AI Drafter 
TaxTMI 
TaxTMI 
2019 (5) TMI 1685
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....Board of India (Prohibition of Insider Trading) Regulations, 1992 ('PIT Regulations for short) read with Regulation 12 of PIT Regulations, 2015 for failure to close the trading window during Unpublished Price Sensitive Information (UPSI) and for 24 hours beyond the UPSI is made public. Further, a penalty of Rs. 1 lakh has been imposed on the appellants under Section 15HB of the SEBI Act, 1992 for violating Clauses 1.2 and 2.2 of the said Model Code read with Regulation 12(3) of the PIT Regulations, 1992 read with Regulation 12 of PIT Regulations, 2015 for failure to handle the price sensation information relating to sale of the domestic healthcare business of the appellant company to M/s Abbott Laboratories Limited ("Abbott" for short) on a 'need to know' basis. Appellants have been directed to pay these amounts of penalty jointly and severally. 2. Since dispute in these two appeals arise from the same impugned order and facts are common, by consent of parties both these appeals are heard together and disposed of by this common decision. 3. Appellant in Appeal No. 466 of 2016 is the company M/s. Piramal Enterprises Limited (hereinafter referred to as "PEL") and Appellants in ....
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....cy of which the matter was settled with SEBI under the Securities and Exchange Board of India (Settlement of Administrative and Civil Proceedings) Regulations, 2014. 6. There are basically two charges against the appellants:- i) Disclosing the information relating to the proposed transaction or Business Transfer Agreement ("BTA" for short) to entities who were not required to know about the transaction and thereby violating the relevant Clauses of the Model Code for listed Companies under PIT Regulations, 1992. ii) Failure to close the trading window and thereby violating the relevant Clauses of the Model Code for listed Companies under PIT Regulations, 1992. 7. The learned counsel Shri Modi appearing for the appellants extensively argued that there is no violation from the side of the appellants citing the relevant provisions of the PIT Regulations, 1992. He submitted that Shri Anand Piramal was a promoter of the PEL and like other promoters, he had to sign a non-compete agreement for 8 years as part of the BTA. Being a son of directors of the PEL he is a deemed to be connected person as well. Given these facts there is absolutely nothing wrong in sharing t....
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....f 2013 decided on March 11, 2014) the learned counsel for the appellants submitted that only the Compliance Officer is responsible for closing the trading window. Relying on Siddharth Chaturvedi V/s Securities and Exchange Board of India (2016) 12 SCC 119 (Civil Appeals No. 14730 of 2015 with Nos. 14728-29 of 2015 decided on March 14, 2016); Adjudicating Officer, Securities and Exchange Board of India V/s Bhavesh Pabari 2019 SCC OnLine SC 294 (Civil Appeal No(s). 11311 of 2013 decided on February 28, 2019) he further submitted that not closing the trading window was only a technical violation for which only the Compliance Officer was responsible and, therefore, all the mitigating factors under Section 15J of the SEBI Act needs to be taken into account and given the fact that it is only a technical violation no penalty is imposable as held in the cited judgments. In the instant matter, it is an undisputed fact that none of the appellants has taken any advantage of the situation of not closing the trading window and no investor has been adversely affected nor the offence is repetitive in nature. Accordingly, it was urged that it was a fit case for not imposing any penalty. 10. Shr....
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...... (g)...... (h) "person is deemed to be a connected person", if such person- (viii) relatives of the connected person; "2(ha) "price sensitive information" means any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company. Explanation.-The following shall be deemed to be price sensitive information:- (i) ...... (ii) ...... (iii) ...... (iv) ...... (v) ...... (vi) disposal of the whole or substantial part of the undertaking; (vii) and significant changes in policies, plans or operations of the company; k) "unpublished" means information which is not published by the company or its agents and is not specific in nature. Explanation.-Speculative reports in print or electronic media shall not be considered as published information.] 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....
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....n the instant case, what is recorded is that the Chairman was directly piloting the entire issue of sale of a division and communicating to the Board of Directors. Similarly, full time Board of Directors and few other persons were kept privy to the information since the beginning of the discussion relating to this sale. Independent Directors were informed at a later stage. So the primary responsibility, given the context and the facts lies with the executive directors who are in the Board. Accordingly, the finding in the impugned order that the PEL, Executive Directors who are Board Members and the Compliance Officer are liable for not closing the trading window, cannot be faulted. He also walked us through the various provisions of the Model Code. 12. Relying on the following judgments Shri E. Sudhir Reddy V/s Securities and Exchange Board of India (Appeal No. 138 of 2011 decided on 16.12.2011); Mr. Manmohan Shetty V/s Securities and Exchange Board of India (Appeal No. 132 of 2010 decided on 27.02.2011), Mrs. Chandra Mukherji V/s Securities and Exchange Board of India (Appeal No. 126 of 2014 decided on 30.11.2016) and Mr. N. Narayanan V/s Adjudicating Officer Securities and Exc....
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....ommendation for the purchase or sale of securities. 2.2 Need to know 2.2-1 Price Sensitive Information is to be handled on a "need to know" basis, i.e., Price Sensitive Information should be disclosed only to those within the company who need the information to discharge their duty. 2.3 Limited access to confidential information 2.3.1 Files containing confidential information shall be kept secure. Computer files must have adequate security of login and password etc. 3.0 Prevention of misuse of "Price Sensitive Information" 3.1 All directors/officers and designated employees of the company shall be subject to trading restrictions as enumerated below. "3.2 Trading window 3.2.1 The company shall specify a trading period, to be called "trading window", for trading in the company's securities. The trading window shall be closed during the time the information referred to in para 3.2.3 is unpublished. 3.2.2 When the trading window is closed, the employees/directors shall not trade in the company's securities in such period. 3.2.3 The trading window shall be, inter alia, closed at the time :- ....
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....ee/director/officer does not have any access or has not received "Price Sensitive Information" upto the time of signing the undertaking. (b) That in case the employee/director/officer has access to or receives "Price Sensitive Information" after the signing of the undertaking but before the execution of the transaction he/she shall inform the Compliance Officer of the change in his position and that he/she would completely refrain from dealing in the securities of the company till the time such information becomes public. (c) That he/she has not contravened the code of conduct for prevention of insider trading as notified by the company from time to time. (d) That he/she has made a full and true disclosure in the matter. 4.0 Other restrictions 4.1 All directors/officers/designated employees [and their dependents (as defined by the company)] shall execute their order in respect of securities of the company within one week after the approval of pre-clearance is given. If the order is not executed within one week after the approval is given, the employee/director must pre-clear the transaction again. 4.2 All directors/ officers/ de....
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....nd appropriate action may be taken by the company. 6.2 Employees/officers/directors of the company who violate the code of conduct shall also be subject to disciplinary action by the company, which may include wage freeze, suspension, [ineligible] for future participation in employee stock option [plans], etc. 6.3 The action by the company shall not preclude SEBI from taking any action in case of violation of SEBI (Prohibition of Insider Trading) Regulations, 1992. 7.0 Information to SEBI in case of violation of SEBI (Prohibition of Insider Trading) Regulations, 1992 7.1 In case it is observed by the company/Compliance Officer that there has been a violation of SEBI (Prohibition of Insider Trading) Regulations, 1992. SEBI shall be informed by the company." 14. We find merit in the submission made by the learned senior counsel for the appellants that the information relating to sale of the healthcare division of the PEL was given to Shri Anand Piramal and others only on a 'need to know' basis as is provided under Regulation 12(3) of the PIT Regulations, 1992 read with Regulation 12 of PIT Regulations, 2015. It is an undisputed fact that Shri An....
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....prior to the Board's decision on May 21, 2010. Thus, there was a failure to abide by the Clause 3.2.1 and 3.2.3(f) of the Model Code of Conduct. The AO found that once the violation was established the penalty becomes leviable irrespective of the intention. 17. This leads us to a question as to whether the imposition of penalty is the ultimate aim under Section 11 of the SEBI Act. In our view, the object of the SEBI Act is to protect the interest of the investors in the securities market and to promote the development of the securities market. SEBI has to monitor the activities in the securities market and take appropriate measures if it finds that the provisions of the Act has been violated. 18. In this regard, in SEBI V/s Kishore R. Ajmera, (2016) 6 SCC 368 the Supreme Court held: "The SEBI Act and Regulations framed thereunder are intended to protect the interests of investors in the securities market which has seen substantial growth in tune with the parallel developments in the economy. Investors' confidence in the capital/securities market is a reflection of the effectiveness of the regulatory mechanism in force. All such measures are intended to preem....
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....l the domestic healthcare business. 22. The purpose of closing the trading window is for a salutary purpose. It is to ensure that trading is restricted during the period in question and pre-clearance requests can only be sanctioned as per the existing Model Code of PEL. In the given circumstances, even though the trading window was not closed, there was no trading of the scrips by any of the designated employees of the PEL nor any pre-clearance requests were received by PEL. Thus, even though, no announcement was made for closure of the trading window, we find that PEL ensured compliance in pith and substance of the Model Code of PEL and the PIT Regulations including the Model Code. We further find that UPSI at all times was preserved and there was no misuse of UPSI. 23. In the light of the aforesaid, we find that the violation of the Model Code in the given circumstances is technical in nature. We were informed that the PEL is a blue chip company and has its presence in many countries which has not been denied by the respondent. We were also told that till date there has not been any violation of SEBI Laws. The imposition of penalty, even though meager will leave an indelibl....