2011 (5) TMI 1101 - AT - SEBI

Appellant penalized for breaching Insider Trading Regulations, penalty reduced due to violation nature

The Tribunal upheld that the appellant breached the code of conduct under the Securities and Exchange Board of India (Prohibition of Insider Trading) ... - Issues Involved:1. Alleged violation of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992.2. Imposition of a monetary penalty under section 15HB of the Securities and Exchange Board of India Act, 1992.3. Interpretation of the Model Code of Conduct and its enforceability by the Securities and Exchange Board of India (SEBI).4. Discrepancy in penalties imposed on the appellant and the company.Comprehensive, Issue-Wise Detailed Analysis:1. Alleged Violation of Insider Trading Regulations:The appellant, a shareholder and director of Adlabs Films Limited, was accused of violating Regulation 12(1) read with clauses 3.2-3 and 3.2-5 of the code of conduct under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992. The appellant sold 10,00,000 shares on 24-4-2006 before the expiry of 24 hours after the outcome of the Board meeting was made public, which was considered a breach of the trading window closure norms. The appellant argued that the sale was a normal market transaction and not based on insider information, as the decision had already been sent to the stock exchanges and disseminated.2. Imposition of Monetary Penalty:The adjudicating officer found the appellant guilty of violating the code of conduct and imposed a penalty of Rs. 1 crore under section 15HB of the Securities and Exchange Board of India Act, 1992. The appellant contested this, arguing that any violation of the code of conduct should be addressed by the company, not SEBI. The appellant also highlighted that the company had settled a similar issue with SEBI by paying Rs. 15 lacs, while the appellant faced a much higher penalty.3. Interpretation of the Model Code of Conduct:The Tribunal examined whether the violation of the company's code of conduct, formulated in compliance with SEBI's model code, constituted a violation of the Regulations themselves. It was concluded that the code of conduct prescribed by the company for prevention of insider trading, as mandated by the Regulations, is to be treated as part of the Regulations. Any violation of this code can be dealt with by SEBI as a violation of the Regulations. The Tribunal emphasized that the purpose of the insider trading regulations is to prevent trading based on price-sensitive information, and a strict interpretation is necessary to uphold this objective.4. Discrepancy in Penalties:The appellant argued that the penalty imposed on him was excessive compared to the Rs. 15 lacs settlement accepted from the company for a similar breach. The Tribunal found merit in this argument, noting that the charge against the appellant was not of insider trading but of violating the code of conduct by selling shares during the closed trading window. Considering the facts and circumstances, the Tribunal reduced the penalty from Rs. 1 crore to Rs. 25 lacs, finding it more proportionate to the nature of the violation.Conclusion:The Tribunal upheld the finding that the appellant violated the code of conduct framed under the Regulations and was liable to a penalty under section 15HB of the Act. However, the penalty was reduced to Rs. 25 lacs, considering the discrepancy in penalties and the nature of the violation. The Tribunal emphasized the importance of adhering to the code of conduct to prevent misuse of price-sensitive information and protect investor interests.