Code of conduct breaches under insider trading rules are enforceable, but penalties must remain proportionate to the misconduct.

A listed company's code of conduct framed in compliance with the insider trading regulations was treated as part of the regulatory framework, so breach of trading window restrictions amounted to a violation enforceable by the Board under section 15HB. The Tribunal also held that, because the misconduct was confined to a code-of-conduct breach and not a substantive insider trading charge, the original penalty was excessive. Applying proportionality, it sustained the contravention finding but reduced the penalty to Rs. 25 lakhs.

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Issues: (i) Whether breach of the code of conduct framed by a listed company under the insider trading regulations amounts to violation of the regulations so as to attract action by the Board under section 15HB. (ii) Whether the penalty imposed for selling shares during the closed trading window required reduction.

Issue (i): Whether breach of the code of conduct framed by a listed company under the insider trading regulations amounts to violation of the regulations so as to attract action by the Board under section 15HB.

Analysis: Regulation 12(1) required listed companies to frame a code of internal procedures and conduct as near thereto the model code in Schedule I without diluting it, and clause 6.3 of the model code preserved the Board's power to act for violation of the regulations. The prescribed code was treated as an integral part of the regulatory framework, and violation of the trading window restrictions was not a mere internal breach insulated from enforcement by the Board.

Conclusion: The breach of the company code of conduct, framed in compliance with the regulations, constituted a violation punishable by the Board under section 15HB.

Issue (ii): Whether the penalty imposed for selling shares during the closed trading window required reduction.

Analysis: The misconduct was confined to a code-of-conduct breach, not a substantive insider trading charge. The company itself had settled the related proceedings on payment of a substantially lower amount. In those circumstances, the maximum penalty was found to be excessive and the ends of justice were held to be met by a lower penalty.

Conclusion: The penalty was reduced to Rs. 25 lakhs.

Final Conclusion: The finding of contravention was sustained, but the monetary penalty was substantially reduced, leaving the appellant liable only to the modified penalty amount.

Ratio Decidendi: A code of conduct framed by a listed company in compliance with Regulation 12 and the model code in Schedule I forms part of the regulatory regime, and its violation is enforceable by the Board under the Act; however, the quantum of penalty must be proportionate to the nature of the breach.

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