Vellayan resigned as chairman, while denying the allegations. He rejoined last October, after clarifying his position before Sebi.
Last week, an order by Sebi wholetime member S Raman disposed of the interim order and ordered re-investigation in the matter.
This is the second high profile insider trading case where Sebi has had to take a U-turn in recent times. In March, Sebi disposed of the case against Reliance Petroinvestments after the Securities Appellate Tribunal (SAT) asked the regulator to take a re-look at the earlier penal order.
Raman concluded after hearing all parties that, “proceeding merely on the basis of available but inadequate evidence on record, without support of any collateral material to arrive at a reasonably conclusive finding that it was indeed only Vellayan who had passed the UPSI (Unpublished Price Sensitive Information) to Murugappan, who thereafter passed on the same to Gopalakrishnan and Karuppiah, may not be just and reasonable.”
C Gopalakrishnan and V Karuppaiah of the Karuppaiah Hindu Undivided Family (HUF) were said to have made gains of Rs 1.3 crore and Rs 15.3 lakh by trading in SOGL shares. A R Murugappan was the alleged link between Vellayan and these two entities.
Murugappan was the son of Vellayan’s grand-aunt. Gopalakrishnan had some real estate transactions during the period of Sabero trades with Murugappan’s son, M Subramanian. Karuppiah was Murugappan’s son-in-law.
“Just because he is my son-in-law, it does not mean that his dealings are with my guidance or inputs. On the contrary, he not only has an independent source of income but also his own mind,” Murugappan told Sebi. He also presented evidence of his son’s real estate dealings with Gopalakrishnan, for which some advances were paid to the latter. Subramanian was not given a notice in the case.
Karuppiah also said in his defence that he was an active trader and his trading was based on news reports. They all referred to Vellayan’s stature and profile, and asked why he would give them UPSI for these meagre gains.
Vellayan’s defence itself hinged on the facts that Sebi didn’t find any evidence of UPSI being passed on and that his relationship did not fall under the definition of 'relative'. Further, it was brought on record that there were 69 individuals or entities which were in knowledge of UPSI at the time. And, 17 other entities, many based in Kolkata, that traded in Sabero shares during the relevant period. Eight of these followed the same pattern of trades as those accused in the interim order.
“No evidence of any nature at all has been brought to bear to even attempt to establish if there had been any physical or telecommunication contact between any other insider in the know of the Sabero transactions and those who traded,” Vellayan told Sebi, according to the latest order. He added that the investigation had not been of “any scientific nature”.
Sebi now has six months to do a better job, of unearthing the financial links and information channels among these 86, if any.