TaxTMI 
TaxTMI 
2018 (7) TMI 1683
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.... and Prasad V. Potluri, Chairman and Managing Director of PVP Ventures under Section 15A(b) of Securities and Exchange Board of India Act, 1992 ('SEBI Act' for short) for failure to make disclosure under Regulation 13(6) of SEBI (Prohibition of Insider Trading) Regulations, 1992 ('PIT Regulations 1992' for short). Appeal No. 357 of 2015 has been filed to challenge the order of the AO also dated March 27, 2015. By this order a penalty of Rs. 15 crore each has been imposed on PVP Global Ventures Pvt. Limited ('PVP Global' for short) and Prasad V. Potluri, promoter - director of PVP Global for violation of Section 12A(d) & (e) of SEBI Act and Regulation 3(i)&(ii) read with Regulation 4 of the PIT Regulations 1992 and Rs. 15 lakh each on both these entities for violation of Regulation 7(1A) of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 ('SAST Regulations 1997' for short). Since both the orders impugned relate to the same basic facts, by consent of all parties, both these appeals are heard together taking Appeal No. 357 of 2015 as the lead matter and are disposed of by this common decision. 2. PVP Ventures is a listed company while PVP Global is an unlis....
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....y- (a) ........ (b) ........ (c) ........ (d) engage in insider trading; (e) deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder; PIT Regulations 1992 Prohibition on dealing, communicating or counselling on matters relating to insider trading. 3. No insider shall- (i) either on his own behalf or on behalf of any other person, deal in securities of a company listed on any stock exchange when in possession of any unpublished price sensitive information; or (ii) communicate or counsel or procure directly or indirectly any unpublished price sensitive information to any person who while in possession of such unpublished price sensitive information shall not deal in securities : Provided that nothing contained above shall be applicable to any communication required in the ordinary course of business or profession or employment] or under any law. 3A. No company shall de....
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....mpany are listed the aggregate number of shares held by each of such persons referred above within seven days of receipt of information under [sub-regulations (1) and (1A). 5. Learned counsel Shri. Somasekhar Sundaresan, appearing on behalf of the appellants, submitted the following:- (a) The consolidated annual financial statement (audit report) dated July 15, 2009 of PVP Ventures had disclosed that the company i.e. PVP Ventures is expected to take a hit of Rs. 850.51 crore on account of the possible diminution in the value of investment held by its 100% owned subsidiary, PVP Global. While it was disclosed that the hit could be upto Rs. 850.51 crore while crystallizing this loss it came out to be only Rs. 542 crore as stated in the quarterly result ending September, 2009 and disclosed on October 30, 2009. Therefore, the parent company through its annual audit report had actually disclosed a higher amount of likely loss and therefore when the actual amount of loss incurred is less than what is disclosed it was positive news for the investing public / market. Sales of shares prior to a positive news cannot be considered as insider trading. (b) The impending loss....
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....mple, an adjustment may be made for a loss on a trade receivable amount which is confirmed by the insolvency of a customer which occurs after the balance sheet date". (g) Further the learned counsel submitted that in an affidavit filed by the appellants on March 6, 2017, as sought by this Appellate Tribunal the following are stated. (i) On October 15, 2009, a trial balance of PVP Ventures for the period ended September 30, 2009 was provided to the auditors of PVP Ventures. In this trial balance, the adjustment entries alleged to have been effected on September 30, 2009 are not seen at all. It is apparent therefore that even on October 15, 2009, the amount of the adjustments had not crystallized. (ii) The last sale of shares of PVP Ventures by Appellant No. 1 during October 2009 was on October 21, 2009. (iii) On October 27, 2009, Mr. Rahul Shirodkar, Associate, Audit and Assurance, Lovelock & Lewes, PricewaterhouseCoopers, the statutory auditors of PVP Ventures started computing the value of the shares of PVP Ventures, as sold and as remaining and the write off to be effected. (iv) It is specified in the working prepared by Mr. Rahul that....
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.... the instant matter a penalty of Rs. 30 crore has been imposed which is too harsh and excessive. It was further submitted that for the sale of the same set of shares belonging to Appellant No. 1 both Appellant No. 1 and 2 are punished with a penalty of Rs. 15 crore each as when the alleged offence is only one there cannot be two punishments for the same offence. 6. Shri. Rafique Dada, Learned Senior Counsel appearing on behalf of the respondent SEBI submitted that this matter is a unique case of the subsidiary holding the shares of the parent company and the sales of which made by the subsidiary getting reflected in the books of the parent company. Further, Appellant No. 2 who is CMD of the parent company is also a Director of the subsidiary who is also the authorized Director for transacting in the shares of the parent company held by the subsidiary. Entries belonging to October sales cannot be taken into account for the quarter ending September 30, 2009. Accounting Standard (AS) 4 is not relevant in the matter of investment as is clearly stated in para 8.3 of AS 4 as follows:- "8.3 Adjustments to assets and liabilities are not appropriate for events occurring after th....
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....ion of the PIT Regulations 1992 is concerned. While it is a fact that certain disclosures have been made in the audit report of PVP Ventures for the year 2008-09 regarding the potential loss that may arise to PVP Ventures, the Board of Directors of PVP Ventures in its Director's response had discounted those audit observations. The statement made by the Board of Directors making light of the possibility of taking such a big hit to the tune of about Rs. 851 crore is on record. Moreover, even assuming that the public was told that there is a possibility of the company incurring a huge loss on account of reduction in the value of assets of PVP Ventures held by its subsidiary the disclosure was not accurate. The argument that the actual write down was much less than the potential write down disclosed does not come to the help of the appellant because if the audit disclosures were factored in by the public they would have taken their decision based on that and in the process could have incurred huge losses in view of the fact that subsequently the actual hit is almost 40% less than what was projected. A disclosure based regime means proper and exact disclosure not an indicative disclosu....
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....ee with the argument of the appellant that both the company and its Director cannot be punished for the same set of transactions as it is now a settled position in law that the Directors are equally liable for the offences of the company. In the instant matter it is also important to note that the Director concerned is the same responsible person in both the listed parent company and the unlisted 100% subsidiary. The ratio of Chandrakala, as argued by the appellant, is not relevant since the positive news was known only to the appellants, as argued, and that too only on or around October 30, 2009 while all the disputed sales happened between 1-21 October, 2009. We do not agree on comparing the amount of penalty imposed by the impugned order with that in the matter of M/s. New Delhi Television Limited (supra) issued by SEBI because the latter order is neither tested in appeal nor the offences are comparable, since the New Delhi Television Limited order (supra) is relating to violation of Listing Regulation under the Securities Contract Regulation Act while the impugned matter is on violation of PIT Regulations under SEBI Act. 14. However, we agree with the appellants in their sub....
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....ng to their sale of shares of Appellant No. 1 vide letters dated September 16, 2009, October 5, 2009, October 8, 2009 and October 12, 2009 as required under Regulation 13(3) of PIT Regulations 1992. It is also submitted by the appellants that the said information has been disclosed to BSE and NSE through fax message vide its letters dated September 18, 2009, October 7, 2009, October 12, 2009 and October 14, 2009 under Regulation 13(6) of PIT Regulations 1992. However, on verification by SEBI both the stock exchanges have denied having received any such disclosures. It is also relevant to note that vide e-mail dated January 28, 2013 PVP Global admitted that it forgot to make disclosures required under the SAST Regulations 1997 either to the Appellant No. 1 or to the stock exchanges. This charge is part of the order impugned in Appeal No. 357 of 2015 and which has been addressed in that appeal. During personal hearing the representative of the appellants therein also admitted that the non-disclosures under SAST Regulations 1997 and PIT Regulations 1992 were inadvertent mistakes on their part and a lenient view may be taken on the same. However, the stand of the appellants herein is t....
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....ned by the company) from the last disclosure made under subregulation (2) or under this subregulation, and the change exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total shareholding or voting rights, whichever is lower. (5) The disclosure mentioned in sub-regulations (3) and (4) shall be made within two working days of : (a) the receipts of intimation of allotment of shares, or (b) the acquisition or sale of shares or voting rights, as the case may be. Disclosure by company to stock exchanges. (6) Every listed company, within two working days of receipt, shall disclose to all stock exchanges on which the company is listed, the information received under sub-regulations (1), (2), (3) and (4) 53[in the respective formats specified in Schedule III. E-filing. (7) The disclosures required under this regulation may also be made through electronic filing in accordance with the system devised by the stock exchange. 19. We find no merit in the arguments of the appellant. We further note that the impugned order has in fact taken all the submissions in appeal into account while passing the impugned order. It is pertine....