Background: Tara Jewels Ltd. (TJL) is a Company registered under the Companies Act, 1956, and its shares are listed on BSE and NSE.
The NCLT in an order dated July 30, 2019, approved the liquidation of the company and has appointed a liquidator for the same. SEBI conducted an investigation into suspected insider trading activities of certain entities in the scrip of Tara Jewels Limited for the period from October 01, 2017, to December 31, 2017, to ascertain whether the entities had traded in the shares of TJL while in possession of unpublished price sensitive information (“UPSI”) in contravention of the provisions of the SEBI Act, 1992 read with the SEBI (Prohibition of Insider Trading) Regulations, 2015.
Findings: It was noted that the promoters holding in the company which was 60.03% of the total paid-up capital of the Co. as of the quarter ended September 30, 2017, came down to 39.22% as of the quarter ended December 31, 2017. Out of the total of 147.79 lakh shares held by the promoters Rajeev Vasant Sheth, Divya Sheth, and Aarti Sheth, who are all related and are reasonably expected to have access to the UPSI, sold 51.24 lakh shares to avoid any future losses.
The definition of the term “Unpublished Price Sensitive Information” under the Prohibition of Insider Trading Regulations includes "financial results” of the company and, therefore, the quarterly financial results of the company for the Quarter ended September 30, 2017, before disclosure by the Company on the stock exchanges are being considered as UPSI.
The investigation observed that the quarterly financial results of TJL for the quarter ended September 30, 2017, were disclosed to the stock exchanges after the trading hours on November 29, 2017.
Rajeev Sheth, by virtue of being the Chairman and Managing Director of TJL, was privy to the internal affairs of the Co. and would have been aware of the falling revenue, unsold inventory due to cancelled orders, unfulfilled orders due to shortage of working capital, and the doubtful trade receivables which had a negative impact on the financial results of the company for the quarter ended September 30, 2017.
From the evidence and the records and transactions available, it prima facie established that Rajeev Vasant Sheth, Aarti Sheth, and Divya Sheth being insiders have violated Section 12A (d) and (e) of the SEBI Act and Regulation 4(1) of the PIT Regulations by trading in the shares of TJL while in possession of UPSI, thereby indulging in insider trading.
Order: Accordingly, as an interim measure, an Ad–Interim Ex–Parte Order for impounding such alleged unlawful notional loss avoided under Section 11(1) read with 11(4)(d) and 11B(1) of the SEBI Act read with Regulation 10 of the PIT Regulations was issued against Rajeev Vasant Sheth, Aarti Sheth, and Divya Sheth.
Further, banks and depositors were directed not to make any debit, without SEBIs permission from the accounts of the above-mentioned person.
The direction was also passed to give complete record and not to dispose of or alienate any of their assets/properties/securities, till such time the individual amount of unlawful loss avoided is credited to an Escrow Account except with the prior permission of SEBI, after which their accounts can be defreeze.
A period of 30 days is provided to the above person to file their replies to SEBI.