Mumbai: The Securities Appellate Tribunal (SAT) has said that a person indulging in insider trading cannot be punished unless proven that he had unfair advantage over other shareholders.

Delivering his last judgement as presiding officer of SAT, C Achuthan, ruled: "If it is established that the person who has indulged in insider trading has no intention of gaining any unfair advantage, the charge of insider trading warranting penalty cannot be sustained against him."

Achuthan partially overturned a ruling of the Securities and Exchange Board of India imposing a penalty on Rakesh Agarwal, promoter of ABS Industries, for trading in the company's stock when he knew that ABS will be taken over by Bayer of Germany.

As per the chronology of events, in September 1996, even while Agarwal was having talks with Bayer for a possible equity tie-up, he asked his brother-in-law, I P Kedia, to buy ABS shares from the market on his behalf. Agarwal's investment companies financed the purchases. The information on the strategic alliance was first given out to shareholders through a notice on the Bombay Stock Exchange on 1 October.

However, he said, the acquisitions were made with the sole intention of helping Bayer with the takeover and not making profit for himself. A tie-up with Bayer was absolutely essential for ABS' survival. Since there were others who were eyeing a relationship with the German company, quick action was also necessary.