TaxTMI 
TaxTMI 
2019 (5) TMI 1685
X X X X Extracts X X X X
X X X X Extracts X X X X
....ading) 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Regulations for short) read with Regulation 12 of PIT Regulations, 2015 for failure to close the trading window during Unpublished Price Sensitive Information (UPSI) and for 24 hours beyond the UPSI is made public.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 Appeal No. 467 of 2016 are its Directors. A....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 the information with him from the beginning of the discussio....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. Shri Sancheti, learned senior counsel for respondent SEBI submitted that there are certain undis....
X X X X Extracts X X X X
X X X X Extracts X X X X
....on" 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 (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 abov....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re 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 Exchange Board of India 2012 SCC OnLine SAT 194 (Appeal No. 29 of 2012 decided on October 5, 2012), learned senior counsel for the respondent submitted that it is the responsibility of the PEL and its Board of Directors to decide on the trigger of price sensitive information and, therefore, on a decision relating to closing the trading window and i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 :- (a) Declaration of financial results (quarterly, half-yearly and annually). (b) Declaration of dividends (interim and final). (c) Issue of securities by way of public/rights/bonus etc. (d) Any major expansion plans or execution of new projects. (e) Amalgamation, mergers, takeovers and buy-back. (f) Disposal of whole or substantially whole of the undertaking. (g) Any changes in policies, plans or operations of the company. [3. 2.3A The time for commencement of closi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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/ designated employees who buy or sell any number of shares of the company shall not enter into an opposite transaction i.e. sell or buy any number of shares during the next six months following the prior transaction. All directors/ officers/ designated employees shall also not take positions in derivative transactions in the shares of the company at any time. In the case of subscription in the primary market (initial public offers), the above mentioned entities shall hold their investments for a minimum period of 30 days. The holding period would commence when the securities are actually allotted.] 4.3 In case ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 Anand Piramal is a promoter of the appellant PEL and the same has been disclosed to the stock exchanges on various occasions. Moreover, he is a "deemed to be connected person" under 2(h)(viii) of PIT Regulations, 1992 Being a promoter holding about 2% of equity capital of the PEL he had to give an undertaking relating to multiple Clauses in the BTA like non-compete provision for 8 years. Hence, he had to know in advance the decision relating to selling part of the PEL. There is no charge that Shri Anand Piramal indulged in insider trading when he was in a possession of this information. The charge is only that the information was shared with him by the appellants. Since as a promoter and as a "pe....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 preempt manipulative trading and check all kinds of impermissible conduct in order to boost the investors' confidence in the capital market. The primary purpose of the statutory enactments is to provide an environment conducive to increased participation and investment in the securities market which is vital to the growth and development of the economy. The provisions of the SEBI Act and the Regulations will, therefore, have to be understood and interpreted in the above light." 19. In SEBI V/s Rakhi Trading (P) Ltd., 2018 (13) SCC 753, the Supreme Court held that: "Fairness, integrity and transparency are the hallmark of the stock market in India. The Securities and Exchange Board of India (hereinafter referre....
X X X X Extracts X X X X
X X X X Extracts X X X X
....imes 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 indelible mark and leave a blot on their spotless image. Such blot may not be in the interest of the securities market especially in the international market. 24. Considering the aforesaid, we are of the opinion that the object of the Act is not only to protect the investors but also the securities market. The appellant is part of the securities market and its existence is required for the healthy growth of the securities market. SEBI is the watchdog and not a bulldog. If there is an infraction of a rule, remedial measures should be taken in the first instance and not punitive measures. In the absence of any direct or clinching evidence of insider trading or misuse of UPSI, a reasonable benefit of doubt should be extended to t....