or securities market;

(iii) to secure the proper management of any such intermediary or person.

It may issue such directions;

(a) to any person or class of persons referred to in section 12, or associated with the securities marked; or

(b) to any company is respect of matters specified in section 11A, as may be appropriate in the interests of investors in securities and the securities
market."

68. Paragraphs 33, 34 & 35 of the said notice issued to the Appellant pursuant to Regulation 9, reads that:

"33. Section 11B was inserted by the Securities (Amendment) Laws, 1995. This provision of the Act operates independently of and in
addition to the regulations. Besides section 11B being a part of the SEBI Act, is superior and wider to the regulations which are pieces of
subordinate legislation.

34. To protect the interest of investors and integrity of the market it is considered, fit and proper, in the facts of the case, to issue a direction because SEBI
as a regulatory body would be failing in its duty if it does not take corrective steps to protect the interest of investors and integrity of the market. Besides it
is also the duty of SEBI to ensure that the transactions in the securities market are carried out in a fair and transparent manner and there is a level playing
field for the investors transacting in the securities market. In this case it has been concluded that shares were purchased by Mr. Agrawal in the name of Mr.
Kedia on the basis of unpublished price sensitive information. Mr. Agrawal, thus, acquired the shares in violation of the Regulation of the Act.

35. In view of the aforesaid, I, D.R. Mehta, under the provisions of section 11(1) read with section 11B hereby direct Mr. Rakesh Agarwal to deposit a sum
of Rs.34,00,000/- with investor protection fund of BSE and NSE to compensate the investors who may come forward at a later period of time seeking
compensation for the loss incurred by them in selling at a price which was lower than the offer price."

69. It is thus clear that the impugned order has proceeded on the basis that Regulation 11 merely empowers SEBI to issue directions for the purposes
enumerated therein and in the present facts and circumstances of the matter passing such directions would in the opinion of the Board result in the same
being inoperative and infructuous. Accordingly, the impugned order purports to direct the Appellant to deposit the said sum of Rs.34,00,000/- purportedly
by way of compensation, pursuant to the provisions of Section 11 B of the said Act.
70. It is well established in law that, any pecuniary burden sought to be imposed by the legislature upon citizens, must be expressly for in the concerned
Act/ Regulation. Section 11 B of the said Act does not contain any such specific provision. The only specific provision pursuant to which a pecuniary
burden may be imposed upon a person in breach of the said Regulations is section 15G of the said Act, pursuant to which powers are only exercisable by
the Adjudicating Officer. The Board does not have any power to direct the Appellant to pay the said amount by way of compensation, pursuant to Section
11 B of the said Act. Accordingly, that the impugned order in so far as is does so, is ultra vires the provisions of the said Act, and liable to be struck down.

71. It was urged on behalf of the Respondents, that the Board had inherent powers under Section 11B of the said Act to issue all necessary directions in the
interest of the investors, and the orderly development of the securities market. In this regard the Respondents sought to rely upon the judgement and order
of the Hon'ble Bombay High Court in the matter of B.P. Plc v. SEBI (SEBI Appeal No.10 of 2001 in Appeal no.37 of 2001) dated May 2, 2002 by which
the Hon'ble Bombay High Court upheld SEBI's directions to the Appellants therein to pay interest to the aggrieved investors. This judgment and order is
clearly distinguishable from the facts and circumstances of the present matter. In B.P. Plc's case it was held that SEBI has the power to direct the payment of
interest to aggrieved investors on a conjoint reading of the provisions of the said Regulation 44 and Section 11B of the said Act. Regulation 44 confers wide
powers upon the board which include "taking action against the person concerned", in the interest of the securities market, that it is due to these wide
powers conferred by Regulation 44 that it was held that SEBI has the power to award interest to the aggrieved investors.

72. It was also argued on behalf of SEBI that the power to direct disgorgement of alleged profits, to aggrieved investors is an equitable power which vests
in SEBI, and that such a direction of disgorgement is compensatory in nature. It is well established that equitable powers can only be exercised by courts
and not any quasi-judicial tribunals/ bodies. Accordingly, SEBI does not have the power to direct disgorgement of any alleged profits. Further, the
disgorgement of alleged profits is always directed as a measure of deterrence and not compensation. (SEC V. Maurice Rind 991F. 2d 1486, SEC v. Manor
Nursing Centers 458 f 2d 1082 (2nd circuit 1972)). Directions of disgorgement are therefore penal in nature, and accordingly can not be passed pursuant
to Section 11 B of the said Act, under which only remedial directions may be passed. (Sterlite Industries v. SEBI, BPL v. SEBI, Videocon V. SEBI).

73. It was further argued on behalf of the Respondent that if the power to direct disgorgement of alleged profits is not read into Section 11B of the SEBI
Act, pursuant to Section 20A of the SEBI Act no civil court would have jurisdiction to award such compensation, as its jurisdiction in this regard would be
barred, this submission is incorrect and proceeds on a misreading of the said Section 20A, that Section 20 A bars the Civil Court Jurisdiction only in respect
of matters in which the Board is empowered by or under the said Act to pass orders. SEBI does not have the equitable power to direct disgorgement of any
alleged profits and therefore the jurisdiction of the Civil Court is preserved in this regard, that it is always open to any aggrieved investors to seek
disgorgement of any alleged profits, made in breach of the said Regulation, by using the process of a Civil Court.

74. It is clear that the impugned order proceeds on the basis that the Board has no power under the said Regulation 11 to direct any person in breach of the
said Regulations to compensate the persons aggrieved. Despite this, during the course of the hearing before the Tribunal it was argued on behalf of the
Respondent that the impugned direction of deposit purportedly to compensate any aggrieved, investors who may come forward in the future was made
pursuant to the said Regulation 11. This submission is contrary to the record as aforesaid, and should accordingly be struck out.

75. Regulation 11 merely empowers the Board to pass certain interim directions, for the purpose of maintaining the states quo during the course of the
investigation and/or, immediately thereafter upon receipt of the said investigative report. Further, that the directions which may be passed pursuant to
Regulation 11 are limited to the purposes enumerated therein, which do not include compensating any aggrieved parties. Further that the said Regulation 11
does not empower the Board to arrive at any final and/or conclusive determination as to whether any person has acted in breach of the said Regulations for
reasons more particularly stated above. Such final and conclusive determination can only be made by the Adjudicating Officer, pursuant to the powers
conferred upon him by sections 15-G, 15-I and 15-J of the said Act or pursuant to a prosecution initiated by the Board pursuant to Section 24 of the said
Act. Therefore there is no question of any award of compensation being made by the Board pursuant to Regulation 11.

76. No aggrieved party has come forward till date, despite the fact that the impugned order is dated June 10, 2001 and was widely available and publicized
shortly thereafter, that there appear to be no aggrieved persons, to compensate, that this being the case, the said directions to deposit Rs. 34,00,000/- is in
the nature of penalty. It is well established in law that power exercisable pursuant to Section 11 B of the said Act is purely remedial in nature, and that no
penal orders can be passed pursuant thereto. [Sterlite Industries v. SEBI, BPL v. SEBI Appeal Nos. 14/2001 to 19/2001, Videocon v. SEBI 23/2001 to
26/2001] and accordingly the impugned direction is ultra vires the provisions of the SEBI Act, illegal and liable to be struck down.

Imposition of penalty

77. The direction to deposit the said sum of Rs. 34,00,000/- is in the nature of a penalty. Even if it is assumed that the Appellant has committed a breach of
the Regulations by instructing the said I.P.Kedia to purchase the said shares between September 9, 1996 and October 1, 1996, the breach is merely a
technical or venial breach. Further, and in any event the Appellant submits that he had a bona fide belief that he had not acted in breach of the Regulations.
It is well established in law that the deciding authority should exercise his discretion and decline to impose a penalty in such cases. In Hindustan Steel
Limited v. State of Orissa [1970(1) SCR 753], the Hon'ble Supreme Court in this regard stated:

"The discretion to impose a penalty must be exercised judicially. A penalty will ordinarily be imposed in cases where the party acts deliberately in defiance
of law, or is guilty of contumacious or dishonest conduct, or acts in conscious disregard of its obligation; but not, in cases where there is a technical or
venial breach of the provisions of the Act or where the breach flows from a bonafide belief that the offender is not liable to act in the manner prescribed by
the statute."

78. This principle has been followed in Akbar Badruddin Jiwani v. Collector of Customs [1990 (47) E.L.T. 161(SC)], Merck Spares v. Collector of Excise
& Customs, [1983 ELT 1261], New Delhi, Shama Engine Values Ltd. Bombay v. Collector of Customs, Bombay [1984 (18) ELT 533] and Madhusudan
Gordhandas & Co. v. Collector of Customs, Bombay [1987 (29) ELT 904]. There is in fact no such findings whatsoever on this point by the investigating
officer or in the impugned order. The investors have not incurred any loss by the said transactions.

79. Furthermore the said transactions by ensuring the investment of Bayer AG into ABS Industries has ensured the survival and profitability of the
company, which in the long run has benefited general body of shareholders, therefore this accusation by SEBI at this stage of the proceedings has no basis
in fact.

Specific allegations of profit/personal benefit

80. The impugned order at paragraph 20 stated:

"It was contended that in the absence of any evidence that acquisition was for trading purpose, i.e. the process of buying and selling with intent to make
profit, there cannot be violation or contravention of the insider trading Regulations. The contention is not acceptable as the word used in the Regulations is
"dealing in securities". This expression is defined in Regulation 2(d) which reads as "dealing in securities means and act of buying, selling or agreeing to
buy, sell or deal in any securities by any person either as principle or gent". Thus, mere act of buying is covered under the Regulation."

81. From paragraph 20 it is clear that the impugned order proceeds on the basis that profit is not an essential ingredient for the purpose of establishing a
breach of the said Regulations. Therefore the impugned order fails to make any finding whatsoever with regard to any alleged profit made by the Appellant.
Despite this in the course of the hearing before the Tribunal it was for the first time submitted on behalf of the Respondent that the Appellant had made a
profit by entering into the said transactions through the said I.P.Kedia. Further, that the profit amounted to Rs.34,00,000/- , being the sum which the
impugned order directed the Appellant to deposit with the BSE and NSE as aforesaid. That in light of paragraph 20 of the impugned order and the fact that
the said order fails to make any finding whatsoever on any alleged profit made by him, that the said submissions is contrary to and inconsistent with the
impugned order, that it is pertinent to note that even the said investigation report did not make any findings whatsoever in this regard. It is not open to the
Respondents to make this submission for the first time before the Tribunal.

82. The charge that the Appellant made profit by instructing the said I.P.Kedia to enter into the said transactions denied. The Appellant's sole intention in
entering into the said transaction was to ensure the entry of Bayer AG into the said company. It was also argued on behalf of the Respondents that the
Appellant has secured certain personal benefit by entering into the said transactions, that these submissions were also taken for the first time during the
course of the said arguments in appeal. Further, that these submissions are inconsistent and contrary to the view taken in the impugned order has pointed
above that these submissions be striked up.

83. Referring to the Respondent's argument that by securing the entry of Bayer by entering into the said transactions through I.P.Kedia the Appellant
secured for himself Management control over the newly formed joint venture company, the Appellant submitted that he did not enter into the said
transaction with a view to gain any such personal benefit, that his sole objective in entering into the said transactions was to benefit the said company by
ensuring the entry of Bayer. The Shareholders Agreement dated 27th February 1997 between Bayer India Ltd. and the Appellant, belies any such suggestion
that the Appellant has retained Management control over the newly formed joint venture company. Clause 2(Board structure) and in particular Clause 2.1
thereof provides that so long as Bayer owns not less than 50.9% of the equity shares in joint venture company the board of directors shall always be in odd
number and that Bayer shall have the right to appoint/designate majority of the directors on the Board. Further, that at present the Board of directors was to
consist of the total number of nine directors out of which Bayer was entitled to appoint and nominate the majority number of directors i.e. five directors on
the Board. Clause 2.2 further provides that as long as the Appellant owns not less than the minimum required shares of the said joint venture company, he
would be entitled to appoint and nominate only four directors, which appointments include the nominees of Financial Institutions. Further, that in case the
Financial Institutions decide to appoint more than two nominee directors, Bayer would also have the right to appoint additional directors in order to
maintain its majority on the Board. From the said Clause 2.1 and 2.2, it is abundantly clear that the Management control of the resultant joint venture
company does not vest with the Appellant, and in fact vests with Bayer. Clause 3 (Management) and in particular Clause 3.3. thereof expressly provides
that although the Appellant was continued as managing director of the resultant joint venture company till 1998 and thereafter till 2003, and as such was in
charge of the day to day management of the resultant joint venture this power was subject to the superintendence, control and direction of the Board of
directors of the said joint venture company, which as stated above was in the control of Bayer.

84. Clause 5 (Voting Rights) and in particular Clause 5.2 thereof provides that so long as the Appellant holds the minimum require shares of the joint
venture company all special resolutions of the said joint venture company will require the affirmative vote of the Appellant, that Clause 5.2 of the said
Agreement merely confers upon the Appellant a veto right in respect of any special resolution, that no Management control is conferred upon the Appellant
by the said Agreement. The Appellants position under the said Shareholders Agreement to influence the affairs of the company is far weaker, in comparison
to his earlier position in the said company where he was in completer Management control of the same, that the Appellant has not in any way secured any
personal benefit by instructing the said I.P. Kedia to enter into the said transaction.
85. It was also argued on behalf of the Respondent that by instructing the said I. P. Kedia to enter into the said transaction, and by using those shares to
ensure the entry of Bayer, into the said company, the Appellant benefited as he did not have to offer his own shares to Bayer, to ensure its entry.
Accordingly, it was argued that the Appellant was able to retain his minimum required shareholding under the said Shareholders Agreement. The Appellant
did not instruct the said I.P. Kedia to enter into the said transactions for the reason alleged. At the time of instructing I.P.Kedia to enter into the said
transactions, as mentioned above, the said merger/takeover was merely in the realm of possibility and was not in any manner definite or certain. This being
the case the Appellant was not even aware that there might be any requirement in the future to hold a certain minimum number of shares. In any event, that
there was no agreement whatsoever between the parties at that time, of any minimum shareholding which would be required to be held by the Appellant,
that therefore no such motivation prompted him to instruct the said I.P. Kedia to enter into the said transactions. The Appellant denied such intention. In fact
ultimately the Appellant was constrained to put in his own shares to ensure the success of the open offer and the Appellant consequently was unable to hold
the quantity of shares as contemplated in the original draft shareholders agreement. Infact the financial institutions opposed allotment of any additional
shares to the Appellant as originally contemplated. Consequently, in fact the Appellant has personally suffered in the process of ensuring the successful
entry of Bayer into ABS.

86. It is incorrect that the Appellant made any profit/personal benefit by entering into the said transactions through the said I.P. Kedia. The Appellant has
not contravened Regulation 3 of the SEBI Regulations as alleged and the impugned order is accordingly liable to be set aside.

The Respondent's submissions

87. This is a case which essentially deals with violations of the SEBI Insider Trading Regulations by the Appellant. The facts relating to acquisition of
shares are not seriously disputed by the Appellant. The Appellant has only argued that purchase of shares was not done on the basis of price sensitive
information and in any event the said purchases were not effected on the basis of unpublished price sensitive information. The Appellant has further
contended that the purchase of shares even if held to have been made on the basis of unpublished price sensitive information, or otherwise the same having
been done for corporate benefit only and not for any personal gain, the Appellant has not committed any breach of the Insider Trading Regulations.

The following facts were stated:

In August 1996 the price of the shares in ABS was around Rs.48/- which reached around Rs.82/- by October 1996. The show cause notice has alleged that
the Appellant had financed the purchase of the shares of ABS through his brother-in-law Mr.I.P.Kedia during the period August 1996 to October 1996, on
the basis of insider information available with the Appellant relating to the merger of ABS with Bayer. The order passed by SEBI relates however, only to
1,82,500 shares which were purchased during the period 9th September to 8th October 1996 i.e. after the Appellant returned to India from Germany after
having concluded an agreement with Bayer and the date of the open offer to be made by Bayer respectively. Between July --September 1995 ABS held
discussions with Monsanto Chemicals to explore the possibility of technical/financial collaborations with ABS. ABS was also holding similar discussions
with JSR., Mitsubishi Rayon and Toyo Engineering. In January 1996 Bayer made a global public announcement that Bayer AG had taken over the styrenics
business of Monsanto worldwide with effect from November 1995. In February 1996 Bayer approached ABS for a possible tie-up. In May 1996 Bayer held
discussions with ABS and sent a questionnaire seeking various details relevant to the discussions. On 28th June, 1996 Board of ABS considered the
prospects of foreign collaboration. In July, 1996 Bayer team visited ABS for technical and financial evaluation of ABS and asked for further details which
were furnished by ABS. On 5th and 6th September 1996 Appellant visited Germany and held meetings with Bayer's officials and concluded an "in
principle" agreement whereunder interalia Bayer insisted that Bayer wanted to have a majority stake of 51% but that and the Appellant was to continue in
management and in control of the merged company etc. On 8th September 1996 Appellant returned to India from Germany. On 20th September 1996 the
Board of ABS was informed of the Appellant's visit to Germany and the minutes recorded the salient features of the agreement that were discussed with
Bayer. From the available facts nothing has happened between the 8th and 20th of September 1996; therefore it can safely be concluded that the "in
principle" agreement was arrived at on the 5th and 6th of September 1996. On 29th September, 1996 the Appellant once again visited Germany alongwith
his legal advisors and the Merchant Banker and the legal advisors for Bayer in India. On 2nd and 3rd October, 1996 Legal consultants of both companies
worked out a draft subscription agreement and shareholders agreement setting out the terms and conditions and obligations of the respective parties. These
agreements were approved by the respective Board of Directors of ABS and Bayer respectively on 5th October 1996. On 8th October, 1996 Bayer made an
open offer for purchase of 20% shares of ABS at Rs.70/- per share, which was raised to Rs.80/- per share on 26th December 1996.

On 30th October, 1996 ABS held an Extra Ordinary General Meeting at which resolutions are passed inter alia for allotting to Bayer 55,80,000 equity
shares and the Appellant 4,20,000 shares on preferential basis @ Rs.70/- per share. Between 9th September and 8th October 1996 the Appellant himself and
through his investment companies Tash Investment Pvt. Ltd and Geet Ganga Leasing and Finance Co. Ltd. provided a sum of Rs.1.15 Crores., Rs.1.50
Crores and Rs.30 lakhs respectively to Mr. Kedia for financing purchase of shares of ABS by Mr. Kedia. Mr. Kedia had himself invested Rs one to two
lakhs only for purchase of ABS shares.

88. During the course of inquiry/investigation, the Appellant had tried to distance himself from the purchases made by Kedia but had thereafter admitted
having instructed Mr. Kedia to purchase shares of ABS and having provided him the necessary funds for the same. The Appellant however has stated in his
reply to the Show Cause Notice that he never informed Mr. Kedia the reasons for the purchase. This fact itself is sufficient to show that the Appellant was
aware that the said information relating to the merger with Bayer was unpublished price sensitive information and the argument now put forwarded by the
Appellant is clearly an afterthought and cannot be accepted.
89. The Appellant has alleged that he purchased shares of ABS and financed the purchases of ABS shares by Kedia only for the purpose of ensuring that
Bayer's pre-condition for the proposed merger that Bayer control 51% of the share capital of ABS was met. The Appellant has contended that the shares
were purchased in order to ensure that if there was a short-fall in the public offer and Bayer's were unable to obtain the requisite 20% at the public offer, the
shares purchased at his instance could be tendered at the public offer to make up the short-fall if any. The Appellant has submitted that all this was only
done not for any personal gain but to ensure that Bayers obtain 51% of the share capital of ABS and that if Bayer did not get the said 51%, the joint venture
or merger would have fallen through and it was in the interest of ABS that the joint venture with Bayer goes through.

90. The entire basis of the Appellant's argument is based on a totally incorrect principle and is clearly an after thought. Shares of ABS were being freely
traded at stock exchanges. The purchases effected by Kedia clearly demonstrated that shares of ABS were available for purchase in the market even at
prices well below the open offer price of Rs.70/- It is incorrectly sought to be suggested that whilst the sellers were ready and willing to sell their shares to
Kedia, they would have been unwilling to sell their shares to Bayer at a public offer. There is nothing in the submission made by the Appellant to
substantiate this incorrect premise. It is therefore clear that Bayer would have been able to obtain the necessary 20% at the open offer and there is no
material available on record to suggest anything to the contrary. As per the agreements disclosed by the Appellant, he was only required to co-operate with
Bayer in the public offer, such co-operation can never extend to or justify acting contrary to law. In this context referred to Caddy Robert's case.

91. Under the Insider Regulations, profit element is not an ingredient of the offence of insider trading. The Appellant has admitted that the price at which
the shares were purchased during the said period was between Rs.59/- and Rs.62/-. The entire 1,82,500 shares were offered in the open offer to Bayer at the
rate of Rs.80/- per share. SEBI has taken the average cost of purchase during the said period at Rs.61.50 per share and accordingly has arrived at the profit
made on sale of the said shares to Bayer at the open offer at Rs.34,00,000/- During the course of inquiry the Appellant was shown the basis of computation
and had not disputed the same. Therefore there is no substance in the Appellant's contention that the Appellant has not made any personal gain. From the
chart submitted by the Respondent during the course of arguments, it is clear that the Appellant had made a profit of Rs.34 lakhs on the 1,82,500 shares
purchased during the period 9th September to 8th October 1996. Apart form the aforesaid the Appellant was to continue as Managing Director of ABS
Industries Ltd and have management and control of ABS Industries Ltd even after merger with Bayer, where Bayer held 51% of the share capital of the
merged entity.

92. Further it is clear that inspite of the fact that Bayer held 51% of the share capital of the merged entity no special resolution could be passed without the
consent of the Appellant, as the Appellant was required to hold a minimum of 26%. Further from the facts and documents disclosed by the Appellant it is
clear that the Appellant's purchases were not necessarily only for the purpose of ensuring that the joint venture was a success but to ensure that the
Appellant's holding was not diluted as he was required to maintain the 26% shares in the merged entity. The said purchases were therefore also for personal
gain. i.e. to enable him to maintain his shareholding in the merged entity @26%.

The SEBI Act, 1992:-

93. Under the provisions of Section 11(2)(g) SEBI is to prevent insider trading and take such measures to protect the interest of investors as insider trading
is per se a wrong and is prohibited.

Insider Trading:-

94. Insider Trading may be described as trading which is based on an imbalance of information resulting in one party to the transaction having advantage
over the other party by reason of his having unpublished price sensitive information.

95. According to the Respondent the growth of the securities market depends on investor's confidence in the fairness of the securities market which can
only be achieved by ensuring that the securities markets operate freely and fairly with all participants having equal access to all information so that they can
make informed investment decisions.

It cannot be disputed that:

i. the Appellant as Managing Director of ABS was an insider

ii. the Appellant had unpublished price sensitive information.

iii. at the relevant time i.e. between 9th September and 8th October 1996 the Appellant had financed Mr. Kedia and directed him to purchase
shares of ABS on the basis of the aforesaid price sensitive information. The Appellant is therefore guilty of having breached Regulation 3.
 It is clear from the bare reading of Regulation 3 that the prohibition of insider trading by an insider is an absolute offence and that benefit or gain is not an
ingredient of the offence.

The SEBI (Insider Trading) Regulations, 1992

96. The relevant provisions of SEBI (Insider Trading) Regulations, 1992 are:-

Regulation 2(c)

"connected persons" means any person who:

(i) is a director as defined in clause (13) of section 2 of the Companies Act 1956 (1 of 1956) of a company or is deemed to be a director of the
company by virtue of sub clause (10) of Section 307 of the Act or

(ii) occupies the position as an officer or an employee of the company or holds a position involving a
professional or business relationship between himself and the company and who may reasonably be expected to have
access to unpublished price sensitive information in relation to that company."

Regulation 2(e)

""Insider" means any person who is or was connected with the company or is deemed to have been connected with the Company and who is reasonably
expected to have access by virtue of such connection to unpublished price sensitive information in respect of securities of the company or who has received
or has had access to such unpublished price sensitive information":
The definition of insider covers within it's scope connected person and deemed connected person as defined in Regulation 2(c) and 2(h) respectively. The
Appellant being the Managing Director of ABS Industries Limited (ABS) at all relevant times falls squarely within the definition of "connected persons"
and "Insider" as defined in Regulation 2(c) and 2(e) above respectively.

Regulation 2(h)

(h) "person is deemed to be a connected person" if such person -

(i) is a company under the same management or group or any subsidiary company thereof within the meaning of sub-section (1B) of section 370, or sub-
section (11) of section 372, of the Companies Act, 1956 (1 of 1956) or sub-clause (g) of section 2 of the Monopolies and Restrictive Trade Practices Act,
1969 (54 of 1969) as the case may be; or

(ii) is an official or a member of a stock exchange or of a clearing house of that stock exchange, or a dealer in securities within the meaning of clause (c)
of section 2, and section 17 of the Securities Contracts (Regulation) Act, 1956 respectively or any employee of such member or dealer of a stock exchange;

(iii) is a merchant banker, share transfer agent, registrar to an issue, debenture trustee, broker, portfolio managed, investment advisor, sub-broker,
Investment Company or an employee thereof, or, is a member of the Board of Trustees of a mutual fund or a member of the Board of Directors of the Asset
Management Company of a mutual fund or is an employee thereof who has a fiduciary relationship with the company.

(iv) is a member of the Board of Directors, or an employee, of a public financial institution as defined in section 4A of the Companies Act, 1956; or
(v) is an official or an employee of a self regulatory organisation recognised or authorised by the Board of a regulatory body; or

(vi) is a relative of any of the aforementioned persons;

(vii) is a banker of the company;

Regulation 2(i) 2(i) "relative" means a person, as defined in section 6 of the Companies Act, 1956 (1 of the 1956);

Regulation 2(k) "Unpublished Price Sensitive Information" means any information which relates to the following matters or is of concern directly or
indirectly to a company and is not generally known or published by such company for general information but which if published or known is likely to
materially affect the price of securities of that company in the market-

(i) financial results (both half yearly and annual) of the company

(ii) intended declaration of dividends (both interim and final)

(iii) issue of shares byway of public right bonus etc.

(iv) any major expansion plans or execution of new projects

(v) amalgamation, mergers and takeovers

(vi) disposal of whole or substantially the whole of the undertaking

(vii) such other information as may be affect the earnings of the company

(viii) any changes in policies plans or operations of the company.

Information gained relating to issue of shares by way of preferential allotment (Regulation 2(k) and relating to amalgamation, mergers, and takeovers
(Regulation 2(k)(v)) are undoubtedly "price sensitive information."

Regulation 3 "3. prohibition on dealing, communication or counseling on matters relating to insider trading; No insider shall-

(i) either on his own behalf or on behalf of any other person deal in securities of a company listed on any stock exchange on the basis of any unpublished
price sensitive information.

(ii) Communicate any unpublished price sensitive information to any person, with or without his request for such information, except as required in the
ordinary course of business or under any law; or

(iii) counsel or procure any other person to deal in securities of any company on the basis of unpublished price sensitive information."

Regulation 4:

4. Violation of provisions relating to insider trading:-

Any insider who deals in securities or communicates any information or counsels any person dealing in securities in contravention of the provisions of
Regulation 3 shall be guilty of insider trading.

Regulation 9: Communication of findings and measures that may be taken by the Board to protect the interest of investors and the interest of the securities
market..

9. Communication of findings, etc- (1) The Board shall after consideration of the investigation report communicate its findings to the insider and he shall be
given an opportunity of being heard before any action is taken by the Board on the findings of the investigating authority.
Regulation 11 Directions by the Board

11. Directions by the Board.- On receipt of the explanation, if any, from the insider under sub-regulation (2) of Regulation 9, the Board may without
prejudice to its right to initiate criminal prosecution under section 24 of the Act, give such directions to protect the interest of investors and in the interest of
the securities market and for due compliance with the provisions of the Act, rules made thereunder and these Regulations, as it deems fit for all or any of
the following purposes, namely:-

(a) directing the insider not to deal in securities in any particular manner;

(b) prohibiting the insider from disposing of any of the securities acquired in violation of these regulations;

(c) restraining the insider to communicate or counsel any person to deal in securities.

97. The Appellant has not seriously disputed that information relating to the issue of shares by preferential allotment (Regulation 2(k)(iii) and information
relating to mergers Regulation 2(k)(v) are price sensitive information. Merely to reinforce the point that information relating to mergers is unpublished
price sensitive information, SEBI in the impugned order has cited the following judgements of the U.S. Courts.

1. Basic Incorporated 484 US page 224.

2. TCS Industries Inc. Vs. Northway 426 US 449.

98. With reference to the Appellant's objection that the information relating to the merger with Bayers was not an unpublished price sensitive information,
the Appellant had referred to articles published in various newspapers and magazines. SEBI in the impugned order at pages 70 to 74 had effectively dealt
with the same. Even the Appellant himself had treated the said information as confidential and the Appellant had not even disclosed the same to his own
brother-in-law, whom he had instructed and put in funds for the purpose for purchasing shares of ABS. This itself proves that the said information was
unpublished price sensitive information and the Appellants arguments to the contrary cannot be and ought not to accepted.

Insider Trading in the United States of America.

99. The Insider trading law in the USA is part of the general law relating to fraud. Under the federal system prevailing in the USA there were state laws
known as "blue sky" laws which contained anti-fraud provisions which are used to deal with Insider trading.

"Rule 10b-5- Employment of manipulative and deceptive Devices It shall be unlawful for any person, directly or indirectly, by the use of any means or
instrumentality of interstate commerce, or of the mails or of any facility of any national securities exchange, {445 U.S.226}

(a) To employ any device, scheme, or artifice to defraud,

(b) To make any unture statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, or

(c) To engage in any act, practice, or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the
purchase or sale of any security."

100. The said Rule is merely an enabling provision not intended to deal with the problem of Insider trading. It prohibits the use of manipulative or
deceptive devices in relation to purchase and sale of securities on the stock market. The rule itself makes no reference to insider trading let alone gives a
definition of it. The provision is clearly aimed at fraud in the traditional sense and finds its UK equivalent in Section 47 of The Financial Services Act,
1986. It came to be applied to insider trading by Courts, through private litigation and then by the SEC in 1960 as part of SEC enforcement policy on
insider trading. In the USA since the law governing insider trading is part of the general law of fraud, mens rea, motive, intention to make a profit, who is
an insider, duty of an insider and outsider etc. are relevant and are required to be established before a charge of insider trading can be made and/or said to
have been proved.

101. In UK pursuant to the European Communities Directive on Insider Dealing (18th November, 1989) the Criminal Justices Act, 1993 was enacted.
Chapter V of that Act contains provisions which repeals the Company Securities (Insider Dealing) Act, 1985, under which Insider trading became an
offence for the first time in UK in 1980. The provisions under the Criminal Justice Act, 1993 are very different from the SEBI Act and Regulations.
Therefore reference to USA and UK judgements must be read in the context of the USA and UK law's relating to insider trading. Concepts and
developments in Insider trading law by judge made law in the USA and UK have also to be considered with reference to the existing legislation relating to
insider trading in the USA and UK and those concepts and developments cannot be imported into the Indian legislation relating to insider trading which is a
well defined and self contained code.

102. Under Regulation 2(k) of the Insider Regulations what is meant by Unpublished Price Sensitive Information is clearly defined. The 3 Judgements of
the U.S. Courts referred to in this regard in of the impugned order are only to re-inforce the fact that information about merger is Price Sensitive
Information and has been consistently recognised as such all over the world and especially in the U.S.A. where the law of insider trading is the most
developed.

103. It was submitted that in the Impugned Order SEBI has merely cited the classic statement of the law relevant to insider trading as was very eloquently
set out in the case of SEC Vs. Texas Gulf Sulphur Co.(410 F 2d.848) that " Anyone in possession of material insider information must either disclose it to
the investing public or, if he is disabled from disclosing it in order to protect a corporate confidence, or if he chooses not to do so, must, abstain from
trading in or recommending the securities concerned while such insider information remains undisclosed."

104. The statement quoted in the Impugned Order from the Judgement of the U.S. Court in Shapiro v/s. Merrill Lynch (495 5 F 2d.235) i.e. "disclose or
abstain" theory has been enforced by stating that this "is to protect the investing public in to secure fair dealing in the securities market by promoting full
disclosure of insider information so that an informed judgment can be made by all the investors" was quoted merely to reinforce the point.

105. In the Impugned Order the Judgement in the case of U.S. V/s. O'Hagan 138 L.E. d.2d 724 had been cited merely to record the fact that the U.S.
Supreme Court had endorsed the "Misappropriation theory", in relation to insider trading.

106. The Judgement in the case of Kohler Vs. Kohler was cited only to show that under U.S. law fiduciary relationship between the insider and the outsider
were elements required to be approved. The judgment in the case of Speed Vs. Trans American Corp. (99 F. Supp.808) was cited because of the similarity
of facts as is apparent from the quoted passage "It is unlawful for an insider, such as majority stockholder, to purchase the stock of minority stockholders
without disclosing material facts affecting the value of the stock, known to the selling minority stockholders, which information would have affected the
judgment of the sellers."

107. During the course of arguments SEBI cited judgement in the case of SEC v/s David E. Lispon (U.S. court of Appeal (7th Circuit) Docket No.01 -1226)
to illustrate the point that in USA even though benefit/ motive is required to be proved in order to make out the charge of insider trading and that insider
trading for a legitimate purpose may be defence to the charge of insider trading, the U.S. Court nevertheless held, "if the existence of an alternative
legitimate purpose were a defence to a charge of insider trading, any insider who wanted to be able to engage in such trading with impunity would establish
an estate plan that required him to trade in his company's stock from time to time. He could then trade on the basis of inside information yet defend on the
ground that he was also trading in implementation of his estate plan. He would be doing both. Yet even to regard the good and the bad purpose as
alternative is to sugar coat the pill. In the case just put, the insider would be using insider information to implement his estate plan more effectively. He
would be like someone who robbed a bank with the intention of giving the money to charity. The noble end would not immunize the ignoble means of
achieving that end from legal punishment". This case was specially cited to meet the Appellants argument in defence that since the Appellant had traded on
the basis of insider information but had done so for a corporate benefit he had not committed a breach of the Regulations.

108. The Judgement of the U.S. Supreme Court in the case of Dirks Vs. SEC reported in 463 U.S. 646 is totally inappropriate as it was a tipper-tippee"
case, whereas the present case is one of an insider himself trading on the basis of the Unpublished Price Sensitive Information, and the concept of gain is
irrelevant to the offence of insider trading under the SEBI Act and the Regulations. Dealing in securities as defined under Regulation 2(d) i.e. the mere act
of buying/selling or agreeing to buy/sell or deal in any security by any person as principal/agent on basis of Unpublished Price Sensitive Information is
covered and is made an offence under Regulation 3. Profit motive is therefore not an ingredient of the offence.

109. During the course of Arguments, SEBI had relied upon the U.S. decision in the matter of Cady Roberts & Co., (1961 SEC LEXIS 385; 40 SEC 907)
only because Cady Roberts has been considered as the classic case illustrating the proposition - "Disclose or abstain". The said judgement was also cited to
illustrate and meet the Appellant's case of conflicting fiduciary duties, as the said case had held that even conflicting fiduciary duties, would not justify
actions contrary to law. It was contended by the Appellant that the purchase of shares of ABS made on the basis of Unpublished Price Sensitive Information
was done, in pursuance of the Agreement with Bayer where by the Appellant was required to co-operate with Bayer say that Bayer obtained 51% of the
Capital of ABS. Such corporation could not extend to the Appellant committing breach of the insider trading regulations in order to ensure that Bayer got
51% of the equity share capital of ABS.

110. Chiarella V. United States 445 U.S. 222 cited by the Appellant was a case whether an outsider, i.e. a printer could be held guilty of Insider trading
under the U.S. legislation relating to Insider trading since the facts of that case bear no resemblance to the facts with which we are concerned in the present
appeal, the said judgement has no relevance. It was on the basis of this judgment that it was sough to be agued that legitimate corporate purpose was an
exemption to the rule prohibiting insider trading. But under the Indian legislation relating to insider trading no such exemption can be carved out even on
the basis of a purposive interpretation. The Regulations are clear and explicit and do not require any interpretation aids in understanding its
meaning/purpose and intent. The said judgment was really a case where incorrect instructions had been given to the jury which was the basis of the decision
and if correct instructions had been given to the jury what the decision would have been, has expressly been left open.

111. Attorney General's Reference- 1988 1 A.C. 971 case cited by the Appellant has no relevance in the present context. The issue in that matter, related to
the construction of the word "Obtained", in Section 1(3) of the Companies Securities (Insider Dealing) Act 1985. In the present Appeal, there cannot be any
dispute that the Appellant was an insider at the appropriate time and that by reason of his possession he had Price Sensitive Information.

112. The Appellant also relied on the above Judgement of the erstwhile Appellate Authority, in Hinudstan Lever Ltd. vs. Securities & Exchange Board of
India 1998 SCL 311 which was at that time the Central Government. The Appellate Authority held, that there was no power to invoke the provisions
of Section 11(1) read with Section 11B of the Act, for the purpose of imposing an Order directing compensation to be paid to the UTI, this is evident from
Para 23 of the Order whereby the Appellate Authority held inter alia that the general powers of the Act could not be used and that only the powers
under Section 15G of the Act, could be invoked. The Appellate Authority also held that an Order directing prosecution, should be based on conclusive
determination of all aspects of insider trading and on specific justification in terms of the gravity of the offence. The Respondent have filed a Writ Petition
against the Order of the Appellate Authority in the above matter. The Hon'ble Bombay High court, has not only stayed the Order but also stayed the
following part of the judgment "an order of prosecution should be based on conclusive determination of all aspects of insider trading and on specific
justification in terms of the gravity of the offence" and "SEBI has chosen not to use this specific provision for imposing a penalty but has instead decided to
use omnibus powers under Section 11 and 11B to adjudicate for awarding compensation. We are of the view that it is a settled principle of law that for
imposing a pecuniary burden, there must be specific provisions in law and there should be specific Regulations for giving an opportunity to the affected
person to present its (his) case before any burden can be imposed on it by an authority like SEBI. Use of omnibus powers for imposing pecuniary burden
cannot be the intent of law."

113. No reliance can be placed on the Judgement of the Appellate Authority to urge that powers under Section 11(1) and 11B cannot be exercised. The
Respondent submitted that an Order for prosecution need not be based on a conclusive determination as held by the Appropriate Authority as this portion of
the Judgement has been separately stayed by the Hon'ble Bombay High Court.

114. SEBI in its Order, and its Counsel in the course of argument have taken aid of judgements of the U.S. Courts only for the purpose of enforcing well
established principles relating to Insider trading which are enshrined as a part of the Regulations and not on the basis that U.S. law relating to Insider
trading is in any way similar to or in para materia with the Indian Regulations relating to insider trading.

115. With reference to SEBI's power to pass directions to disgorge profit made pursuant to insider trading, it was submitted that under Section 11(2) (g) of
the SEBI Act, SEBI is empowered to prevent insider trading by taking such measures to protect interests of investors. The term "such measures" is very
wide and is not couched with any conditions/restrictions. Regulation 9(2) also empowers SEBI to call upon the Insider who has been found guilty of
committing breach of regulations 3 and 4 to take such measures as SEBI may deem fit to protect interest of investors and the integrity of the securities
market and for due compliance with the provisions of the Act/Rules made thereunder and the Regulations.

116. SEBI's power under Regulation 9(2) is also very wide and is not couched with any restrictions or conditions. Regulation 11 refers to Regulation 9(2)
and empowers SEBI to give such directions, "..... to protect interest of investors, and in the interest of the securities market......". The powers under
Regulation 11 are also very wide and are not couched with any conditions/restrictions, the directions set out in Regulation 11(a)(b) and (c) can therefore
only be illustrative, in spite of the use of the word "namely". Unless the provision is so interpreted, it would impose a restriction on the powers of SEBI to
give directions, when the operative part of the section contains no restriction on the power of SEBI to pass orders in the interest of investors and the
securities market. On a proper and purposive interpretation of Section 11(2)(g) read with Regulation 9(2) and Regulation 11, it is clear that SEBI has the
power to order a person found guilty of Insider trading under Regulations 3 and 4 and to whom directions under Regulations 11(a)(b) and (c) are applicable
and pass direction to call upon the insider to take such measures including inter alia to disgorge profits made as a result of insider trading. In this context
Hon'ble Bombay High Courts decision in (Shirish Finance & Investment (P) Ltd. V. Sreenivasulu Reddy (2002) 35 SCL 27 (Bom) at para 59. page 89) was
referred to. SEBI had directed the Appellants to disgorge the profits of Rs.34,00,000/- made as a result of Insider trading done by the Appellants on the
basis of Unpublished Price Sensitive Information relating to the merger with Bayer. The Appellant was aware as to how the amount of Rs.34,00,000/- was
computed and the said computation was never disputed by the Appellant. SEBI had cited the case of SEC V/s. David E. Lipson as an example that
disgorging of profits is one of the various orders that a court may pass in a matter relating to Insider trading. The Order passed by SEBI to disgorge the
profits is compensatory and remedial in nature and not penal. It was submitted that any order passed by SEBI would, when looked at from the view point of
the person against whom the order is passed would always be seen as a punishment and therefore penal. In order to ascertain whether an order passed is
remedial/compensatory/ penal, the order itself has to be looked at. The Appellant as a result of Insider trading has made a profit as stated earlier. The
Appellant therefore cannot be allowed to retain such ill-gotten gains, and in the circumstances SEBI by the said impugned order has directed the Appellant
to disgorge the ill-gotten gains and pay it into the two Investor protection funds, which will be utilized to compensate Investors who had sold their shares to
the Appellant acting through Mr. Kedia. Suitable orders to that effect can be passed to identify such sellers. In any event even if such sellers cannot be
identified or do not come forward to receive the compensation the amount having been deposited with the Investor protection fund of NSE and BSE will be
put to use for the general benefit of Investors, that in the circumstances the Impugned Order is clearly remedial/compensatory in nature and is not a penal
order.
117. The two Judgements of the United States Courts cited by the Appellant are not insider trading cases though they relate to orders passed to disgorge
profits. In USA there does not appear to be any investor protection fund as there exists in India. Even otherwise in fact and law the cases cited are not
applicable to the facts of the present case or the Indian law.

Tribunal's findings:

118. I have carefully considered the detailed submissions and the material available on record. I have also perused the authorities cited by the Counsel for
the parties.

119. The charge against the Appellant is that of violating the SEBI Regulations on insider trading. Though much has been said in the order about the
acquisition of shares by Mr.Kedia on behalf of the Appellant, ultimately it has boiled down to the purchase of only 1,82,500 shares by Shri Kedia during the
period September 9, 1996 1st October, 1996. Both the parties have chronicled the sequence of developments preceding the acquisition of shares of ABS by
Bayer. I do not consider it necessary to repeat the same and further burden this order. From the particulars furnished by the parties, it appears to me that
ABS was considering to diversify its product range. For the purpose it was considering proposals from overseas companies from the beginning of 1995. It
was in July 1995 ABS signed a secrecy agreement with Monsanto Chemicals to explore the possibility of technical/financial collaboration. At that time also
ABS was exploring the possibilities with a Japanese company. But negotiations are negotiations. Negotiations may sometimes fail. It may some times
fructify. Till the negotiations are concluded, and a decision is taken, it is not possible to conclude the ultimate result of the negotiations. But some times half
way through a shrewd negotiator would be in a position to see the would be outcome of the negotiation. ABS's negotiations/discussions with the overseas
parties is in no way different. The Appellant had stated that it had in fact signed a secrecy agreement with Monsanto Chemicals in July 1995 to explore the
possibility of technical/financial collaboration and ABS & Monsanto were discussing the possibility of tie up during the period July - September 1995 and
in 1995 Bayer acquired the styrene business of Monsanto Chemicals worldwide. According to the Appellant, consequently the rights and obligations under
the secrecy agreement between ABS and Monsanto were transferred to Bayer. I have noted that a secrecy agreement to explore the possibility of
technical/financial collaboration, can not be viewed as a decision as such by Monsanto to takeover ABS. It, as the Appellant rightly stated was only for
exploring the possibility. The fact that Bayer came in place of Monsanto on its takeover by Bayer does not change the nature of the undertaking. The
Appellant has stated in its Appeal Memorandum that in February Bayer approached ABS to discuss the possibility of an association between ABS and
Bayer. This also indicates that the matter was not crystallized then, but was in a fluid stage. From the sequence of developments chronicled by the Appellant
in his memorandum of appeal it appears that the discussions were going on and on from February, 1996 followed by supply of various details to Bayer. It is
seen from the records that even though the Board of Directors of ABS considered the prospects of foreign collaboration in their meeting held on 28.6.1996
they desired to examine the matter further. It was on 5th -6th September, 1996 the Appellant held discussions with Bayer in Germany regarding the possible
joint venture. He returned to India on 8.9.1996. He appraised the Board of Directors of ABS of the developments with reference to his discussion with
Bayer. It is also noted that on 29th September 1996 to October, 1996 the Appellant visited Bayer's office in Germany along with legal Counsel to "work out
legal modalities". Bayer's legal advisers and merchant bankers were also present in the said meeting and in these meetings all modalities, valuations and
offer price were finalised, subject to Board approvals. According to the Appellant on 1.10.1996 "a commercial understanding to proceed with the
transaction was arrived in Germany. It was only at this stage that the transaction as well as the terms thereof acquired certainty." It seems that the meetings
of legal advisers and merchant banker of ABS and Bayer was held only to "work out legal formalities" in pursuance of the discussion the Appellant had
with Bayer people in Germany on 5/6th September, 1996. If there was no clear understanding and any decision about the nature of association of Bayer
with ABS there was no question of working out legal formalities. Meeting held during September 29 to 3rd October, 1996 was only to complete the
modalities/formalities with reference to the decision arrived at in the meeting the Appellant had with Bayer people on 5/6th September, 1996. It appears that
it was in the said meeting it was decided that Bayer would require 51% holding in ABS and that "they were ready to concede the day to day
management/minority protection rights and several other concessions. In this context it is noted that the Appellant returned to India on 8th September, 1996
after the said meeting. It is noted from the Appellant's statement recorded by SEBI on 26.5.1998 that the Appellant had furnished details wherein he had
stated that he had given loans amounting to Rs.1.5 crores from his own account between 12.9.96 to 28.9.96 to Shri I. P. Kedia. He had admitted that on
18.9.96 when he lent Rs.35 lakhs to Shri Kedia he knew that Shri Kedia was purchasing shares of ABS. According to him "At that point of time, we were
only contemplating to have further discussions with Bayer and one cannot say that there was certainty of these discussions culminating into joint venture.
However I do agree that there was a probability of having joint venture with Bayer". The Appellant's following statements also need be noted:

"The agreement reached with Bayer clearly stipulates that the same would be binding only if Bayer acquires 51%. This is reflected both in the shareholders
agreement and the share subscription agreement.........."

"There was ample reason to believe that if Bayer did not have eventually 51% we had no agreement. This situation would have been extremely damaging
for the future of our company. Hypothetically, I may have offered more shares from my investment companies to meet the short fall as long as I was doing
so with the confines of the law".

"You will observe that the structure that was worked out for equity holding and approved by the Boards indicated 51% equity holding by Bayer and 26%
equity by me. Any sale of shares from me or my companies would have brought my equity holding below 26%, the situation I wanted to avoid particularly
in the context of the agreement that I was to continue in the identical management capacity.

"As mentioned earlier, I wanted to get as many shares for completing 51% for Bayer for the success of the arrangement.
120. It appears that the Appellant was frantic to ensure that Bayer's holding in ABS reaches 51% and he had even directed Mr.Kedia to purchase 1,24,250
shares at the rate of Rs.82/- on 8th October, 1996 after publication of public announcement, by way of negotiated deal. To a question "when it can be said
the general public came to know about strategic alliance between Bayer Industries and ABS Industries ? - The first news item appear to be carried out in the
second week of October, 1996 by various financial dailies."" The Appellant's answer was that "The information on the strategic alliance with Bayer was
first given out by way of communique to Bombay Stock Exchange/NSE on 1st of October, 1996 indicating that in the Board meeting of 5th October a
preferential allotment to M/s. Bayer Industries may be discussed." This statement from the Appellant confirms that till 1.10.96 arrangement with Bayer was
an unpublished price sensitive information. To another question the Appellant had stated:

"I would like to state that when I instructed Mr. Kedia between 9th September to 1st October 1996, date of intimation to Stock Exchange to purchase the
shares of ABS Industries Ltd., I did not think even in my wildest imagination that I was committing any offence of any nature. My action was prompted by
my focus on acquiring as many shares from the market without disturbing the prices or violating any law, so as to complete 51% shares for Bayer which
was a condition precedent to our possible joint venture with Bayer. My further instructions to purchase the shares on 8th October was also for fulfilling this
motive. We were getting continuous information on daily basis from the Registered Lead Manager about the extent of the shares being offered in the public
offer. As on 1st January 1997 only 1,10,295 shares were offered as per the available information through the Lead Manager/Registrar. Upon getting
information from financial institutions about their offering of the shares in the public offer and from the information available from various centers it was
deduced that there could be a shortfall of approximately 9,50,000 shares. I deposited 9,33,250 shares on 3rd January, 1997 to make the offer successful.
Bayer eventually got 33,83,000 odd shares which mad the holding of Bayer in the company at 50.97%. Bayer in any case could not have exceeded 51%
because of the FIPB and other approvals."

121. In the deposition made by the Appellant on 7.4.98, before SEBI officials he had stated that "in the year 1995 the Co. started having serious dialogues
with three cos. I.E. JSR our existing collaborator, Mitsubishi corpn. and Monsanto from USA. Since Monsanto's Technology was preferred the co. entered
into a secrecy agreement with Monsanto in July 1995 to explore the possibilities of a technology tie up. While the discussion with Monsanto was going on
in November 1995 Monsanto sold their worldwide styrene business including ABS/SAN Resins to M/s. Bayer AG. The deal was completed by the end of
1995. In February/March the co. once again started with JSR Mitsubishi and explored the possibilities once again from GE and DOW. M/s.GE Plastics and
Dow Plastics both denied out request since they did not want to licence technology. GE Plastics however announced to enter India through collaboration
with IPCL or by themselves. Then Bayer AG approached us because of our secrecy agreement and history of Monsanto. The co. was keeping all its option
open upto June 1996. Having independent discussion with all these cos. M/s. Bayer AG was known to have the best technology specially after acquired
from Monsanto Styrene business. It was discussed in the board meeting of 28.6 to explore the possibilities further and accordingly a team, from Bayer AG
was allowed to visit in the first week of July 1996 to have Technological evaluation alongwith preliminary due diligence which was to be carried out by
M/s. C.S. First Boston, USA on their behalf and part of their team. The information required by them have been given to the visiting team. Since the second
half of July and August are traditionally holiday period in Europe, it was indicated that we could have further discussion some where in September, 1996".

122. To a question as to "Have you or any of your Pvt. Limited Cos. given any loan to Shri Ishwar Kedia? If yes, who negotiated this loan and what was the
terms and conditions" the Appellant's answer was "When I returned from my trip from USA and Germany around 8/9/96 I learnt that Mr. IP Kedia
telephoned my accountant Mr. S.R.Patel who is in my office handling my files. Mr. Patel informed me that Mr. IP Kedia is in urgent need of around Rs.10
lacs. I told him to organise this money from Bank of Baroda against the FDR Deposit of my brother. The money was organised on my instruction from
BOB and the money was sent to Mr. Ishwar Kedia. After couple of days there was a fresh need of money from Mr. IP Kedia and Mr. Patel came and talked
to me. I told to organise the same but then I got in touch with Mr. Kedia at his residence. I enquired Mr. Kedia why he needed this money. Mr. Kedia
informed that he bought some ABS Shares and therefore he needed this money as a temporary loan. I dissuaded him from entering into any purchase and
sale of shares not only of ABS but of any company. After couple of days again there was a demand of money and I spoke to him then. He then explained to
me that since I had purchased around 50000 shares of my relatives even at Rs.68/-, he told me that there was a possibility of getting more shares from my
relatives. I was conscious at that time of my discussions with Bayer, who had very clearly in no uncertain terms indicated that any possible joint venture
could not be without Bayer getting 51% equity. Since there were so many Indian companies interested and were wanting to have an agreement with Bayer
for producing ABS Resins there was need of urgency of taking decision. Co. like Reliance had also initiated discussion with Bayer for a joint tie up on the
same project. I therefore realized that it was critically important for me to ensure that Bayer get 51% shares which means getting as many share from the
market should the discussions eventually result into joint venture with Bayer. Discussion about this matter was going to take place on the Board meeting on
20th Sept. But Bayer would not consider any proposal unless they were guaranteed for 51% equity into the Co. I therefore told Mr.Kedia that if the shares
are offered by my relatives or for that matter anybody he can procure on my behalf and I will finance the purchase. I had expressly informed him that the
purchases should not be in a manner, to have any undue price rise or undue movement. I had told him to purchase the shares as long as offered in the
natural course at the prevailing market price. While I was instructing Mr.Kedia I considered it to be a natural process. In my wildest imagination also I
could never have thought that I was committing any crime or offense. The figure of 51% for Bayer was important for me and all the while I was thinking
that should this discussion result into joint venture how to muster up this 51% of share by Bayer. The share holding pattern of 12 crores equity was that I
was holding, 30% institutions were holding, around 25% my relations and friends were holding, 10% and balance was held by the public. I thought without
creating any unnatural movement in the market either in price or sentiment if I could muster up some shares it would eventually help me reaching 51%
target for Bayer as and when required. There was no intention at any point of time to make any financial gain out of such transaction. After our discussion
in the Board meeting on 20th Sept. Board gave direction to proceed to have negotiation with Bayer and we left to Germany for such discussions around
29th Sept. From the time I gave instruction to Mr.Kedia to purchase such share until the date of public announcement he had procured on my behalf
roughly more than 2 lacs shares. I categorically confirm that I had not informed Mr. IP Kedia about any discussion with Bayer AG for any possible joint tie
up. As a matter of fact on the morning of 8th Oct. he was angry with me for not informing him earlier. Later on at 11.00 a.m. he called me and told on
telephone that a lot of shares 1 lacs - 120000 at a price of around Rs.81/- was available. By this time he had procured roughly about 225000 shares and I
sensed a good opportunity of procuring 1 lacs - 120000 share even though the price was over Rs.80/-, I directed him to purchase on my behalf because it
would have helped me achieve the objective of acquiring as many shares possible in natural course for meeting 51% target. The capital because of
preferential allotment was deemed to have raisen to around Rs.18 crores. Bayer industries was required to get around 36 lac shares from the market to
complete their 51%. Our share subscription agreement which was arrived and which was approved by the directors and subsequently sent to Financial
Institutions for their approvals. The whole agreement was conditional upon Bayer acquiring upon 51% share in ABS. It also meant that if they did not have
51% eventually, the whole agreement would become null and void. That was very scaring scenario in the light of developments in the industry in the
country and particular heavy capacity being created in South East Asia.

I also directed Mr.Kedia later on to purchase shares again in natural course further about 50000 shares were procured. In all roughly 180000 shares were
purchased by him on my behalf after the public announcement, to meet target was still herculian. We approached all Fin. Instns. which were holding shares
and eventually got their consent to offer their shares into the public offer. The Fin. Instns. realizing the necessity of joint venture with Bayer helped by
offering part of their equities in the public offer. As on last date there was still short fall of 933250 shares. I was left with no option but to offer my shares
from my investment co. i.e. Tash Investment Co. to complete the transaction to get Bayer 50.97%. The shareholders agreement was subsequently signed
amending 51% figure to 50.97%. I never wanted to dilute my holding in the Co. Since by virtue of the agreement I still continued to hold the management
and managing directorship for next 7/10 years and all the advantages which I was enjoying before the joint venture. The agreement stipulated that the
technology would be available free but no German would come to manage affairs of the Co. The agreement also had stipulated giving me minority
protection in the form of around 26% voting rights. Even in case at a future date if with the equity expansion, my equity was diluted to much lower level.
The only condition was that I had to maintain my shareholding as on the date they acquired ..... . It was therefore important for me not to dilute my
shareholding but to get as much shares from the market in the natural course and accordingly with the best of the intention I had borrowed money from I-
Sec at 27%. I had also borrowed money ranging 25-29% to finance these purchase. I once again would like to reiterate that I had no intention to make any
money out of it. Only condition paramount in my mind was that Bayer gets 51% for the success of the discussion leading to possible joint venture. At any
point of time I had no knowledge of committing any offense. The share subscription agreement which were approved by the Board and also sent to
financial institutions and our communications to the Fin Instns requesting their approvals will amply support my above submissions".

123. On a perusal of the material available on record it is clear that the Appellant was frantic to bring in Bayer and that since Bayer's entry was subject to
the condition that it would associate with ABS only if it held 51% in the capital of ABS this 51% procurement was required to be organised. The Appellant
in that process did not want to bring down his holding below 26%. The importance of the magical figure of 26% is that a person holding 26% capital has
the power to Veto down certain major decisions of the company by defeating the special resolution proposed for such purpose. So the Appellant was in a
peculiar situation. On one side the desire to bring in Bayer so as to improve the activities of ABS and at the same time to preserve his strategic voting
strength in the company. It is in this context one has to see the funding for purchase of shares and acquisition of shares by Shri I.P. Kedia. Shri Kedia is
Appellant's brother in law. It appears that the Appellant was almost certain of the negotiation with Bayer concluding favourably after his meeting with
Bayer people in Germany in May 1996. On 28.8.1996 "Board of ABS considered prospects of foreign collaboration and expressed desire to look further
into" Thereafter things moved really fast. In the first week of July, 1996 technical team from Bayer visits India for financial evaluation of ABS. On July 12
ABS sent the details to Bayer with respect to value of shares of ABS from 1993, on 22.7.1996 Bayer asks for details of ABS's assets and this was promptly
furnished, on 26.7.1996 ABS informs Bayer about the commissioning of SAN Plant. Thereafter on 5th /6th September, 1996 the Appellant visits Germany
and discusses the matter. The speed with which things moved thereafter need be noted. On 8th he returned to India from Germany; reports the matter to the
Board of Directors on 20.9.96, on 29.9.96 Appellant visits Germany with legal adviser to work out legal formalities, discussion continues upto 3.10.1996.
On 3.10.1996 a formal share subscription and shareholders agreements were entered into. Board of ABS approves the agreement on 5.10.1996. It is to be
noted that the Appellant has admitted that the public came to know of the "deal" only on 1.10.96 on ABS informing the stock exchanges about the matter.

124. I have perused all the press clippings/reports filed by the Appellant in support of his version that the information relating to acquisition of ABS by
Bayer was not an unpublished information. But I do not find any one of those clippings/reports supporting the Appellant's version. The sensitive
information is the specific fact that Bayer was entering into ABS by acquiring51% of its capital. This specific information is the price sensitive information,
which I do not find having been disclosed in any of those press cuttings/reports. The fact that ABS was negotiating with few companies to bring in a partner
was there since 1995. But specific details were not known to the public till 1.10.1996 i.e. the date on which the Stock Exchanges were informed.

125. SEBI is mandated to protect the interests of investors and promote the development of and to regulate the securities market. For the purpose SEBI is
empowered to take suitable measures. In Section 11 of the SEBI Act, the powers and functions of SEBI have been specified. In terms of clause (g) of sub
section (2) of section 11, SEBI is empowered to take measures for "prohibitting insider trading in securities". SEBI in exercise of its regulation making
power available under section 30 of the SEBI Act has notified on 19.11.1992 Securities and Exchange Board of India (Insider Trading) Regulations, 1992
(the SEBI Regulations). This regulation has been substantially modified vide amendments made in the year 2002. The applicable regulation to the present
case is the unamended regulation as it was the one in position at the time of the alleged transactions - relating to the year 1996.

126. Before proceeding further in the matter it is considered necessary to briefly discuss the conceptual aspect of insider trading. Healthy growth and
development of securities market, depends to a large extent on the quality and integrity of the market. Transparency in transaction is very important. Such a
market can alone inspire the confidence of investors. Factors on which this confidence depends include, among others, the assurance the market can afford
to all investors, that they are placed on an equal footing and will be protected against improper use of inside information. Inequitable and unfair trade
practice such as insider trading affect the integrity and fairness of the securities market and impairs the confidence of the investors. It is to remedy the
malady of insider trading in securities, the Insider Regulations was notified by SEBI, which provide for various measures.
127. Insider dealing is understood broadly to cover situations where a person buys or sells securities when he, but not the other party to the transaction, is in
possession of confidential information which affects the value to be placed on those securities.

128. Furthermore the confidential information in question will generally be in his possession because of some connection which he has with the company
whose securities are to be dealt on (e.g. he may be a director, employee or professional adviser of that company) or because some one in such a position has
provided him directly or indirectly (para - 2 of the White Paper on Conduct of Company Directors 1977 (Comnd 7037 )(UK).

129. High Powered Committee on Stock Exchange Reforms (1985) in its report submitted to the Ministry of Finance, Govt. of India had explained the
concept of Insider Trading. According to the said report 'Insider trading' generally means trading in the shares of a company who are in the management of
the company or are close to them, on the basis of undisclosed price sensitive information regarding the working of the company, which they possess but is
not available to others. Insiders or persons connected with companies are in a position to take advantage of confidential, price sensitive information before
it becomes public and thereby make speculative profits for themselves to the detriment of uninformed public investors. An insider coming in possession of
inside information in relation to a company with whom he is connected which will have a material effect on the market price of the company's securities
will be tempted to take advantage of such inside unpublished price sensitive information before it became public and make profit by buying the securities if
the information is likely to lead to a rise in price and selling the shares already held if the information is likely to cause a fall in the price of such securities.
By virtue of the confidential information, the insider gains an unfair secret advantage which will benefit him at the expense of the person he deals with".

130. The rationale behind the prohibition on insider trading, as Lord Lane puts it "is the obvious and understandable concern...about the damage to public
confidence which insider dealing is likely to cause and the clear intention to prevent so far as possible what amounts to cheating when those with inside
knowledge use that knowledge to make a profit in their dealing with others" (Attorney General's Reference No.1 of 1988 (1988) BCC 765 affirmed by the
House of Lords as reported at (1989) BCC 625. The objective of the Insider Regulation framed by SEBI is to ensure that all persons in the market are
placed on an equal footing - provides a level playing field.

131. As stated earlier the charge against the Appellant is that he has violated regulation 3(i)of the SEBI Regulations. In this context it is necessary to know
what is this regulation 3(i) allegedly violated by the Appellant. SEBI Regulations on insider trading in terms of number of clauses is a short one which
contains 12 clauses spread out in three chapters - Chapters I, II and III. Chapter I, as usual is on preliminary matters such as Short title, commencement and
definitions. Chapter II is on prohibition on dealing, communicating or counselling on matters relating to insider trading. It is under this chapter regulation
3(i)comes. Since this is the core chapter I propose to extract the same for reference purpose.

3. No insider shall

(i) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange on the basis of any
unpublished price sensitive information; or

(ii) communicate any unpublished price sensitive information to any person with or without his request for such information, except as required
in the ordinary course of business or under any law; or

(iii) counsel or procure any other person to deal in securities of any company on the basis of unpublished price sensitive information.

4. Violation of provisions relating to insider trading.

Any insider who deals in securities or communicates any information or counsels any person dealing in securities in contravention of the provisions of
regulation 3 shall be guilty of insider trading.

132. Chapter III is on investigation. It provides for investigation by SEBI, procedure to be followed for investigation, obligation of insider on investigation
by the Board, submission of report to the Board by the investigating authority, nature of follow up of the investigation report etc. Power to issue directions
in appropriate cases has also been stated under this chapter. Apart from the power to appoint investigating authority, SEBI, under this Chapter is empowered
to appoint a qualified auditor to investigate into the books of account or the affairs of the insider. Appeal provisions against SEBI's orders has also been
provided under this chapter" Chapter III by and large is on procedural aspects. Chapter II is the "charging" chapter.
133. Back to Chapter II. As stated earlier the Appellant has been found guilty of indulging in dealing in securities prohibitted by regulation 3(i)thereby
attracting the provisions of regulation 4. We have seen the provisions of the said regulation. Regulation 3 is not only on dealing or trading in securities.
There are three prohibitions. These are with respect to (i)dealing (ii) communication and (iii) counselling. In other words an insider in possession of price
sensitive information is prohibitted from doing these three things with regard to concerned securities. We are here concerned on the applicability of clause
(i) of regulation 3. The person who is prohibitted is "insider". What is prohibitted is dealing in listed securities on the basis of any unpublished price
sensitive information. Expressions "insider", "dealing in securities" "unpublished price sensitive information" etc. have been defined in regulation 2 of the
SEBI Regulations as follows:

2(d) "dealing in securities means an act of buying, selling or agreeing to buy, sell or deal in any securities by any person either as principal or agent".

134. This definition covers transactions which normally take place.

2(e) "insider means any person who is or was connected with the company or is deemed to have been connected with the company and who is reasonably
expected to have access, by virtue of such connection to unpublished price sensitive information in respect of securities of the company or who has
received or has had access to such unpublished price sensitive information."

135. It is clear from the definition that a person to be considered as insider should be one who is or was actually connected with the company or deemed to
have been connected with the company. 2nd limb is that by virtue of such connection the person is reasonably expected to have access to unpublished price
sensitive information or has received or has had access to such unpublished price sensitive information. The expression security has not been defined in the
SEBI Regulation and therefore the meaning assigned to in the Securities Contracts (Regulation) Act has to be accepted.

136. The definition of the expression securities under the said Act include "shares, scrips, stocks, bonds, debentures, debenture stocks or other marketable
securities of a like nature in or of any incorporated company or other body corporate." The security involved in the instant case is the shares of a public
company viz ABS Industries Ltd., (ABS) It is not disputed. The fact that the shares of ABS are listed on stock exchanges is also not in dispute. Therefore,
the subject share is covered under regulation 3(i). The regulation 3 (i) has referred to "persons connected with the company" and "persons deemed to have
been connected." Both these type of persons have been defined in the regulation 2( c) and 2(h) as follows:

2 (c ) "connected person" means any person who -

(i) is a director, as defined in clause (13) of section 2 of the Companies Act, 1956 (1 of 1956), of a company, or is deemed to be a director of
that company by virtue of sub-clause (10) of section 307 of that Act; or

(ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship
between himself and the company and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that
company;

2(h) "person is deemed to be a connected person", if such person -

(i) is a company under the same management or group, or any subsidiary company thereof within the meaning of sub-section (1B) of section
370, or sub-section (11) of section 372, of the Companies Act, 1956 (1 of 1956) , or sub-clause (g) of section 2 of the Monopolies and Restrictive Trade
Practices Act, 1969 (54 of 1969), as the case may be; or

(ii) is an official or a member of a stock exchange or of a clearing house of that stock exchange, or a dealer in securities within the meaning of
clause (c ) of section 2, and section 17 of the Securities Contracts (Regulation) Act, 1956 (42 of 1956), respectively, or any employee of such
member or dealer of a stock exchange;

(iii) is a merchant banker, share transfer agent, registrar to an issue, debenture trustee, broker, portfolio manager, Investment Advisor, sub-broker,
Investment Company or an employee thereof, or, is a member of the Board of Trustees of a mutual fund or a member of the Board of Directors of the Asset
Management company of a mutual fund or is an employee thereof who has a fiduciary relationship with the company;

(iv) is a member of the Board of Directors, or an employee, of a public financial institution as defined in section 4A of the Companies Act, 1956;
(v) is an official or an employee of a Self-regulatory Organisation recognised or authorised by the Board or a regulatory body;

(vi) is a relative of any of the aforementioned persons; or

(vii) is a banker of the company;

137. Trading in the shares of a listed company by an insider is not prohibitted. Prohibition is only on trading on the basis of any unpublished price
sensitive information. What is unpublished price sensitive information has been defined in regulation 2(k).

Regulation 2(k) is extracted below:

(k)"unpublished price sensitive information" means any information which relates to the following matters or is of concern, directly or indirectly, to a
company, and is not generally known or published by such company for general information, but which if published or known, is likely to materially affect
the price of securities of that company in the market -

(i) financial results (both half-yearly and annual) of the company;

(ii) intended declaration of dividends (both interim/final)

(iii) issue of shares by way of public rights, bonus, etc.;

(iv) any major expansion plans or execution of new projects;

(v) amalgamation, mergers and takeovers;

(vi) disposal of the whole or substantially the whole of the undertaking;

(vii) such other information as may affect the earnings of the company;

(viii) any changes in policies, plans or operations of the company;

138. Any information, in order that it is unpublished price sensitive information must be related to any of the specified matters. Whether any information is
price sensitive, not withstanding that it relates to one or more of the specified matters will always be a question of fact to be answered having regard to the
facts and circumstances in each case. The information must, however relate to one or more of the matters enumerated in the definition. Further more, the
information must be such that it is not generally known or published by the company and it is likely to materially affect the price of the company's
securities.

139. It is in the light of the legal position explained above, the question as to whether the Appellant has violated or not the provisions of regulation 3(i) of
the SEBI Regulations, need be considered.

140. The Appellant, admittedly is the Managing Director of ABS. It is also on record that he was privy to the discussions with Bayer in the matter of Bayer
acquiring shares of ABS, eventually leading to ABS's merger with Bayer. Since, by virtue of his position in ABS, and his role in the active transactions it
can be easily concluded that he had access to the information relating to the entry of Bayer in ABS. Therefore, he can be safely considered as insider. The
Appellant has not denied SEBI's finding that he is an insider. The dispute is as to whether the material information was an unpublished price sensitive
information.

141. The Appellant's claim is that he had acted in the interest of ABS. According to him the company has benefitted by the induction of Bayer. He has
stated that all creditors continue to rate the company with the highest credit worthiness having the entire loan repayments and schedules being met in a
timely manner, that it has also strengthened the relations with vendors, suppliers and employees and also in relation to research and development.
According to the Appellant, if the joint venture/merger with Bayer had not fructified, the company would have been unable to remain prosperous and
therefore, the acquisition of 51% shares by Bayer was critical to its induction.

142. According to the Appellant at the relevant period the polymer industry was reeling under a negative bottom line due to lack of demand and loss of
margin and most of the producers of ABS had suffered significant loss and that their networth had been wiped out significantly and they were sick
companies for the past several years. (by way illustration names of three companies were cited). It was also stated that in this back ground of industry
scenario it was imperative and in the interest of the company and its shareholders, employees, suppliers etc. that the company survived. The only way
according to the Appellant for the company to survive was the induction of a foreign partner. Bayer being one of the largest and most reputed global
conglomerates in this business, their induction into the company was considered necessary for the survival of the company. The fact that ABS gained
substantially from the take over by Bayer, has been admitted by the Respondent also as could be seen from its observation in the order that "there is no
doubt ABS Industries really gained immensely from the takeover of Bayer AG."

143. The Appellant has not denied the fact of acquiring shares through his brother in law in the days preceding the acquisition of ABS's shares by Bayer.
But his reasoning is that at the relevant time, the information relating to Bayer entry was already in the public domain.

144. The Appellant's version that he had also tendered 9 lakh and odd shares from his own promoter quota to enable Bayer to acquire 51%on account of
short fall in the target of the open offer, requires to be noted. The cold response from the public share holders to the Bayer's offer has been stated by the
Appellant in his deposition before the SEBI officer that "Even after making considerable efforts, the shares obtained by Bayer upto 20th September
(December ?) were not even 5% The merchant bankers of Bayer Industries M/s. DSP Merril Lynch were in active discussions with financial institutions
particularly UTI and LIC which had a large chunk of shares for offloading the shares into a public offer. I believe after such communication they must have
advised Bayer to revise the offer price to Rs.80/- by 25th of December just 5 days of closure to get the shares from financial institutions and the success of
the offer. UTI and LIC did offer a large chunk of shares at Rs.80/- which confirms my belief. However, I had no role to pay in the revision of the price since
it was purely the matter between the merchant bankers of Bayer Industries and themselves." It is in the context of the said uncertainty, and in his anxiety to
make some way or other to bring into a reality the induction of Bayer to ABS, the Appellant has stated that "I wanted to get as many shares for completing
51% for Bayer for the success of the arrangement. I therefore authorised Mr. I. P. Kedia even to buy at around Rs.81/- since there was bulk lot of 1,20,000
shares even if it meant a certain financial loss." It is noted that this purchase was made after publication of the public announcement by Bayer to acquire
20% of ABS's shares at the rate of Rs.70/- This is indicative of the Appellant's commitment to see that Bayer comes in as a joint partner for the benefit of
ABS.

145. There is no denial of the fact that the shares tendered by Mr. Kedia in the public offer made by Bayer was at a price higher than the price at which
those shares were purchased . There is no reason to believe that the Appellant was aware that the initial price of Rs.70/- offered by Bayer would be raised to
Rs.80/- subsequently. On a perusal of the material available on record, there is every reason to believe that the Appellant was keen to bring in Bayer as a
partner and for that purpose he had to ensure that Bayer's requirement of its holding 51% capital of ABS is met with. To me it appears that it was with this
target in mind the Appellant had purchased the shares in September 1996.

146. It is crystal clear that Mr. Kedia had purchased 1,82,000 shares at the behest of the Appellant with the funds provided by the Appellant and therefore it
could be viewed as a dealing by the Appellant. There can not be any doubt as to whether the Appellant is an insider or not. By virtue of his position in the
company (Managing Director) and the role played by him in the acquisition process, he can be safely considered as an insider. Even though the Appellant
had produced a large number of press cuttings/reports to show that Bayer joining as a partner to improve the efficiency of ABS, in my view none of these
statements/reports has given any specific indication as to the entry of Bayer as a 51% partner. In terms of regulation 3 (k) the information relating to the
matters or of concern in respect of the matters stated therein (which clearly covers amalgamation mergers and takeovers)to not to be considered as
unpublished price sensitive information, it should be shown that it was generally known or published by such company for general information. It is on
record that the company furnished the information only on 1.10.1996 i.e. the date on which the subject matter of the agenda of the Board meeting of ABS to
be held on 5.10.1996. There is nothing on record to show that ABS had published the information for general information at any time except notifying the
stock exchanges preceding the acquisition of ABS by Bayer. It is to be noted that the nature of Bayer association, the extent of its involvement, its financial
stake in the company etc. are of considerable importance from the point of view of other investors. None of the press cuttings/reports produced by the
Appellant gives any specific indication of Bayer's entry as a 51% stake holder. There is nothing on record to show that the relevant information was
"generally known" as has been claimed by the Appellant.

148. Thus the charge that the Appellant, an insider, on the basis of the unpublished price sensitive information' purchased the shares of ABS, remains
established. But in my opinion the purchase of shares in the light of the facts and circumstances as stated, can not be considered to be in violation of the
SEBI Regulation so as to be proceeded against the Appellant.
149. While making the finding that the Appellant is in breach of Regulation 3 and 4 of the said Regulations the Respondent has relied upon case laws from
the United States of America to "explain the philosophy of insider trading and to give a conceptual clarity and to reinforce the said order". According to the
Appellant the impugned order proceeds on a misreading of the US case law. The Appellant had submitted that since the Respondent has extensively
referred to the US law while interpreting the SEBI Regulations on insider trading not only in the case of the Appellant but also in the case of Hindustan
Lever, decided earlier, it is apparent that the Respondent has considered the US law on insider trading and based on its understanding/misunderstanding of
the US law on insider trading the order has been passed. But it is noted that the Respondent has not decided the matter as per the provisions of the US law.
The Respondent has taken aid of the judgements of the US Courts only for the purpose of enforcing well established principles relating to insider trading
which are enshrined as a part of the SEBI Regulations and not on the basis of US law. US law relating to insider trading is not similar to or in paramateria
with the SEBI Regulations relating to insider trading. It is to be noted that the insider trading law in the United States of America is part of the general law
relating to fraud. Anti fraud provisions in the laws are used to deal with insider trading in the USA.

150. The reference in the American cases to rule 10 b-5 is to be noted. Rule 10 b-5 is on Employment of manipulative and deceptive devices. According to
the said Rule 10b-5:

"It shall be unlawful for any person, directly or indirectly, by the use of any means or instrumentality of interstate commerce or the mails of any facility of
any national securities exchange (445 US 226)

(a) to employ any device, scheme, or artifice to defraud

(b) to make any untrue statement of a material fact or to omit to state a material fact necessary in order to make the statements made, in the light of the
circumstances under which they were made, not misleading, or

(c) to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person, in connection with the
purchase or sale of any security."

The provision is clearly aimed at curbing fraud. So is the case in UK.

151. In my view reference to USA and UK judgements must be read in the context of the USA and UK law and these concepts and principles cannot be
imported into the SEBI Regulations on insider trading which is a separate code by itself. In my view US/UK law relating to insider trading is not similar to
or para materia with SEBI Regulations. Therefore, I do not consider it necessary to consider various decision of USA/UK courts cited by the Counsel for
the parties.

152. The whole idea behind prohibitting insider trading as stated earlier is to ensure that persons by virtue of their position in the company and based on the
confidential information available to them by virtue of their position in the company do not gain an unfair advantage which will benefit them at the expense
of the persons they deal with. What is being aimed at by the regulation is to prevent insiders taking unfair advantage over other shareholders. SEBI's
argument is that regulations 3 & 4 of the SEBI Regulations do not require anything else to be proved to proceed against the person except that the person is
an insider and that he had dealt with in the securities on the basis of the unpublished price sensitive information According to the Respondent under the
SEBI Regulations profit element is not an ingredient of the offence of insider trading. SEBI had submitted that from a bare reading of regulation 3 it is clear
that prohibition of insider trading by an insider is an absolute offence and that benefit or gain is not an ingredient of the offence. It is difficult to accept the
version of SEBI. Once SEBI's view is accepted the very purpose of imposing prohibition on insider dealing in the securities on the basis of the unpublished
price sensitive information would become meaningless. If an insider, based on the unpublished price sensitive information deals in securities for no
advantage to him, over others, how it can be said to be against the interest of investors. In my view taking into consideration the very objective of the SEBI
Regulations prohibiting the insider trading, the intention/motive of the insider has to be taken cognizance of. It is true that the regulation does not
specifically bring in mens rea as an ingredient of insider trading. But that does not mean that the motive need be ignored. In this context I would like to
refer to the discussion on mens rea in the Law Lexicon by Shri Venkatramaiya -

"Mens rea - There is a presumption that in any statutory crime the common law, mental element, mens rea, is an essential ingredient. A crime may or may
not contain an express definition of the necessary state of mind. A statute may require a specific intention, malice, knowledge, willfulness or recklessness.
On the other hand it may be silent as to any requirement of mens rea and in such a case in order to determine whether or not mens rea is an essential
element of the offence, it is necessary to look at the objects and terms of the statute It has always been a principle of the common law that means rea is an
essential element in the commission of any criminal offence against the common law. In the case of statutory offences it depends on the effect of the
statute..... There is a presumption that mens rea is an essential ingredient in a statutory offence, but this presumption is liable to be displaced either by the
words of the statute creating the offence or by the subject matter with which it deals (State of Maharashtra V Mayer Hans George AIR 1956 SC 722 AT PG.
728) It is to be noted that as per the SEBI Act insider trading is a statutory offence. In this context it is also to be noted that the persons violating the
provisions of SEBI Act, rules and regulations are liable to criminal prosecution. The penalty for violation of the provisions of SEBI Act, rules and
regulations has been provided in Section 24 of the SEBI Act. As per the said Section 24 the offender "shall be punishable with imprisonment for a term
which may extend to ten years or with fine, which may extend to twenty five crore rupees or with both". This penalty is the revised one brought in vide
amendment effected to the SEBI Act on 29.10.2002. Prior to the said amendment the person found guilty of an offence "was punishable with imprisonment
for a term which shall not be less than one month but which may extend to three years or with fine which shall not be less than two thousand rupees but
which may extend to ten thousand rupees or with both." Further in terms of section 15G of SEBI Act persons indulging in insider trading are liable to a
monetary penalty not exceeding twenty-five crore rupees or three times the amount of profits made out of insider trading whichever is higher (prior to the
amendment to the section on 29.10.2002 the maximum penalty leviable was rupees five lakhs). The monetary penalty provided in section 15G is in the case
of adjudication of the offences by an adjudicating officer appointed by SEBI. Penalty provided in section 24 is "without prejudice to any award of penalty
by the adjudicating officer under the Act."

153. It is an accepted fact that the practice of insider trading requires to be checked and those who indulge in insider trading should be severely dealt with
by awarding harsh penalties, as insider trading is outright cheating and not compatible with fair market transactions. Considering the gravity of the offence,
the legislature has provided for heavy penalty vide section 15G and section 24. The fact that section 24 covers all types of offences does not mean that
insider trading is a minor offence and therefore penalty leviable will be small for proven charge of insider trading. So looking from the gravity of the charge
and penal consequences that could visit the insider for indulging in insider trading, it is difficult to accept the proposition that the intention/motive of the
person indulging in insider trading is irrelevant. It is true that regulations 3 and 4 per se are pure vanila sections without specific mention of the requirement
of the motive or intention. But these regulation, if read with the objective of prohibitting the insider trading makes clear that motive is built in and the
insider trading without establishing the motive factor is not punishable. What is sought to be prohibitted is gaining unfair advantage by the insider by
indulging in insider trading. In my view if it is established that the person who had indulged in insider trading had no intention of gaining any unfair
advantage, the charge of insider trading warranting penalty can not be sustained against him.

154. In the instant case it is clear that the Appellant was frantically trying to get a joint venture partner to strengthen the company, when the particular
industry was facing problems. The partner was Bayer. It put stiff condition of holding 51% capital in the company. The Appellant's intention in acquiring
the share was to facilitate the entry of Bayer for the betterment of the company and its other shareholders, employees etc. The object was not to gain unfair
personal gain. It is true that in the process the shares which he purchased at a lower price fetched a higher price when offered in the public offer. But this
gain was only incidental, and certainly not by cheating others. If the Appellant's intention was to make money in the process, he could have cornered much
more shares and profitted considerably. His bonafide is evident from the fact that he had instructed Mr. Kedia to buy even 1,20,000 shares @ Rs.80/- when
the public offer response was not that warm, so as to meet the deficiency, if any, in obtaining 20% shares by Bayer in the public offer..

155. From the facts of the case, it is clear that the Appellant was acting in the interest of the company and to protect the interest of the company shares were
purchased and, therefore the Appellant can not be considered to have violated the prohibition contained in regulation 3(i). The fact that the Appellant in the
process of tendering the shares in the public offer, tendered the shares at a price higher than the rate at which he purchased the same can not be viewed as an
action to gain unfair advantage over other shareholders. The gain was incidental to the main objective of enhancing the interest of ABS. He was already in
management of the control of the company. It is too presumptuous to say that he had traded in the securities to protect his interest. He has not retained his
managerial position at the cost of any other person.

156. In the totality of the facts and circumstances and in view of the underlying objective of the insider trading regulation, I am not inclined to agree with
the finding that the Appellant is guilty of indulging in insider trading as alleged by the Respondent. Since there is no evidence to show that he had gained
unfair advantage over other shareholders the direction to deposit Rs.34 lakhs to compensate any investor who seeks compensation as a result of the sale of
shares of ABS to Shri I. P. Kedia during September 9 to October 1, 1996 is untenable.

157. On a query from the Tribunal, during the appellate proceedings, the Appellant had stated that not even a single shareholder had come forward seeking
compensation even after one year from the date of the order. It can not be that the investors were unaware of SEBI's order. The reason obviously is that no
shareholder felt that he has been wronged. This also helps to support the view that the Appellant had not gained any undue advantage at the cost of other
shareholders as a result of the share dealing under reference.

158. It is also seen from the show cause notice that SEBI had not asked the Appellant to show cause as to why he should not be directed to compensate the
shareholders from whom shares were purchased in the relevant period. Since it was not a matter addressed in the show cause notice the Appellant could not
put forth its view. The compensation amount, it seems was arbitrarily calculated. The order directing the Appellants to deposit Rs.34,00,000 in the Investor
protection Fund to compensate the shareholders is, therefore in violation of the principles of natural justice.

159. In any case as stated in this order since the Respondent has not made out a case to hold the Appellant guilty of indulging in insider trading no action is
called for under section 11, 11B of the Act read with regulation 11 of the SEBI Regulations on insider trading. Therefore, that part of the order directing
"Rakesh Agrwal to deposit a sum of Rs.34,00,000/- with Investor Protection fund of BSE and NSE to compensate the investors who may come forward at a
later period of time seeking compensation for the loss incurred by them in selling at a price higher than the offer price" can not be sustained. The said part
of the order is set aside.

160. SEBI has power to order adjudication under section 15 G and launch prosecution under section 24. In case the Appellant is aggrieved by the order of
the adjudicating officer or the decision of the competent court in the criminal complaint, the Appellant is not short of appellate remedies. This Tribunal, is
of the view that it is beyond its jurisdiction to issue any order setting aside the Respondent's direction to launch prosecution and initiate adjudication against
the Appellant. No order on that part of the order directing adjudication/launching prosecution.

Appeal, allowed in the above lines.

Case -2

Securities Appellate Tribunal

Sebi vs Sameer C. Arora on 31 March, 2004
Bench: T Nagarajan

ORDER T.M. Nagarajan, Member 1.1 Alliance Capital Mutual Fund (ACMF) is a mutual fund registered with SEBI. It has been sponsored by Alliance
Capital Management Corporation of Delaware, USA, whose parent company is Alliance Capital Management LP (ACM), USA. Alliance Capital Asset
Management (India) Ltd. (ACAML) is the Asset Management Company of ACMF. ACAML is the subsidiary of Alliance Capital (Mauritius) P Ltd.
(ACMPL), whose parent is also ACM.

1.2 During mid January 2003, various news items appeared in the print media inter alia to the effect that:

ACM had decided to sell its stake in their Indian subsidiary.

Shri Samir Arora, the Fund Manager of the ACMF and his Research team would exit from it.

ACMF was facing redemption pressure.

The Assets Under Management (AUM) of ACAML had fallen by around Rs. 1000 crores.

The prices of certain scrips such as Balaji Telefilms Ltd., United Phosphorous Ltd., Hinduja TMT Ltd., Digital Globalsoft Ltd. and Mastek Ltd. had
fluctuated substantially consequent to the rumors and uncertainty created about the sale of stake of ACAML.

ACM issued a press release on February 3, 2003 stating that they had completed the review of the strategic alternative for ACAML and they would retain
their ownership in the ACMF.

Following the decision of not pursuing the sale of stake by ACM, the prices of the aforementioned scrips bounced back.

1.3 In the above background, Securities and Exchange Board of India (SEBI), in the interest of investors, ordered on June 6, 2003, an investigation into
the affairs of ACAML and more particularly to ascertain the violation, if any, of the provisions of the SEBI Act, Rules and Regulations made thereunder.

1.4 Investigation conducted till 09.08.2003 revealed that Shri Samir C Arora, Head-Asian Emerging Markets at ACMSL was taking all investment
decisions of the equity and balanced schemes of ACMF and was also managing the Indian allocation of Asian Funds of ACM, besides allocations for some
other Asian countries.
 1.5 In the course of investigations, it transpired that when ACM decided to sell its stake in ACAML, Shri Arora had reached an understanding with
Henderson Global Investors for the purchase of the stake of ACM in ACAML and that his actions / inactions seemed to have been calculated to bring down
the valuation of ACMF. It was found that the conduct of Shri Arora was not in consonance with the high standards of integrity, fairness and professionalism
expected of a fund manager. Further, the timing and manner of disposal of ACMF's entire holdings in Digital Globalsoft smacked of Shri Arora's dealing in
the security while in the knowledge of unpublished price sensitive information. Thus, there was a prima facie case of insider trading in terms of SEBI
(Prohibition of Insider Trading) Regulations, 1992, by Shri Samir C Arora. It was also observed that, Shri Arora being the fund manager at ACMF and
FIIs/sub-accounts of ACM, was prima facie responsible for the non-disclosures and wrong disclosures under the SEBI (Substantial Acquisition of Shares
and Takeovers) Regulations, 1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992.

Interim Order

2.1 In view of the aforesaid prima-facie findings of SEBI against Samri C. Arora and since he was in the process of setting up a new asset management
business in India, there was an urgent need to take an emergent action to restrain Shri Samri C. Arora perpetrating/repeating his aforementioned conduct to
the detriment of safety and integrity of the securities market and interests of the investors. A preemptive interim Order dated August 9, 2003 was, therefore,
passed by me directing Shri Samir C Arora not to buy, sell or deal in securities, in any manner, directly or indirectly, till further orders.

2.2 In consonance with the principles of natural justice and the provisions of Section 11(4)(b) of SEBI Act, 1992, Shri Samir Arora was given an
opportunity to file objections, if any, to the said Order within a period of 15 days from the date of the Order and also an opportunity of personal hearing, if
he so desired, at 11:30 a.m. on August 28, 2003.

2.3 Pursuant to the said Order, Shri Samir C. Arora filed his objections through his Advocates on August 27, 2003. He also inspected all the relevant
documents and attended the post decisional hearing on August 28, 2003. During the hearing Advocates of Shri Samir C. Arora made detailed submissions.
After duly considering the submissions, the Order dated August 9, 2003, was confirmed by an Order dated 24.9.2003 directing Shri Samir C. Arora not to
buy, sell or deal in securities, in any manner, directly or indirectly, till further orders. The investigating officer was also directed to complete the
investigation expeditiously.

Appeal before SAT

3. Aggrieved by the aforesaid Order, Shri Samir C. Arora filed an appeal No. 134/2003 dated 09.10.2003 before the Hon'ble Securities Appellate Tribunal
(SAT). Even before SAT could hear his case, Shri Samir C Arora, filed a Writ Petition No. 2693 of 2003 in the Hon'ble High Court of Mumbai for remedy,
on the grounds that the SAT was not fully functional and that there was a vacuum. During the hearing Union of India informed the Hon'ble High Court that
the hearing was fixed for December 15, 2003 and by that time Tribunal will be functional. In view of the said statement the petitioner sought leave of the
Court to withdraw the petition. Accordingly, the Hon'ble High Court has dismissed the writ petition as withdrawn. Thereafter, SAT heard the appeal and
vide its interim order dated January 12, 2004 refused to grant Shri Samir C. Arora any interim relief in the matter and directed SEBI to make all efforts to
pass the final order by February 28, 2004 and, in any case, to stick to the deadline of March 31, 2004.

Show Cause Notice

4.1 On completion of the investigation, a detailed showcause notice dated 20.02.2004 was issued to Shri Samir C Arora, citing facts, figures and
circumstances, and alleging, inter-alia to the following effect:

4.2 The chain of cited events indicated that Shri Samir C Arora played a pivotal role in thwarting the stake sale plans of the ACM and his
conduct and actions/inactions were with a selfish motive and contributed to the large scale redemption of the units of the fund. The large scale
redemptions by the investors, the steep fall in the Asset Under Management (AUM) of ACMF and the resultant fall in Net Asset Value (NAV) of the
schemes caused huge losses to the investors.

4.3 Shri Samir C Arora's participation in the bidding was in apparent conflict with his role as fund manager of ACMF. As a Fund Manager it was his
responsibility to act for the benefit of the unit holders. However, in contrast, in his role as a bidder his interest was to acquire the fund at the cheapest
possible price. In order to achieve the said objective he had by his actions/inactions, let the AUM fall, knowing that the valuation of the AMC would
depend on AUM and in the process he had placed himself in a position of conflict of interest and compromised his fiduciary responsibility to the unit-
holders and the sponsor. His conduct was detrimental to the interest of investors and the orderly development of the securities market.

4.4 ACMF and the ACM along with the sub-accounts were holding significant quantity of the paid up capital of the scrips namely; Digital Globalsoft
Limited (DGL), Balaji Telefilms Limited (BTL), Mastek Limited (Mastek), Hinduja TMT Limited (HTMT) and United Phosphorous Limited (UPL).
The said five companies had high promoter holding and low floating stock as the promoter holding in each of the 5 said companies ranged between 33%
and 58% as on December 31, 2002.The trading pattern in the said five scrips indicated that Shri Samir C Arora had indulged in manipulative transactions,
inter alia, with the intent to artificially inflate/depress the prices of the scrip, to create false / misleading appearance of trading in the scrips in various scrips
over a period of time and thus violated Regulation 4(a), 4 (b), 4 (c) &4 (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to
Securities Market) Regulations, 1995.

4.5 Shri Samir C Arora had appeared in the media and made discretionary comments on the investment potential or otherwise of those companies
wherein the fund managed by him had invested in large proportions. His interview to Business Standard dated May 5, 2003 regarding the business
prospects of DGL (wherein funds managed by him were holding about 4.45% of the equity) was an instance. In the interview with Business Standard in
response to a query, "What is your allocation to tech stock and how do you find the valuations?", he had, inter alia, replied "Digital Globalsoft - as per
market rumours - may merge with HPISO in India, which will make it the sole subsidiary of a USD 70 billion plus IT company and therefore, be the
obvious beneficiary of all the business that the parent can send to India, plus its normal business". Soon after making such a positive statement about the
prospects of DGL on account of the impending merger, he had sold, in consecutive trading days beginning May 8, 2003, all the shares held by funds under
his management. Thus he had made a misleading statement with a view to influencing the market price of DGL and thereby violated the provisions of
Regulation 5 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market) Regulations, 1995.

4.6 Being the Fund Manager, Shri Samir C Arora was aware of the combined holdings of ACMF, ACM (ultimate sponsor of the Mutual Fund and SEBI
registered FII) and its FII / sub-accounts in various scrips, who all were PACs. He did not report ACMF, ACM and FIIs sub-accounts about their combined
shareholding in various companies which resulted in non-disclosures/ wrongful disclosures under Regulation 7 of SEBI (SAST) Regulations 1997 and
Regulation 13 of SEBI (Prohibition of Insider Trading) Regulations 1992. This had resulted in the failure of the Mutual Fund to make the requisite
disclosures.

4.7 Shri Samir C Arora as Head - Asia Emerging Markets of Alliance Capital Management (Singapore) Ltd. was solely taking all investment decisions of
the equity and balanced funds of ACMF and the Indian allocation of ACM and their FII and sub-accounts. In view of this, he was aware of the combined
holdings of ACMF and PACs. SEBI (SAST) Regulations cast an obligation on the acquirer to disclose their combined holdings along with that of PACs to
the respective target companies. He failed to advise the acquirer (i.e. ACMF) about the holdings by PACs to enable the ACMF to make the requisite
disclosures as required by the said SEBI regulations.

4.8 Thus, Shri Samir C Arora's action/inaction had resulted in the failure of ACMF and PACs to comply with relevant SEBI regulations and consequently
he had aided and abetted the violation of Regulation 7 of SEBI (Substantial Acquisition of shares and Takeovers) Regulations, 1997 and Regulation 13 of
the SEBI (Prohibition of Insider Trading) Regulations, 1992. His conduct was, therefore, detrimental to the interest of investors and the orderly
development of the securities market.

4.9 As on May 7, 2003 the funds managed by Shri Samir C. Arora together held 14,66,140 shares of DGL constituting about 4.45% of the total paid up
capital of the company. The said shares had been held by the funds managed by him since February 2001. The funds combined holding reached upto 9.5%
of the paid up capital of DGL in September 2002. He sold the entire holding of the funds managed by him in DGL in four consecutive trading days starting
from May 8, 2003 based on unpublished price sensitive information pertaining to the demerger of HP-ISO into DGL. The same was evident, inter alia, from
the following:

On April 10, 2003 the funds managed by him together held 14.66 lacs shares constituting 4.45% of the paid up equity capital of DGL.

There were no transactions in the scrip of DGL by the funds managed by him since April 11,2003.

In an interview to Business Standard dated May 5, 2003 he had given favourable opinion regarding the business prospects of DGL consequent to the
proposed merger with HP-ISO.

Thereafter, beginning May 8, 2003 i.e. one day after the independent valuer submitted the valuation report to DGL, he off-loaded entire shareholding in
DGL in four consecutive days.
The reasons recorded for the sale inter alia include 'Event risk from tomorrow's announcement' which obviously referred to the merger ratio to be
announced, which, he perceived, will be unfavourable to the shareholders of DGL.

The agenda papers for the board meeting on May 12, 2003 did not have any mention of the discussion on the de-merger ratio. The intimation given by DGL
to the stock exchanges regarding the proposed board meeting did not indicate that the issue of de-merger ratio would be taken up at the board meeting on
May 12, 2003; The valuer had indicated that the sealed envelope containing the de- merger ratio should be opened only at the board meeting of the
company scheduled to discuss the de-merger ratio.

The commencement of sale since May 8, 2003 was significant considering that the valuer submitted their valuation report on May 7, 2003. Also, the hurry
shown by ACMF to dispose off its holdings by May 12, 2003 was significant considering that DGL's board meeting was held on May 12, 2003 and one of
the agenda items was 'Integration Related Items'.

Shri Som Mittal, President and CEO of DGL knew him for the past 5-6 years.

Shri Samir Arora and his analysts had the practice of making regular visits and interaction with the management and senior officials and they used to
discuss the performance and future plans of the companies in which they invest.

The funds managed by him were the single largest shareholder group of DGL after Compaq Computer Holdings Ltd. The funds were holding nearly 10% of
the total paid up equity capital of DGL for several months and therefore ACM had a special interest in DGL and vice versa.

The senior management team of DGL who were interacting with the valuer could easily estimate the likely de-merger ratio which was a price sensitive
information.

The fact that the board meeting of DGL on May 12, 2003 was scheduled to discuss the de-merger ratio recommended by the valuer was itself an
unpublished price sensitive information as the agenda papers/notices given by DGL to the stock exchanges did not mention this.

4.10 By trading on the basis of unpublished price sensitive information, Shri Samir C Arora took an undue advantage and succeeded in avoiding losses to
the tune of Rs. 23,56,59,637.06 (about Rs. 23.57 crores) at the cost of buyers who had no such information. As per the practice prevalent in mutual fund
industry, the incentives of the Fund Managers are linked to the performance of the funds managed by them. Thus being motivated by the personal gain that
could accrue to him on account of performance incentive, he traded on the basis of said unpublished price sensitive information in the scrip of DGL.

4.11 Shri Samir C Arora was an "insider" in terms of the SEBI (Prohibition of Insider Trading) Regulations 1992. The evidence showed that Shri Samir C
Arora had traded in the scrip of DGL when he was in possession of unpublished price sensitive information. Thus Shri Samir C Arora had violated
Regulation 3 of SEBI (Prohibition of Insider Trading) Regulations 1992 and was therefore guilty of Insider Trading under Regulation 4 of SEBI
(Prohibition of Insider Trading) Regulations 1992.

4.12 Shri Samir C Arora was managing the equity portfolio of ACMF and at the same time he was also managing the Indian allocation of FII/sub-accounts
belonging to ACM. While doing so, he managed the portfolio of securities in the interest of sponsors and to the detriment of the unit-holders of ACMF,
thereby he aided and abetted the violation of the above clause by the trustees and Asset Management Company of ACMF.

4.13 Clause 4 of Fifth Schedule of Code of Conduct states that Trustees and asset management companies must avoid conflicts of interest in managing the
affairs of the schemes and keep the interest of all unit-holders paramount in all matters. In bidding for the stake of ACAML in collaboration with
Henderson, Shri Samir C Arora had placed himself in a position of conflict of interest and thereby, he had aided and abetted the violation of Clause 4 by
ACAML and ACAM Trust Co Ltd.

4.14 Shri Samir C Arora's aforesaid conduct in aiding and abetting the Trustees and AMC of ACMF in violating the various provisions of SEBI (Mutual
Funds) Regulations 1996, was detrimental to the interest of investors and the orderly development of the Securities Market.

4.15 In the aforesaid premises, Shri Samir C Arora was called upon to show cause as to why directions under Section 11(4) and 11B of SEBI Act, 1992,
read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations 2003, Regulation
11 of SEBI (Prohibition of Insider Trading) Regulations, 1992, Regulation 44 of SEBI (Substantial Acquisition of shares & Takeovers) Regulations, 1997
and Clause 1 and 4 of Fifth Schedule of the SEBI (Mutual Funds) Regulations, 1996 should not be issued against him.
4.16 An opportunity of inspection of documents referred to in the said show cause notice was granted to Shri Samir C Arora on 27.02.2004. Shri Samir C
Arora filed his reply dated 09.03.2004 through his advocates. An opportunity of personal hearing was availed of by Shri Samir C Arora on 24.03.2004,
when he attended the said hearing along with his counsel and made submissions broadly on the lines of his reply dated 09.03.2004.

Reply to Show Cause Notice and oral submissios

5.1 The submissions made on behalf of Shri Samir C Arora are summarized below:

5.2 News reports stating that Shri Arora was likely to resign from Alliance Capital if his joint bid with Henderson for the stake in ACAML was not
successful were mere speculation made by the media without any basis or any input from Shri Arora.

5.3 ACAML has in its letter dated Sep. 10, 2003 to SEBI clarified that if Henderson's bid was not successful, Shri Arora would continue to work for
Alliance Capital Singapore. It was made clear to all bidders, with the obvious exception of Henderson, that Shri Arora was an employee of Alliance Capital
Singapore Office and hence, was not part of the sale of ACAML. It is clear that the person alleged to have been threatened (by Shri Arora) has clarified the
factual position that Shri Arora was not a part of the stake sale proposal. It is therefore perverse to combine these circumstances and attribute to Shri Arora a
malafide threat of resignation.

5.4 The show cause notice wrongly states that Shri Arora was the only fund manager for all the equity and balance fuds of ACMF and was as for the
Indian allocation of various Asian Funds of Alliance Capital. Shri Arora was not managing all the off-shore funds of Alliance Capital. Besides Shri Arora,
there were several other fund managers who were also managing various off-shore funds of Alliance Capital.

5.5 The fall in AUM of ACAML was due to rumours and speculation in the press and market uncertainty surrounding the potential sale. It is grossly
erroneous to attribute such fall in the AUM to any action whatsoever on the part of Shri Arora, leave alone the allegation of his having held out a threat,
with an intent to frustrate the sale process. Even if Shri Arora had been an employee of ACAML, it would have been his personal prerogative to resign his
services whenever he chose.

5.6 Shri Arora was managing over USD 1 billion in equity assets in nine Asian Countries and the assets of ACMF were only about USD 250 mn. Shri
Arora was based in Singapore and was being paid compensation commensurate with his responsibilities.

5.7 Shri Arora's compensation was being paid not by ACAML but by Alliance Capital Management (Singapore) Ltd. It was never envisaged by either
Alliance Capital or Shri Arora himself that he would be working for any successful bidder (other than Henderson) after the completion of the sale. Alliance
Capital informed all bidders that Shri Arora was not part of sale. The Information Memorandum of Blackstone group did not include Shri Arora's name in
the list of key employees. If Shri Arora's services were part of the sale, then this document would have reflected the same. Since Shri Arora himself
became a bidder along with Henderson, he did not participate in any presentation to various bidders.

5.8 All employees of ACAML based in India were offered a retention package to encourage them to stay with the firm until the sale was complete. Shri
Arora and two other analysts based in Singapore were not offered this package as they were expected to continue working with Alliance Capital after the
sale.

5.9 After the sale of the Indian business, Alliance Capital would no longer have been the sponsor of ACMF. ACAML would no longer have been the
AMC of the fund. Since Shri Arora was an employee of Alliance Capital Singapore and not of ACAML and was not part of the sale, he could never have
been the manager of the ACAML funds after the sale. Thus there was no 'uncertainty' regarding his continuance as a fund manager - in fact it was crystal
clear to everybody that he would not be available after the sale.

5.10 The statement in the SCN citing media reports that Shri Arora had threatened to resign if his joint bid with Henderson was not successful was
rendered false and inaccurate by the actual flow of events. When it was clear to Shri Arora and Henderson that the joint bid would not be successful, Shri
Arora did not resign from Alliance Capital but continued to work.
 5.11 Shri Arora initially opposed the plan to sell ACAML because of strong brand equity and shareholder value that had been created by ACMF. Once it
became evident that sale would be pursued regardless of his objections and that a strong consortium could be formed with Henderson, Shri Arora notified
his intent to participate in the bidding process. No further motive or connivance can be attributed to this development.

5.12 It is true that Henderson quoted a preliminary price range of USD 32 to 35m. However, it is perverse to link the same to the price quoted by HDFC
as part of its pre emptive bidding process in the week of January 13, 2003.

5.13 At the time of indicating the price range, Shri Arora's consortium had no knowledge that a pre-emptive bid would be made and more so what
such preemptive bid would be. The SCN is based on the fundamentally erroneous and unstated presumption that Shri Arora knew the pre-emptive price
quoted by HDFC and then proceeded to destroy the AUM.

5.14 Shri Arora's and Henderson's original indicative bid amount was indeed higher than that of HDFC (no bid) and HSBC (USD 28.5 m) and still, Shri
Arora and Henderson did not follow through with acquisition of ACAML.

5.15 Reduction in AUM in no way ensures that suddenly one bidder's price bid would become higher than HDFC. The fall in would impact all bidders
uniformly.

5.16 SEBI has placed reliance on a purported set of facts unilaterally recorded by an officer of SEBI behind Shri Arora's back. Significantly, such officer
is a person other than the designated Investigating Authority, and had no power to do so. It is important to note that such unilateral recording by an officer
of SEBI is being passed off as a purported "statement" of Shri Arora. Such statement was not even shown to Shri Arora for his signature. This
unilateral recording by the unauthorized officer came to light during the inspection before the post-decisional hearing. Based on such statement it has
been repeatedly and wrongly pointed out that Shri Arora stood to gain personally from the bid along with Henderson. When such erroneous recording is
rectified Shri Arora is accused of making contradictory statements. Further, to mitigate the apparent abuse of legal process, Shri Arora is now being
accused of making false and misleading submissions to SEBI, which allegation too has been made by wrongly and selectively interpreting the MOU
(between Shri Arora and Henderson).

5.17 The MOU between Shri Arora and Henderson was "only an expression of the (then) present intention" of Henderson and Shri Arora and did not
"constitute a legally binding obligation or commitment". As per the MOU between Shri Arora and Henderson, the minimum equity for Shri Arora had been
fixed at 16.67% of which the initial purchase would be of 6.67% with an additional entitlement of 10% of the equity. If Shri Arora left the fund voluntarily
in the first 36 months, he would retain only 6.67% (which he would have paid for) and the additional 10% equity would be forfeited and transferred back to
Henderson at no cost. It was only if Shri Arora had stayed on with the fund for beyond 48 months that he could have retained the entire share holding.

5.18 Computation of the purported gain to be made (by Shri Arora) is without appreciating principles of valuation and the provisions of the MOU.
The value of ACAML has been presumed to be USD 36 million. It has been forgotten that the pre-emptive bidder HDFC did not consider this to be right
value, and the only actual bidder HSBC gave a price indication of USD 28.5 million. The selection of a value of USD 36m is therefore grossly arbitrary and
unsubstantiated. This (10% additional equity) was meant to incentivise the continuance of Shri Arora with the fund for atleast 36 months. Even the
additional 3.33% that would vest over 3 years was meant to be a deferred incentive for a continued stint with the fund. The shares to be received by Shri
Arora (the additional principal equity and the vesting principal equity) could never have been sold by Shri Arora since they were not free and marketable. It
is therefore incongruous and inappropriate to draw any reference in relation to managerial compensation and thereby attempt to quantify the extent of
personal interest in the bidding process.

5.19 There is no evidence or record to suggest or demonstrate any calculated manner of creation of confusion and uncertainty. If Shri Arora had indeed
acted in a calculated manner to create confusion, depress the AUM of ACMF, depress the bids of other bidders, then Shri Arora would have moved in to
acquire ACAML after all bidders gave up. It is evident that this did not happen. Nor did he resign from Alliance Capital on the ground of the Henderson bid
not succeeding.

5.20 From the recorded statement of Shri Johri dated September 5, 2003 it is apparent that he is being quoted out of context in the Show Cause Notice.
In response to a query of SEBI regarding whether the Alliance Capital equity management style is peculiar, Shri Johri responded "This statement is a quote
from a very well known TV commentator Shri Dhirendra Kumar of Valule Research, New Delhi. He quoted this during his analysis with respect to the
potential sale of the Indian business by Alliance Capital. This statement was a often heard comment from market distributors and investors because many of
them found the investment management style of the Portfolio Manager of Alliance Equity Funds very aggressive. Many distributors categorized Alliance
Equity Fund in their analytical reports as aggressive. To that extent Shri Dhirendar Kumar was merely saying what was a common understanding of many
market participants." Shri Johri has also quoted Shri Dhirendra Kumar as advising viewers of CNBC "Investors were advised to watch for a confirmation
re. the sale and then decide to redeem." This also highlights that expert and respected market commentators like Shri Dhirendra Kumar were advising
investors to switch out of Alliance Funds in case of confirmation of sale. Therefore redemption that happened in December and January cannot be attributed
to actions/inactions of Shri Arora but to normal market response to a change in ownership and new management.

5.21 In an e-mail sent to Shri Ajai Kaul on October 19, 2002, Shri Johri wrote (referring to the success of Alliance Frontline Equity Fund):- ".... this
indicates the extent of the superiority of our equities franchise in India. No new buyer will be able to take this away with it and in the process we are about
to begin, this will be destroyed day by day". This clearly shows that even Shri Johri was very impressed with the equity franchise and the image and brand
value that had been created for ACMF, and in being opposed to Alliance Capital's intention to sell ACAML, he had noted with some dismay that no buyer
could match this performance and maintain the same profile. In any event, it is unclear which penal provision of law is brought into play against Shri Arora
by reason of Shri Johri referring to a journalist's view on the purported aggressiveness of ACMF.

5.22 A fall in the assets under management is an inherent and conventional symptom of any proposed sale of a mutual fund business. It is universal
experience for AUM to fall when there is proposed change of control over a mutual fund. Unit holders are always nervous about whether the funds hitherto
being managed by a particular set of fund managers would continue to be handled in the same manner.

During such times (of proposed change of control over a mutual fund) large, sophisticated and corporate investors, as a standard practice, withdraw their
funds from debt mutual funds experiencing a change in control and move their resources to other mutual funds that do not have such circumstance around
them.

5.23 The total sale of equity assets during the month of January 2003 was Rs. 238.49 crores while the total sale of debts was Rs. 713.33 crores. The
redemption pressure was duly met by an orderly liquidation of investments made by the schemes in which the redemption had occurred. AUM in debt
schemes fell 40% while AUM in equity schemes fell 24% - that the market was not reacting to Shri Arora's future, but to the fact that ACMF was
experiencing a potential change in control. Had the redemptions and the fall in the AUM been due to Shri Arora, the emphasis of the fall would have been
in the equity AUM and not in the debt AUM. There is no material correlation between the fall in the AUM of ACAML and fall in the NAV of the schemes
of ACMF during the period in question (December 2002 - January 2003).

5.24 The NAV is arrived at by dividing the net assets of the scheme by the number of outstanding units of the scheme on the relevant valuation dated.
Therefore, NAV is the value of one unit of a scheme. The NAV would fall as a result of a fall in the market price of securities held by the relevant scheme
and not by the size of the resources that are being withdrawn from the scheme. Each of the sales of securities to pay for the redemptions witnessed during
that period was met by the orderly liquidation of securities holdings at prevailing market prices.

5.25 Apart from Alliance Buy India Fund Scheme, every single equity fund of ACMF has outperformed the relevant benchmark index. In this regard it is
pertinent to note that although BSE 200 has been referenced as the benchmark for the Alliance Buy India Fund, the scheme invested in consumer and
healthcare sectors, and these sectors had under-performed the broader market that was reflected in the BSE 200. Despite significant redemptions in the
schemes of ACMF, the NAVs of the respective schemes of ACMF actually outperformed the relevant benchmark indices as well as comparable schemes of
leading mutual funds in India.

5.26 Allegations in relation to losses being inflicted on the investors as a result of the significant redemptions in the schemes of ACMF are not sustainable
since such allegations cannot be founded on mere conjecture and surmise. The NAV of Alliance New Millennium Fund (a technology-oriented fund)
declined by 7.94% in the month of January 2003. During the same period the NAVs of other comparable technology-oriented funds declined by a higher
percentage, such as the Franklin Infotech Fund which declined by 10.68% while Prudential ICICI Technology Fund declined by 12.35%; The NAV of
Alliance Basic Industries Fund declined by 0.09% in the month of January 2003 while the NAV of Alliance Frontline Fund and Alliance Equity Fund
declined by 2.42% and 4.34% respectively. During the same period, the NAV of comparable funds such as the Franklin India Blue Chip Fund declined by
2.49%, Birla Advantage Fund declined by 2.48% while Prudential ICICI Growth Fund declined by 5.35% 5.26 SEBI itself has envisaged a framework for
exit by investors when there is a change in management in Regulation 22(e) of the MF Regulations, which inter alia provides that the unit-holders of a
mutual fund have to be given the option to exit from the relevant scheme of the mutual fund at the prevailing NAV, without any exit load, in the event of a
change in the controlling interest of the asset manager. Therefore, the redemptions ought not to raise any concern with SEBI.
5.28 In the case of Zurich India Mutual Fund ("Zurich MF") there were reports sometime around November 2002 that the shareholders of the asset
management company of Zurich MF were proposing to divest their shareholding in the asset management company. The AUM of Zurich MF which was at
approximately Rs. 4,500 crores immediately prior to the sales process having commenced, started declining and continue to decline till around March 2003
when the AUM reached Rs.2685 crores. Only when it became certain that the HDFC Asset Management Company Limited was buying the stake of the
shareholders of the asset management company to the Zurich MF, did the AUM of Zurich MF start increasing. The decline in the AUM of Zurich MF was
approximately Rs. 1815 crores, which was a percentage to the initial AUM of the Zurich MF immediately prior to the commencement of the sale process, is
higher that the decline in the AUM of ACMF. More recently, just prior to the asset manager of the Principal Mutual Fund acquiring rights to manage the
schemes of the Sun F&C Mutual Fund, the AUM of the Sun F&C Mutual Fund, which was approximately Rs. 500 crores in May 2003, declined to
approximately Rs. 250 crores in November 2003. In percentage terms, the fall in the AUM of the Sun F&C Mutual Fund is also substantially higher than
the fall in the AUM of ACMF.

5.29 The only consideration that SEBI, as a market regulatory and protector of investors' interests should have is the real impact on the small investor in the
form of the movements in the NAV. A fall in the AUM can only impact the asset management company, which earns an ad valorem fee on the value of the
AUM. As such, this issue is wholly irrelevant and is of no consequence to the small investor, whose interests; it is SEBI's duty to protect.

5.30 The manner of computation of the purported loss suffered by unit holders of the New Millennium Fund, the Buy India Fund, Alliance '95 and Alliance
Equity Fund, proceeds on blatantly erroneous appreciation of NAV computation. The Show Cause Notice merely multiples the number of units outstanding
in January 31, 2003 by the difference between the NAV on that date and the NAV on December 2, 2002, to work out a purported aggregate value of loss. As
stated earlier, the investors would have lost more had they invested in the benchmark indices. On the other hand, the erosion in the NAV is the function of
various factors including market sentiment, investor perception of a proposed change in control, change in appetite for investment avenues, aversion to
mutual funds that are on sale etc. Therefore, not only is the computation of purported loss erroneous, but also attempting to fasten the liability for such fall
in NAV on Shri Arora is baseless.

5.31 It is simply not apparent from the chain of events, even in the manner set out by SEBI in the SCN, that Shri Arora played any role at all in 'thwarting'
the plan to sell ACAML to anyone but to himself and Henderson. The accusation relating to Shri Arora's conduct, actions / inactions and his alleged 'selfish
motive' are vague and incoherent. The SCN does not bring out how such charges can be linked to redemption of units of funds. So also, the redemption of
units and the fall in NAV arising cannot form any basis of leveling allegations against Shri Arora. It is erroneous to suggest that there was any conflict
between Shri Arora's role as a fund manager and as bidder. In fact, Shri Arora was never part of the sale process and did have any interaction with the
persons involved in the sale process. In fact it is not even SEBI's allegation that there existed such an interaction. By such logic (conflict of interest between
roles as fund manager and as bidder), every employee exercising a stock option would be in a position of conflict of interest between his role as an
employee and his role as a person exercising a stock option. All forms of management buy out would have to be rendered illegal in India.

5.32 It s stated that ACMF and Alliance Capital along with the sub-acounts held significant quatity of share in (i.e. Digital Globalsoft Ltd., Balaji Telefilms
Ltd., Mastek Ltd., Hinduja TMT Ltd. and United Phosphorous Ltd.) - It is stated that promoter holding is high in these stocks ranging from 33% to 58% as
on December 31, 2002 and that there was low floating stock. The terms 'significant holding' and 'low floating stock' are vague and subjective terms. Suffice
to say, that one ought to presume that these companies were compliance with the various provisions of securities laws that govern minimum public
shareholding and promoter holding. All the allegations in relation to these stocks relating to the purported benefits being conferred on the offshore funds to
the detriment of the domestic mutual fund, are leveled in hindsight, and in reality, at the time of making the investments, no such thought process was even
contemplated. Each fund has its own investment objectives as laid down by its respective charter and it was the duty of the fund manager to meet these
objectives and deliver value to the unitholders and constituents. Shri Arora did not receive any differential compensation aimed at selectively helping the
performance of the so-called sponsor/ FII funds.

5.33 On Sep. 5, 2001 the stock price (of BTL) closed at Rs. 223.90 on NSE and at Rs. 224.20 on BSE. On Sep. 11, 2001 the closing price on NSE was
higher at Rs. 226.55 while on BSE it was at Rs. 226.70. On Sep. 6 & 11, 2001, ACMF and India Liberalization Fund (ILF) had together sold 6,35,300
shares. While the aggregate volumes on the two premier national exchanges (viz. BSE and NSE), where the price discovery takes place, was 73,71,592
shares. Even the cumulative sales on these two days, as a percentage of market volume, represented a miniscule 8.62% of volumes on these two days,
which by no means be considered adequate to depress the market price. The contribution of the rest of the 92% of the market to the price discovery process
cannot be wished away. Despite the sale, the actual price went up.

5.34 The purchases of 3,91,960 shares made on Sep. 19, 2001, were actually made on behalf of ACMF, and not Northern Trust Company (NTC) or any
FII/sub-account, as implied in the SCN. Therefore, the first purchase after (the earlier) sale by ACMF was in fact made on behalf of ACMF itself and the
beneficiaries were the Indian unitholders. ACMF purchased the shares first and NTC purchased it later (i.e. on Sep. 26 & 27, 2001). Therefore, there is no
question of benefiting the non-ACMF funds to the detriment of ACMF or ensuring any unfair advantage to the FII and sub-accounts. It is critical to note
that despite the purchase of 3,91,962 shares at the price of Rs. 186.42 per share (on Sep. 19, 2001), the price continued to fall further highlighting that the
said transaction did not influence the price movements. Therefore, no allegation is sustainable.

5.35 Sale of 52,000 shares of HTMT during Jan. 16 to 29, 2003 were done to meet the redemption pressure. Once the pressure eased, the stock was once
again included in the portfolio, which is why it was purchased again on Feb. 3, 2003. As a percentage of the volumes on the respective days, the sale by
ACMF during Jan. 16 to 29, 2003 were far too miniscule to send any credible signal to the market -downward or upward. A sale of 52,000 shares can in no
manner be considered powerful enough to have sent the price of HTMT into a downward spiral.

5.36 The sale on 1.75 lakhs shares of Mastek on Jul. 25, 2002 represented a miniscule 1.91% of the market volumes, and could not have impacted the price
in any manner. On Jul, 29, 2002, ACMF purchased 1.00 lakhs shares of Mastek constituting 1.73% of volume traded on that day on both the stock
exchanges (i.e. BSE and NSE). On Jul. 30, 2002, ACMF purchased another 1.00 lakhs shares of Mastek which was a mere 1.54% of volume traded on that
day on both the stock exchanges while an additional 1.00 lakhs were purchased for the offshore funds. On Jul. 31, 2002, an additional 1.70 lakhs
constituting a mere 1.13% of volume traded on that day were purchased for the offshore funds.

5.37 Although the scrip (of Mastek) was sold by ACMF at Rs. 371.32 on Jul. 25, 2002, it closed on the NSE at Rs. 373.60 and at Rs. 369.35 on BSE -
clearly higher than the previous close of Rs. 355.75 and Rs. 355.30 respectively. Thus, the sale on Jul. 25, 2002 had no impact whatsoever on the price - the
stock in fact closed higher on that date. Therefore it cannot be alleged that the sale was made to depress the price or to hide the intention of increasing the
holding at a lower price on a subsequent date. The price in fact moved up and profits were made, which it is the mandate and duty of a fund manager to
ensure, in the best interests of the unit-holders.

5.38 On Jul. 29, 2002, ACMF has purchased 1 lakh shares of Mastek at Rs. 355/- since the price had fallen (well after the sale on Jul. 25, 2002) - on that
date the stock closed at Rs. 362.95 on NSE and Rs. 362 on BSE. On Jul. 30, 2002, ACMF and off-shore funds had together purchased 2.0 lakhs shares of
Mastek at a price of Rs. 357-358/. On that date, the stock closed at Rs. 352.35on NSE and Rs. 348.65 on BSE. On Jul. 31, 2002, an additional 1.70 lakhs
shares of Mastek were purchased at Rs. 323 for the offshore funds. On that date, the stock closed at Rs. 349.85 on the NSE and Rs. 354.25 on the BSE.

5.39 That the price does not react to the purchases made by Shri Arora is further evidenced from the fact that despite purchases between Jul. 29 and 30,
2002, the price continued to fall. This demonstrates that the sales or purchases effected by Shri Arora did not have a corresponding impact on the price. In
fact, the price moved upwards when he sold and moved down when he purchased. - clearly rendering the charge of moving the price upwards or
downwards, baseless.

5.40 ACMF and off shore funds had together purchased 4.00 lakhs shares of Mastek on Aug. 23, 2002. Subsequently, the price of the scrip rallied and they
together sold 2.50 lakhs shares.

5.41 There is nothing in the securities laws that prevents a sale in a day when a purchase is made earlier in the day. It is incumbent on a fund manager to
maximize profits for unit holders and constituents. Therefore, it is errorneous to allege that the offshore funds were benefited by Shri Arora, particularly,
when it is seen that ACMF made Rs. 63 lakhs on that date as compared with Rs. 19 lakhs earned by the offshore funds on that date. On Oct. 1, 2002, ACMF
(3.10 lakh shares) and the off-shore funds (1.50 lakh shares) had together sold 4.60 lakhs shares of Mastek at Rs. 397/- and Rs. 396/- respectively. On Oct.
3, 2002 ACMF had sold another 1.85 lakhs shares of Mastek at an average of Rs. 381/-, "the price had fallen since the last sale".

5.42 On Oct. 4, 2002 based on the research input of Shri Bhaskar Laxminarayan, it was decided to increase the weightage of certain software companies
including Mastek, Digital and Infosys. Accordingly, ACMF bought back 5.70 lakhs shares of Mastek and the off shore funds 1.00 lakhs shares on the same
date at prices of Rs. 388-389/-. Therefore no allegation of creation of artificial trading volume is sustainable.

5.43 SEBI is aware, both mutual funds and FIIs can trade only on a delivery basis and have to deliver or take delivery of every single sale and purchase
made by them. Against this context, there is no scope for levelling any charge of creation of artificial volumes in any stock.

5.44 The volumes have always been huge in this stock (i.e. Mastek). The contribution to the volumes by the impugned transactions (i.e. on Jul. 25, 29,
30 and 31, 2002, August 20, 22 & 23, 2002, Oct. 1, 3 & 4, 2002) is far too minor. Therefore, the allegation relating to purported creation of artificial
volumes simply cannot be levelled - even considering the facts set out in the SCN itself.

5.45 The sale of UPL shares during December 2002 to January 2003 were aimed at meeting the redemption pressure and was part of the orderly liquidation
of assets in schemes where there were redemption requests. There was indeed no impact on the price owing to these sales and the percentage sale to the
total volumes were quite small. Between Oct. 1 & 18, 2002, the price of UPL steadily moved up from Rs. 153.25 to Rs. 168.75. On Oct. 10, 2002 itself
despite ACMF and FII net selling of 1.74 lakhs, UPL's price closed at Rs. 175.40 on NSE and Rs. 173.10 on BSE - higher in both the cases than the prices
on the previous day. This clearly demonstrates that ACMF and ACM were in no position to influence prices even for a day and that their selling or buying
did not have any adverse impact on the prices. Therefore, it is blatantly erroneous to suggest that the sale by ACMF was motivated only to depress the price
and create room for ILF to purchase the shares.

5.46 Shri Arora cannot be alleged to be benefiting Alliance Capital and its off-shore affiliates at the same time as the allegation of his threatening to quit
Alliance Capital and thereby thwart the process of sale of ACAML.
 5.47 With regard to the interview to Business Standard dated May 5, 2003, regarding the prospects of DGL, there is nothing in the SCN to indicate any
allegation about which part of the statement is misleading in any material particular. To fit within the ambit of Regulations 5 of FUTP Regulations, a
statement has to be materially misleading and the statement ought to be likely to induce a transaction in securities. In the absence of anything
misleading, Regulations 5 of FUTP Regulations has no application to the facts of the case.

5.48 The statement merely points out that a merger of DGL with HPISO was likely. It was not hard to guess, because the worldwide merger of HP and
Compaq had been announced. The obvious benefits that such a merger would have for Digital was set out in the said statement, and therefore there was
nothing misleading in the said statement. Even if such a statement could be considered to be misleading merely because ACMF sold its holdings in DGL on
May 8, 2003 - eight days after the interview - such statement clearly falls within the ambit of a general comment akin to a comment on trends in the
securities market or on the economy.

5.49 The entire burden of allegations pertaining to alleged violation of Takeover Code is completely erroneous and baseless. These allegations proceed
on the premise that ACMF, Alliance Capital and its FIIs and sub-accounts are all persons acting in concert. There is no elaboration or consideration of facts
as to whether these various pools of resources could be considered to be acting in concert.

5.50 Even assuming for the sake of argument that these funds were all acting in concert, the notice does not even deal with the submissions made by
Shri Arora that the burden of filing reports under the Takeover Code rests solely with the compliance officer than with the fund managers. In fact, the MF
regulations made it clear that the compliance officer ought to report directly to the Trustees of the mutual fund and not to the fund manager or the chief
executive officer of the AMC. Several disclosures were indeed made by each of the entities concerned under the requirements that were specifically
applicable to each of them. SEBI's charge is that these entities did not aggregate their holding for the purpose of disclosure, and proceeds to hold Shri Arora
responsible for the same. In no mutual fund is the fund manager responsible for computing the overall holding in any listed company across various
schemes and funds managed by him. Since reporting requirements under any provisions of securities law is not the fund manager's responsibility, there is
simply no basis whatsoever for leveling such a serious technical compliance-related allegation against Shri Arora.

5.51 Whether or not two or more persons are acting in concert is always a mixed question of fact and law to be determined from the facts and
circumstances of the case. Even where a deemed action in concert is presumed in law, the presumption is rebuttable and facts have to be examined to
consider whether the contrary is likely to be established. The SCN does not even attempt to demonstrate that these persons are acting in concert. Two or
more persons can be said to be acting in concert only if they have a common objective or purpose of substantial acquisition of shares or voting
rights or gaining control over a target company pursuant to an agreement or understanding, or they co-operate in such acquisition. There has to be an
animus and a conscious effort and agreement and understanding with a common objective of acquisition. Each of the funds has a different investment
objective in their respective charters.

5.52 It is SEBI's own case that there were several instances where a ACMF was selling but FIIs and sub-accounts were buying and vice versa. Against
such backdrop, it cannot be argued by SEBI that there was any action in concert between ACMF and the other funds. When ACMF was purchasing the
other funds such a ILF and ATF were selling and vice versa. When one was a net purchaser, the other was a net seller. This too clearly demonstrates that
there was not common objective or purpose in the acquisitions.

5.53 The concept of acting in concert has no application to Regulations 13(3) of Insider Trading Regulations. Under the Insider Trading
Regulations every acquirer has to make a disclosure.

5.54 The scheme and perspective behind the Insider Trading Regulations is very different from the scheme of the Takeover code. The Takeover code
regulates substantial acquisition of shares and / or control while the Insider Trading Regulations regulate and prohibit trading on the basis of insider
information. Even assuming that allegations can even be considered under the Insider Trading Regulations, no charge of non-disclosure can be leveled
under any provision of Regulations 13 of Insider Trading Regulations

5.55 The allegation that Shri Arora being aware of the combined holding of ACMF and the PACs, failed to advice ACMF about the holdings of the other
funds is blatantly unsupported by evidence and material on record. There is no material basis to suggest that Shri Arora was trading without the custodian or
the back office being aware of his trades. Therefore such a charge ought to fail and cannot be levelled.
 5.56 As per the internal notings of various officials of SEBI regarding the definition of 'persons acting in concert' FII with sub accounts cannot be
deemed to be acting in concert with mutual fund along with AMC/ sponsor/ trustee even if FII and mutual fund are under the same parent group. Therefore,
in our opinion there is no violation of the takeover code in letter and spirit.

5.57 SEBI's communication to ACAML stated that "It is clarified that your practice of excluding FII/sub-accounts of your parent organisation while
aggregating the holding across all schemes with holdings of the Trustee Co. and AMC for ascertaining the 5% limit under the Takeover Code is in order".

5.58 Shri Arora was not even an employee of ACAML and therefore, there was indeed a Chinese Wall between the compliance function and
Shri Arora's fund management operations.

5.59 There is no basis for alleging that Shri Arora's conduct was detrimental to the interests of the investors and the orderly development of the securities
market, enabling SEBI to issue directions under Sections 11(4) and 11B of the Act. It is in fact true that such directions have already been issued for ever
seven months now, and in hindsight, post facto reasons are being searched for to justify the action already taken.

5.60 Merely on the basis of sequential recording of facts, the Show Cause Notice concludes that the sale of 66,140 shares (of Digital Global) in four
consecutive trading days since May 6, 2003 amounts to sale on the basis of price sensitive information.

5.61 SEBI has inferred that the market perceived the ratio report as being unfavourable to Digital Shareholders since the price of Digital fell from Rs.
500.5 (closing price as on June 6, 2003) to Rs. 371.1 on June 9, 2003.

5.62 Shri Arora's interview with CNBC on an undated day in June 2003 has been extracted. The extracts merely suggest that the market these days,
seeks an explanation for how such ratios are compared, and that ratio was unfair.

5.63 The relevance of the fact that "There were no transactions in Digital by the funds under Shri Arora's management since April 11, 2003" is not made
clear.

5.64 No explanation has been provided about whether SEBI considers the sealed envelope to have been opened.

5.65 The reference to "Event risk from tomorrow's announcement" in the explanation for the sale recorded on May 9, 2003 was "supposedly" a reference
to the merger ratio. The ratio was not announced the next day - it was announced a month later from San Francisco. The announcement that was actually
made the day after May 9, 2003 was the financial results for the quarter ending March 2003, but this has not been explained (in the SCN of SEBI).

5.66 The agenda papers for May 12, 2003 board meeting did not have any mention of a discussion of the ratio report. This only goes to show that the
reference to "tomorrow's announcement" was a reference to the financial results and other matters such as whether or not there would be a merger,
integration timetable and such other uncertainties. When a merger is talked about widely in the public domain, the convening of a board meeting itself
leads to speculation and uncertainty - the market does not look for the agenda list. Moreover, this board meeting was a few weeks leading to uncertainty.

5.67 There was a hurry to dispose of the ACMF holding by May 12, 2003 since an agenda item for the board meeting was "Integration Related Items"
This is contradictory to the earlier criteria (of SEBI). If Shri Arora had inside information, he would have known that the ratio would not be
disclosed on that date and there would be no urgency to complete the sale before May 12, 2003.

5.68 Shri Som Mittal knew Shri Arora for five-six years. The fact that Shri Mittal never met or communicated with Shri Arora throughout 2003 is simply
ignored. In a statement of Shri NVP Tendulkar, Chief Finance Officer & Company Secretary, Digital recorded on August 20, 2003, it has been expressly
stated that the last interaction between Digital and Shri Arora was in an analyst conference in April 2002, and that no fund manager or analyst from Alliance
Capital had visited Digital throughout 2003. SEBI has ignored the statement.
5.69 Shri Arora and his analysts made regular visits and interacted with management and senior officials of companies in which they invest, and discussed
performance. This is the stated investment strategy of several mutual funds including those that are internationally reputed and highly regulated. Such
meetings alone do not prove the sharing of unpublished price sensitive information; these meetings aid the appreciation of information that is already in the
public domain.

5.70 ACM had a special interest in Digital since the funds' holdings in Digital represented the single largest holding after those of Compaq. How the
fact of being second largest shareholder (itself not proven) can lead to a presumption of having access to unpublished price sensitive information is not
explained.

5.71 If anybody could compute the merger ratio, how would it be price-sensitive? Moreover, BSM's statement that one could not have computed the
ratio unless one knew of HP's financials has not been dealt with.

5.72 SEBI has recorded that Shri Hemant Soonawala carried the sealed cloth envelope and admittedly, there is no allegation of any interface between
Shri Soonawala and Shri Arora from the record.

5.73 The SCN (of SEBI) has twisted the interpretation of the term 'person deemed to be connected person' under Regulations 2(h) of Insider Trading
Regulations to suggest that any market intermediary could be a person connected with any other person in India.

5.74 Shri Arora is not an intermediary in the capital market registered with SEBI under Section 12 of the Act, and was not providing any service to
Digital in order to be deemed to be connected with Digital. Shri Arora was not even an employee of ACAML for him to fall within the charge of
Regulations 2(h) of the Insider Trading Regulations

5.75 The SCN does not deal with how Shri Arora is purported to have come in possession of the allegedly price-sensitive information. The SCN does
not even credibly accuse any insider of having shared unpublished price sensitive information with Shri Arora.

5.76 The SCN does not show how Shri Arora could be considered to be an 'insider' within the meaning of the term as defined in Regulations 2(e) of
Insider Trading Regulations Even if one were to assume that SEBI would consider Shri Arora to be a 'connected person' within the meaning of the term in
Regulations 2(c) of the Regulations, the onus is on SEBI to demonstrate the connection.

5.77 The reference made by SEBI to Regulations2(h) is of no use since it only provides for Shri Arora being an insider to the mutual fund that he
worked for.

5.78 It is only against Shri Arora that SEBI has taken action in the form of directions under Sections 11(4) and 11 B of the Act - there is no whisper of
any proceedings in respect of BSM, any members of the board of directors of Digital or even the sub-committee of independent directors or the senior
management of Digital.

5.79 Unless it is demonstrated that a person was actually in possession of unpublished price sensitive information In the absence of any cogent or
coherent evidence, whether direct or circumstantial, the SCN has been unable to show how Shri Arora allegedly came in possession of the purported
unpublished price sensitive information. Owing to the failure to demonstrate that Shri Arora was indeed in possession of unpublished price sensitive
information, the SCN fails to make a sustainable charge of Shri Arora's transactions being in violation of Regulations 3 of Insider Trading Regulations
unless SEBI is able to successfully invoke the provisions of Regulations 3 of the Insider Trading Regulations, the provisions of Regulations 4 are of no
consequence.

5.80 SEBI has not brought any material on record to question the credibility of the denial of interaction between Shri Som Mittal and Shri Tendulkar of
Digital with Shri Arora. The possible motivation that Shri Bansi Mehta, Shri Som Mittal or any other person could have had, to share adverse inside
information with an institutional investor that had sold more than 17,00,000 shares h the past six months, has not been dealt with. In view of the same, the
sweeping assumption that Shri Arora was in possession of price sensitive information falls within the realm of conjecture, and no penal provision can be
invoked in such circumstances.
5.81 The reason for the sale of Digital was that the stock was downgraded to a 'SELL' recommendation by CLSA Emerging Markets' research analyst M/s
Aniruddha Dange and Bhavtosh Vajpayee vide their report published on May 8, 2003. CLSA Emerging Markets was voted as India's No. 1 FII broker. Shri
Dange was voted as India's top equity analyst by Asiamoney, and his downgrade carries immense credibility in the market. In fact, SEBI's belief that there
was nothing adverse about Digital during the period from May 8th to May 12th to prompt selling of DGL is untenable in view of the CLSA research report
itself. The reason for the continued selling after May 8, 2003 was that Shri Bhaskar Lakshminarayan, the internal analyst working with Alliance Singapore
had downgraded the stock to "2" and strongly recommended reducing the position in the stock.

5.82 These responses from Shri Arora set out in his written submissions dated Aug. 27, 2003 have not been dealt with in the SCN (of SEBI).

5.83 A person who is accused of Insider Trading would never transparently write in his reasoning that he was relying on unpublished price sensitive
information to sell. It beats all expectations of a prudent person to record in writing the very fact of intention to commit Insider Trading as a reason for the
sale.

5.84 By some convoluted logic, it has been alleged that Shri Arora stood to gain by his performance-linked bonus from the timely sale of Digital, which
purportedly saved ACMF a loss of Rs. 23.57 crores. This allegation does not link with the conduct of Shri Arora, since he proceeded to resign from Alliance
Singapore in August 2003. Had he indulged in Insider Trading to reap the benefits through the bonus, he would have waited another four months to bag his
bonus and then resign from his job.

5.85 It is surprising to note that SEBI has found it fit to impose a penalty in the nature of an order under Sections 11(4) and 11B of the Act against an
individual fund manager of a mutual fund even while invoking provisions of the Code of Conduct that govern the mutual fund itself. The code of conduct is
cross reference to Reg, 18(22), 25(16) and 68(h) of the MF Regulations. Regulations 18(22) casts an obligation on the trustees of a mutual fund to observe
the code of conduct while Ref. 25(16) casts a similar obligation on the AMC. Regulations 68(h) of MF Regulations renders a mutual fund liable for enquiry
proceedings for code of conduct. Nowehere in any of these charging provisions is there any liability or obligation imposed on any individual fund manager
who may be employed by a mutual fund.

5.86 Although the allegation is one of aiding and abetting the violation of Clause 4 by ACAML and ACAM Trust Company Ltd., the SCN entirely
blames only Shri Arora in relation to the bid along with Henderson. It follows by reason that all the allegations and false inferences drawn ought to be
withdrawn by SEBI.

CONSIDERATION OF ISSUES

6.1 Keeping in view interim orders dated August 9, 2003 and September 24, 2003, I have carefully considered the findings of the investigation
communicated in the show cause notice dated February 20, 2004, the reply to the show-cause notice vide letter dated 9th March, 2004, material on record
as inspected by Shri Samir C. Arora, and the oral submissions made on behalf of Shri Samir C. Arora by his advocates during the hearing held on March 24,
2004. The following issues arise for consideration.

Whether Shri Samir C Arora is guilty of professional misconduct inviting action under Section 11(4) and 11B of SEBI Act, 1992?

Whether Shri Samir C Arora is guilty of violating the provisions of Regulations 4(a), 4(b), 4(c), 4(d) and 5 of SEBI (Prohibition of Fraudulent and Unfair
Trade Practices Relating to Securities Market) Regulations, 1995?

Whether Shri Samir C Arora is guilty of violating the provisions of Regulation 3 of SEBI (Prohibition of Insider Trading) Regulations 1992 ?

6.2 For the sake of clarity, while dealing with the issues, I propose to consider the submissions/ arguments of Shri Arora with reference to the allegations, in
a logical sequence as under:

First Issue Whether Shri Samir C Arora is guilty of professional misconduct inviting action under Section 11(4) and 11B of SEBI Act 1992?
7.1 At the outset, the basic contention of Shri Arora that he was not an employee of ACAML, needs to be dealt with. This issue had been examined in my
earlier interim order. The following facts are relevant for consideration:

Key Information Memorandum and Common Application Form (a publicly available document) of ACMF under the Title 'Asset Management Company'
listed Shri Samir C. Arora as one of the principal officers of the ACAML. It also states Shri. Samir C. Arora as the fund manager for various schemes of
ACMF.

The Confidential Information Memorandum of ACAML dated November 2002 prepared by the Blackstone group contained (as submitted by Shri Samir C
Arora in his reply) under 'Management and Employees' the organization chart of ACAML listed Shri Samir C. Arora, Sr. Vice President Head - Asia
Emerging Markets reporting to the ACAML board.

Press release dated February 3, 2003 issued by Alliance Capital states "Samir Arora will continue to act as Chief Investment Officer of Alliance Capital's
Indian operations......." Commenting on the occasion, Shri Samir C. Arora stated "I am pleased to continue my deep involvement in the Indian markets as
Portfolio Manager for Alliance Capital's Indian equity investments".

Shri Samir C. Arora has on June 20, 2003 stated under oath that he is the portfolio manager for all the equity funds of ACAML.

ACAML has also submitted that Shri Samir C. Arora, a key personnel of ACAML is its Chief Investment Officer and Fund Manager for Equity and
Balanced Funds.

Shri Samir C. Arora in his written submissions has himself submitted that he "is responsible only for the equity fund management operations of ACMF", his
"role was purely that of Fund Manager".

7.2 From the aforesaid facts it is clear that Shri Samir C. Arora was one of the key personnel of ACAML and in his capacity as fund manager he was
managing the equity and equity portion of balanced schemes of ACMF. Further, the aforesaid status of Shri Samir C. Arora was also disclosed to the unit-
holders at large through Key Information Memorandum and Common Application Form. It is also observed from the organizational structure of ACAML as
given in Confidential Information Memorandum, November 2002 (which was given to the prospective bidders) as submitted by Shri Samir C. Arora I find
that Shri Samir C. Arora was reporting to ACAML board.

7.3 Hon'ble Supreme Court in the case of Chintaman Rao v. State of M.P. AIR 1958 SC 388 has, inter-alia, stated that the concept of employment involves
three ingredients: (1) employer (2) employee and (3) the contract of employment. The employer is one who employs i.e. one who engages the services of
other persons. The employee is one who works for another for hire. The employment is a contract of service between the employer and the employee
whereunder the employee agrees to serve the employer subject to his control and supervision.

7.4 Further, as per Black's Law Dictionary, Employee means 'A person who works in the service of another person (the employer) under an express or
implied contract of hire under which the employer has the right to control the details of work performance.'

7.5 In Multinational corporate practice, it is not uncommon that one person provide services to more than one company belonging to the same group
situated in different countries.

7.6 I find that ACAM Trust Company Pvt. Ltd., the Trustee Company of ACMF has stated that "It is the global practice at Alliance Capital that
employees are paid their salaries by their relevant Alliance Capital subsidiary/affiliate, in the country in which such employees are located. However,
Alliance Capital employees may continue to act as officers of the various Alliance Capital subsidiaries/affiliates around the world for which they have been
allocated responsibilities as necessary and appropriate."

In view of the aforesaid facts I do not find any merit in Shri Samir C Arora's submissions that he was not an employee of ACAML.

7.7 I note that it was the general perception that Alliance Mutual Fund and Shri Samir C. Arora were almost synonymous. I also note that he was
known for his aggressive style of functioning. He had gone on record confirming his deep involvement in Indian market as portfolio manager in equity
investment. It is also observed that when Shri Arora learnt that Alliance Capital intended to sell off its Indian business, Shri Arora and other senior
managers in India urged Alliance not to exit the Indian market. It has not been denied that having failed in his efforts to persuade Alliance from selling
ACAML, Shri Arora joined hands with Herderson and submitted a bid. It is also observed that Herderson's bid for ACAML was less than that of HDFC. It
is noted that HDFC initially quoted in the range of USD 42 to 50 million as against the initial bid of Henderson at USD 30 to 33 million.
 7.8 It is clear from the MOU between Shri Arora and Henderson that Shri Arora did stand to gain personally from his joint bid with Henderson. As per
the MOU Shri Arora was entitled to buy stake of 6.67% and to receive 10% additional equity free of cost. In addition, he was to receive 3.33% vesting
Principal equity which will vest in equal portions over three years. In his earlier written submissions dated August 27, 2003 to SEBI (page 18 para 19)
as well as in the submissions to SAT Shri Arora had contended that "for continued performance and loyalty to the mutual fund over the next four years, the
Respondent (i.e. Shri Arora) was to receive 13.33% shares, in the form of sweat equity." Thus, the earlier submissions by Shri Arora to SEBI (and SAT)
were indeed misleading.

7.9 I find that while, on the one hand, Shri Arora is contending that reliance should be placed on the MOU to ascertain whether Shri Arora stood to
make any personal gain, he is attempting, on the other hand, to play down the sanctity of the MOU between himself and Henderson, by trivializing it only
as an "expression of the intentions" of the parties and not a legally binding document. In any case, what is pertinent here is the intentions of the parties
concerned, which is clearly reflected in the MOU.

7.10 From the terms of the MOU it is clear that Shri Arora would be richer by 10% additional principal equity (which he would have received free of
cost) if his bid along with Henderson was successful. He is attempting, however, to play down the significance of the likely personal gain by citing the
eventualities that may deny him the benefit. It is clear that while entering into understanding with Henderson, Shri Arora had every intention to acquire the
fund and continue with the fund once his bid along with Henderson was successful.

7.11 Further, I find that certain terms of MOU ensured that his personal gain would be much more than the 10% additional principal equity which he
was, in any case, entitled to free of cost e.g. "Should the investor (i.e. Henderson) exit prior to the vesting of these options (i.e. the 3.33% vesting principal
equity) and the Principal (i.e. Shri Arora) also exits his entire stake at this time, the unvested portion will vest immediately. As a further incentive to the
Principal (i.e. Shri Arora), the Principal will have the right to acquire up to an additional 5% of the equity in Alliance India over the next four years (This
5% can be acquired in part or whole). The purchase price will be at a price which provides the Investor with an IRR of 20%."

7.12 Thus, it is seen that the terms of the MOU, while casting certain obligations upon Shri Arora, had clauses which would have led to his tremendous
personal gain if he continued with the fund (after winning the bid) and as discussed in the para above, he had every intention to continue with the fund
if his bid was successful. Reckoning the value of ACAML at USD 36 million, Shri Arora was to receive about Rs. 16.50 crores (reckoning Rs. 46/USD).
Thus, Shri Arora would have made an initial personal gain of Rs. 16.50 crores and an additional Rs. 5.50 crores (being the value of vesting principal equity
of 3.33%).

7.13 Shri Arora is arguing that USD 36 million is not the right value for ACAML as a base for the calculation of the benefit that would accrue to him, I
find that Shri Arora himself had indicated a price of USD 32-35 million in his revised bid for ACAML. When the bidding was in progress, Alliance Capital
had demanded a minimum price of USD 36 million for its stake in ACAML. Thus, while one may quibble over the then value of ACAML (which in any
case can only be an estimate), the value of USD 36 million appears to be a reasonable estimate for computing the potential personal gain of Shri Arora.
Thus there is no denying the fact that Shri Arora stood to make substantial personal gain if his bid with Henderson was successful. I do not agree with the
contention that the shares to be vested in his favour could never have been sold. If the shares to be vested are never encashable it would negate the very
purpose of the entitlement.

7.14 I find that SCN of SEBI merely narrates the information obtained by SEBI from Alliance Capital and does not in any way indicate that SEBI has
accepted that mere rumours and speculation in the market and market uncertainty surrounding the potential sale led to the fall in AUM. Shri Arora is trying
to twist the narration of information in the SCN and twist it as SEBI's conclusion that he was not responsible in any manner to the fall in AUM of ACAML.

7.15 It is clear that the fall in AUM of ACAML was not merely due to rumours and speculation regarding the proposed sale, but due to the uncertainty
regarding the continuation of Shri Arora as fund manager. While Shri Arora let the rumours persist without clarifying the matter to the public his team
members added to the confusion and uncertainty by proposing to quit the fund if it was not sold to Shri Arora and Henderson. The persistent rumours about
Shri Arora leaving the Fund and redemption pressures should have normally edged anyone in Shri Arora's place to clarify the matter to the public, so as to
stem the redemption pressure. The fact that he did not choose to do so, corroborates the doubt that he did deliberately induce the redemption pressure and
thus fall in AUM of the fund, to gain a bargaining power as bidder.

7.16 It is true that Shri Arora, like any other employee, has a right to resign; In fact he had an ethical obligation to resign, to avoid conflict of interest;
but Shri Arora did not do so. Instead, he did not make any efforts to deny the rumours and speculations about the impending exit of himself and his team or
to clarify his position to the unit-holders whose interests he claims to uphold.
 7.17 I find that the unit-holders of ACMF were kept in dark regarding the role of Shri Arora in the proposed stake sale. This caused confusion and
uncertainty in the minds of unit-holders regarding the continuation of Shri Arora with the mutual fund.

7.18 On perusal of the Confidential Information Memorandum dated November 2002, of the Blackstone Group it is observed that Shri Samir C Arora's
name figured in the organizational chart of ACAML under the heading Management and Employees. There is no express clause in the
Confidential Information Memorandum indicating that he was not part of the business that they were intending to purchase. Therefore, there is no merit in
the contention that all the bidders were fully aware that Shri Samir C. Arora was not part of the business that they were intending to purchase.

7.19 In support of his claim that he was not part of the sale of the Fund, Shri Arora has contended that all key employees of ACAML other than himself
met and made presentations to the various bidders. Obviously, this team of ACAML included the two analysts who were employees of ACAML (and
belonging to Shri Arora's team and who had indicated their unwillingness to continue with the fund if it was sold to any bidder other than Shri Arora and
Henderson). Non-participation in the presentation need not necessarily mean not being a part of the sale. Shri Arora in his submission dated August 27,
2003 to SEBI, has informed that Shri John Carifa, the then chairman of Alliance Capital offered 2% of gross proceeds received by Alliance Capital as
incentive for assisting smooth transition of assets to HDFC. While the present contention of Shri Arora that no package was offered by Alliance Capital to
him in connection with the proposed stake sale contradicts his earlier stand, the purpose of providing incentive to Shri Arora appears to be a price for his
co-operation.

7.20 Whether the issue of continuance of Shri Arora as fund manager of ACMF post-sale was known to the prospective bidders is itself a moot point. In
such a scenario, by no stretch of imagination can it be said that the issue was crystal clear to everybody including the unit-holders of ACMF whose interests
should have been the paramount consideration of Shri Arora. No inference can be drawn from the fact that Shri Arora did not actually resign from Alliance
Capital since the Alliance Capital had abandoned the proposed stake sale, which, in any case, he was opposed to and Shri Arora continued to work in his
earlier position. I find that Shri Arora has not denied the media reports attributed to him that he threatened to resign if his joint bid with Henderson was not
successful. The above contention confirms the narration of events as contained in SEBI's SCN dated February 20, 2004.

7.21 It may be noted that, Shri Arora's consortium could not have forseen a preemptive bid from some one, at the time of submission of their bid.
However, once HDFC made the pre-emptive bid, Shri Arora did come to know about the preemptive price quoted by HDFC. The same is clear from
Alliance Capital's response to SEBI (as furnished in para 4.1 of SCN) that Alliance Capital advised the other bidders (obviously including the Arora-
Henderson combine) regarding the pre-emptive bid. Shri Arora himself, in his submission to SEBI dated August 27, 2003 has mentioned (at point 10 page
14) that the correct facts / sequence of events to the stake sale proposal was in the week of Jan. 13, 2003 "HDFC Mutual Fund is believed to have made a
pre-emptive bid stating that it was willing to close the deal to acquire ACMF immediately, if the transaction price was close to some specific fixed amount.
It was reported that the amount offered was US$ 36 million." Thus, I find that the present denial of Shri Arora that he had no knowledge of the pre-emptive
price quoted by HDFC is not tenable. That Shri Arora knew the pre-emptive price quoted by HDFC, when the process of bidding was in progress is a fact.
It is neither a presumption nor is it erroneous as is being dubbed by Shri Arora.

7.22 The sequence of events during the proposed stake sale shows that only HDFC revised their bid in response to the fall in AUM. Apparently there was
no downward revision in the bid by Shri Arora and Henderson, in response to the falling AUM. In fact, the only revision in the bid of Shri Arora and
Henderson was upwards i.e. from USD 30-33 million to USD 32-35 million. Hence, the contention of Shri Arora that any fall in AUM will impact all
bidders uniformly is not in consonance with his own actions.

7.23 It is clear from the above that Shri Arora did let the rumours and speculations regarding his and his team's impending exit to persist as the
uncertainty created by such rumours and speculations were to his advantage.

7.24 It is clear that the bid of Shri Arora - Henderson combine was USD 32 - 35 million while the minimum amount sought by Alliance Capital was
USD 36 million. Due to the significant difference in the bid amount of Shri Arora -Henderson combine and that sought by Alliance Capital, the bid of Shri
Arora -Henderson combine was not successful.

7.25 Shri Samir C Arora contended that the statement dated 05.09.2003 of Shri Nikhil John, former CEO of ACAML, was quoted out of context in the
showcause notice. I do not find any merit in the said contention. Shri Arora himself has in his reply relied on the said statement of Shri John and that of
Shri Dhirendra Kumar (as quoted by Shri Johri) to state that the redemption that happened in December and January cannot be attributed to
actions/inactions of Shri Arora but to normal market response to a change in ownership and new management. I note that Shri Arora has also not disputed
the veracity of the statements of Shri Johri and Shri Dhirendra Kumar.

7.26 It is clear from the statement of Shri Johri and Shri Dhirendra Kumar that Shri Dhirendra Kumar was advising the investors of ACMF to switch out
of Alliance Funds due to the uncertainty regarding the continuance of the portfolio manager of Alliance Equity Funds (i.e. Shri Arora) and not due to the
likely change in ownership of ACAML as alleged by Shri Arora.

7.27 The views expressed by Shri Johri refer to the aggressiveness of the portfolio manager of Alliance Equity Funds (i.e. Shri Arora) as perceived by
the market participants. Though no penal provision of law is attracted by the above statements of Shri Johri, the statement of Shri Johri further
confirms the significance of Shri Arora's role in ACMF as perceived by the market. This shows that the contention of SEBI that the significant
redemptions faced by ACMF during the proposed stake sale was due to the uncertainty regarding the continuance of the portfolio manager of equity funds
(i.e. Shri Arora) and not due to the proposed change in ownership, is not without basis.

7.28 According to Shri Arora "it is a universal experience for AUM to fall when there is a proposed change of control over a mutual fund." The universal
truth, however, is that redemption pressure would depend on the perception about the impending new management. Shri Arora has in his reply rightly
observed that the uncertainty regarding the continuance of the fund managers causes nervousness for unit holders. In the case of ACMF, Shri Arora was the
sole fund manager for all the equity schemes of ACMF. Thus it is clear that the unbridled uncertainty of the continuance of Shri Arora was bound to play a
significant role in causing nervousness for the unit holders of ACMF and in fact caused redemption of units and the consequent fall in AUM

7.29 Admittedly, Shri Arora was managing the equity funds of ACMF. He claims to have had no role to play in the management of debt funds of ACMF.
In such a scenario, the rationale for the unit holders of debt funds withdrawing their investment, as stated by Shri Arora, can only be conjectures and
surmises and do not merit any consideration.

7.30 It was a general perception that Alliance Mutual Fund and Shri Samir C Arora were almost synonymous. Hence, the un-denied rumors / reports of
his impending exit from ACMF would have led to redemptions in the fund either from debt or from equity schemes. Further from the presentation made by
Blackstone group to the bidders I find that the image of the Fund was dominated by the perception about fund management of Shri Samir C. Arora.
Therefore, the contention of Shri Samir C. Arora that he was managing only the equity assets of ACMF and not the debt assets of ACMF and therefore any
fall in debt assets cannot be attributed to him is not convincing.

7.31 I find no merit in the argument that there is no material correlation between the fall in the AUM of ACAML and fall in the NAV of the schemes of
ACMF. It is a well known fact that when there is significant and unprecedented redemption pressure and consequent distress/ urgent sale of assets to meet
the redemption pressure, the value realized from such sale of assets would be sub-optimal. It is common that sale of assets under distress condition fetches
much lesser value than what it would have fetched if sold under normal circumstances/ at appropriate time.

7.32 Shri Arora has contented that all the equity schemes of ACMF (except Alliance Buy India Fund Scheme) have outperformed their relevant
benchmark indices. A perusal of the performances of the benchmark indices, as furnished by Shri Arora, himself, reveals that each of the benchmark indices
taken for comparison with the relevant equity schemes of ACMF have given negative returns during the relevant period (December 2, 2002 to January 31,
2003). It is also seen from reply of Shri Arora that all the equity schemes of ACMF (except Alliance Basic Industries Fund, Alliance Capital Tax Relief '96
and Alliance Front Line Equity Fund) have given negative returns to the unit holders during the relevant period. By arguing that the funds managed by him
gave a lesser negative return to the unit holders when compared with their respective benchmark indices, Shri Arora is attempting to show that the unit
holders of ACMF have not suffered losses. The paradox in such argument is obvious and does not deserve any further comment.

7.33 Shri Arora has chosen to compare the performance of certain schemes of ACMF with purportedly comparable schemes of certain other mutual
funds. He has thereby attempted to show that the performance of the funds managed by him was superior to that of purportedly comparable schemes of
such mutual funds. On the other hand, I find that similar comparisons with the schemes of certain other comparable mutual funds show an opposite picture.

7.34 During the period from December 02, 2002 to January 31, 2003, 4 equity schemes of ACMF viz. Alliance 95, Alliance Equity Fund, Alliance New
Millennium Fund and Alliance Buy India Fund showed a decline in their respective NAVs. During the same period the equity fund scheme of HDFC
Mutual Fund, one of the major Mutual Funds in India showed an increase of over 6.5% in the NAV. Similarly the NAV of K Balance Fund of Kotak
Mahindra Mutual Fund showed an increase of over 4%.
 7.35 In the light of the above, I do not find the contention of Shri Arora tenable that the performance of the funds managed by him was superior to that
of other leading Mutual Funds during the referred period.

7.36 Shri Samir C Arora has argued that SEBI itself has envisaged a framework for exit by investors when there is a change in management. The
regulation cited by him is meant to provide an exit option for the unit-holders in the event of any change in the controlling interest of the asset management
company. To cite the said regulation in defence of his deliberate actions/inactions to cause redemption is at best sophistry.

7.37 The example of Zurich Mutual Fund cited is not comparable with the present case. The agreement for takeover of Zurich Mutual Fund by HDFC
Mutual Fund was entered into on March 31, 2003 and the merger actually took place in the month of June 2003. The AUM of Zurich as on March 31, 2003
was Rs. 2685.91 crores and the AUM on May 31, 2003 was Rs. 3312.98 crores. In the case of Zurich, the merger actually happened and post decision of
merger the AUM actually increased whereas in the case of ACMF the proposed stake sale did not take place and there was a fall of 35% in 2 months in the
AUM to the tune of Rs. 1332.32 crores during December 2, 2002 to January 31, 2003 i.e. when the bidding process was active.

7.38 The example of Sun F&C Mutual Fund is obviously not comparable with that of ACMF due to the much smaller AUM of Sun F&C Mutual Fund.

7.39 As discussed in the earlier paragraphs, the conduct of Shri Arora not only led to the decline in the AUM of ACMF but also resulted in steep decline
in the NAVs of various schemes of ACMF thereby adversely affecting the interests of small investors. The argument that the fall in AUM would only
affect the fee payable to Asset Management Company, which will benefit the small investors, whose interests SEBI is expected to protect, is fallacious. The
following table indicates the sudden fall in AUM.

Dated
23,430,686,252.2390
30-May-03
8,281,246,494.2000
16,001,214,811.1705
24,282,461,305.3705

Note: The above AUM does not include the corpus of Term Plans which is launched by ACMF every week on Wednesday.

7.40 As per the computation of SEBI the unit holders of Alliance New Millennium Fund suffered a loss of about Rs. 12 crores and those of Alliance Buy
India Fund suffered a loss of Rs. 3.36 crores during the period from December 2, 2002 to January 31, 2003. Shri Arora in his reply has merely quibbled
over the methodology of computation adopted by SEBI. He has neither indicated alternative methodology of computation nor indicated a figure different
from that given by SEBI. For argument's sake, even if an alternative methodology is applied yielding a lower / higher figure for the losses suffered by the
unit-holders, the liability of Shri Arora for having caused such loss still remains. Hence the reply of Shri Arora lacks any merit.

7.41 As discussed in the earlier paragraphs Shri Arora indeed is found to be responsible for the redemption pressure and the fall in NAV and the consequent
loss suffered by investors. A mere denial of liability of Shri Arora will not suffice. The chain of events relating to the stake sale proposal of Alliance Capital
has been set out in the SCN in a chronological manner and not in any special manner as insinuated in the reply of Shri Arora.

7.42 The role played by Shri Arora in 'thwarting' the plan of Alliance Capital to sell ACAML has been discussed elaborately in earlier paragraphs and do
not require repetition. The 'selfish motive' of Shri Arora has been brought out clearly in the form of personal gain (in terms of crores of rupees) he stood to
make if his bid along with Henderson was successful. These charges are not vague and incoherent as alleged in the reply of Shri Arora.

7.43 Shri Arora did play a role in causing uncertainty and confusion in the minds of investors relating to his continuance. Such uncertainty and confusion
resulted in unprecedented and large scale redemptions by the unit-holders which in turn resulted in loss in NAV and consequent losses to the unit-holders. I
find the allegations of SEBI logical and supported by adequate evidence. From the aforesaid discussion, I do not concur with the contention that Shri Arora
had no role to play in the events relating to the proposal of stake sale by Alliance Capital.
7.44 I find that there is an inherent flaw in the denial by Shri Samir C Arora of conflict of interest on the ground that his bidding was done transparently and
after informing the management of Alliance Capital. As a Fund Manager, it was paramount responsibility of Shri Samir C. Arora, to enhance the AUM of
the mutual fund for the benefit of the Unit holders. However, in contrast, in his role as a bidder, his interest would have been to acquire the fund at the
cheapest possible price. From the subsequent events it is observed that by his actions/inactions, Shri Samir C Arora has let the AUM fall, knowing that the
valuation of the AMC depend on AUM, so as to achieve his selfish objective of acquiring the fund along with Henderson at a lesser price and in the process
he has compromised his position of fiduciary responsibility with unitholders and the sponsor. Therefore, there can be no doubt that the acts of Shri Samir C.
Arora were directly in conflict with his interest as a Fund Manager. In consonance with the well recognized ethical principles, Shri Samir C Arora should
have resigned as Fund Manager of ACMF before proceeding to bid for buying the stake in ACAML to avoid any conflict of interest. ACAML, too, should
have sought his resignation before submission of his bid along with Henderson.

7.45 Having bid for the stake of Alliance Capital in ACAML, it is strange on the part of Shri Arora to claim that he was never a part of the sale process. He
did tie up with Henderson and bid for ACAML. He did inform the management of Alliance Capital about his bid. Apparently, the other bidders were also
kept informed about the fact that Shri Arora has made a bid for ACAML along with Henderson. Whether he had any direct or personal interactions with the
persons (whether belonging to Blackstone group who were the merchant bankers or the management of Alliance Capital or with other bidders) involved in
the sale process does not have any bearing on the charges leveled against Shri Arora.

7.46 The parallel sought to be drawn between Shri Arora's bid (along with Herderson) for acquiring ACAML and "Employees' Stock Option"/ 'Management
Buy Out" smacks of perversity, designed to distract. While the Employees Stock Option is an option granted to employees of a company to buy its shares as
a part of incentive scheme to align the interest of employees with those of the shareholders, 'Management Buy Outs', which began in the USA during 1960s
and gained currency elsewhere refers to a corporate finance activity whereby the existing 'management' with outside financial backing/ leveraging buy the
business, in certain circumstances like impending bankruptcy of the company or its parent; death of the current owner (promoter), privatization, etc. Viewed
in the light of the facts of the instant case, Shri Arora's bid to buy ACMF, in terms of motive and intent, is, in my view, incomparable either to the exercise
of Employees' Stock Option or to management buy out plan. In any case, I find that Shri Arora's bid for acquiring ACAML is itself not being questioned
and what is called into question is the conduct of Shri Arora, as a professional fund manager, in the matter of the said bidding.

7.47 I find that During December 2002 - January 2003 when the bidding process for ACAML was in progress no clarification of any sort regarding the
position of Shri Arora and his role in the stake sale process was given to the unit-holders. There were media rumours and speculations resulting in
uncertainty. I find that if the position of Shri Arora in the context of stake sale proposal was clarified, there should not have been any confusion in the minds
of unit-holders of ACMF.

7.48 As contended by Shri Samir C Arora, I do not find anything in the SCN to indicate that the interim actions against Shri Arora were taken based on
press and media reports rather than on specific facts ascertained pursuant to detailed investigations. The first para of SEBI's SCN dated Feb. 20, 2004,
merely states the background in which the investigations were initiated. When the investigations were in progress it became apparent to SEBI that Shri
Arora had, prima-facie, violated the provisions of SEBI Act, Rules and Regulations made there-under. Considering the gravity of the violations committed
by Shri Arora and the emergent need to protect the interest of investors from further harm, likely to be caused by continued dealings of Shri Arora, interim
directions as deemed appropriate at that time were passed by me, pending further investigations.

7.49 Shri Arora is now attempting to belittle his role in ACMF by claiming that he was managing over USD 1 billion in equity assets of nine Asian
countries and the assets of ACMF were only about USD 250 mn thereby insinuating that the Indian portfolio was only a small portion of the total funds
under his management. However, the fact that Shri Arora had bid for the stake of ACAML and was willing to re- locate to India to manage the funds of
ACMF, if his bid along with Henderson was successful, shows that the Indian portfolio and ACMF formed a significant part in the scheme of things of Shri
Arora.

7.50 While Shri Arora has made a mountain out of a mole hill regarding the manner in which an isolated statement of his is found to have been recorded, he
has not denied the veracity thereof. In any case, I do not find any need to rely upon it. There are enough evidence otherwise to show that he stood to gain
substantially from his joint bid along with Henderson.

7.51 I find that in terms of regulations 2(1) (e) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ACMF and ACM are persons
acting in concert. Further, I also find that Shri Arora manages the funds belonging to the ACMF and ACM. Therefore, their shareholding in various
companies are to be aggregated inter alia for the purposes of disclosure requirements under the SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations, 1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992. Hence, the contention of Shri Arora that ACMF, Alliance Capital and its
FIIs and sub-accounts are not persons acting in concert is not tenable.

7.52 The submissions referred to by Shri Arora in his reply probably refer to his submissions dated Aug. 27, 2003 to SEBI. The referred submissions of Shri
Arora were made in response to an earlier proceedings and not with reference to the present SCN of SEBI. In any case, I do not find any merit in the
arguments contained in the said submissions with regard to the instant charge. The charge relates to the role of Shri Arora in the non-disclosures / wrongul
disclosures made by ACMF under the Takeover Regulations and Insider Trading Regulations and does not deal with the reporting relationship of the
compliance officer with the fund manager.
7.53 I find that Shri Samir C Arora was the only person who was aware about the combined share-holding of ACMF and ACM in various companies.
Further, it is also observed that Shri Samir C Arora has failed to disclose the combined shareholding of ACMF and funds belonging to ACAML. The
aforesaid failure on the part of Shri Samir C Arora has resulted in inadequate disclosures by the ACAML in terms of SEBI (Substantial Acquisition of
shares and Takeovers) Regulations, 1997 and SEBI (Prohibition of Insider Trading) Regulations, 1992.

7.54 I agree that under any provisions of securities law, compliance requirements was not the fund manager's responsibility. However, I note that Shri Samir
C. Arora being key personnel of a mutual fund should have conducted himself professionally and ensure complance with the Mutual Fund Regulations in
letter and spirit. Hence, the contention of Shri Arora that there is no basis for levying such a charge against him is not tenable.

7.55 In the above reply, Shri Arora himself has stated, rightly so, that the presumption of persons deemed to be acting in concert is rebuttable. In the
absence of rebuttal, SEBI is entitled to presume that the said entities are acting in concert. Shri Arora's attempt to cast the obligation on SEBI to positively
show that the said entities were persons deemed to be acting in concert does not stand scrutiny.

In any case, as seen from the succeeding paragraphs, SEBI indeed has shown the said entities as persons acting in concert.

7.56 I note that Shri Arora was taking investment decisions on behalf of ACMF and various FIIs/sub-accounts belonging to ACM. Thus, it goes without
saying that Shri Arora was aware of the holdings in various scrips of ACMF and the FII/sub-accounts on whose behalf he was making investment decisions.
Being aware of the holdings in various scrips by the individual holdings, calculation of combined holdings requires simple addition, which, I presume, is
not beyond Shri Arora's capacity.

7.57 I note that while quoting the SEBI's letter dated 30.5.2001 to ACAML, Shri Arora has conveniently ignored the last sentence of the said
communication, which reads 'However, please note that the Takeover Regulations should be complied with in letter and spirit.' I note that the clarification
of SEBI would not hold good if the conditions subject to which such claritification was given is not adhered to. It is a fact that Shri Arora was managing the
investment management functions of both ACMF and the FII/sub-accounts belonging to the associate of sponsor.

7.58 Shri Arora has claimed that there was indeed a Chinese wall between the compliance function and Shri Arora's fund management operations. I find
that this contention of Shri Arora is only an attempt to divert attention from the charge of SEBI that there was no Chinese wall between the fund
management operations of ACMF and the affiliates of the sponsor of ACMF.

7.59 While it is true that primarily it is the responsibility of ACAML and ACM to comply with the disclosure requirement in terms of SEBI (Substantial
Acquisition of Shares and Takeovers) Regulations and SEBI (Prohibition of Insider Trading) Regulations, Shri Samir C. Arora cannot be totally absolved of
his responsibility as a professional and a key functionary to advise the ACAML and ACM to comply with the regulatory requirements. I have noted that
adjudication proceedings have already been initiated against ACM and ACAML for the said violations. In view of this I do not consider it necessary to give
conclusive finding in these proceedings on violation of the provisions of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations but hold
Shri Samir C. Arora guilty of professional misconduct for the reasons stated above.

7.60 It is true that the code of conduct as specified in the MF regulations is applicable to the mutual funds, the AMC and the Trustees. However, the various
acts of omission and commission by Shri Arora resulted in the violation of code of conduct by the said entities. Hence Shri Arora cannot escape
responsibility stating that the code of conduct is not applicable to him. The compliance of the Regulations by the Mutual Fund inter alia depends on the
honest discharge of duties by the persons in key positions in the Fund. Shri Samir C Arora, being in the key position as a fund manager is guilty of
professional misconduct.

7.61 Clause 1 of Code of Conduct in terms of Fifth Schedule to the SEBI (Mutual Funds) Regulations 1996 mandates that Mutual fund schemes should not
be organized, operated, managed or the portfolio of securities selected, in the interest of sponsors, directors of asset management companies, members of
Board of trustees or directors of trustee company, associated persons as in the interest of special class of unit-holders rather than in the interest of all classes
of unit-holders of the scheme. Shri Samir C Arora was managing the equity portfolio of ACMF and at the same time he was also managing the Indian
allocation of FII/sub-accounts belonging to ACM. While doing so, he managed the portfolio of securities in the interest of sponsors and to the detriment of
the unit-holders of ACMF, thereby he aided and abetted the violation of the above clause by the trustees and Asset Management Company of ACMF.

7.62 Clause 4 of Fifth Schedule of Code of Conduct states that Trustees and asset management companies must avoid conflicts of interest in managing the
affairs of the schemes and keep the interest of all unit-holders paramount in all matters. In bidding for the stake of ACAML in collaboration with
Henderson, Shri Samir C Arora placed himself in a position of conflict of interest and thereby, he aided and abetted the violation of Clause 4 by ACAML
and ACAM Trust Co Ltd.

7.63 Shri Samir C Arora's aforesaid conduct in aiding and abetting the Trustees and AMC of ACMF in violating the various provisions of SEBI (Mutual
Funds) Regulations 1996, citied above is detrimental to the interest of investors and the orderly development of the Securities Market.
 7.64 SEBI has already initiated Enquiry proceedings against Alliance Capital. Hence I do not find any merit in the contention of Shri Arora that SEBI
has entirely blamed only Shri Arora. Alliance Capital, if found guilty of violating Mutual Fund Regulations shall be penalized in accordance with the law.

7.65 From the aforesaid discussions and several instances of actions or inactions on the part of Shri Samir C. Arora (as narrated above) it becomes
abundantly clear that Shri Arora is guilty of grave professional misconduct which calls for prompt remedial action from SEBI under Sections 11(4) and
11B of the SEBI Act to protect the interests of investors and integrity of the Indian securities market. SEBI shall be failing in its bounden duty if it does not
take note of such professional misconduct and take appropriate action.

Second issue:

8.1 Whether Shri Samir C Arora is guilty of violating the provisions of Regulation 4(a), 4(b), 4(c), 4(d) and 5 of SEBI (Prohibition of Fradulent and
Unfair Trade Practices Relating to Securities Market) Regulations, 1995 ?

8.2 Shri Samir C Arora contended that the terms 'significant holding' and 'low floating stock' are vague and subjective terms. In my considered view
the term 'significant holding' needs to be seen in relevant context. For instance SEBI (Prohibtion of Insider Trading) Regulations 1992 considers 5% share-
holding as significant share-holding and a 2% variation as significant variation in holding. SEBI (Substantial Acquisition of Shares and Takeovers)
Regulations 1997 considers various shareholdings such as 5%, 10%, 15% etc. as significant. Similarly 'low floating stock' also requires contextual
interpretation. In the context of the charges against Shri Arora, the terms 'significant holding' and 'low floating stock' have been used to show that the fund
managed by Shri Arora had a substantial percentage of the floating stock of the said companies and was in a position to influence the market trading (both
prices and traded volumes) of the respective scrips.

8.3 Shri Arora has contended that all the charges in relation to these stocks relating to the purported benefits being conferred on the offshore funds to
the detriment of the domestic mutual fund, are levelled in hindsight. However I find that the said charge has been made upon analysis of trading pattern,
which reveals such a bias. Hence, there is no merit in the contention of Shri Arora that the charges have been levelled in hindsight. Whether Shri Arora
had such thought processes (of benefiting the investors of sponsor funds to the detriment of unitholders of ACMF) while making the investments on
behalf of off-shore funds and ACMF can only be determined from the analysis of his trading pattern. Such an analysis by SEBI does reveal numerous
instances wherein Shri Arora had dealt in various scrips in a manner that favoured the investors of off-shore funds (associates of sponsor of ACMF) to the
detriment of the unit-holders of ACMF.

8.4 Whether Shri Arora was offered differential compensation aimed at selectively helping the performance of the so-called sponsor/FII funds or
whether he was compensated in any other manner does not seem to be relevant. Whereas the trading done by Shri Arora in various scrips on behalf of off-
shore funds and ACMF is a bare fact and the actual figures relating to such trading incontrovertibly show that the trading pattern of Shri
Arora did benefit the investors of FII/sub-accounts who were the associates of sponsor to the detriment of the unit-holders of ACMF.

8.5 With regard to the contentions of Shri Samir C Arora regarding market impact of transactions done by him, it must be clarified that the correct
comparison would be between the opening price on Sep. 6, 2001 (i.e. the date of commencement of sale of BTL shares by funds managed by Shri Arora)
and the closing price on Sep. 11, 2001 (i.e. the date of completion of sale by Shri Arora). Since, in the normal course, there is negligible difference in prices
between NSE and BSE, with a view to avoid citing too many numbers and thus maintain clarity in the discussions, the prices on NSE alone have been
reckoned to examine the impact of above trades.

8.6 On Sep. 6, 2001, ACMF and ILF had together sold 4,15,600 shares of BTL. The price of the scrip of BTL which opened at Rs. 223/- and touched a
high of Rs. 229/- at NSE on Sep. 6, 2001, closed at a much lower Rs. 216.75. Thus, it is incorrect to say that the selling by Alliance Capital did not depress
the price of the scip.

8.7 On September 11, 2001, ACMF and ILF together sold 2,19,700 shares of BTL. The price of the scrip on NSE on Sep. 11, 2001 opened at Rs.
220.10, touched a high of Rs. 229.40; but closed lower at Rs. 226.55. Thus, the sale by ACMF and ILF did depress the price of the scrip.

8.8 Delivery based transactions impact the price of a scrip in a significant manner as compared to square off transactions. Hence, it is pertinent to
compare the trades by Shri Arora with the delivered quantities on the exchanges on the respective dates. Only a small portion of shares traded in the market
get delivered. Hence it is clear that the sales by ACMF and FII sub-accounts of Alliance Capital constituted a significant portion of the market delivered
quantities on Sep. 6, 2001 and Sep. 11,2001.

8.9 It is clear that the sales by funds managed by Shri Arora did form a significant portion of the market delivered quantity and these sales cannot be
ignored as being insignificant. Shri Arora himself has in his submissions (page 30 - table containing summary of factual allegations) admitted that SEBI has
not mentioned the name of the seller on Sep. 19, 2001. He himself has wrongly inferred that SEBI has meant that NTC or any FII/sub-account has made the
sale on Sep. 19, 2001 and has taken pains to deny the same. SEBI is aware that the seller on Sep. 19, 2001 was indeed ACMF.

8.10 While Shri Arora has taken pains to point out that the purchase on Sep. 19, 2001 was on behalf of ACMF and the sponsor funds (i.e. NTC) purchased
later (i.e. on Sep. 26 & 27, 2001), he has conveniently failed to mention that while the purchase on behalf of ACMF was done by him at Rs. 186.42, the
purchase on behalf of NTC on Sep. 26 & 27, 2001, have been done at Rs. 174.50 and Rs. 174.68 respectively. Thus the purchase on behalf of the sponsor
fund has been done by Shri Arora at a substantially lower price (the price differential works out to about Rs. 12/- per share). This must be looked at in the
context of a total 5,71,778 shares of BTL were purchased by ACMF and the FII taken together during Sep. 19, 26 & 27, 2001. Elementary mathematical
calculation shows that the acquisition cost of BTL shares for FII / sub-accounts is lower by a few lakhs rupees when compared to the acquisition cost of
ACMF.

8.11 Further, it is essential to examine the trading pattern over the entire period cited by SEBI i.e. From Sep. 6, 2001 to Oct. 10, 2001 in totality, to arrive at
a conclusion regarding any bias in favour of FII/sub-accounts to the detriment of ACMF. In this context I note that on Sep. 6 and 11, 2001, ACMF and FII
sub-accounts have together sold 6.35 lakhs shares of BTL at prices ranging from Rs. 220.53 to Rs. 227/-. The price of the scrip fell. Thereafter, while
ACMF purchased 3.92 lakhs shares of BTL at Rs. 186.42 on Sep. 19, 2001 and NTC purchased 1.80 lakhs shares of BTL at about Rs. 174.60 on Sep. 26
and 27, 2001. Thereafter on Oct. 8 and 10, 2001, Shri Arora purchased 40,000 shares and 1,50,000 shares at Rs. 181.80 and Rs. 212.40, on behalf of ACMF.
Thus, it is seen that the purchases on Sep. 19, 2001, Oct. 8 and 10, 2001 on behalf of ACMF have been at significantly higher prices than those on behalf of
NTC on Sep. 26 and 27, 2001.

8.12 The above trading pattern shows that ACMF and sponsor FII/sub-accounts initially sold the shares of BTL. Such sale did depress the price of scrip.
Thereafter the sponsor FII/sub-account have purchased back the shares at a price much lower when compared to that at which ACMF bought back the
shares. Therefore, I do not find any merit in the denial of Shri Arora.

8.13 The impact of sale or purchase on any day ought to be examined by comparing the opening, high, low and closing price on the exchange (say, NSE) on
the same day (of course with due regards to the percentage of concentration of such purchase or sale compared to the market quantities). I find that the scrip
of BTL on Sep. 19, 2001 opened at Rs. 179, reached a low of Rs. 163/-, touched a high of Rs. 190.30 and closed at Rs. 187.05. Thus, the price of the scrip
did close higher on Sep. 19, 2001 when compared to the opening price on the day. Even if Shri Arora's inappropriate technique of comparing with the
previous day's closing price is reckoned for analysis, I note that the scrip closed at Rs. 176.20 on Sep. 18, 2001; thus, the closing price on Sep. 19, 2001 was
any way higher than the opening price on that day (or the closing price on the previous day). This shows that the above contention of Shri Arora that the
price continued to fall despite his purchase is not correct and misleading.

8.14 The assets under management under the equity schemes of ACMF on January 15, 2003 and January 31, 2003 (which was a Friday) were Rs. 1002.13
crores and Rs. 839.78 crores. During this period i.e. from Jan 15, 2003 to Jan 31, 2003 there was a steady decline in the AUM of equity schemes of ACMF.
Assuming, for the sake of argument, that the sales of HTMT shares during Jan. 16 to 29, 2003 were done indeed to meet the redemption pressure, as
contended by Shri Arora, I note that the funds available to Shri Arora for investment on behalf of ACMF on Feb. 3, 2003 (which was a Monday) were lower
than that on Jan. 16, 2003 when he sold the shares of HTMT purportedly to meet the redemption pressure. Hence, the reason preferred by him for the
reversal of his earlier decision and the purchase on Feb. 3, 2003 does not appear to be credible.

8.15 Delivery based transactions impact the price of a scrip in a significant manner as compared to square off transactions. Hence, it is pertinent to compare
the trades by Shri Arora with the total delivery on the exchanges on the respective dates. Accordingly, a comparison of the trades by Shri Arora with the
delivered quantity on NSE reveals the following: On Jan. 24, 2003, ACMF sold 24, 000 shares of HTMT constituting 6% of the market delivered quantity.
On Jan 27, 2003, ACMF sold 20,000 shares of HTMT constituting about 5% of the market delivered quantity. On Feb. 3, 2003, the purchases by the funds
managed by Shri Arora, totaling 3,28,000 shares, constituted as much as 45% of the market (BSE+NSE) delivered quantity of 7,30,125 shares. Thus, the
trades by the funds managed by Shri Arora in the scrip of HTMT, on the above dates, is not insignificant as contended by Shri Arora.

8.16 On certain of the above dates, the sale by Shri Arora as a percentage of the market delivered quantities were indeed small. In this context, I note that
the media routinely publicize information regarding institutional purchases and sales in various scrips. The continuous sale by Shri Arora during the period
from Jan. 16 to 29, 2003 (in significant quantities on certain dates) would also get reported as sales by Mutual Fund thereby resulting in a negative
influence on the price of the scrip. Hence, the contention of Shri Arora that his above sales were not significant enough to send a negative price signal does
not have any merit.
8.17 I find it is pertinent to compare the trades by Shri Arora with the total delivery on the exchanges on the respective dates. Compared to the delivered
quantities on NSE and BSE, the sale of 1,75,000 shares of Mastek by ACMF on Jul. 25, 2002 constitutes 39.14% of the market delivered quantity of
4,47,135 shares, which is definitely not miniscule as contended by Shri Arora.

8.18 The market (BSE+NSE) delivered quanities in the scrip of Mastek on Jul. 29, 30 & 31, 2002 were 2,94,219 shares, 3,88,162 shares and 4,15,245
shares respectively. The purchase of 1,00,000 shares, 2,00,000 shares and 2,20,000 shares by ACMF and FII sub-accounts on Jul. 29, 30 & 31, 2002
respectively constitutes 34%, 52% and 53% of the said delivered quantities on the market. The above purchases by funds managed by Shri Arora is not
miniscule as contended by Shri Arora.

8.19 As regards the actual impact on price Shri Arora has cleverly compared the closing price on Jul. 25, 2002 with the closing price on previous day; while
the correct comparison would be between the opening and closing prices on Jul. 25, 2002. It is seen that the scrip opened at Rs. 368.95 on Jul. 25, 2002 and
touched a high of Rs. 384.75 before closing at a much lower price of Rs. 373.60. I do note that the closing price on Jul. 25, 2002, was slightly higher
compared to the opening price albeit by a marginal 1.2%; but it cannot be ignored that the scrip of Mastek had risen significantly (by about 4.3%) during
the intra day trade on Jul. 25, 2002 and the closing price was depressed by the huge quantities sold (constituting about 40% of the market delivery) by Shri
Arora on behalf of ACMF.

8.20 Whether the sale on Jul. 25, 2002 was done with a view to hide the intention to acquire these shares at a subsequent date, at a lower price, can only be
determined by examining Shri Arora's subsequent behaviour i.e. whether indeed he purchased back the shares at a proximate date. I find that this was
indeed the case. Shri Arora did buy back the shares of Mastek on dates proximate to Jul. 25, 2002. Shri Arora has bought back the shares on Jul. 29, 30 &
31, 2002. Significantly these shares were indeed bought back (on behalf of both ACMF and off-shore funds) at lower price (Rs.323 to Rs. 358/-) when
compared to the price at which ACMF had sold these shares earlier (at Rs. 372.32 on Jul. 25, 2002).

8.21 I note that between Jul. 25, 2002 when Shri Arora had sold the shares of Mastek (on behalf of ACMF) and Jul. 31, 2002 when he had subsequently
bought back the shares, the price of the scrip had fallen from Rs. 368.95 to Rs. 349.85. Hence I find the claim of Shri Arora that the price in fact moved up
and profits were made is false and baseless. In this scenario, whether he did diligently discharge the mandate and duty of a fund manager to ensure the best
interests of the unit-holders is a moot point.

8.22 Shri Arora has claimed that the price does not react to the purchases made by him since despite purchases between Jul. 29 and 30, 2002, the price
continued to fall. Hence, he claims, that the sales or purchases effected by him did not have a corresponding impact on the price. I find that on NSE the
scrip of Mastek opened at Rs. 355.30 on Jul. 29, 2002 and closed at Rs. 362.95 (High and low prices were Rs. 366.95 and Rs. 351.25). Thus, on Jul. 29,
2002, the price indeed went up by 2.15%. On Jul. 30, 2002 the scrip opened at Rs. 371/- and closed at Rs. 352.35 (High and low prices were Rs. 376/- and
Rs. 346.70). I note that there was significant selling pressure in the scrip of Mastek on Jul 30,2002 as evidenced from the fact that the scrip which had
opened at Rs. 371/- had touched a low of Rs. 346.70 ( a fall of 6.5%). However, the scrip recovered from the above low price and closed higher at Rs.
352.35. It is clear that the scrip has moved down when Shri Arora has sold on Jul. 25, 2002 and moved up when he purchased on Jul. 29 and 30, 2002.
Hence I do not find any merit in the contention of Shri Arora that the sales or purchases effected by him did not have a corresponding impact on the price.
Consequently, the charge of moving the price upwards or downwards cannot be said to be baseless.

8.23 It is stated that SEBI regulations do not prohibit, selling in a day when purchase is made earlier in the day. This again is a devious argument. While
intra-day delivery based buying and selling of a scrip by a Mutual Fund is unobjectionable, what is queer to note is that Shri Arora has sold 50,000 shares of
Mastek on net basis on behalf of ACMF while he has purchased 2.50 lakhs shares on behalf of off-shore funds on the same day. Thus there was obvious
contradiction of view taken by him while making trading decisions on behalf of ACMF and the offshore funds.

8.24 While ACMF purchased 1.50 lakhs shares and sold 2.0 lakhs shares of Mastek on Aug. 23, 2002, the off-shore funds bought 3 lakhs shares and sold
50,000 shares on the same day. In view of the fact that ACMF has sold much larger quanities (4 times that of off-shore funds), it is misleading to compare
the absolute profits earned by ACMF with that of off-share funds and reach a conclusion that ACMF benefited more than the off-shore funds.

8.25 The funds managed by Shri Arora (i.e. ACMF and the off-shore funds) had bought and sold huge quantities of the shares of Mastek on the same date
i.e. Aug. 23, 2002. On gross basis, the above trades of the entities managed by Shri Arora constituted as much as 97% of the delivered quantities on the
market. In other words, if these trades on excluded the deliverable quantity in the market is negligible. On a net basis, one entity (ACMF) had a sale
position while other entities (off-shore funds managed by Shri Arora) had a purchase position. At least a portion of the deliveries received by the off-shore
funds had to be from the deliveries given by ACMF (albeit through the exchange settlement mechanism). Thus, there was indeed creation of artificial
trading volumes caused by the trades of Shri Arora on behalf of various entities managed by him.

8.26 I agree that both mutual funds and FIIs can trade only on a delivery basis and have to deliver or take delivery of every single sale and purchase made
by them. However, this would not be a constraint for Shri Arora as ACMF and off-shore funds had the necessary shares (as Aug. 22, 2002, ACMF and the
off-shore funds together held 9.57 lakhs shares of Mastek representing about 7% of the equity capital of Mastek) and funds for delivery. The above has
been cited as an example to show that the requirement of giving and taking delivery for every single purchase and sale could have been a constraint for Shri
Arora since the entities managed by him had the requisite shares as well as funds.
8.27 Sale by a fund manager with a view to book profits when price of a scrip has increased is understandable. It is surprising that on Oct. 1, 2002 and Oct.
3, 2002, Shri Arora sold 4.60 lakhs shares and 1.85 lakhs shares respectively of Mastek on behalf of ACMF and FII/ sub-accounts citing the reason that
price had fallen. Even if it is presumed that such sale made on October 3, 2001 at about Rs. 381/- as a stop loss measure, then the subsequent purchase of
the same shares the very next day i.e. October 4, 2002 at an even higher price of Rs. 388-389/- does not stand to reason, notwithstanding the research report
by an analyst who was a member of the team led by him.

8.28 Further, while the sale on Oct. 3, 2002 was made only by ACMF, the shares were bought on Oct. 4, 2002 by both ACMF and PACs. While the sale on
Oct. 1, 2002 and Oct. 3, 2002 constituted 74% and 42% respectively of the market delivered quantities of 6,20,087 shares and 4,37,956 shares, the
purchases on Oct. 4, 2002 by ACMF and the off-shore funds managed by Shri Arora constituted about 76% of the market delivered quantity of 8,76,714
shares. Hence, the argument that his trades were miniscule and there was no creation of artificial volume is not acceptable.

8.29 It is pertinent to compare the trades by Shri Arora with the total delivery on the exchanges on the respective dates. In this context, I also note the
earlier contention of Shri Arora that the entities managed by him (i.e. Mutual Fund and FII/ sub-accounts) had to necessarily give and take delivery of every
single purchase and sale made by them.

8.30 The total delivered quantities on the market (BSE and NSE taken together) in the scrip of Mastek on Aug. 23, 2002 were 7.22 lakhs shares. I observe
that the entities managed by Shri Arora on Aug. 23, 2002 together bought and sold 6.50 lakhs which constituted as much as 97% of the delivered quantities
on the market. While the sale on Oct. 1, 2002 and Oct. 3, 2002 constituted 74% and 42% respectively of the market delivered quantities of 6,20,087 shares
and 4,37,956 shares, the purchases on Oct. 4, 2002 by ACMF and the off-shore funds managed by Shri Arora constituted about 76% of the market delivered
quantity of 8,76,714 shares. Hence the contention of Shri Arora that the contribution to the volumes by the impugned transactions (i.e. on Jul. 25, 29, 30
and 31, 2002, August 20, 22 & 23, 2002, Oct. 1, 3 & 4, 2002) is far too minor and therefore, the allegation relating to purported creation of artificial
volumes simply cannot be levelled, is not tenable.

8.31 The contention of Shri Arora that the price of the scrip of UPL steadily moved up during the period from Oct. 1, 2002 to Oct. 18, 2002 is factually
wrong. On October 1, 2002, the price of UPL on NSE opened at Rs. 154.60 and closed at Rs. 153.25. On October 18, 2002, the scrip opened at Rs. 172.55
and closed at Rs. 168.75. In fact during the period Oct. 1 to 18, 2002, only on three trading days (Oct. 7, 8 & 10, 2002), the price of the scrip closed higher
that its opening price on the respective days. The factual mistake of the contention of Shri Arora apart, the relevant portion of the SCN points to the
apparently contradictory investment stance taken by Shri Arora when, on Oct. 10, 2002 he sold 2.84 lakhs shares at Rs. 174/- held by ACMF while he
simultaneously bought 1.00 lakhs at Rs. 162.22 on behalf of ILF. Pointing to the price trend (that too incorrectly) over a period of 18 days (9 days before
and 8 days after) does not negate the apparent contradiction cited above.

8.32 With regard to the dealings by funds managed by Shri Arora on Oct. 10, 2002, I note that the sale of 2.84 lakhs shares by ACMF constituted as much
as 28% of athe market delivered quantity of 10,29,331 shares. When considered along with the purchase of 1.00 lakhs shares by ILF, the trades by the
entities managed by Shri Arora (ACMF and ILF) together constituted as much as 37% of the market delivered quantity. The actual price movement on NSE
on Oct. 10, 2002 also bears testimony to the impact of such a large sale and purchase by ACMF and ILF respectively. On Oct. 10, 2002 while the scrip
opened at Rs. 154.85 on NSE, touched a high of Rs. 179.95; the price fell to Rs. 153/- before recovering to close at Rs. 175.40.

8.33 I also note that Shri Arora in his reply has cleverly dealt with the price impact of the net sale position of ACMF and the off-shore fund taken together
(by netting off the purchase and sale position) in stead of reckoning the gross trades which would have truly revealed how significant (as shown in the
earlier paragraph) the quantities bought and sold by ACMF and ILF were compared to the market quantities.

8.34 Shri Arora has claimed that the sale of UPL shares on various dates during December 2002 to January 2003 were aimed at meeting the redemption
pressure and was part of the orderly liquidation of assets in schemes where there were redemption requests. I note that these UPL shares have been sold
from the portfolio of Alliance Equity Fund, Alliance Frontline Equity Fund and Alliance 95 schemes. However, the above-mentioned three schemes of
ACMF have during the same period (i.e. December 2002 to January 2003) purchased 1.64 lakhs shares of Mastek. Thus, the contention that the sale of UPL
shares were aimed at meeting redemption pressure is not tenable.

8.35 I note that, during December 2002 to January 2003, over a period of 14 trading days, ACMF sold about 2.72 lakhs shares of UPL at prices ranging
from Rs. 173.75 to Rs. 137.23. Compared to the market delivered quantities, the sale by ACMF constituted 1.09% to 62.95% on various dates. In 10 out of
the said 14 trading days, the sale by ACMF constituted over 10% of the market delivered quantity. Hence, I do not find the contention of Shri Arora that
compared to the market quantities the sale by ACMF was negligible, tenable.

8.36 As regards price impact of such sales by ACMF, I note that during December 2002 to Jan. 2003, the price of the scrip of UPL on NSE declined from
Rs. 187.10 to Rs. 134.65 i.e. a decline of about 28% in 2 months. On December 1, 2002, ACMF and ILF together held 19.80 lakhs shares of UPL
constituting 7.77% of the capital of UPL. It is apparent that sale of large quanitities of shares of UPL (as demonstrated earlier) by a significant share-holder
viz. Alliance Capital, contributed to the fall in the price of the scrip. Hence the contention of Shri Arora that there was indeed no impact on the price owing
to these sales is not tenable.
8.37 From the above trading pattern in the said five scrips it is seen that Shri Samir C Arora has indulged in manipulative transactions, inter alia, with the
intent to artificially inflate/depress the prices of the scrip, to create false / misleading appearance of trading in the scrips in various scrips over a period of
time and thus violated Regulation 4(a), 4 (b), 4 (c) &4 (d) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices relating to Securities Market)
Regulations, 1995, which read as follows:

"No person shall -

(a) effect, take part in or enter into, either directly or indirectly, transactions in securities, with the intention of artificially raising or depressing the prices of
securities and thereby inducing the sale or purchase of securities by any person ;

(b) indulge in any act, which is calculated to create a false or misleading appearance of trading in the securities market;

(c) indulge in any act which results in reflection of prices of securities based on transactions that are not genuine trade transactions;

(d) enter into a purchase or sale of any securities, not intended to effect transfer of beneficial ownership but intended to operate only as a device to inflate,
depress or cause fluctuations in the market price of securities."

8.38 Further it is to be examined whether the statement of Shri Arora in an interview to Business Standard dated May 5, 2003 was misleading or not. I note
that in the said interview with Business Standard, in response to a query, "What is your allocation to tech stock and how do you find the valuations?", he
inter alia replied "Digital Globalsoft - as per market rumours - may merge with HPISO in India, which will make it the sole subsidiary of a USD 70 billion
plus IT company and therefore, be the obvious beneficiary of all the business that the parent can send to India, plus its normal business". I find that his
statement does not merely point out that a merger of DGL with HPISO was likely but also conveys a favourable view about the prospects of DGL post-
merger.

8.39 Presuming for a moment that he did make the above statement in good faith, the issue of what prompted him to change his opinion 3 days later (as
evidenced by his sale commencing May 8, 2003) needs to be addressed. The market definitely did not come to know of any adverse development relating to
DGL during the period May 5, 2003 to May 7, 2003 as evidenced from the fact that the price of scrip (NSE) opened at Rs. 531.35 on May 5, 2003 and
closed at Rs. 597.25 on May 7, 2003. (I note that Shri Arora has in a later part contended that the interview was actually given on April 30, 2003 though it
was published on May 5, 2003. Even if the prices on April 30, 2003 is reckoned, I note that the price of DGL has increased from Rs. 531.35 on April 30,
2003 to Rs. 597.25 on May 7, 2003 and thus the position does not change).

8.40 I find that when a journalist posed a general query to Shri Arora on his allocation to Tech stock and how he finds the valuations, he stepped out of
context and brought the demerger issue of DGL. He went on to narrate the merits of the de merger with a motive of profit as he had a significant holding of
DGL in the portfolio managed by him. Admittedly he was selling the shares of DGL for the past several months and continued to do so subsequent to the
said interview.

8.41 I find that Shri Arora himself has not denied that such a statement will induce transaction in securities. In any case, such a statement by a fund
manager who, admittedly (in his submissions dated Aug. 27, 2003 to SEBI - Page 3 para 6(a)) is a reputed and successful fund manager and was
internationally acclaimed, would indeed induce common investors to invest in the scrip. This clearly demonstrates that he misled the investors and induced
them to buy the shares of DGL while he was disposing the same.

8.42 Considering the fact that the funds managed by Shri Arora had substantial stake in DGL (4.45% of the capital of DGL), the comment regarding the
prospects of DGL cannot fall in the same catergory as a comment on trends in the securities market or on the economy. Thus he made a misleading
statement with a view to affect the market price of DGL and thereby violated the provisions of Regulation 5 of SEBI (Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities Market) Regulations, 1995. The said Regulation 5 provides that "No person shall make any statement, or disseminate
any information which -(a) is misleading in a material particular ; and

(b) is likely to induce the sale or purchase of securities by any other person or is likely to have the effect of increasing or depressing the market price of
securities, if when he makes the statement or disseminates the information -

(1) he does not care whether the statement or information is true or fales ; or

(ii) he knows, or ought reasonably to have known that the statement or information is misleading in any material particular ;

(2) Nothing in this sub-regulation shall apply to any general comments made in good faith in regard to -

(a) the economic policy of the Government,

(b) the economic situation in the country,

(c) trends in the securities markets, or

(d) any other matter of a similar nature, whether such comments be made in public or in private."

8.45 Having regard to the trading pattern elaborated above and the statement of Shri Arora made by him during an interview with Business Standard, I have
no doubt in my mind that Shri Arora has violated Regulations 4(a), 4(b), 4(c), 4(d) and 5 of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices
Relating to Securities Market) Regulations, 1995.

Third issue :

9.1 Whether Shri Samir C Arora is guilty of violating the provisions of Regulation 3 of SEBI (Prohibition of Insider Trading) Regulations 1992?

9.2 It is observed that there were no transactions in the scrip of Digital by the funds under Shri Arora's management for quite some time i.e. from April 11,
2003 to May 7, 2003 but he suddenly became very aggressive in disposing off the entire holdings of 14.66 lakhs shares held by the funds under his
management in 4 consecutive trading days commencing from May 8, 2003. The fact that the funds managed by Shri Arora did begin selling the shares of
DGL which were held by them suddenly and inexplicably after a gap of about one month compared to the earlier transaction in the scrip and immediately
after the submission of the valuation report by BSM does raise queries regarding what prompted Shri Arora to offload these shares. The reply of Shri Arora
does not address this issue.

9.3 The Board of DGL at its meeting on May 12, 2003 was scheduled to discuss the merger ratio. The argument of Shri Arora that the ratio was not
announced after the said Board meeting does not have any relevance. In fact, while making the sale on May 9, 2003 Shri Arora would have expected the
Board of DGL to make the announcement regarding the merger ratio after the conclusion of the meeting on May 12, 2003. This explains the hurry shown
by Shri Arora to dispose off the holdings before the conclusion of the Board meeting of DGL scheduled to be held on May 12, 2003.

9.4 If the reference to "tomorrow's announcement" was indeed a reference to the financial results of DGL, I do not find any material to suggest that Shri
Arora or the market expected adverse financial results. Thus, I find that the reason now being offered by Shri Arora does not explain what prompted him to
sell the shares of DGL on May 9, 2003 and hence, is not acceptable.

9.5 That the merger ratio was not disclosed on May 12, 2003 at the conclusion of the board meeting of DGL, was not a decision planned for the meeting.
Apparently during the course of discussions during the meeting on May 12, 2003 the Board of DGL did not reach a conclusion regarding the merger ratio
and accordingly no announcement was made at the end of the meeting. Nobody including Shri Arora could have forseen such development.

9.6 In his self-appraisal report, Shri Bhaskar Lakshminarayan has specifically mentioned that he had regular management meetings with two companies
including DGL. In the said self-appraisal report for the period November 2000 to October 2001, Shri Bhaskar Lakshminarayan has himself mentioned that
he already had 18 stocks under coverage and had added six more stocks during the year. The fact that he has identified only two stocks (viz. Digital and
Hughes) out of the 24 covered by him, shows that his management meetings with DGL were not routine meeting.

9.7 On the one hand Shri Arora has stated that the funds managed by him were the second largest shareholder of Digital after Compaq is a 'fact' and on
the other hand he has insinuated that it is not proven by SEBI. I also note that he has not disputed what he himself has called a 'fact'.

9.8 Notwithstanding the above, I note that the funds managed by Shri Arora were the single largest shareholder group of DGL after Compaq Computer
Holdings Ltd. I find that the funds managed by Shri Arora were holding nearly 10% of the total paid up equity capital of DGL for several months and
therefore it follows that ACM had a special interest in DGL and vice versa.

9.9 SEBI in its SCN has not stated that 'anybody could compute the merger ratio'. In this regard, I note that SEBI has cited the statement of BSM that 'if
the assumptions and other variable factors in the valuation exercise are similar, the variation should not be significant if two separate audit firms
value the companies.' Shri Arora, in his above reply, has conveniently ignored the fact that, as per the statement of BSM, the merger ratio could be
computed if the assumptions and other variable factors in the valuation exercise are known. Since SEBI has not stated that anybody could compute the
merger ratio, the above reply of Shri Arora does not address any charge of SEBI. Also, the reply of Shri Arora ignores that BSM has stated to SEBI that 'it
had not made any changes in the information / projections submitted to DGL or HPI.'
 9.10 In order to determine as to whether information relating to merger of DGL with HPI was price sensitive information or not, it might be appropriate
to have a look at the definition of 'Price Sensitive Information" as given in Regulation 2(ha), which read as under:

"Price sensitive information means any information which relates directly or indirectly to a company and which if published is likely to materially affect
the price of securities of company; Explanation:-

(i) periodical financial results of the company;

(ii) intended declaration of dividend (both interim and final);

(iii) issue of securities or buy-back of securities;

(iv) any major expansion plans or execution of new projects;

(v) amalgamation, mergers or takeovers;

(vi) disposal of the whole or substantial part of the undertaking;

(vii) any significant changes in policies, plan or operations of the company;"

9.11 I find that on June 9, 2003 (i.e. the trading day following the announcement of merger ratio on June 7, 2003), the scrip of DGL fell from Rs. 500.5
to Rs. 371.1 denoting a 26% fall. Thus, there is no doubt that the information regarding merger ratio was indeed price sensitive. SEBI has not charged Shri
Arora that he received unpublished price sensitive information relating to DGL from Shri Hemant Soonawala. Hence, the issue of whether there was
any interaction between Shri Soonawala and Shri Arora is not relevant.

9.12 Shri Arora has audaciously claimed that SEBI has twisted the interpretation of the term contained in one of SEBI's own regulations. There is
nothing in the SCN to suggest that SEBI has interpreted the term 'person deemed to be connected person' as contained in Regulations 2(h) of Insider
Trading Regulations to suggest that any market intermediary could be a person connected with any other person in India.

9.13 I agree that Shri Arora was not personally registered with SEBI as an intermediary under Sec. 12. However, his claim of not being an
employee of ACAML (which is an intermediary) is not tenable for reasons cited herein before.

9.14 Regulation 2(e) of SEBI (Prohibition of Insider Trading) Regulations 1992, states that "Insider means any person who, is or was connected with the
company or is deemed to have been connected with the company, and who is reasonably expected to have access, to unpublished price sensitive
information in respect of securities of a company, or who has received or has had access to such unpublished price sensitive information." Regulation 2(h)
of SEBI (Prohibition of Insider Trading) Regulations 1992, inter alia provides that a person is deemed to be a connected person if such person is an
intermediary as specified in Section 12 of the Act, Investment company, Trustee Company, Asset Management Company or an employee or director thereof
or an official of stock exchange or of clearing house or corporation. Shri Samir C Arora is therefore an insider in terms of the above regulations.

9.15 It is not material whether Shri Arora was providing any service to DGL. The factual position was that the entities managed by Shri Arora, at some
time or other, held as much as 10% of the paid up capital of the equity capital of DGL which holding was next only that of the controlling holder viz.
Compaq. He and his analysts were maintaining constant and close interaction with the management of DGL. I find that Arora was indeed an Insider within
the meaning of Insider Trading Regulations .
 9.16 The sequence of events narrated in the SCN dated Feb. 20, 2004 clearly shows that Shri Arora was in possession of unpublished price sensitive
information relating to the proposed merger of HP-ISO division with DGL and he has dealt in the scrip of DGL while in possession of the
unpublished price sensitive information. As shown in an earlier paragraph, the said information was indeed price sensitive.

9.17 I find that since Shri Arora would indeed come within the ambit of an 'insider' as defined in Regulation 2(e) and 2(h) (ii) of SEBI (Prohibition of
Insider Trading) Regulations, 1992, the requirement for SEBI to show that any other Insider has shared unpublished price sensitive information with Shri
Arora does not arise.

9.18 I note that investigations have revealed violations of numerous provisions of SEBI Act, Rules and Regulations made thereunder by Shri Arora. With
a view to protect the interests of investors and in order to promote orderly development of the securities market, SEBI has issued suitable directions as
deemed appropriate under Sections 11(4) and 11 B of the SEBI Act. No such actions have been taken against the other persons cited by Shri Arora since, as
on date, SEBI has not found any evidence against those persons. In any case, if any person is found to have communicated un-published price sensitive
information relating to the merger of DGL, SEBI shall take suitable action as deemed appropriate under the SEBI Act, Rules and Regulations made
thereunder. Shri Arora himself has in his reply admitted that there is no case to proceed against BSM, any members of the board of directors of Digital or
even the sub-committee of independent directors or the senior management of Digital. Hence, Shri Arora's contention that there is no whisper of any
proceedings against these persons does not sound well.

9.19 As noted earlier Shri Arora was an Insider with respect to DGL, I note that the circumstances narrated in the SCN adequately show that Shri Arora
has indeed dealt in the scrip of DGL on the basis of un-published price sensitive information. As per Regulation 2(e) of the SEBI (Prohibition of Insider
Trading) Regulations 1992, an 'insider' means any person who, is or was connected with the company or is deemed to have been connected with the
company, and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company, or who has
received or has had access to such unpublished price sensitive information. I view of this, I find that Shri Arora has indeed violated Regulations 3 of
Insider Trading Regulations.

9.20 The denial of Shri Som Mittal and Shri Tendulkar of Digital that they had any interaction with Shri Arora during 2003 is not relevant since as noted
earlier Shri Arora is an Insider with respect to DGL and has dealt in the scrip while in possession of unpublished price sensitive information. This aspect is
fairly borne out of preponderance of circumstantial evidence available in this case.

9.21 The issue of Alliance Capital having sold 17.00 lakhs shares of DGL during the past six months has no relevance whatsoever to the charge of
Insider Trading against Shri Arora and is an obvious attempt by Shri Arora to divert attention from the charges against him. I find it unnecessary to examine
the motive of any person who may or may not have shared the unpublished price sensitive information with Shri Arora.

9.22 Circumstances narrated in the SCN clearly show that Shri Arora has dealt in the scrip of DGL during May 8-13, 2003 based on unpublished price
sensitive information. The same is not a sweeping assumption as now being contended by Shri Arora.

9.23 The reasons now being cited by Shri Arora for his having sold the shares of DGL on May 9, 2003 do not appear in the rationale, recorded by Shri
Arora, while selling the shares of DGL. These contentions of Shri Arora appear to be mere afterthoughts. Hence, I do not find any merit in the above
contentions of Shri Arora.

9.24 The contentions of Shri Arora in his written submissions dated Aug. 27, 2003 have been suitably dealt with in SEBI's order dated September 24, 2003.
Therefore, I do not find any merit in the assertion of Shri Arora that the SCN of SEBI does not deal with his contentions contained in his written
submissions dated Aug. 27, 2003.

9.25 I note that any fund manager is required to record the rationale for each and every purchase and sale decision made by him. (Accordingly, Shri Arora
has also recorded the rationale for the sale made by him in the scrip of DGL). At the point in time when Shri Arora had recorded the rationale for selling the
shares of DGL on May 8-13, 2003, obviously he would not have imagined the likely repercussions. This could explain the reason for his faithful recording
the rationale behind the sale of DGL scrip during May 8-13, 2003.

9.26 There is no convolution in the logic of SEBI as contended by Shri Arora. It is common for a fund manager to receive better remuneration if the
funds managed by him performed better. I also note that Shri Arora has not refuted this charge of SEBI.
 9.27 Shri Arora has not contended that while he dealt in the scrip of DGL during May 8-13, 2003 he had intended to resign from Alliance Capital. It is
clear that at that point in time he had every intention to continue with Alliance Capital and reap the benefits of his actions though bonus. The contention that
Shri Arora resigned from Alliance Capital without waiting to get the bonus does not lead to any inference relating to the personal benefits that were due to
accrue to him. It is noted that following the SEBI's interim order dated August 9, 2003 Shri Arora was suspended by Alliance Capital from research and
portfolio management and that his employment was to come to an end by September 2003.

9.28 In connection with the contention of Shri Samir C Arora that he sold the shares in DGL based on analyst's report and not based on any unpublished
price sensitive information, it may be pertinent to advert to following events:

Pursuant to the merger of Hewlett Packard and Compaq Worldwide, the process of de-merger of ISO division of Hewlett Packard India (HPI)
with DGL, was initiated in October 2002. The impending de-merger was known to the market since that date.

The DGL board appointed a committee of independent directors in April 2003 to finalize the de-merger issue.

DGL appointed Bansi S Mehta & Co., Chartered Accountants (BSM) on May 2, 2003 to suggest a de-merger ratio. DGL had informal discussions with
BSM on the valuation issue prior to the assignment given through a letter. BSM had several previous assignments with DGL in the past. The appointment
was more of informal in nature.

Shri Som Mittal, President and CEO of DGL met Shri Bansi S Mehta before the assignment was given and thereafter had regular discussions on the
projections and estimates of the company. BSM completed the valuation and arrived at the merger ratio in a matter of 3-4 days. The main interactions were
with DGL only. BSM did not make any changes but relied upon the projections and estimates made by DGL for the purpose of arriving at the merger ratio.
BSM computed the valuation as per the Supreme Court case in Hindustan Lever as had been their practice. Given the data and other information, any other
audit firm would have arrived at a similar ratio.

On May 5, 2003, Shri Arora in an interview given to Business Standard talked positively about the DGL scrip. Particularly, he mentioned that the proposed
merger is going to immensely help DGL due to the additional projects it is going to get from HP. On May 7, 2003, BSM submitted the de-merger ratio to
DGL. On May 8, 2003 the following reports appeared in Economic Times "Digital Globalsoft, the 51% Indian software subsidiary of the Technology giant,
Hewlett Packard (HP), vaulted 9.9% at Rs. 609 following talks of a consolidation with Hewlett Packard Indian Software Operation (HPISO), 100%
subsidiary of HP. Market Players expect the company to report a more than 50% jump in the profit for the quarter ended March 2003 of Rs. 38-40 crores.
Speculation is also rife with regard to the new $ 3 billion order received by HP worldwide from the US-based consumer major Procter & Gamble. Market
players expect Digital Globalsoft's volume to benefit from the order, though the exact nature of the benefit could not be ascertained. The company may
announce a dividend of Rs. 30-40 per share. It had cash per share of Rs. 50 as on March 2002. It is likely to grow to Rs. 70 per share."

On May 8, 2003, ACMF sold 119,000 shares of DGL while ACM sold 2,18,400 shares of DGL. The reasons as noted by Shri Samir C. Arora when he took
the decision to sell the DGL shares "Price has rallied nicely - taking profits"

With reference to the news article appeared on May 8, 2003, BSE issued a news release dated May 9, 2003 stating that the company has informed that
following global merger between Hewlett Packard and Compaq, the future business and operating structure of Digital Globalsoft is currently under
consideration. However, no decision in this regard has been arrived at. Until such time that a conclusive decision is taken, the Digital Globalsoft Board has
officially indicated that the company's business will continue as usual.

On May 9, 2003 ACMF sold 334,562 DGL shares while ACM sold 250,000 DGL shares. The reasons as noted by Shri Samir C. Arora when he took the
decision to sell the DGL shares - "Event risk in Digital is too high - getting nervous. Reducing exposure" On May 11, 2003 the Hindu Businessline inter-
alia, reported that "The Digital May futures topped the list with active trading ahead of the company's Q4 financial performance announcement on
Monday."

The merger ratio was scheduled to be discussed / approved at the board meeting scheduled to be held on May 12, 2003 in which the financial results for
financial year 2002-2003 was also to be finalized.

DGL did not inform the stock exchange about the agenda of demerger matter.
On May 12, 2003 the results for the quarter ended March 2003 were approved by the DGL board in its meeting held at USA. The board accepted the
valuation submitted by BSM. However, no final decision was taken.

On May 12, 2003 ACMF sold 334,562 DGL shares while ACM sold 250,000 DGL shares. The reasons as noted by Shri Samir C. Arora when he took the
decision to sell the DGL shares "Event risk from tomorrow's announcements/results is too high. Bipolar situation but we do not like to take such risks post
very high volatility in technology stocks around results/corporate issues."

The results of DGL meeting were known to the market on May 13, 2003 which was very much in line with the market expectations.

May 13, 2003 at 9:17:22 AM - The corporate announcement as per BSE news release -"Digital Globalsoft announces Q4 & FY-03 results"

On May 13, 2003 ACM sold 211,478 DGL shares.

On May 30, 2003 DGL appointed Deolitte Haskins Sells (DHS) for a fairness opinion. DHS also affirmed the fairness of the demerger ratio recommended
by BSM.

DGL Company announced the de-merger ratio on June 7, 2003. The ratio was perceived as unfavourable by the investors of DGL as well as by Shri Arora.
The market fell by about 26% on June 7, 2003.

9.29 From the aforesaid sequence of events, it is clear that the market information did not indicate any adverse factor which could have prompted Shri
Samir C. Arora to off-load 14,66,140 shares in four consecutive trading days starting from May 8, 2003. It is observed that there was increase in price from
the closing price of Rs. 537.55 on May 2, 2003 to Rs. 597.25 at the close of business on May 7, 2003; an increase of 11.12%.

9.30 Thus the reason for the sale of shares, as noted by Shri Samir C. Arora could have been only "Event Risk in Digital is too high- getting nervous" and
"Event Risk from tomorrow's announcements'. The said event risks from tomorrow's announcement was known to Shri Samir C. Arora but not known to
the market. What could be these event risks from tomorrow's announcement (i.e. May 12,a2003)? It definitely cannot be the favourable Q4 & FY-03 results
of DGL. In this context it will be pertinent to advert to the following facts which came to light during the investigations viz.

That Shri Som Mittal knew Shri Samir C. Arora for the past 5-6 years. Shri Samir C. Arora and his analyst used to make regular visits and interaction with
the management and senior officials and discuss the performance and future plans of the companies in which they invest. It is also observed that Shri
Bhaskar Laxminarayan who has been tracking DGL for several years and 'maintaining up-to-date files and having regular management meetings with DGL'
purportedly sent an email to Shri Samir C Arora recommending to reduce position in DGL. The message inter alia mentioned 'valuation are capped
unless .......unexpectedly favorable scenario'.

Shri Samir Arora, was solely taking all investment decisions of the equity and balanced funds of ACMF and the Indian allocation of ACM and their FII and
sub-accounts. The funds held 14,66,140 shares of DGL which constituted about 4.45% of the total paid up capital of DGL. The fund had been holding the
said shares since February 2001.

The funds managed by Shri Arora was the single largest shareholder group of DGL after Compaq Computer Holdings Ltd. The funds were holding nearly
10% of the total paid up equity capital of DGL for several months (from January 2002 to January 2003) and therefore ACM had a special interest in DGL
and vice versa.

The coincidence of dates of submission of report by BSM to DGL and the sudden start of offloading of shares (which were held for past 2 years) by Shri
Samir C Arora and the completion of offloading of all the shares of DGL in four consecutive trading days starting from May 8, 2003 to 13 May, 2003 i.e.
the day on which the outcome of the Board meeting of DGL held on May 12, 2003 at San Francisco in USA, became public in India.

9.31 The aforesaid circumstantial evidences are predominant enough to indicate that, Shri Samir C Arora as an insider sold the shares of DGL while in
possession of unpublished price sensitive information, related to merger. In the preceding paras it has already been concluded that Shri Samir C. Arora was
an insider within the meaning of Regulation 2(e) and 2(h) (ii) of SEBI (Prohibition of Insider Trading) Regulations 1992.

9.32 Thus Shri Samir C Arora has violated Regulation 3 of SEBI (Prohibition of Insider Trading) Regulations 1992 and is guilty of insider trading as
specified in Regulation 4 of SEBI (Prohibition of Insider Trading) Regulations 1992.

9.33 I have noted that adjudication proceedings have already been initiated against ACAML and ACM and therefore the contention of Shri Samir C.
Arora that he has been singled out does not stand.
Cross examination

10.1 Shri Samir C Arora in his written reply dated 09.03.2004 to the show cause notice has sought for the cross examination of persons whose statements
are relied upon by SEBI. However, during the oral hearing held on 24.3.2004, he did not raise this issue. I presume that he has realized the irrelevance of
his request. The right of cross examination varies from case to case. It is settled principle of law that where prejudice is caused to the party by way of denial
of facility for cross-examination by the authority, the same will be in breach of principles of natural justice. If the statements referred to in the show cause
notice are the only evidence to come to an adverse conclusion against the noticee, the request for cross examination need to be accepted. In this case, I am
of the view that sufficient evidence is available in the form of trading data, etc other than personal statements, for reaching the findings made hereinabove.
Therefore, no prejudice is caused to Shri Samir C Arora and no right of cross examination exists in the facts and circumstances of this case. Inspection of
unrelated documents 11.1 Further I have noted that Shri Samir C Arora, through his advocates and solicitors letter dated 11.03.2004 sought for inspection of
documents in respect of other proceedings, if any, under way in SEBI, against ACMF, in so far they relate to Shri Arora, and also for copies thereof. He,
however, did not raise this issue during the hearing. In this regard I find that SEBI had already given all the documents relied upon by it in support of the
Show Cause Notice dated 20.02.2004. The proceedings against ACMF and others are independent of the proceedings taken against Shri Samir C. Arora and
therefore have no relevance to the Show Cause Notice dated 20.02.2004 against him. I, therefore, find that there is no need, nor is it fair to give copies of
the proceedings / documents as sought by Shri Samir C. Arora, in his letter dated 11.03.2004.

CONCLUSION:

12.1 From the aforesaid discussion I find that Shri Samir C Arora is guilty of grave professional misconduct calling for remedial action from SEBI under
Section 11(4) and 11B of the SEBI Act. Shri Arora has also indulged in manipulative transactions and insider trading, there by violated Regulation 4(a),
4(b), 4(c), 4(d) and 5 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations 2003 and Regulation 3 of
SEBI (Prohibition of Insider Trading) Regulations, 1992.

12.2 It is to be noted that persons who operate in the market are required to maintain high standards of integrity, promptitude and fairness in the conduct of
their business dealings. While "one is free to gain a competitive advantage in market place through conduct constituting skill, foresight, industry and the
like", no one shall be let to gain undue advantage by unethical conduct, manipulation and privileged access to unpublished information and the like. It is the
mandate of SEBI to protect the interest of investors and the safety and integrity of the securities market. If market participants/ intermediaries and more
importantly even professionals commit serious violations, they ought to be dealt with severely by the Regulator, in the larger interest even on the basis of
preponderance of evidence. The conduct of Shri Samir C. Arora was not in accordance with sound market principles. Considering the facts and
circumstances of the case in totality and the blatant misconduct and violations committed by Shri Samir C. Arora of the regulatory provisions, I find it a fit
case warranting serious action against him for his misdeeds so as to act as a deterrent for others of similar disposition.

12.3 Normally, action needs to be taken against the entity found guilty of violation of law. However, a corporate body operates and acts through its directors
and other key persons in charge of its business operations. Corporate personality carries with it the discipline that those who avail themselves of the
inherent privileges must abide by laws and regulations and adhere to the standards. A strong culture, positive or negative, will directly impact the control
environment. Failure to take responsibility for the health of corporate culture can lead to apathy and a diet deficient of reinforcing procedures. It allows a
malignancy to take hold and grow undetected. It may be, therefore, essential, in appropriate cases, to lift the corporate veil and take action against the
individuals, whose conduct is primarily responsible for the misconduct or violation of law by corporate body besides action against the corporate body.
Securities market is a very sensitive market and is prone to risks. Shri Samir C. Arora, the Fund Manager of ACMF who was a key functionary, is guilty of
misconduct and violation of law as narrated hereinbefore and primarily responsible for the commissions and omissions of the Alliance Capital Mutual Fund
and its AMC. Therefore, action against him is required in order to protect the interest of investors and ensure safety, integrity and the orderly development
of securities market, besides action against the Alliance Capital Mutual Fund and its AMC which SEBI has already initiated under the applicable rules and
regulations.

ORDER 13.1 In the light of the above and in exercise of the powers conferred on me in terms of Section 19 of the SEBI Act, 1992, read with Section 11(4)
and 11B of SEBI Act, 1992, read with Regulation 11 of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market)
Regulations 2003 and Regulation 11 of SEBI (Prohibition of Insider Trading) Regulations, 1992, I hereby prohibit Shri Samir C. Arora not to buy, sell or
deal in securities, in any manner, directly or indirectly, for a period of five years. The period of prohibition already undergone by Shri Samir C Arora by
virtue of the interim order dated August 9, 2003 will be included in the above period. However, if, in the meantime Shri Samir C. Arora desires to sell the
securities, if any, currently held by him he may do so only after obtaining prior written permission of SEBI.

13.2 This order shall come into force with immediate effect.

Case-3 industan Lever Limited (HLL) Brooke Bond Lipton India Limited (BBLIL):
The controversy involved HLLs purchase of 8 lakh shares of BBLIL two weeks prior to the public announcement of the merger of the two companies (HLL
and BBLIL). SEBI, suspecting insider trading, conducted enquiries, and after about 15 months, in August 1997, SEBI issued a show cause notice to the
Chairman, all Executive Directors, the Company Secretary and the then Chairman of HLL. Later in March 1998 SEBI passed an order charging HLL with
insider trading.

SEBI directed HLL to pay UTI compensation, and also initiated criminal proceedings against the five common directors of HLL and BBLIL. Later HLL
filed an appeal with the appellate authority, which ruled in its favour.

Background of the case:

The SEBIs charges were triggered off by HLLs purchase of 8 lakh shares of Brooke Bond Lipton India Ltd (BBLIL) from the Unit Trust of India (UTI,
1996-97 income: Rs 7,481 crore) at Rs 350.35 per share. This transaction took place on March 25, 1996, before the HLL-BBLIL merger was announced on
April 19, 1996. A day after the announcement of the merger, the BBLIL scrip quoted at Rs 405, thereby leading to a notional gain of Rs 4.37 crore for HLL,
which then cancelled the shares bought.

HLL is an insider, according to Section 2 (e) of the SEBI (Insider Trading) Regulations. It states: An insider means any person who is, or was, connected
with the company, and who is reasonably expected to have access, by virtue of such connection, to unpublished price-sensitive information.

The SEBI has argued that both these conditions were met when HLL bought the BBLIL shares from the UTI. HLL and BBLIL had a common parentageas
subsidiaries of the London-based $33.52-billion Unileverand were then under a common management. Thus, HLL and its directors had prior knowledge
of the merger. Agrees Both HLL and BBLIL are deemed to be under the same management even under Section 370 (1)(b) of the Companies Act, 1956.

No company can be an insider to itself. The transnational knowledge of the merger was because it was a primary party to the process, and not because
BBLIL was an associate company. To buttress this point, HLL maintains that if it had purchased shares of Tata Oil Mills Co. (TOMCO) before the two
merged in April, 1994, SEBI would not consider it a case of insider trading. Why? Because HLL was not associated with the Tata-owned TOMCO.

HLL contends that it purchased the BBLIL shares so that its parent company, Unilever, could maintain a 51 per cent stake in the merged entity. Before the
merger, Unilever had a 51 per cent stake in HLL, but only 50.27 per cent in BBLIL. Thus, the HLL management feels that the SEBI should consider if it
had any additional information which it should not, legitimately, have had as a transferee company in the merger.

According to the SEBI guidelines, HLL can be deemed to be an insider. But the SEBIs definition of an insider has to be fleshed out by it to provide a
clearer picture.

HLL dealt in, or purchased, the BBLIL shares on the basis of unpublished price-sensitive information which is prohibited under Section 3 of the
Regulations. Section 2 (k)(v) states that unpublished, price-sensitive information relates to the following matters (amalgamations, mergers, and takeovers),
or is of concern to a company and is not generally known or published.

According to the SEBI, there can be no dispute that the information of the overall fact of the merger falls under this definition.

Only the information about the swap ratio is deemed to be price-sensitive. And this ratio was not known to HLLor its directorswhen the BBLIL shares
were purchased in March, 1996. Moreover, HLL argues that the news of the merger was not price-sensitive as it had been announced by the media before
the companies announcement, April 7, 1996). HLL also points out that it was a case of a merger between two companies in the group, which had a common
pool of management and similar distribution systems. Therefore, the merger information in itself had little relevance; the only thing that was price-sensitive
was the swap ratio.

Why did HLL not follow the route of issuing preferential shares to allow Unilevers stake to rise to 51 per cent in HLL? As per the SEBI chargesheet Such a
step would have involved various compliances/ clearances, and required Unilever to bring in substantial funds in foreign exchange. The implication: HLL
depleted its reserves to ensure that Unilever did not have to bring in additional funds

Issuing of preferential shares would have, indeed, been a cheaper option to ensure that Unilever had a 51 per cent stake in HLL. Had HLL followed this
route, it would have had to pay Rs 282..35, instead of Rs 350.35, per share. In other words, it would have made a profit of Rs 5.41 crore by doing so.
However, Unilever always enjoyed the option. Says a senior manager with HLL: The forex angle falls flat on that ground itself. HLL also states that while
the preferential route would have been beneficial for itself, it would have been dilutory for other shareholders since it would have resulted in an expanded
capital base, leading to a lower earnings per share in the future.

HLL was probably worried that the clearances for a preferential allotment from the SEBI and the Reserve Bank of India (RBI) would take their time in
comingor not be given at all. It had already faced a time-consuming and expensive run-in with the RBI during the HLL-TOMCO merger in 1994.

Levers cancelled the entire holding of HLL in BBLIL

HLL was upfront that its entire holding in BBLIL1.60 per centincluding the lots purchased from the UTI would be cancelled after the merger in March,
1997. HLL maintains that this is perfectly legal. In addition, shareholders of both HLL and BBLIL approved of the cancellation of shares as part of the
merger scheme. Says Iyer: By this process of cancellation, which normally happens in every amalgamation, the voting rights of Unilever have gone up.
However, so have the voting rights of other shareholders. So, no exclusive benefitprofits or avoidance of losshas accrued to HLL or Unilever.

By extinguishing the shares, HLL wanted to maintain Unilevers shareholding at 51 per cent and not realise any financial gains. However, Section 3 defines
insider trading irrespective of whether profits are made or not.

By virtue of being in uncharted territory, the parallel hearing before the Union Ministry of Finance will be disposed of within four or five months from the
date of filing. And if the verdict goes against Levers, the group will then go to court. If so, expect a long-drawn legal battle. For now, the SEBI verdict is a
black spot on a company that excels in cleaning them up.

Prosecution Not Justifiable:

Round two of the battle between SEBI and HLL took place under the aegis of the Appellate Authority of the Finance Ministry.

In response to the SEBIs charge, HLL appealed to the Appellate Authority pleading that it be absolved of the charges of insider trading. UTI later filed an
appeal with the Appellate authority, claiming a higher compensation of Rs. 75.2 million (7.52 crore).

It pleaded that it had to incur a notional loss as it was not aware that a merger of the two Unilever group companies was on the cards

HLL Not Guilty-Proposal Generally Known:

In support of its ruling, the Appellate Authority cited press reports that indicated prior market knowledge of the merger. However, by its own admission,
there were only a few reports prior to the actual purchase (of shares from UTI). The Authority had cited 21 news reports to support the contention that the
prospect of a merger between HLL and BBLIL was widely known.

In its judgement, the Appellate Authority said that under Regulation 11B, SEBI was not capable of initiating investigations and then taking recourse to
powers under the Act for awarding compensation without passing an order under the above mentioned regulation.