Securities Appellate Tribunal overturns insider trading penalties citing PSI-6 period trades with proper pre-clearance

The Securities Appellate Tribunal Mumbai overturned a WTM order against two promoters found guilty of insider trading under the Prohibition of Insider Trading Regulations, 1992. The Tribunal held that the trades occurred during PSI-6 period, which was previously determined not to constitute price sensitive information in Quantum Securities case. The promoters had obtained pre-trade clearance from the compliance officer, ensuring compliance with company code of conduct and PIT Regulations. The WTM's order directing disgorgement of unlawful gains and two-year market prohibition was unsustainable.

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Issues Involved:
1. Insider trading allegations against various entities.
2. Validity of PSI-6 as price sensitive information.
3. Delay in issuing show cause notices.
4. Compliance with NDTV's Code of Conduct.

Summary:

Insider Trading Allegations:
The Whole Time Member (WTM) of SEBI found the appellants guilty of insider trading u/s Prohibition of Insider Trading Regulations, 1992 (PIT Regulations, 1992). The appellants were directed to disgorge unlawful gains with interest and were restrained from accessing the securities market for specified periods. The appeals arose from common investigations and separate orders passed by the WTM.

Validity of PSI-6:
The Tribunal held that PSI-6, which involved the board's decision to evaluate options for reorganization, did not qualify as price sensitive information u/s Regulation 2(ha) of the PIT Regulations, 1992. The Tribunal reasoned that no definite decision was taken by the board, and merely evaluating options does not constitute significant changes in policies, plans, or operations of the company. Consequently, trades during the PSI-6 period could not be considered insider trading.

Delay in Issuing Show Cause Notices:
The Tribunal noted the significant delay in issuing show cause notices, which were issued 10-12 years after the alleged trading period. The WTM's reasoning that SEBI required time for investigation was acknowledged, but the Tribunal emphasized the need to consider whether the delay caused prejudice to the appellants. The Tribunal remanded the matter back to the WTM to reconsider all issues afresh, including the delay.

Compliance with NDTV's Code of Conduct:
The Tribunal found that Prannoy Roy and Radhika Roy had secured pre-trade clearance from NDTV's Compliance Officer, making their trades compliant with NDTV's Code of Conduct and the PIT Regulations. Since PSI-6 was not deemed price sensitive information, the charge of violating the Code of Conduct during the trading window closure period was rendered immaterial.

Conclusion:
The impugned orders against Prannoy Roy, Radhika Roy, and Saurav Banerjee were quashed. Appeals by Vikramaditya Chandra and Ishwari Prasad Bajpai were partly allowed, with the matter remitted to the WTM to decide the issue relating to PSI-3 in light of the Tribunal's observations in Quantum Securities Private Limited (Supra). All parties were directed to bear their own costs.

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