Insider trading and disclosure default turn on accurate market disclosure, with liability and penalties adjusted on the facts.

Unpublished price sensitive information must be assessed by the accuracy and completeness of market disclosure at the time of the impugned trades, and later accounting explanations do not negate insider-trading exposure where the relevant information was not properly disclosed. The text also states that a listed company's failure to make continual disclosures to stock exchanges attracts liability, and the managing director may be held responsible where the default is attributable to the company's compliance failure. On the facts described, the insider-trading finding was upheld, the takeovers-related penalty was set aside, the director's penalty was reduced, and the disclosure-default penalty was sustained as not excessive.

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Issues: (i) Whether the sale of shares by the subsidiary and its director, during the relevant period, amounted to insider trading on the basis of unpublished price sensitive information and whether the penalty imposed under the securities law provisions was sustainable in full. (ii) Whether the listed company and its managing director failed to make the required continual disclosures to the stock exchanges under the disclosure regulations and whether the penalty for such non-disclosure was justified.

Issue (i): Whether the sale of shares by the subsidiary and its director, during the relevant period, amounted to insider trading on the basis of unpublished price sensitive information and whether the penalty imposed under the securities law provisions was sustainable in full.

Analysis: The relevant internal information regarding the diminution in value of the investment was not shown to have been properly and accurately disclosed to the market at the time the impugned sales were made. A disclosure-based regime requires exact and reliable disclosure, and the later contention that the eventual write-off was lower than the projected loss did not negate the existence of price-sensitive information during the sales period. The explanation founded on accounting entries and post-dated crystallisation of loss was not accepted, and the company and its responsible director were held liable for the insider-trading violation. However, the separate penalty imposed for violation of the takeovers disclosure provision could not be sustained on the facts, and the penalty on the director was reduced in view of the limited benefit actually derived and the fact that the director did not himself sell shares.

Conclusion: The finding of insider-trading liability was upheld, but the penalty under Regulation 7(1A) of the takeovers regulations was set aside and the penalty on the director was reduced.

Issue (ii): Whether the listed company and its managing director failed to make the required continual disclosures to the stock exchanges under the disclosure regulations and whether the penalty for such non-disclosure was justified.

Analysis: The record showed that the required disclosures were not received by the stock exchanges, and the purported fax proof was not accepted as reliable evidence. The subsequent assertion that the disclosures had in fact been sent was treated as an afterthought in light of the contemporaneous admission that the filings had not been made. Once the company failed to comply with the disclosure obligation, the managing director, being the responsible person, could not be absolved. The penalty was also found not to be excessive having regard to the repeated nature and extent of the default.

Conclusion: The non-disclosure violation was affirmed and the penalty under the disclosure regulation was upheld.

Final Conclusion: The appeal against the disclosure-default finding failed, while the challenge to the takeovers-related penalty succeeded and the overall penalty structure was modified accordingly, leaving one appeal dismissed and the other partly allowed.

Ratio Decidendi: In securities-market compliance matters, unpublished price sensitive information must be judged by the state of accurate market disclosure at the relevant time, and once a listed company defaults in mandatory disclosure, the responsible director may also be held liable; ancillary penalties may be moderated where the connected violation is not made out.

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