2013 (5) TMI 709 - Tri - Companies Law

Model Code of Conduct for prevention of Insider Trading not framed - the company approved the unaudited accounts for the quarter ending June 2010 in the meeting held on July 06, 2010 but submitted the said approved quarterly reports to Bombay Stock Exchange Limited vide letter dated July 07, 2010 - proceedings against the appellant, the Whole Time Directors of the said company for their failure in exercising overall supervision in framing the Model Code of Conduct concluding violation of clause 1.2 of the Code of Conduct - Held that - There seems to be no legal infirmity in holding of enquiry by Adjudicating Officer & as he conducted the enquiry and proceeded against the appellants in a just and fair manner by affording reasonable opportunity of being heard and producing the documents and reply in support of their case. The requirement of framing a Code of Conduct for prevention of insider trading by the companies is a mandate of law and nobody can be allowed to violate the same. Similarly, the requirement of communicating the decisions of the Board of the company to the Stock Exchange promptly is an important check on the unscrupulous persons who may utilise the information for their personal gains in an improper and illegal manner and thereby jeopardizing the interest of bonafide investors. In the present case, the requirement of conveying the Board s important decisions to the Stock Exchange within 15 minutes is a crucial provision binding on the company and the same is having an underlying object which can only be achieved by quick communication of the said decision by the company to the Stock Exchange. The appellant can have very well conveyed the said decision by way of fax or e-mail etc. within 15 minutes so as to avert the possibility of being misused the sensitive information in question. In view of this, the three impugned orders are upheld. As it is submitted that the Company Secretary who had since long been associated with the company unfortunately fell sick as he suffered from cancer in January, 2009. He unfortunately expired on 5.1.2011 and in the circumstance there was nobody to guide the appellants properly. Similarly the company as well as the other Directors including the Managing Directors have been very prompt in intimating the outcome of the board meetings in all preceding years and they have never defaulted in the matter and this is the first instance of this kind penalty imposed on the appellant is reduced accordingly.

Summary

Issues:
Violation of provisions under Securities and Exchange Board of India Act, 1992 and Securities Contracts (Regulation) Act, 1956 leading to penalties.

Analysis:
1. Common Questions of Law and Fact: The three appeals were consolidated due to common issues. Appeal no.16 involved a penalty imposed on a listed company under various sections of the Acts. Appeal no.17 dealt with penalties on two Whole Time Directors, and Appeal no.18 concerned penalties on the Chairman, Managing Director, Compliance Officer, and others for violations related to insider trading regulations and disclosure practices.

2. Investigation and Allegations: The investigation revealed failures in implementing the Model Code of Conduct for prevention of Insider Trading and delayed communication of important decisions to the Stock Exchange. Violations were noted under various clauses and regulations, leading to adjudication proceedings against the appellants.

3. Adjudication Proceedings: Show cause notices were issued to the appellants, and replies were filed by some. After considering replies, written submissions, and personal hearings, the Adjudicating Officer found the appellants guilty of violating specific provisions and imposed penalties accordingly.

4. Judicial Review: The Tribunal reviewed the conduct of the Adjudicating Officer and found the enquiry fair and just, with reasonable opportunities provided to the appellants. Upheld the impugned orders based on the violations established during the proceedings.

5. Penalty Reduction: Considering mitigating factors such as the unfortunate circumstances surrounding the Company Secretary's illness and demise, and the promptness of the company in previous years, the Tribunal reduced the penalties imposed. Penalties for Appeal no.16 and no.17 were reduced to Rs. 1,00,000 each, while the penalty for Appeal no.18 was reduced to Rs. 5,00,000, totaling Rs. 7,00,000 to be paid collectively by the appellants within two months.

6. Final Decision: The appeals were dismissed with the revised monetary penalties, emphasizing the importance of compliance with legal requirements and the need for timely communication of crucial information to prevent misuse and protect investors' interests. No additional costs were awarded in this matter.