Labour laws - newspaper called “Mangalam” - Employees State Insurance Act, 1948 - Bachawat Wage Board’- “Manisana’ Wage Board,= Merely because the parties in their compromise chose to term the payments as “ex gratia payments” does not mean that those payments cease to be wages if they were otherwise wages. As stated above, they were wages at the time that they were paid. They did not cease to be wages after the award merely because the terms of compromise termed them as “ex gratia payments”. We are therefore unable to accept the reasoning of the judgments of the High Court. The judgment of the Division Bench as well as that of the Single Judge accordingly stands set aside. It is held that the amounts paid are wages and contribution will have to be made on those amounts also. We, however, make it clear that payments of the interest will be as per the statutory provisions.”= The interim relief paid by the respondent to its employees is not a “gift” or “inam”, but is a part of wages, as defined under Section 2(22) of the ESI Act. In view of the above, we hold that the payment made by way of interim relief to the employees by the respondent for the period from 1.04.1996 to 31.03.2000 comes within the definition of “wages”, as contained in Section 2(22) of the ESI Act, and hence the respondent is liable to pay ESI contribution.

1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 4681 OF 2009
Employees State Insurance Corporation & Anr. ..Appellants
Versus
Mangalam Publications (I) Private Limited ..Respondent
J U D G M E N T
MOHAN M. SHANTANAGOUDAR, J.
1. The judgment dated 28.02.2007 passed in Insurance
Appeal No. 2 of 2004 by the High Court of Kerala at Ernakulam is
called in question in this appeal. By the impugned judgment, the
High Court allowed the appeal filed by the respondent herein and
set aside the order dated 13.10.2003 passed by the ESI Court,
Idukki, Kerala.
2
2. Brief facts leading to this appeal are as follows:
The respondent is an establishment covered by the
provisions of Employees State Insurance Act, 1948 (hereinafter
referred to as the ‘ESI Act’). It is a private limited company engaged
in the business of printing and publishing of a daily Malayalam
newspaper called “Mangalam”; the respondent has more than 250
employees including working and non-working journalists. In order
to have a uniform formula regarding the wages payable to the
employees of newspaper companies like the respondent, the Central
Government appointed Wage Boards from time to time to study and
submit reports from time to time. Earlier, the Wage Board headed
by Justice Bachawat, known as ‘Bachawat Wage Board’ was
constituted and the Board submitted its recommendations.
Thereafter, the Government of India appointed a new Wage Board,
headed by Justice Manisana which was called as ‘Manisana Wage
Board’. As per the recommendations of ‘Manisana Wage Board’, the
Government of India issued a notification dated 24.09.1996 fixing
interim rates of wages in respect of working journalists,
non-working journalists and newspaper agency employees at the
3
rate of twenty per cent of the basic wages and an additional amount
of Rs.100/- per month, with effect from 20.04.1996. As per the
said notification, the respondent started paying interim relief to its
employees, and paid such interim relief from 01.04.1996 to
31.03.2000. However, the respondent did not pay the statutory
contribution under the ESI Act for the period during which it paid
interim wages to its employees. The ESI contribution due on
interim wages paid by the respondent from 01.04.1996 to
31.03.2000 worked out to Rs.2,53,272/- (however, as per demand
notice dated 02.11.2000, the figure is Rs.2,58,061.50).
Subsequently, another office memorandum was issued
by the Government of India, Department of Public Enterprises,
Ministry of Industry, providing for the grant of interim relief to the
employees of Central Public Sector Enterprises (PSES). The said
office memorandum was subject to the following conditions:
a) These instructions are applicable to the
employees of Central PSES following IDA
pattern.
b) The amount paid as interim relief would
be fully adjusted and …. in the final pay
revision package.
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c) xxx xxx xxx
d) xxx xxx xxx
e) xxx xxx xxx
f) xxx xxx xxx
g) The amount of interim relief will be….viz.
it will neither be termed as ‘pay’ nor
‘allowances’ nor ‘wages’. Accordingly, this
amount would not count for any service benefit
i.e. computation of house rent allowance,
compensatory allowance, overtime allowance,
cash compensation, encashment of leave, pay
fixation, pension or gratuity etc.
The afore-mentioned office memorandum dated 19.08.1998 of the
Ministry of Industry had nothing to do with the notification dated
20.04.1996 providing for interim relief to the employees of
newspaper agencies. The office memorandum dated 19.08.1998
makes itself clear that the same was applicable to employees of the
Central PSES, and consequently it had no application to employees
of private sector undertakings like that of the respondent company.
3. The premises of the respondent-company was inspected
by the Insurance Inspector of the appellant-Corporation on
13.06.2000, wherein it was found that the respondent had not paid
any contribution on the interim wages paid by it to its employees
5
during the period from 01.04.1996 to 31.03.2000. The contention
of the respondent was that it was not required to pay any
contribution on the interim relief paid by it to its employees in view
of office memorandum dated 19.08.1998. Since the contribution
was not paid by the respondent, as mentioned supra, a notice dated
18.07.2000 was issued by the appellant to the respondent to pay
contribution of the afore-mentioned amount for the afore-mentioned
period. The notice of demand dated 02.11.2000 was also served on
the respondent demanding an amount of Rs.2,58,061.50 with
interest thereon.
4. Feeling aggrieved by the afore-mentioned notices, the
respondent moved the Employees Insurance Court, Idukki, Kerala,
by filing a petition under Section 75 of the ESI Act, which came to
be numbered as Insurance Case No. 19/2000. In the said petition
also, the respondent relied upon the office memorandum dated
19.08.1998 and a clarificatory letter dated 20.12.1996 of the Indian
Newspaper Society. The said petition was opposed by the appellant
contending that the office memorandum dated 19.08.1998 was not
applicable to the respondent, and that the clarification given by the
6
Indian Newspaper Society has no legal validity; the effect of the Act
of Parliament i.e., ESI Act cannot be superseded by the office
memorandum issued by the department; that under Section 2(22)
of the ESI Act, all remuneration is wages except the categories
mentioned in clauses (a) to (d) of Section 2(22) of the ESI Act, and
that interim relief does not come within the excluded parts of
clauses (a) to (d). After consideration of the material on record, the
ESI Court dismissed the application filed by the respondent holding
that the interim relief paid by the respondent to the employees was
“wages” as defined under Section 2(22) of the ESI Act, and hence
the respondent was liable to pay contribution for the interim relief
paid. It was observed by the ESI Court that the respondent paid
interim relief to its employees as per the direction contained in the
notification dated 20.04.1996 and the provisions of the notification
became a part of the contract of employment of the employees of the
respondent company. It was also observed that the office
memorandum dated 19.08.1998 was only applicable to the
employees of the Central PSES, and it does not anywhere say that
the interim relief is not “wages” as defined under Section 2(22) of
7
the ESI Act or that contribution need not be paid on the payment of
interim relief.
The respondent filed Insurance Appeal No. 2/2000 before
the High Court of Kerala under Section 82 of the ESI Act,
challenging the order passed by the ESI Court on 13.10.2003. The
appeal came to be allowed by the impugned judgment, holding that
the appellant herein is not entitled to collect any contribution in
respect of interim relief paid by the respondent to its employees.
While concluding so, the High Court has held that the amount paid
as interim relief cannot be treated as “wages” or “part of wages” and
can only be treated as “ex-gratia payment”. Hence, this appeal.
5. The only question to be considered and decided in this
appeal is as to whether the interim relief paid by the respondent to
its employees, during the period from 01.04.1996 to 31.03.2000, is
to be treated as “wages” as defined under Section 2(22) of the ESI
Act, and if so, whether the respondent is liable to pay the ESI
contribution?
6. There cannot be any dispute that if the interim relief paid
by the respondent is held by this Court as “wages” as defined under
8
Section 2(22) of the ESI Act, then the respondent is necessarily
liable to pay ESI contribution on the amount of interim relief paid to
its employees.
7. Before proceeding further, it would be relevant to note
the definition of wages, as defined under Section 2(22) of the ESI
Act. The same is extracted hereunder:
“Section 2 (22) of the Employees' State
Insurance Act, 1948 defines Wages. It reads as
follows:-
“wages” means all remuneration paid or payable
in cash to an employee, if the terms of the contract of
employment, express or implied, were fulfilled and
includes any payment to an employee in respect of any
period of authorized leave, lock-out, strike which is not
illegal or lay-off and other additional remuneration, if
any, paid at intervals not exceeding two months, but does
not include-
(a)Any contribution paid by the employer to any
pension fund or provident fund, or under this act;
(b)Any travelling allowance or the value of any
travelling concession;
(c) any sum paid to the person employed to defray
special expenses entailed on him by the nature of
his employment; or
(d)Any gratuity payable on discharge.”
9
A plain reading of the afore-mentioned definition of Section
2(22) of the ESI Act makes it amply clear that “wages” means all
remuneration paid or payable in cash to an employee, if the terms
of the contract of the employment, expressed or implied, were
fulfilled and includes other additional remuneration, if any, paid at
intervals not exceeding two months. But payments made on certain
contingencies under Clauses (a) to (d) of Section 2(22) of the ESI
Act, do not fall within the definition of “wages”. The interim relief
paid to the employees of the respondent in the matter on hand, as
mentioned supra, will definitely not fall within the excluded part of
clauses (a) to (d) of Section 2(22) of the ESI Act, inasmuch as such
payment is not travelling allowance or the value of any travelling
concession, contribution paid by the employer to any pension fund
or provident fund; sum paid to an employee to defray special
expenses entailed on him by the nature of his employment; or any
gratuity payable on discharge.
8. The Employees’ State Insurance Act is a welfare
legislation. It has been enacted to protect and safeguard the rights
of the working class. Its preamble states that it is meant to “provide
10
for certain benefits to employees in case of sickness, maternity and
‘employment injury’ and to make provision for certain other matters
in relation thereto”. The Employees’ State Insurance Fund set up
under this Act survives primarily on contributions paid to the
Employees’ State Insurance Corporation (the appellant). All
employees insured in accordance with this Act are entitled to
benefits under the Act. Undoubtedly, the literal meaning of
statutory provisions cannot be ignored. However, in cases where
there may be two or more ways to interpret a statutory provision,
the spirit of this legislation warrants a construction that benefits
the working class. The inclusive part and exclusive portion of the
definition of “wages” clearly indicate that the expression “wages”
has been given wider meaning. As mentioned supra, under the
definition, firstly whatever remuneration is paid or payable to an
employee under the terms of the contract of the employment,
expressed or implied, is “wages”. Secondly, whatever payment is
made to an employee in respect of any period of authorized leave,
lock-out etc. is “wages”. Thirdly, other additional remuneration, if
any, paid at intervals not exceeding two months is also “wages”.
Any ambiguous expression, according to us, should be given a
11
beneficent construction in favour of employees by the Court. If the
definition of “wages” is read in its entirety including the inclusive
part as well as the exclusive portion, it appears that inclusive
portion is not intended to be limited only of items mentioned
therein, particularly, having regard to the objects and reasons for
which the Employees’ State Insurance Act is enacted. The Act has
to be necessarily so construed as to serve its purpose and objects.
This Court in the case of M/s Harihar Polyfibres vs. Regional
Director, ESI Corporation, (1984) 4 SCC 324 has held that the
definition of “wages” contained in Section 2(22) of the ESI Act is
wide enough to include House Rent Allowance, Night Shift
Allowance, Incentive Allowance and Heat, Gas and Dust Allowance.
To come to the aforesaid conclusion, this Court observed thus:
“2. The Employees’ State Insurance Act is a
welfare legislation and the definition of ‘wages’
is designedly wide. Any ambiguous expression
is, of course, bound to receive a beneficent
construction at our hands too. Now, under the
definition, first, whatever remuneration is paid
or payable to an employee under the terms of
the contract of the employment, express or
implied is wages; thus if remuneration is paid
in terms of the original contract of employment
or in terms of a settlement arrived at between
the employer and the employees which by
12
necessary implication becomes part of the
contract of employment it is wages ; second,
whatever payment is made to an employee in
respect of any period of authorised leave,
lock-out, strike which is not illegal or lay-off is
wages; and third, other additional
remuneration, if any, paid at intervals not
exceeding two months is also wages; this is
unqualified by any requirement that it should
be pursuant to any term of the contract of
employment, express or implied. However,
'wages' does not include any contribution paid
by the employer to any pension fund or
provident fund, or under the Act, any
travelling allowance or the value of any
travelling concession any sum paid to the
person employed to defray special expenses
entailed on him by the nature of his
employment and any gratuity payable on
discharge. Therefore wages as defined includes
remuneration paid or payable under the terms
of the contract of employment, express or
implied but further extends to other additional
remuneration, if any, paid at intervals not
exceeding two months, though outside the
terms of employment. Thus remuneration paid
under the terms of the contract of the
employment (express or implied) or otherwise if
paid at intervals not exceeding two months is
wages. The interposition of the clause “and
includes any payment to an employee in
respect of any period of authorised leave,
lock-out, strike which is not illegal or lay-off”
between the first clause, “all remuneration
paid or payable in cash to an employee, if the
terms of the contract of employment, express
or implied, was fulfilled” and the third clause,
"other additional remuneration, if any, paid at
intervals not exceeding two months,” makes it
13
abundantly clear that while ‘remuneration’
under the first clause has to be under a
contract of employment, express or implied,
‘remuneration’ under the third clause need not
be under the contract of employment but may
be any ‘additional remuneration' outside the
contract of employment. So, there appears to
our mind no reason to exclude ‘House Rent
Allowance', ‘Night Shift Allowance', ‘Incentive
Allowance’ and ‘Heat, Gas and Dust Allowance'
from the definition of 'wages’. A Full Bench of
the Karnataka High Court in N.G.E.F. Ltd. v.
Deputy Regional Director, E.S.l.C. considering
the question at some length held that the
amount paid by way of incentive under the
scheme of settlement entered into between the
Management and its workmen was wages
within the meaning of Section 2(22) of the
Employees’ State Insurance Act. It was
observed by the Full Bench of the Karnataka
High Court as follows:
It is true that the word ‘remuneration’ is found
both in the first and second parts of the
definition. But the condition attached to such
payment in the first part cannot legitimately be
extended to the second part. The other
‘additional remuneration’ referred to in the
second part of the definition is only qualified
by condition attached thereto (that is, paid at
intervals not exceeding two months). That was
also the view taken by a Full Bench of the
Andhra Pradesh High Court in E.S.I. Corpn.,
Hyderabad vs A.P Paper Mills Ltd., and also the
Bombay High Court in Mahalaxmi Glass Works
Pvt. Ltd. v. E.S.I. But this aspect of the matter
has been completely overlooked by this Court
in Kirloskar case (1974) 1 Kant LJ 358.
14
Justice Amarendra Nath Sen, concurred with the
aforementioned observations of Justice O. Chinnappa Reddy
and supplemented as under:
“8. I entirely agree that on true interpretation
of the word ‘wages’ defined in Section 2(22) of
the Employees’ State Insurance Act, ‘wages’
must necessarily include ‘House Rent
Allowance, Night Shift Allowance, Heat, Gas
and Dust Allowance and Incentive Allowance’.
9. The definition of ‘wages’ has been set out in
the judgment of my learned brother. The
inclusive part and the exclusive portion in the
definition clearly indicate, to my mind, that the
expression “wages” has been given a very wide
meaning. The inclusive part of the definition
read with exclusive part in the definition
clearly shows, to my mind, that the inclusive
portion it not intended to be limited only to the
items mentioned therein. Taking into
consideration the excluding part in the
definition and reading the definition as a whole
the inclusive part, to my mind, is only
illustrative and tends to express the wide
meaning and import of the word 'wages' used in
the Employees’ State Insurance Act.
10. The Employees’ State Insurance Act is a piece of
social welfare legislation enacted for the benefit
of the employees. The Act has to be necessarily
so construed as will serve its purpose and
objects.
11. I entirely agree with my learned brother that on
a proper interpretation of the term ‘wages’ the
legislative intent is made manifestly clear that
15
the term ‘wages’ as used in the Act will include
House Rent Allowance, Night Shift Allowance,
Heat, Gas and Dust Allowance, Night Shift
Allowance, Heat, Gas and Dust Allowance and
Incentive Allowance. The definition, to my mind,
on its plain reading is clear and unambiguous.
Even If any ambiguity could have been
suggested, the expression must be given a liberal
interpretation beneficial to the interest of the
employees for whose benefit the Employees’ State
Insurance Act has been passed.”
9. This Court, in the case of Whirlpool of India Ltd. vs
Employees’ State Insurance Corporation, (2000) 3 SCC 185, has
succinctly described the intention of the legislature in passing the
E.S.I. Act, and the same reads as thus,
“5. The Act is a social legislation enacted to
provide benefits to employees in case of
sickness, maternity and employment injury
and to make a provision for certain other
matters in relation thereto. Broadly this is the
purpose for which the Corporation has been
established under Section 3 of the Act. The
main source of the Employees' State Insurance
Fund is the contributions paid to the
Corporation (Section 26). The benefits to be
provided to insured persons and others are as
provided in Chapter V, in particular, Section
46 thereof. The words and expressions used
but not defined in the Act and defined in the
Industrial Disputes Act, 1947, are to have the
meanings respectively assigned to them in the
Industrial Disputes Act, Undoubtedly, any
provision of which two interpretations may be
16
possible would deserve such construction as
would be beneficial to the working class but, at
the same time, we cannot give a go-by to the
plain language of a provision.”
10. As mentioned supra, the High Court while allowing the
appeal filed by the respondent has mainly relied upon the office
memorandum dated 19.08.1998 issued by the Department of Public
Enterprises, Ministry of Industry, New Delhi, which is not
applicable to the facts of this case. The said notification makes it
abundantly clear that the instructions contained in the said office
memorandum are applicable to Central Public Sector Enterprises
(PSES) only. Admittedly, the respondent is a private limited
company and hence the instructions contained in office
memorandum dated 19.08.1998 are not applicable to the
respondent company. In the matter on hand, the appellant claimed
ESI contribution only on the amount paid by the respondent as
interim relief to its employees, treating the same as “wages” as per
Section 2(22) of the ESI Act. The amount paid as interim relief by
the respondent to its employees definitely falls within the definition
of “wages” as per Section 2(22) of the ESI Act. On the other hand,
17
the High Court has strangely observed that the interim relief paid
for the period from 01.04.1996 to 31.03.2000 can only be treated as
“ex-gratia payment” paid by the employer to its employees and
cannot be treated as “wages” for the purpose of ESI contribution.
In our considered opinion, the High Court has ignored to appreciate
that the effect of ESI Act enacted by the Parliament cannot be
circumvented by the department office memorandum. The High
Court has also failed to appreciate that the payment of interim
relief/wages emanates from the provisions contained in terms of the
settlement, which forms part of the contract of employment and
forms the ingredients of “wages” as defined under Section 2(22) of
the ESI Act and that the respondent paid interim relief, as per a
scheme voluntarily promulgated by it as per the notification dated
20.04.1996, issued by the Government of India, in view of the
recommendations of “Manisana’ Wage Board, pending revision of
rates of wages. It was not an ex-gratia payment. In this context, it
is beneficial to note the observations of this Court in the case of
Employees State Insurance Corporation vs. Gnanambigai Mills
Limited, (2005) 6 SCC 67, which read thus:
18
“6. In our view the High Court has gone
completely wrong in concluding that by virtue
of the award it ceases to be wages. As stated
above, the Tribunal has not applied its mind
as to whether or not the payments were wages.
All that the Tribunal did was to give its
imprimatur to a compromise between the
parties. Merely because the parties in their
compromise chose to term the payments as “ex
gratia payments” does not mean that those
payments cease to be wages if they were
otherwise wages. As stated above, they were
wages at the time that they were paid. They
did not cease to be wages after the award
merely because the terms of compromise
termed them as “ex gratia payments”. We are
therefore unable to accept the reasoning of the
judgments of the High Court. The judgment of
the Division Bench as well as that of the Single
Judge accordingly stands set aside. It is held
that the amounts paid are wages and
contribution will have to be made on those
amounts also. We, however, make it clear that
payments of the interest will be as per the
statutory provisions.”
11. The interim relief paid by the respondent to its employees
is not a “gift” or “inam”, but is a part of wages, as defined under
Section 2(22) of the ESI Act. In view of the above, we hold that the
payment made by way of interim relief to the employees by the
respondent for the period from 1.04.1996 to 31.03.2000 comes
19
within the definition of “wages”, as contained in Section 2(22) of the
ESI Act, and hence the respondent is liable to pay ESI contribution.
12. Accordingly, the instant appeal is allowed, the impugned
judgment of the High Court is set aside, and that of the ESI Court is
restored. The appellant is held to be entitled to recover the ESI
contribution from the respondent for the period from 01.04.1996 to
31.03.2000 as per demand notice dated 02.11.2000. No order as to
costs.
……………………………………J.
[ARUN MISHRA]
……………………………………J.
[MOHAN M. SHANTANAGOUDAR]
NEW DELHI;
SEPTEMBER 21, 2017.

Madhya Pradesh Ceiling on Agricultural Holdings Act, 1960 - suit for declaration of his occupancy rights in the suit land - No occupancy rights of a tenant in the land in the absence of possession = whether the plaintiff had become a cultivating farmer of the land in question and while answering this issue the trial court has discussed the question whether the plaintiff was in possession of the land or not. It has been found that the plaintiff was not in possession of the land. In fact, the plaintiff himself had admitted that he is not in possession of the land and cultivation on his behalf is carried out by a servant. It was also stated that one relative was managing the cultivation of the land. The trial court held that the plaintiff had failed to prove that he was in possession because he failed to mention the name of the persons who were owning the neighbouring lands nor could he give any details thereof. The servant Buda and the relative Amlok Chand were not examined by the plaintiff. Therefore, even as per the stand of the plaintiff he was not in personal cultivating possession and hence, he could not have got occupancy rights of a tenant in the land which can only be given to a person who is actually cultivating the land.

1
NON-REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 5040 OF 2009
YASHCHANDRA (D) BY LRS. …APPELLANT(S)
Versus
THE STATE OF MADHYA PRADESH
& ORS. …RESPONDENT(S)
J U D G M E N T
Deepak Gupta, J.
1. The State of Madhya Pradesh enacted the Madhya
Pradesh Ceiling on Agricultural Holdings Act, 1960 (hereinafter
referred to as ‘the Act’). The Bill in this regard was published
on 15th September, 1959 and the Act was published on 1st
October, 1960 after receiving the assent of the President of
India. Section 7 of the Act provided the maximum extent of
land to be held by a person and when the Act was initially
passed, a land holder was not entitled to hold land in excess of
28 standard acres. Standard acre was defined under Section
2
2(n) of the Act to mean one acre of perennially irrigated land or
two acres of seasonally irrigated land or three acres of dry
land. Section 4 of the Act provided that any transaction of
land by the land holder by way of sale, gift, exchange, partition
etc. could be verified by the competent authority, provided
such transfer of land had been made after the date of
publication of the Bill i.e. 15.09.1959. Sub-section 2 of
Section 4 of the Act provided that this section would not apply
to a transfer made by the land holder who does not hold land
in excess of the ceiling area on the date of transfer. Section 5
of the Act restricts the transfer or sub-division of land after the
coming into force of the Act till final order under Section 11 of
the Act is passed unless the permission of the Collector in
writing is taken before entering into the transaction.
2. One Phoolchand was the owner of 72 acres 75 decimals
of land. Admittedly, this was dry land and, therefore, he was
entitled to hold 84 acres of dry land under the Act. The Act
was amended in the year 1972. We are only concerned with the
Amendment Act of 1972 and the Second Amendment Act of
1972. Both these Acts came into force from 7th March, 1974.
The maximum extent of holding was changed and where the
3
holder of the land was a member of the family of less than 5
members, the family was entitled to retain 15 standard acres of
land, and 18 standard acres of land where a family consisted of
more than 5 persons. As per this amendment, Phoolchand was
at the most entitled to retain 18 standard acres or 54 acres of
dry land. Vide Second Amendment Act, 1972, Section 4 of the
Act was amended and the competent authority was entitled to
set aside any transaction entered into after 24th January, 1971
and before the appointed day, which is 7th March, 1974.
3. After the Act was amended, Phoolchand filed his return
and in his return he did not say that he had leased out any
land to Yashchandra, the original plaintiff who was also the
original appellant before this Court, who is deceased and is
now represented by his legal representatives. It is the admitted
case of the parties that Yashchandra was related to
Phoolchand. Yashchandra filed a petition before the competent
authority under the Act claiming that he was an occupancy
tenant on the eastern part of the land of Phoolchand measuring
25 acres and claimed that this land had been leased out to him
vide lease deed dated 21st November, 1968 on a rental of
Rs. 500/- per annum. He further claimed that since he was in
4
occupation of the land he had got the rights of occupancy
tenant under Section 169 of the Madhya Pradesh Land
Revenue Code, 1959 (hereinafter referred to as ‘the Code’). The
competent authority rejected the objections and declared 20.88
acres of land of Phoolchand as surplus under the Act.
4. Thereafter, Yashchandra filed a suit for declaration of his
occupancy rights in the suit land on the same grounds. In
this suit he claimed that Phoolchand had transferred 24 acres
of land to him in 1968. In this suit a written statement was
filed and in the written statement the State denied that
Phoolchand had created any lease in favour of Yashchandra.
However, it was admitted that the plaintiff was in cultivating
possession of the land. The State, however, took the plea that
the alleged transaction of lease is a sham transaction set up
with an intention to defeat the provisions of the Act.
Phoolchand was defendant in the suit but did not contest the
same. He did not file any written statement. The trial court
dismissed the suit. Yashchandra filed an appeal and the first
appellate court allowed the appeal mainly on the ground that a
lease was created by the document in question and, as such,
the plaintiff had obtained occupancy rights. An appeal was
5
filed by the State and the High Court came to the conclusion
that the alleged deed was a sham transaction. It relied upon
the evidence of the plaintiff himself to come to the conclusion
that the plaintiff was not in possession of the land. This
judgment is challenged before us.
5. Shri Puneet Jain, learned counsel for the appellants has
basically raised two issues- the first is that since the
transaction in question is of the year 1968, the competent
authority had no jurisdiction to invalidate the same either
under the un-amended provisions of the Act or under the
amended provisions of the Act. He submits that when the
transaction took place, the holding of Phoolchand was less
than the maximum prescribed limit and such a transfer was
permissible under section 4(2) of the Act. He further submits
that after the Amendment Act of 1972, the competent authority
could only look into the validity of those documents or
transactions which had been entered into after 24th
January, 1971.
6. This argument seems attractive on first blush. However,
when we carefully peruse the original document, we notice that
by this document [Annexure P-2] Phoolchand states that he
6
has received Rs.2000/- from Yashchandra and that he has
permitted Yashchandra to enclose and cultivate 1/3rd of his
land measuring 24 acres and cultivate the same and only
Rs. 500/- would be deducted. Even after payment of the full
amount of Rs. 2000/-, Yashchandra would be entitled to
cultivate the land for a period of 10 years. This document is
signed only by Phoolchand and it is neither witnessed by
anybody nor registered. This document transfers an interest in
immovable property of more than rupees hundred. It may be
true that under the provisions of the Code oral leases of
agricultural holdings are permissible, but once the lease is
created by a document then the same has to be registered
under the Registration Act. This document is an unregistered
document. The courts below have come to the conclusion that
this document is an ante-dated document. Therefore, this
document cannot be looked into for deciding whether this
document creates any right, title or interest in the appellants.
In our view, in the absence of any registration or any attesting
witness, the document could have easily been manipulated by
Phoolchand and the plaintiff by ante-dating it.
7
7. The second issue raised by Shri Puneet Jain, learned
counsel for the appellants is that the aforesaid document can
be looked into for the collateral purpose for deciding the
possession of the plaintiff. In this regard, Shri Jain, learned
counsel also relied upon the written statement wherein it is
mentioned that the cultivating possession of the plaintiff is
admitted. No doubt, this one sentence in the written statement
gives the impression that possession of the plaintiff is admitted,
but if we read the written statement as a whole we find that the
stand of the State is that the document is a sham document, at
best a mortgage deed and the possession of the plaintiff is in
the nature of a mortgagee.
8. One of the issues framed was whether the plaintiff had
become a cultivating farmer of the land in question and while
answering this issue the trial court has discussed the question
whether the plaintiff was in possession of the land or not. It
has been found that the plaintiff was not in possession of the
land. In fact, the plaintiff himself had admitted that he is not
in possession of the land and cultivation on his behalf is
carried out by a servant. It was also stated that one relative
was managing the cultivation of the land. The trial court held
8
that the plaintiff had failed to prove that he was in possession
because he failed to mention the name of the persons who were
owning the neighbouring lands nor could he give any details
thereof. The servant Buda and the relative Amlok Chand were
not examined by the plaintiff. Therefore, even as per the stand
of the plaintiff he was not in personal cultivating possession
and hence, he could not have got occupancy rights of a tenant
in the land which can only be given to a person who is actually
cultivating the land.
9. In view of the above discussion we find no error in the
judgment of the High Court and the appeal is dismissed
accordingly. Pending application(s), if any, stands disposed of.
….……………………..J.
(MADAN B. LOKUR)
.….…………………….J.
(DEEPAK GUPTA)
New Delhi
September 20, 2017

whether ‘front running by non-intermediary’ is a prohibited practice under regulations 3 (a), (b), (c) and (d) and 4(1) of FUTP 2003?

1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2595 OF 2013
SECURITIES AND EXCHANGE BOARD OF INDIA … Appellant(s)
Versus
SHRI KANAIYALAL BALDEVBHAI PATEL … Respondent (s)
With
CIVIL APPEAL NO. 2596 OF 2013
[SECURITIES AND EXCHANGE BOARD OF INDIA V. SHRI DIPAK PATEL]
CIVIL APPEAL NO. 2666 OF 2013
[SECURITIES AND EXCHANGE BOARD OF INDIA V. SUJIT KARKERA AND ORS.]
CIVIL APPEAL NO. 5829 OF 2014
[Pooja Menghani v. SECURITIES AND EXCHANGE BOARD OF INDIA]
CIVIL APPEAL NO. 11195-11196 OF 2014
[Vibha Sharma and Anr. V. SECURITIES AND EXCHANGE BOARD OF INDIA]
2
J U D G M E N T
N. V. RAMANA J.
1. The important question of law, arising in these batch of cases, being
similar and the facts involved being largely comparable, all the
appeals were heard together and are being decided by this common
judgment.
2. This case revolves round the legality of ‘non-intermediary frontrunning’
in security market under the SECURITIES AND EXCHANGE
BOARD OF INDIA (PROHIBITION OF FRAUDULENT AND UNFAIR TRADE
PRACTICES RELATING TO SECURITIES MARKET) REGULATIONS, 2003
[hereinafter ‘FUTP 2003’ for brevity]. As SEBI Appellate Tribunal
[hereinafter ‘SAT’ for brevity] has taken two different views in
different cases appealed herein, Securities and Exchange Board of
India [herein after ‘SEBI’ for brevity] as well as private individuals,
who are alleged to have been involved in front running, are in appeal
before us.
3
3. A brief factual background would be necessary before we deal with
the question of law that has arisen in this case instant. Broadly to
understand the issue at hand, the facts in CIVIL APPEAL NO. 2595 OF
2013 AND 2596 OF 2013 (related cases) may be stated in brief. SEBI
investigated into the activities of Shri Kanaiyalal Baldevbhai Patel
[herein after ‘KB’ for brevity] an individual trader. During the
investigation, it was found that KB was putting orders ahead of
orders placed by Passport India Investment (Mauritius) Ltd. [herein
after ‘PII’ for brevity]. One Dipak Patel, was the portfolio manager of
PII, who also happens to be a cousin of KB and one Shri
Anandkumar Baldevbhai Patel [herein after ‘AB’ for brevity]. It was
alleged that Dipak Patel provided information to KB and AB
regarding forthcoming trading activity of the PII. It is to be noted that
trades were executed using the telephone number registered in the
name of AB at the common residential address of KB and AB. Taking
advantage of the information received from Dipak Patel, KB had
indulged in trading before the PII and consequently squared off the
position when the order of PII were placed in the market. It was
estimated that the KB earned a total profit of Rs. 1,56,32,364.01/-
4
from the alleged trades. This Court in CIVIL APPEAL NO. 2594 OF
2013, by order dated 05.04.2017, while remanding the matter back
to the Appellate Tribunal with respect to AB, held that there is no
finding or conclusion recorded with respect to AB in the following
mannerLearned
counsel for the appellant (SEBI) has
vehemently urged that such findings are
recorded in the Adjudication Order and the
said order has merged with the order of the
learned Appellate Tribunal. We disagree with
the aforesaid contention urged by the learned
counsel for the appellant. In the appeal(s) filed
by the aggrieved person(s) against the order(s)
of the Adjudicating Officer, the learned
Appellate Tribunal was expected to record its
own independent findings and arrive at its own
conclusions for holding the respondent liable
for the penalty imposed. It seems that the
learned Appellate Tribunal has proceeded on
the basis that the case of the respondent is
same and similar to the case of Kanaiyalal
Baldev Patel and Dipak Patel which, evidently,
is not.
5
4. In CIVIL APPEAL NO.2666 OF 2013, Sujit Karkera and Group were
trading through B.P. Equity Pvt. Ltd. SEBI alleges that they were
trading ahead of the trades of CITIGROUP Global Markets Mauritius
Pvt. Ltd.(CGMMPL) on the basis of information provided by Suresh
Menon (trader of CGMMPL) who was in possession of the orders of
CGMMPL for 6 scrip days. SEBI in its investigation had found that
there were several calls made between Suresh Menon and his family
friend Sujit Karkera during this time period of 6 days. In these
telephonic conversations, it was alleged that there was exchange of
information related to scrip name, order quantity, order timing, and
order price of the orders placed by Suresh Menon for CGMMPL. Sujit
Karkera utilized the information provided by Suresh Menon to trade
thereby making huge profits.
5. In CIVIL APPEAL NO.11195-96 OF 2014, Jitendra Kumar Sharma was
an equity dealer employed by the Central Bank of India. His
responsibilities entailed preparation of charts for the chief equity
dealer and placing of orders based on instructions of the chief equity
dealer. Vibha Sharma, who is the wife of Jitendra Kumar Sharma,
6
was a regular trader in the stock market and this fact was disclosed
to Central Bank of India as a good practice of making disclosure to
the employer. It is the allegation of SEBI that Vibha Sharma engaged
herself in front running Central Bank of India’s large scale orders
allegedly with the knowledge obtained from her husband. Further the
SEBI had alleged that Vibha Sharma’s trades substantially matched
with the trades of the bank during the relevant period thereby
violating regulations 3(a), (b), (c), (d) and 4(1) of FUTP 2003.
6. In CIVIL APPEAL NO. 5829 OF 2014, facts of the case are that
appellant used to trade in scrips of four companies namely Amtek
Auto Ltd., Amtek India Ltd., Monnet Ispat Ltd. and Ahmednagar
Forgings Ltd. through Religare Securities Ltd., ISF Securities Ltd.,
India Infoline Securities Ltd. and Narayan Securities Private Ltd. It is
alleged against the appellant that, she had bought and sold equal
quantities of shares in large volume in these four scrips by utilizing
the information provided by Deepak Khurana who was privy to
certain confidential information of Religare. SEBI conducted an
investigation in the trading of appellant from June 1, 2008 to
7
January 12, 2009. During the investigation, SEBI noticed
irregularities in her dealings in the scrips of above mentioned four
companies. A general trend of trading was noticed which further
revealed that the appellant was indulged in Front Running. It was
found that the appellant’s sell orders (quantity and price)
substantially matched with the buy orders (quantity and price) of
other traders and that her sell order limit price was always above the
sell LTP but was same or very close to the buy limit price of other
traders. Moreover the selling price, quoted by her, was close to the
highest price reached on market on those days.
7. With this factual background, a reference needs to be made to the
scheme of FUTP 2003. SEBI, by a notification under Section 30 of
the SEBI Act, 1992, dated 17.07.2003, formulated FUTP 2003.
8. Indisputably, the object and purpose of this regulation (FUTP 2003)
is to safeguard the investing public and honest businessmen. The
aim is to prevent exploitation of the public by fraudulent schemes
and worthless securities through misrepresentation, to place
adequate and true information before the investor, to protect honest
8
enterprises seeking capital by accurate disclosure, to prevent
exploitation against the competition afforded by dishonest securities
offered to the public and to restore the confidence of the prospective
investor in his ability to select sound securities.
9. FUTP 2003 has three chapters, namely ‘preliminary’, ‘prohibition of
fraudulent and unfair trade practices relating to securities market’
and ‘investigation’. Regulation 1 contains the short title and
commencement. Regulation 2 consists of certain definitions. Clause
(b) of regulation 2 defines ‘dealing in securities’ which includes an act
of buying, selling or subscribing pursuant to any issue of any
security or agreeing to buy, sell or subscribe to any issue of any
security or otherwise transacting in any way in any security by any
person as principal, agent or intermediary referred to in Section 12 of
the SEBI Act. Clause (c) of regulation 2 defines fraud in the following
mannerc)
"fraud" includes any act,
expression, omission or
concealment committed whether in
a deceitful manner or not by a
9
person or by any other person with
his connivance or by his agent while
dealing in securities in order to
induce another person or his agent
to deal in securities, whether or not
there is any wrongful gain or
avoidance of any loss, and shall also
include-
(1) a knowing misrepresentation of
the truth or concealment of material
fact in order that another person
may act to his detriment;
(2) a suggestion as to a fact which is
not true by one who does not believe
it to be true;
(3) an active concealment of a fact
by a person having knowledge or
belief of the fact;
(4) a promise made without any
intention of performing it;
(5) a representation made in a
reckless and careless manner
whether it be true or false;
10
(6) any such act or omission as any
other law specifically declares to be
fraudulent,
(7) deceptive behaviour by a person
depriving another of informed
consent or full participation.
(8) a false statement made without
reasonable ground for believing it to
be true.
(9) The act of an issuer of securities
giving out misinformation that
affects the market price of the
security, resulting in investors
being effectively misled even though
they did not rely on the statement
itself or anything derived from it
other than the market price.
And "fraudulent" shall be construed
accordingly;
Nothing contained in this clause
shall apply to any general comments
made in good faith in regard to
(a) the economic policy of the
government
11
(b) the economic situation of the
country
(c) trends in the securities market
or
(d) any other matter of a like nature
whether such comments are made
in public or in private
10. Regulation 3 prohibits certain dealings in securities, whereas
regulation 4 prohibits manipulative, fraudulent and unfair practices.
Regulation 5 deals with the power of the board to order investigation.
Regulation 6 elaborates on the power of the investigating authority.
11. It is important to note that SEBI has amended the regulation, a
number of times, to keep up with the technology and times. A
reference may be made to the amendments carried out to the
regulation -
Table No.1- comparison of relevant provisions
FUTP 1995 FUTP 2003 (APPLICABLE REGULATION) AMENDMENT OF
2013
12
REGULATION
2 (C) (DEFINITIONS)
“Fraud” includes any of the
following acts committed by a
party to ac contract, or with his
connivance, or by his agent, with
intent to decive another party
thereto or his agent, or to induce
him to enter into the contract:-
(1.) The suggestion, as to a fact,
of that which is not true, by
one who does not believe it to
be true;
(2.) The active concealment of a
fact by one having knowledge
or belief of the fact;
(3.) A promise made without
any intention of performing it;
(4.) Any other act fitted to
deceive;
(5.) Any such act or omission
as the law secially declares to
be fraudulent;
(6.) And “fraudulent” shall be
construed accordingly
REGULATION
2 (C) (DEFINITIONS)
“fraud” includes any act, expression,
omission or concealment committed
whether in a deceitful manner or
not by a person or by any other
person with his connivance or by
his agent while dealing in securities
in order to induce another person or
his agent to deal in securities,
whether or not there is any wrongful
gain or avoidance of any loss, and
shall also include-
(1) A knowing misrepresentation of
the truth or concealment of
material fact in order that
another person may act to his
detriment;
(2) A suggestion as to a fact which is
not true by one who does not
believe it to be true;
(3) An active concealment of a fact
by a person having knowledge or
belief of the fact;
(4) A promise made without any
intention of performing it;
(5) A representation made in a
reckless and careless manner
whether it be true or false;
(6) Any such act or omission as any
other law specifically declares to
be fraudulent,
(7) Deceptive behavior by a person
depriving another or informed
consent or full participation,
(8) A false statement made without
reasonable ground for believing it
to be true.
(9) The act of an issuer of securities
giving out misinformation that
affects the market price of the
security, resulting in investors
being effectively misled even
though they did not rely on the
statement itself or anything
derived from it other then the
market price.
No
amendments to
Section 2(c)
13
REGULATION
3 (Prohibition of certain dealings in securities)
No person shall buy, sell or
otherwise deal in securities in a
fraudulent manner.
REGULATION
3 (Prohibition of certain dealings in securities)
Prohibition of certain dealings in
securities
No person shall directly or indirectly-
(a)buy, sell or otherwise deal in
securities in a fraudulent manner;
(b)use or employ, in connection with
issue, purchase or sale of any
security listed or proposed to be
listed in a recognized stock
exchange, any manipulative or
deceptive device or contrivance in
contravention of the provisions of
the Act or the rules or the regulations
made there under;
(c) employ any device, scheme or
artifice to defraud in connection with
dealing in or issue of securities which
are listed or proposed to be listed on a
recognized stock exchange;
(d)engage in any act, practice, course
of business which operates or would
operate as fraud or deceit upon any
person in connection with any
dealing in or issue of securities which
are listed or proposed to be listed on a
recognized stock exchange in
contravention of the provisions of the
Act or the rules and the regulations
made there under.
No
amendments to
Section 3(c)
14
REGULATION
4 (PROHIBITION AGAINST MARKET MANIPULATIONS)
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,
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
on securities market;
(c) Indulge in any act which 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;
(e) Pay, offer or agree to pay or
offer, directly or indirectly, to any
person any money or money’s
worth for inducing another person
to purchase or sell any security
with the sole objection of inflating,
depressing, or causing fluctuations
in the market price of securities.
REGULATION
4 (PROHIBITION AGAINST MANIPULATIVE, FRAUDULENT AND UNFAIR TRADE PRACTICES)
(1) Without prejudice to the
provisions of regulation 3, no
person shall indulge in a fraudulent
or an unfair trade practice in
securities.
(2) Dealing in secuties shall be
deemed to be a fraudulent or an
unfair trade practice if it involves
fraud and may include all or any of
the following, namely:-
(a.) Indulging in a act which
creates false or misleading
appearance of trading in
the securities market;
(b.) Dealing in a security not
intended to effect transfer
of beneficial ownership but
intended to operate only as
a device to inflate, depress
or cause fluctuations in
the price of such security
for wrongful gain or
avoidance of loss;
…
(e.) Any act or omission
amounting to
manipulation of the price
of a security;
…
(q.) An intermediary buying or
selling securities in
advance of a substantial
client order or whereby a
futures or option position
is taken about an
impending transaction in
the same or related
futures or options
contract.
Explanation.-
For the
purposes of this
subregistration,
for
the removal of
doubt, it is
clarified that
the acts or
omissions listed
in this subregulation
are
not exhaustive
and that an act
or omission is
prohibited if it
falls within the
purview of
regulation 3
notwithstandin
g that it is not
included in this
sub-regulation
or is described
as being
committed only
by a certain
category or
persons in this
sub-regulation’
12. Although aforesaid amendments are made to the regulation, yet
such amendments sometimes fail to live up to human ingenuity and
growth of technology. Usurpation of reprehensible profits by
fraudsters, who are not entitled to them, must be made answerable
15
by this Court as per established tenants of rule of law without
leaving incentives for fraudulent practices, based on creativity of
disingenuous, to survive the legal gambits. Before embarking upon
the necessary discussions, I would like to record my views on a
somewhat unclear picture that emerge from undefined concepts
contained in the Act and the Regulations framed there under, a
comprehensive legislation can bring about more clarity and certainty
on these aspects.
13. Submissions of Mr. K. T. S. Tulsi, learned senior advocate,
appearing on behalf of the appellant in CIVIL APPEAL NO. 5829 OF
2014.
The finding with regard to the appellant being guilty of fraud
under regulations 3 and 4 of FUTP 2003 is contrary to the
definition of fraud as contained in Regulation 2(1)(c) of the said
Regulations.
Sub-clauses (i), (j), (l), (m), (p), (o) and (q) of clause (2) of
regulation 4 expressly make themselves applicable only to the
case of intermediaries and not to individual buyers or sellers.
16
The rest of the sub-clauses being part of the scheme which
seeks to regulate the conduct of intermediaries, will be deemed
on their face, to pertain to activities undertaken by
intermediaries. Thus, the whole of Regulation 4 seems to be
inapplicable to the case of the applicant.
Submissions of Mr. Arvind P. Datar, learned senior advocate,
appearing on behalf of SEBI-
That the ambit of FUTP regulations has been substantially
increased from 1995 to 2003.
That inclusion of specific prohibition of front-running with
respect to intermediaries under Regulation 4 (2)(q) should not
whittle the scope of regulation 4 of the FUTP 2003.
Moreover, ‘Expressio Unius Est Exclusio Alterius’ may not be a
safe principle to oust the liability for non-intermediary frontrunning.
14. Other learned counsels appearing for parties have either
adopted the submissions made by the above named advocates or
17
provided alternative reasons for the conclusions reached by the
abovementioned advocates.
15. The question which has arisen for our consideration is whether
‘front running by non-intermediary’ is a prohibited practice under
regulations 3 (a), (b), (c) and (d) and 4(1) of FUTP 2003?
16. As this case involves practice of ‘front-running’ in security
market, a reference may be made to various definitions and
meanings of front-runningMajor
Law
Lexicon by P.
Ramanatha
Aiyar (4th Ed.
(2010)
FRONT RUNNING.- Buying or selling
securities ahead of a large order so as
to benefit from the subsequent price
move.
This denotes persons dealing in the
market, knowing that a large
transaction will take place in the near
future and the parties are likely to
move in their favour.
The illegal private trading by a broker
or market maker who has prior
knowledge of a forthcoming large
18
movement in prices
The Black’s Law
dictionary (9th
Ed.)
Front running, n. Securities. A
broker’s or analyst’s use of non-public
information to acquire securities or
enter into options or futures contracts
for his or her own benefit, knowing
that when the information becomes
public, the price of the securities will
change in a predictable manner. This
practice is illegal. Front-running can
occur in many ways. For example, a
broker or analyst who works for a
brokerage firm may buy shares in a
company that the firm is about to
recommend as a strong buy or in
which the firm is planning to buy a
large block of shares.
Nancy Folbre1 In the world of financial trading, a frontrunner
is someone who gains an unfair
advantage with inside information
1
Nancy Folbre, The Front-Runners of Wall Street, 07.04.2014 (The New York Times).
19
17. SEBI has defined front-running in one of its circular2 in the
following mannerFront-running;
for the purpose of
this circular, front running means
usage of non public information to
directly or indirectly, buy or sell
securities or enter into options or
futures contracts, in advance of a
substantial order, on an impending
transaction, in the same or related
securities or futures or options
contracts, in anticipation that when
the information becomes public; the
price of such securities or contracts
may change.
18. Further a consultative paper3 issued by SEBI had grouped front
running to be an undesirable manipulative practice in the following
manner-
‘However, SEBI Act does not
prescribe or specify as to which
practice would be considered to be
2
Circular CIR/EFD/1/2012, dated 25.05.2012.
3
Consultative Paper issued by SEBI, pursuant to a Press release No. 34/95 dated March 16, 1995.
20
fraudulent and unfair trade
practices. While the fraudulent and
unfair trade practices are commonly
understood, it would be desirable if
these practices are defined
specifically.
..this will bring about clarity among
the intermediaries, issuers,
investors and other connected
persons in the securities markets
about the practices that are
prohibited, fraudulent and unfair.
…The draft defines fraudulent and
unfair trade practices. These
regulations seek to cover market
manipulation on the stock
exchanges also. Practices like
wash sales, front-running, price
rigging, artificial increasing or
decreasing the prices of the
securities are brought within the
ambit of the regulations’
(emphasis added)
21
19. In actuality, front-running is more complicated than these
definitions suggest. It comprises of at least three forms of conduct.
They are: (1) trading by third parties who are tipped on an impending
block trade ("tippee" trading); (2) transactions in which the owner or
purchaser of the block trade himself engages in the offsetting futures
or options transaction as a means of "hedging" against price
fluctuations caused by the block transaction ("self-front-running");
and (3) transactions where a intermediary with knowledge of an
impending customer block order trades ahead of that order for the
intermediary's own profit ("trading ahead"). In this batch of appeals
we are concerned with the first and the last types of trade i.e., tippee
trading and trading ahead. It is important to note that trading ahead
has been explicitly recognized under regulation 4(2)(q) of FUTP 2003.
20. A word on interpretation would be appropriate before I take up
legal aspects of this case. Mr. K.T.S. Tulsi, learned senior counsel,
states that penal laws have to be strictly construed. He places
reliance on Govind Impex Pvt. Ltd. v. Income Tax Department4,
4
(2011) 1 SCC 529.
22
Krishi Utpadan Mandi Samiti v. Pilibhit Pantnagar Beej Ltd.5
Although strict construction is well established principle when
interpreting a penal provision, but such interpretation should not
result in incongruence when compared with the purpose of the
regulation. In SEBI v. Kishore R. Ajmera, this Court observed thatthe
SEBI Act and the Regulations framed
there under are intended to protect the
interests of investors in
the Securities Market which has seen
substantial growth in tune with the
parallel developments in the economy.
Investors' confidence in the
Capital/Securities Market is a reflection of
the effectiveness of the regulatory
mechanism in force. All such measures are
intended to preempt manipulative trading
and check all kinds of impermissible
conduct in order to boost the investors'
confidence in the Capital market. The
primary purpose of the statutory
enactments is to provide an environment
conductive to increased participation and
investment in the securities market which
5
(2004) 1 SCC 391.
23
is vital to the growth and development of
the economy. The provisions of the SEBI
Act and the Regulations will, therefore,
have to be understood and interpreted in
the above light.6
21. The object and purpose of FUTP 2003 is to curb “market
manipulations”. Market manipulation is normally regarded as an
“unwarranted” interference in the operation of ordinary market forces
of supply and demand and thus undermines the “integrity” and
efficiency of the market.7 This Court in N. Narayanan v.
adjudicating Officer, SEBI8, has laid down thatPrevention
of market abuse and
preservation of market integrity is the
hallmark of Securities Law. Section
12A read with Regulations 3 and 4 of
the Regulations 2003 essentially
intended to preserve ‘market integrity’
and to prevent ‘Market abuse’. The
object of the SEBI Act is to protect
the interest of investors in securities
and to promote the development and
6 SEBI v. Kishore R. Ajmera, (2016) 6 SCC 368
7
Palmer’s Company Law, 25th Edition (2010), Volume 2 at page 11097; Gower & Davies – Principles of Modern
Company Law, 9th Edition (2012) at page 1160.
8 (2013) 12 SCC 152
24
to regulate the securities market, so
as to promote orderly, healthy growth
of securities market and to promote
investors protection. Securities
market is based on free and open
access to information, the integrity of
the market is predicated on the
quality and the manner on which it is
made available to market. ‘Market
abuse’ impairs economic growth and
erodes investor’s confidence. Market
abuse refers to the use of
manipulative and deceptive devices,
giving out incorrect or misleading
information, so as to encourage
investors to jump into conclusions,
on wrong premises, which is known
to be wrong to the abusers. The
statutory provisions mentioned
earlier deal with the situations where
a person, who deals in securities,
takes advantage of the impact of an
action, may be manipulative, on the
anticipated impact on the market
resulting in the “creation of
artificiality’.
25
22. From the line of decisions cited herein above, it can be inferred
that as a matter of principle, while interpreting this regulation, the
court must weigh against an interpretation which will protect unjust
claims over just, fraud over legality and expediency over principle.
Once this rule is clearly established, individual cases should not
pose any problem.
23. It is equally well settled that in interpreting a statute, effort
should be made to give effect to each and every word used by the
Legislature. The Courts should presume that the Legislature inserted
every part for a purpose and the legislative intention is that every
part of the statute should have effect. It must be kept in mind that
whenever this Court is seized with a matter which requires judicial
mind to be applied for interpreting a law, the effort must always be
made to realize the true intention behind the law.
24. Before dealing with the legal issue we are seized with, it would
be important to observe certain definition as occurring under the
regulations. The definition of ‘dealing in securities’ acquires some
26
importance as charge under regulation 3 completely depends on the
aspect whether the tippee was dealing in securities in the first
instant or not. For a transaction to be termed as dealing in
securities, following ingredients need to be satisfied-
1. includes an act of buying, selling or subscribing
pursuant to any issue of any security, or
2. Agreeing to buy, sell or subscribe to any issue of
any security, or;
3. Otherwise transacting in any way in any security
by any person as principal, agent or intermediary
referred to in Section 12 of the Act.
25. The definition of ‘dealing in securities’ is broad and inclusive in
nature. Under the old regime the usage of term ‘ to mean’ has been
changed to ‘includes’, which prima facie indicates that the definition
is broad. Moreover, the inclusion of term ‘otherwise transacting’ itself
provides an internal evidence for being broadly worded so as to
include situations such as the present one.
26. There is no dispute as to the fact that fraud is jurisprudentially
very difficult to define or cloth it with particular ingredients. A
generalized meaning may be difficult to be attributed, as human
27
ingenuity would invent ways to bypass such behaviour. It is to be
noted that fraud is extensively used in various regulatory framework
which mandates me to take notice of the conceptual and definitional
problem it brings along. Fraud is among the most serious, costly,
stigmatizing, and punitive forms of liability imposed in modern
corporations and financial markets. Usually, the antifraud provisions
of the security laws are not coextensive with common-law doctrines
of fraud as common-law fraud doctrines are too restrictive to deal
with the complexities involved in the security market, which is also
portrayed by the changes brought in through the 2003 regulation to
the 1995 regulation.
27. On a comparative analysis of the definition of "fraud" as existing
in the 1995 regulation and the subsequent amendments in the 2003
regulations, it can be seen that the original definition of "fraud"
under the FUTP regulation, 1995 adopts the definition of "fraud"
from the Indian Contract Act, 1872 whereas the subsequent
definition in the 2003 regulation is a variation of the same and does
not adopt the strict definition of "fraud" as present under the Indian
28
Contract Act. It includes many situations which may not be a "fraud"
under the Contract Act or the 1995 regulation, but nevertheless
amounts to a "fraud" under the 2003 regulation.
28. The definition of ‘fraud’ under clause (c) of regulation 2 has two
parts; first part may be termed as catch all provision while the
second part includes specific instances which are also included as
part and parcel of term ‘fraud’. The ingredients of the first part of the
definition are-
1. includes an act, expression, omission or
concealment whether in a deceitful
manner or not;
2. By a person or by any other person with
his connivance or his agent while dealing
in securities;
3. So that the same induces another person
or his agent to deal in securities;
4. Whether or not there is any wrongful gain
or avoidance of any loss.
The second part of the definition includes specific instances-

29
(1) a knowing misrepresentation of the
truth or concealment of material fact in
order that another person may act to
his detriment;
(2) a suggestion as to a fact which is not
true by one who does not believe it to be
true;
(3) an active concealment of a fact by a
person having knowledge or belief of the
fact;
(4) a promise made without any intention
of performing it;
(5) a representation made in a reckless
and careless manner whether it be true
or false;
(6) any such act or omission as any other
law specifically declares to be fraudulent,
(7) deceptive behavior by a person
depriving another of informed consent or
full participation.
(8) a false statement made without
reasonable ground for believing it to be
true.
(9) The act of an issuer of securities
giving out misinformation that affects
the market price of the security, resulting
30
in investors being effectively misled even
though they did not rely on the statement
itself or anything derived from it other
than the market price.
29. Although unfair trade practice has not been defined under the
regulation, various other legislations9 in India have defined the
concept of unfair trade practice in different contexts. A clear cut
generalized definition of the ‘unfair trade practice’ may not be
possible to be culled out from the aforesaid definitions. Broadly trade
practice is unfair if the conduct undermines the ethical standards
and good faith dealings between parties engaged in business
transactions. It is to be noted that unfair trade practices are not
subject to a single definition; rather it requires adjudication on case
to case basis. Whether an act or practice is unfair is to be determined
by all the facts and circumstances surrounding the transaction. In
the context of this regulation a trade practice may be unfair, if the
conduct undermines the good faith dealings involved in the
9
Monopolies and Restrictive Trade Practices Act, 1969, Section 36A; The Consumer Protection Act, 1986, Section
2(1)(r); The Competition Act, 2002, Section 3; The Food Security and Standards Act, 2006, Section 24(2); Specific
Relief Act, 1963, Section 20; Usurious Loans Act, 1918, Section 3.
31
transaction. Moreover the concept of ‘unfairness’ appears to be
broader than and includes the concept of ‘deception’ or ‘fraud’.
30. Although learned counsel for SEBI has admitted that there is no
difference between fraud and unfair trade practice under regulation 4
(1), but we are of the opinion that such submission may not be
conclusive. As these cases do not require further investigation, the
question regarding the scope of prosecution for unfair trade practice
is kept open.
31. Regulation 3 prohibits a person from committing fraud while
dealing in securities. A reading of the aforesaid provision describes
the width of the power vested with the SEBI to regulate the security
market. In our view, the words employed in the aforesaid provisions
are of wide amplitude and would therefore take within its sweep the
inducement to bring about inequitable result which has happened in
this case instant.
32. Regulation 4 prohibits manipulative, fraudulent and unfair
trade practices. It is to be noted that the regulation 4 (1) starts with
32
the phrase ‘without prejudice to the provisions of regulation 3’. This
phrase acquires significance as it portrays that the prohibitions
covered under the regulation 3 do not bar the prosecution under
regulation 4 (1). Therefore regulation 4 (1) has to be read to have its
own ambit which adds to what is contained under regulation 3.
33. Regulation 4 (2)(q) of FUTP 2003 states that-
(2) Dealing in securities shall be deemed
to be a fraudulent or an unfair trade
practice if it involves fraud and may
include all or any of the following,
namely:-
…
q) an intermediary buying or selling
securities in advance of a substantial
client order or whereby a futures or
option position is taken about an
impending transaction in the same or
related futures or options contract.
Under the provisions of regulation 4(2)(q), only intermediary trading
on the information of substantial client order, if it involves fraud then
the dealing in securities will be deemed to be fraudulent.
33
34. An argument has been introduced by the Mr. K.T.S. Tulsi,
learned senior counsel, that sub-clause (q) of regulation 4(2) includes
only front-running by the intermediaries, by implication it means
that any persons other than intermediaries are excluded from the
rigors of law. In our opinion such submission cannot be sustained in
the eyes of law as the intention of the legislation was to provide for a
catchall provision and the deeming provision under sub-clause (q) of
regulation 4(2) was specifically provided as the intermediary are in
fiduciary relationship with the clients. There is no dispute as to the
fact that a fiduciary must act in utmost good faith; he should not act
for his own benefit or benefit of any third party without the informed
consent of his client. The essential irreducible core of fiduciary duty
is the duty of loyalty10. Such heightened standard demanded a
deeming provision under the FUTP 2003.
35. The reliance on ‘expressio unius est exclusio alterius’ may not be
appropriate in this case instant as the intention of the regulation is
apparent in this case. Moreover, it has been well established that
10 SEBI (Stock Brokers and Sub-brokers) Regulations, 1992, Schedule II.
34
‘expressio unius est exclusio alterius’ is not a rule of law but a tool of
interpretation which must be cautiously applied.11 In light of the
above discussion, this rule of interpretation does not help the case of
the violators.
36. A crucial aspect which needs to be observed at this point is the
element of causation which is embedded under regulation 2(1)(c)
read with regulations 3 and 4. In order to establish the aforesaid
charges in this case, it is required by the SEBI to establish that the
harm was induced by the materialization of a risk that was not
disclosed because of the tippee’s fraudulent practice. Further the
charges under the FUTP 2003 needs to be established as per the
applicable standards rather than on mere conjectures and surmises.
37. It should be noted that the provisions of regulations 3 (a), (b),
(c), (d) and 4(1) are couched in general terms to cover diverse
situations and possibilities. Once a conclusion, that fraud has been
committed while dealing in securities, is arrived at, all these
provisions get attracted in a situation like the one under
11 Colquhoun v. Brooks, (1887) 19 Q.B.D. 400; Lowe v. Darling & Sons, (1906) 2 K. B. 772
35
consideration. We are not inclined to agree with the submission that
SEBI should have identified as to which particular provision of FUTP
2003 regulations has been violated. A pigeon-hole approach may not
be applicable in this case instant.
38. Before we conclude, it would be useful to have a look at
American jurisprudence which has developed around Title 17, Code
of Federal Regulations, Part 240, Rule 10b-5 (Prohibition of use of
manipulative or deceptive devices or contrivances with respect
to certain securities exempted from registration). It is to be noted
that much of Indian securities laws have similar provisions and a
brief survey of jurisprudence might be useful for the discussion
herein. The complexity of the subject we are dealing is reflected even
in the American jurisprudence as the U.S Supreme Court seems to
have accepted the aforesaid provision to be the most litigated ones.12
In David Carpenter, Kenneth P. Felis and R. Foster Winans, v.
United States13
, the United States Supreme Court dealt with the
12 Securities and Exchange Commission vs. National Securities, Inc., et al., 393 U.S. 453 (1969)
‘Although section 10(b) and 10 b-5 may well be the most litigated provisions in the federal securities
laws, this is the first time this Court has found it necessary to interpret them. We eneter the virgin
territory cautiously…’
13 484 U.S. 19.
36
matter of fraud under section 10(b). In this case, the Petitioner, who
was a co-author in a Journal’s investment advice column, entered
into a deal with a stock broker wherein he provided pre-publication
information on the content of the column. Further the stockbroker
bought and sold shares based on such information and shared the
profits made therein with the Petitioner. The Court, while convicting
the Petitioner, elaborated the meaning of fraud in following manner –
We cannot accept petitioners' further
argument that Winans' conduct in
revealing prepublication information was
no more than a violation of workplace
rules and did not amount to fraudulent
activity that is proscribed by the mail
fraud statute. Sections 1341 and 1343
reach any scheme to deprive another of
money or property by means of false or
fraudulent pretenses, representations, or
promises. As we observed last Term in
McNally, the words “to defraud” in the
mail fraud statute have the “common
understanding” of “ ‘wronging one in his
property rights by dishonest methods or
schemes,’ and ‘usually signify the
37
deprivation of something of value by
trick, deceit, chicane or overreaching.’ ”
483 U.S., at 358, 107 S.Ct., at 2881
(quoting Hammerschmidt v. United States,
265 U.S. 182, 188, 44 S.Ct. 511, 512, 68
L.Ed. 968 (1924)). The concept of “fraud”
includes the act of embezzlement, which
is “ ‘the fraudulent appropriation to one's
own use of the money or goods entrusted
to one's care by another.’ ” Grin v. Shine,
187 U.S. 181, 189, 23 S.Ct. 98, 102, 47
L.Ed. 130 (1902).
Elaborating on the fiduciary relationship between the employee of a
firm to safeguard the confidential information owned by the firm, the
court observed as underThe
District Court found that Winans'
undertaking at the Journal was not to
reveal prepublication information about
his column, a promise that became a
sham when in violation of his duty he
passed along to his coconspirators
confidential information belonging to the
Journal, pursuant to an ongoing scheme
to share profits from trading in
38
anticipation of the “Heard” column's
impact on the stock market. In Snepp v.
United States, 444 U.S. 507, 515, n. 11,
100 S.Ct. 763, 768, n. 11, 62 L.Ed.2d
704 (1980) (per curiam), although a
decision grounded in the provisions of a
written trust agreement prohibiting the
unapproved use of confidential
Government information, we noted the
similar prohibitions of the common law,
that “even in the absence of a written
contract, an employee has a fiduciary
obligation to protect confidential
information obtained during the course of
his employment.” As the New York courts
have recognized: “It is well established, as
a general proposition, that a person who
acquires special knowledge or
information by virtue of a confidential or
fiduciary relationship with another is not
free to exploit that knowledge or
information for his own personal benefit
but must account to his principal for any
profits derived therefrom.” Diamond v.
Oreamuno, 24 N.Y.2d 494, 497, 301
N.Y.S.2d 78, 80, 248 N.E.2d 910, 912
39
(1969); see also Restatement (Second) of
Agency §§ 388, Comment c, 396(c) (1958).
We have little trouble in holding that the
conspiracy here to trade on the Journal's
confidential information is not outside
the reach of the mail and wire fraud
statutes, provided the other elements of
the offenses are satisfied. The Journal's
business information that it intended to
be kept confidential was its property; the
declaration to that effect in the employee
manual merely removed any doubts on
that score and made the finding of
specific intent to defraud that much
easier. Winans continued in the employ
of the Journal, appropriating its
confidential business information for his
own use, all the while pretending to
perform his duty of safeguarding it. In
fact, he told his editors twice about leaks
of confidential information not related to
the stock-trading scheme, 612 F.Supp.,
at 831, demonstrating both his
knowledge that the Journal viewed
40
information concerning the “Heard”
column as confidential and his deceit as
he played the role of a loyal employee.
39. In Vincent F. Chiarella v. United States14, the United States
Supreme Court was seized of the matter relating to securities fraud
under section 10b of the Securities Exchange Act, 1934. The
Petitioner therein was a printer of some corporate takeover bids.
Despite attempts by the companies to conceal the names of the
takeover targets, Chiarella was able to deduce, and he traded shares
of the companies he knew were involved. Consequently he was
convicted by the lower forum as he traded in target companies
without informing its shareholders of his knowledge of proposed
takeover. The Supreme Court while reversing his conviction,
observed as under-
“the Petitioner employee could not be
convicted on theory of failure to disclose
his knowledge to stockholders or target
companies as he was under no duty to
14 445 U.S. 222 (1980).
41
speak, in that he had no prior dealings
with the stockholders and was not their
agent or fiduciary and was not a person
in whom sellers had placed their trust
and confidence, but dealt with them only
through impersonal market
transactions.”
On the issue of “General Duty between all participants (Tippee’s), the
Court stated that:
“Formulation of a general duty between
all participants in market transactions for
forego actions based on material,
nonpublic information, so as to give rise
to liability under section 10(b) of
Securities Exchange Act for failure to
disclose, would depart radically from
established doctrine that a duty arises
from a specific relationship between two
parties and should not be undertaken
absent some explicit evidence of
congressional intent. Securities Exchange
Act of 1934, § 10(b) as amended 15
U.S.C.A. § 78j(b).”
42
40. Although excessive reliance on foreign jurisprudence may not
be necessary as we have starkly deviated in many aspects from
American jurisprudence, but we need to keep in mind the
developments which other countries have undertaken regarding this
issue.
41. Now we come back to the regulations 3 and 4 (1) which bars
persons from dealing in securities in a fraudulent manner or
indulging in unfair trade practice. Fairness in financial markets is
often expressed in terms of level playing field. A playing field may be
uneven because of varied reasons such as inequalities in information
etc. Possession of different information, which is a pervasive feature
of markets, may not always be objectionable. Indeed, investors who
invest resources in acquiring superior information are entitled to
exploit this advantage, thereby making markets more efficient. The
unequal possession of information is fraudulent only when the
information has been acquired in bad faith and thereby inducing an
inequitable result for others.
43
42. The law of confidentiality has a bearing on this case instant.
“Confidential information acquired or compiled by a corporation in
the course and conduct of its business is a species of property to
which the corporation has the exclusive right and benefit, and which
a court of equity will protect through the injunctive process or other
appropriate remedy.”15 The information of possible trades that the
company is going to undertake is the confidential information of the
company concerned, which it has absolute liberty to deal with.
Therefore, a person conveying confidential information to another
person (tippee) breaches his duty prescribed by law and if the
recipient of such information knows of the breach and trades, and
there is an inducement to bring about an inequitable result, then the
recipient tippee may be said to have committed the fraud.
43. Accordingly, non-intermediary front running may be brought
under the prohibition prescribed under regulations 3 and 4 (1), for
being fraudulent or unfair trade practice, provided that the
ingredients under those heads are satisfied as discussed above. From
15 3 W. Fletcher, Cyclopedia of Law of Private Corporations § 857.1, p. 260 (rev. ed. 1986)
44
the above analysis, it is clear that in order to establish charges
against tippee, under regulations 3 (a), (b), (c) and (d) and 4 (1) of
FUTP 2003, one needs to prove that a person who had provided the
tip was under a duty to keep the non-public information under
confidence, further such breach of duty was known to the tippee and
he still trades thereby defrauding the person, whose orders were
front-runned, by inducing him to deal at the price he did.
44. Taking into consideration the facts and circumstances of the
case before us and the law laid down herein above and SEBI v.
Kishore R. Ajmera (Supra) can only lead to one conclusion that
concerned parties to the transaction were involved in an apparent
fraudulent practice violating market integrity. The parting of
information with regard to an imminent bulk purchase and the
subsequent transaction thereto are so intrinsically connected that no
other conclusion but one of joint liability of both the initiator of the
fraudulent practice and the other party who had knowingly aided in
the same is possible. Consequently, Civil Appeal Nos. 2595, 2596
and 2666 of 2013 are allowed. At the same time, for the same reason,
45
Civil Appeal Nos. 5829 of 2014 and 11195-11196 of 2014 are
dismissed.
............................J.
(N. V. RAMANA)
NEW DELHI
SEPTEMBER 20, 2017
1
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 2595 OF 2013
SECURITIES AND EXCHANGE BOARD
OF INDIA ...APPELLANT(S)
VERSUS
KANAIYALAL BALDEVBHAI
PATEL ...RESPONDENT(S)
WITH
CIVIL APPEAL NO.2596 OF 2013
[S.E.B.I. VS. DIPAK PATEL]
CIVIL APPEAL NO.2666 OF 2013
[S.E.B.I. VS. SUJIT KARKERA & ORS.]
CIVIL APPEAL NO.5829 OF 2014
[POOJA MENGHANI VS. S.E.B.I.]
CIVIL APPEAL NOS. 11195-11196 OF 2014
[VIBHA SHARMA AND ANR. VS. S.E.B.I.]
J U D G M E N T
RANJAN GOGOI,J.
1. I have had the privilege of going
through the very erudite judgment of my
learned brother Ramana, J. I can only
2
agree with the trend of reasoning that my
learned brother has chosen to adopt to
arrive at his ultimate conclusions.
However, I am of the view that the present
case is capable of resolution within a
very narrow spectrum of law and on an
interpretation of the relevant provisions
of the Securities and Exchange Board of
India (Prohibition of Fraudulent and
Unfair Trade Practices Relating to
Securities Market) Regulations 2003
(hereinafter referred to as “2003
Regulations”). I, therefore, propose to
record my own views in the matter.
2. The relevant provisions of the
2003 Regulations which would require
consideration of this Court has been set
out in extenso by my learned brother and,
therefore, I need not burden this order
with a repetition of the same. All that I
3
consider necessary to point out is that it
is the provisions of Regulation 2(c),(3)
and (4) of the 2003 Regulations which
would require a consideration from the
limited stand point of whether the actions
attributable to the respondents in Appeal
Nos.2595 of 2013, 2596 of 2013 and 2666 of
2013 and appellants in Appeal Nos.5829 of
2014 and 11195-11196 of 2014 come within
the four corners of fraudulent or unfair
trade practice as contemplated by the
aforesaid provisions of the 2003
Regulations.
3. The gravamen of the allegations
which can be culled out from the facts in
Civil Appeal No.2595 of 2013 is that one
Dipak Patel (respondent in Civil Appeal
No.2596 of 2013), who was holding a
position of trust and confidence in one
M/s Passport India Investment (Mauritius)
4
Limited (hereinafter referred to as “M/s
Passport India”), was privy to
privileged/confidential information that
M/s Passport India would be making
substantial investments in particular
scrips through the stock exchanges.
Dipak Patel is alleged to have parted the
said information to his cousins Kanaiyalal
Baldevbhai Patel [respondent in Civil
Appeal No.2595 of 2013] and Anandkumar
Baldevbhai Patel [respondent in Civil
Appeal No.2594 of 2013 (disposed of on 5th
April, 2017)] who on various dates placed
orders for purchase of scrips a few
minutes before the bulk orders in respect
of the same scrips were placed on behalf
of M/s Passport India by Dipak Patel. The
bulk order/orders, because of the sheer
volume, naturally had the effect of
pushing up the prices of the particular
scrips and no sooner the prices had
5
increased, Kanaiyalal Baldevhai Patel and
Anandkumar Baldevbhai Patel had traded the
said scrips thereby earning substantial
profits. The large volume of the shares
traded in the above manner; the several
number of days on which such trading took
place; and the close proximity of time
between the sale and purchase of the
shares i.e. before and after the bulk
purchases, were alleged by the appellant -
Securities and Exchange Board of India
(“SEBI” for short) to be amounting to
fraudulent or unfair trade practice
warranting imposition of penalty and
visiting the offending individuals with
other penal consequences.
4. The adjudicating authority held the
respondents liable. The Securities
Appellate Tribunal (“Appellate Tribunal”
for short) before whom appeals were filed
6
by the aggrieved persons (respondents
herein) interfered with the orders passed
by the adjudicating authority primarily on
the ground that on a reading of Regulation
2(c),(3) and Regulation(4) of the 2003
Regulations it does not transpire that the
acts attributable amount to fraudulent or
unfair trade practice warranting the
findings recorded by the Adjudicating
authority and the imposition of penalty in
question on that basis.
5. If Regulation 2(c) of the 2003 was
to be dissected and analyzed it is clear
that any act, expression, omission or
concealment committed, whether in a
deceitful manner or not, by any person
while dealing in securities to induce
another person to deal in securities would
amount to a fraudulent act. The emphasis
in the definition in Regulation 2(c) of
7
the 2003 Regulations is not, therefore, of
whether the act, expression, omission or
concealment has been committed in a
deceitful manner but whether such act,
expression, omission or concealment
has/had the effect of inducing another
person to deal in securities.
6. The definition of 'fraud', which
is an inclusive definition and, therefore,
has to be understood to be broad and
expansive, contemplates even an action or
omission, as may be committed, even
without any deceit if such act or omission
has the effect of inducing another person
to deal in securities. Certainly, the
definition expands beyond what can be
normally understood to be a 'fraudulent
act' or a conduct amounting to 'fraud'.
The emphasis is on the act of inducement
and the scrutiny must, therefore, be on
8
the meaning that must be attributed to the
word “induce”.
7. The dictionary meaning of the word
“induced” may now be taken note of.
BLACK’S LAW DICTIONARY, EIGHTH
EDITION, defines ‘inducement’ as “the
act or process of enticing or
persuading another person to take a
certain course of action.”
Merriam-Webster Dictionary
defines ‘inducement’ as “a motive or
consideration that leads one to action
or to additional or more effective
actions.”
8. A person can be said to have induced
another person to act in a particular way or
not to act in a particular way if on the basis
of facts and statements made by the first
person the second person commits an act or
omits to perform any particular act. The test
to determine whether the second person had
been induced to act in the manner he did or
not to act in the manner that he proposed, is
9
whether but for the representation of the
facts made by the first person, the latter
would not have acted in the manner he did.
This is also how the word inducement is
understood in criminal law. The difference
between inducement in criminal law and the
wider meaning thereof as in the present case,
is that to make inducement an offence the
intention behind the representation or
misrepresentation of facts must be dishonest
whereas in the latter category of cases like
the present the element of dishonesty need not
be present or proved and established to be
present. In the latter category of cases, a
mere inference, rather than proof, that the
person induced would not have acted in the
manner that he did but for the inducement is
sufficient. No element of dishonesty or bad
faith in the making of the inducement would be
required.
9. While Regulation 3(a) of the 2003
Regulations prohibits a person to buy,
10
sell or otherwise deal in securities in a
fraudulent manner, Regulation 4 declares
that no person shall indulge in a
fraudulent or an unfair trade practice in
securities. Sub-regulation (2) of
Regulation 4 enumerates different
situations in which dealing in securities
can be deemed to be a fraudulent or an
unfair trade practice. Regulation 4 being
without prejudice to the provisions of
Regulation 3 of the 2003 Regulations would
operate on its own without being
circumscribed in any manner by what is
contained in Regulation 3.
10. Adverting to the facts of the
present case, if the information with
regard to acquisition of shares by M/s
Passport India was parted with by Dipak
Patel to Kanaiyalal Baldevbhai Patel and
Anandkumar Baldevbhai Patel and the latter
11
had transacted in huge volume of shares of
the particular company/scrip mentioned by
Dipak Patel a little while before the bulk
order was placed by M/s. Passport India
and the said persons had sold the same a
short-while later at an increased price,
such increase being a natural consequence
of a huge investment made in the
particular scrip by M/s Passport India,
surely, it can be held that by the conduct
of Dipak Patel, Kanaiyalal Baldevbhai
Patel and Anandkumar Baldevbhai Patel were
induced to deal in securities. A natural
and logical inference that would follow is
that the aforesaid two latter persons
would not have entered into the
transactions in question, had it not been
for the information parted with by Dipak
Patel. The track record of earlier
trading of the concerned two persons does
not indicate trading in such huge volumes
12
in their normal course of business. Such
an inference would be a permissible mode
of arriving at a conclusion with regard to
the liability, as held by this Court in
Securities and Exchange Board of India
Vs. Kishore R. Ajmera1 referred to by my
learned brother Ramana, J. The volume;
the nature of the trading and the timing
of the transactions in question can leave
no manner of doubt that Kanaiyalal
Baldevbhai Patel and Anandkumar Baldevbhai
Patel had acted in connivance with Dipak
Patel to encash the benefit of the
information parted with by Dipak Patel to
them and, therefore, they are parties to
the 'fraud' committed by Dipak Patel
having aided and abetted the same.
11. If the parting of information by
Dipak Patel to Kanaiyalal Baldevbhai Patel
1
(2016) 6 SCC 368
13
and Anandkumar Baldevbhai Patel amounts to
'fraud' within the meaning of Regulation
2(c) of the 2003 Regulations, we do not
see as to how the transactions entered
into by Kanaiyalal Baldevbhai Patel and
M/s Passport India through Dipak Patel
both in regard to purchase and sale of the
shares would not be hit by the provisions
of Regulation 3(a) and Regulation 4(1) of
the 2003 Regulations in question.
12. Coupled with the above, is the
fact, the said conduct can also be
construed to be an act of unfair trade
practice, which though not a defined
expression, has to be understood
comprehensively to include any act beyond
a fair conduct of business including the
business in sale and purchase of
securities. However the said question, as
suggested by my learned Brother, Ramana,
14
J. is being kept open for a decision in a
more appropriate occasion as the
resolution required presently can be made
irrespective of a decision on the said
question.
13. On the conclusions that has been
reached, as indicated above, whether the
deemed provisions contained in Regulation
4(2)(q) of the 2003 Regulations would be
attracted to the facts of the present case
and the scope, effect and contours of the
explanation to Regulation 4 inserted by
Securities and Exchange Board of India
(Prohibition of Fraudulent and Unfair
Trade Practices relating to Securities
Market) (Amendment) Regulations, 2013
would hardly require any specific notice
of the Court.
14. To attract the rigor of
Regulations 3 and 4 of the 2003
15
Regulations, mens rea is not an
indispensable requirement and the correct
test is one of preponderance of
probabilities. Merely because the
operation of the aforesaid two provisions
of the 2003 Regulations invite penal
consequences on the defaulters, proof
beyond reasonable doubt as held by this
Court in Securities and Exchange Board of
India Vs. Kishore R. Ajmera(supra) is not
an indispensable requirement. The
inferential conclusion from the proved and
admitted facts, so long the same are
reasonable and can be legitimately arrived
at on a consideration of the totality of
the materials, would be permissible and
legally justified. Having regard to the
facts of the present cases i.e. the volume
of shares sold and purchased; the
proximity of time between the transactions
of sale and purchase and the repeated
16
nature of transactions on different dates,
in my considered view, would irresistibly
lead to an inference that the conduct of
the respondents in Appeal Nos.2595 of
2013, 2596 of 2013 and 2666 of 2013 and
appellants in Appeal Nos.5829 of 2014 and
11195-11196 of 2014 were in breach of the
code of business integrity in the
securities market. The consequences for
such breach including penal consequences
under the provisions of Section 15HA of
the SEBI Act must visit the concerned
defaulters for which reason the orders
passed by the Appellate Tribunal impugned
in Civil Appeal Nos.2595 of 2013, 2596 of
2013 and 2666 of 2013 are set aside and
the findings recorded and the penalty
imposed by the Adjudicating Officer are
restored.
15. Consequently and in view of the
17
above Civil Appeal Nos. 5829 of 2014 and
11195-11196 of 2014 are dismissed and
Civil Appeal Nos. 2595, 2596 and 2666 of
2013 are allowed.
..............,J.
(RANJAN GOGOI)
NEW DELHI
SEPTEMBER 20, 2017

Granting of Anticipatory Bail by High Court is set aside - Six months prior to the incident, the first respondent had threatened the appellant that he will be made issueless. Three months prior to the incident, the first respondent, Satendra Yadav had gone to the school of Bittu Kumar and called him outside the school. However, Bittu Kumar did not join the first respondent. That is why the appellant has raised his suspicion against respondent Nos. 1 and 2, that they have kidnapped his son. Learned Sessions Judge examined the case diary and found that the witnesses examined by the IO during the investigation had supported the case of the prosecution. The victim boy has not been traced so far.

1
IN THE SUPREME COURT OF INDIA
CRIMINAL APPELLATE JURSIDCITON
CRIMINAL APPEAL NO. 1685 OF 2017
[Arising out of SLP(Crl.) No.5510 of 2017]
FEKAN YADAV … APPELLANT
VERSUS
SATENDRA YADAV @ BOSS YADAV
@ SATENDRA KUMAR AND ORS. …RESPONDENTS
J U D G M E N T
S.ABDUL NAZEER, J.
1. Leave granted.
2. Respondents 1 and 2 were apprehending their arrest in Karpi
P.S. Case No.07/17, registered under Section 363, 365 read with
Section 34 of IPC. Therefore, they filed an anticipatory bail
petition to extend the privilege of pre-arrest bail to them, before
the Additional Sessions Judge-II, Jehanabad in A.B.P.No.148 of
2017. Learned Sessions Judge by his order dated 16.02.2017,
rejected their petition. Thereafter they filed a petition before the
2
High Court of Judicature at Patna in Criminal Miscellaneous
No.12482 of 2017. The High Court vide order dated 27.4.2017,
allowed the petition and granted anticipatory bail to them, subject
to certain conditions stated therein. The appellant has questioned
the legality and correctness of the said order in this appeal.
3. Learned counsel for the appellant submits that the son of
the appellant, namely, Bittu Kumar was kidnapped by
respondents 1 and 2 and other co-accused on 3.1.2017. The
appellant could not trace the child despite his best efforts.
Therefore, the appellant lodged FIR with the Karpi Police Station.
It is further submitted that few months prior to the kidnapping,
the respondent No.1 had threatened the appellant that he will kill
the appellant’s son. Therefore, the High Court was not justified in
granting anticipatory bail to respondent Nos. 1 and 2.
4. Learned counsel for the State of Bihar, the third respondent
herein, submits that having regard to the gravity of accusations
made against the respondent Nos. 1 and 2, it is absolutely
necessary for their custodial interrogation.
3
5. Learned counsel for respondent Nos. 1 and 2 submits that
respondents 1 and 2 have been falsely implicated in the case.
Therefore, the High Court has rightly granted pre-arrest bail to
the respondents 1 and 2.
6. We have carefully considered the submissions of the learned
counsel made at the Bar and perused the materials placed on
record.
7. It is evident from the FIR that the appellant has informed
that his son, Bittu Kumar was a student of Baal Siksha Niketan
Karpi, Arwal. On 3.1.2017 at about 3 p.m. Bittu Kumar left for
school from his residence by boarding a tempo in village Ramapur
Mushari. But he did not reach the school and on 4.1.2017 the
appellant came to know that his son, Bittu Kumar had
disappeared on the way. Six months prior to the incident, the
first respondent had threatened the appellant that he will be
made issueless. Three months prior to the incident, the first
respondent, Satendra Yadav had gone to the school of Bittu
Kumar and called him outside the school. However, Bittu Kumar
did not join the first respondent. That is why the appellant has
4
raised his suspicion against respondent Nos. 1 and 2, that they
have kidnapped his son. Learned Sessions Judge examined the
case diary and found that the witnesses examined by the IO
during the investigation had supported the case of the
prosecution. The victim boy has not been traced so far.
8. The High Court without assigning any reasons has granted
the anticipatory bail. Having regard to the nature and gravity of
the accusations, we are of the view that the High Court was not
justified in granting anticipatory bail. Hence, the appeal is allowed
and the order of the High Court dated 27.4.2017 in Crl.Misc.
No.12482 of 2017 is hereby set aside.
………………………………J.
(J. CHELAMESWAR)
………………………………J.
(S. ABDUL NAZEER)
New Delhi;
September 19, 2017.