In this famous case, Rakesh Agarwal, the Managing Director of ABS Industries Ltd. (ABS), was involved in negotiations with Bayer A.G (a company registered in Germany), regarding their intentions to takeover ABS. Therefore, he had access to this unpublished price sensitive information.

It was alleged by SEBI that prior to the announcement of the acquisition, Rakesh Agarwal, through his brother in law, Mr. I.P. Kedia had purchased shares of ABS from the market and tendered the said shares in the open offer made by Bayer thereby making a substantial profit. The investigations of SEBI affirmed these allegations. Bayer AG subsequently acquired ABS.

Further he was also an insider as far as ABS is concerned. By dealing in the shares of ABS through his brother-in-law while the information regarding the acquisition of 51% stake by Bayer was not public, the appellant had acted in violation of Regulation 3 and 4 of the Insider Trading Regulations.

Rakesh Agarwal contended that he did this in the interests of the company. He desperately wanted this deal to click and pursuant to Bayer’s condition to acquire at least 51% shares of ABS, he tried his best at his personal level to supply them with the requisite number of shares, thus, resulting in him asking his brother-in-law to buy the aforesaid shares and later sell them to Bayer.

The SEBI directed Rakesh Agarwal to “deposit Rs. 34,00,000 with Investor Education & Protection Funds of Stock Exchange, Mumbai and NSE (in equal proportion i.e. Rs. 17,00,000 in each exchange) to compensate any investor which may make any claim subsequently.” along with a direction to “(i) initiate prosecution under section 24 of the SEBI Act and (ii) adjudication proceedings under section 15I read with section 15 G of the SEBI Act against the Appellant.”

On an appeal to the Securities Appellate Tribunal (SAT), Mumbai, the Tribunal held that the part of the order of the SEBI directing Rakesh Agarwal to pay Rs. 34,00,000 couldn’t be sustained, on the grounds that Rakesh Agarwal did that in the interests of the company (ABS), as is mentioned in the facts above.

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