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2019 (5) TMI 1685 - AT - SEBIFailure to close the trading window during Unpublished Price Sensitive Information (UPSI) and for 24 hours beyond the UPSI is made public - information shared only on a need to know basis - Violation of the Model Code - penalty imposed on the appellants under Section 15HB of the SEBI Act, 1992 for violating Clauses 3.2.1 and 3.2.3(f) of Model Code of Conduct for Prevention of Insider Trading for listed companies ( Model Code ) read with Regulation 12(3) of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 - Whether the imposition of penalty is the ultimate aim under Section 11 of the SEBI Act? - HELD THAT - In the instant case, in January 2010, Abbott approached the Chairman of PEL with an offer to acquire the domestic healthcare business of PEL. We find that due diligence was carried out by PEL upto May 2010 in strictest confidence. Except for certain individuals, who were identified as being privy to the transaction and informed to SEBI in January 2011 itself, no one in PEL was aware of the information to sell the domestic healthcare business at any time prior to the Board meeting and subsequent positive announcement on 21.05.2010. We also find that the Chairman of the PEL informed the members of the Board of PEL on 10.05.2010 of the possibility of the pending deal that may take place, and none of the persons identified as being privy to the deal had sought any pre-clearance for trading in the scrip of PEL. SEBI had made an investigation and found that only one designated employee had traded in the scrips. The AO found that the said employee was not associated in any manner with the process of domestic healthcare business and was not in possession of the Unpublished Price Sensitive Information (UPSI) relating to the deal. AO accordingly exonerated him of the charge of insider trading. Apart from the aforesaid instance, the AO has not found any other instance where the UPSI was misused by any employee of PEL, outsider, directors of the PEL, or the individuals who were identified to sell the domestic healthcare business. 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. 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. 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. 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 the PEL instead of mechanically imposing a penalty. Other factors should be considered including those stated in Section 23J of the Act which apparently was not considered. When fairness and transparency was shown by PEL in the execution of the deal and there is no evidence of lack of integrity on the part of PEL, it would be harsh to penalize PEL, howsoever small the penal amount it may be. AO has imposed a penalty upon PEL for a technical violation of the Model Code. The compliance officer has already settled the matter with SEBI. We feel that in the given situation the imposition of penalty upon PEL and its directors was unwarranted and, in any case, disproportionate. This Tribunal, in appeal, apart from exercising the powers of the Board can also exercise powers to make such orders and give such directions as may be necessary or expedient to secure the ends of justice as specified under Rule 21 of the Securities Appellate Tribunal (Procedure) Rules, 2000. These powers have been conferred upon the Tribunal with a view to do complete justice between the parties which is equitable in nature to be exercised to ensure justice between the parties or to prevent injustice. Imposition of penalty is converted into one of warning with a further direction that if any such incident occurs in future, it would be open to SEBI to proceed in accordance with law.
Issues Involved:
1. Disclosure of information to unauthorized entities. 2. Failure to close the trading window. Detailed Analysis: 1. Disclosure of Information to Unauthorized Entities The appellants were charged with disclosing information about the proposed Business Transfer Agreement (BTA) to entities not required to know about the transaction, violating Clauses 3.2.1 and 3.2.3(f) of the Model Code for listed companies under PIT Regulations, 1992. Arguments by Appellants: - The information was shared with Shri Anand Piramal, a promoter of PEL, who had to sign a non-compete agreement as part of the BTA. - Shri Anand Piramal is a "deemed to be connected person" under Regulation 2(h)(viii) of PIT Regulations, 1992. - The information was shared on a "need to know" basis, and there was no insider trading by Shri Anand Piramal or any appellants. Tribunal's Findings: - The information was shared appropriately with Shri Anand Piramal, who was a promoter and a "deemed to be connected person." - The sharing of information with him was in compliance with Regulation 12(3) of the PIT Regulations, 1992. - There was no evidence of insider trading by Shri Anand Piramal. Conclusion: The penalty imposed for the alleged violation of Clauses 3.2.1 and 3.2.3(f) of the Model Code and 1.1, 1.2, and 12(3) of PIT Regulations, 1992 was found unsustainable. 2. Failure to Close the Trading Window The appellants were charged with failing to close the trading window during the period of Unpublished Price Sensitive Information (UPSI). Arguments by Appellants: - The responsibility for closing the trading window lies with the Compliance Officer, not the Board of Directors. - The Compliance Officer had settled the matter with SEBI, accepting responsibility for not closing the trading window. - The violation was technical, and no trading occurred during the period in question. Tribunal's Findings: - The trading window was not closed at any point, which was a violation. - The primary responsibility for closing the trading window lies with the PEL and its Board of Directors, especially for significant decisions like the sale of a division. - The failure to close the trading window was a technical violation, but no insider trading occurred, and no pre-clearance requests were received. Conclusion: The violation was deemed technical, and the imposition of a penalty was considered disproportionate. The Tribunal converted the penalty into a warning, emphasizing that SEBI should take remedial measures rather than punitive actions in the absence of direct evidence of insider trading or misuse of UPSI. Final Judgment: The appeals were allowed, and the impugned order was modified to convert the penalty into a warning. The Tribunal emphasized the importance of fairness, transparency, and the need to protect the securities market while preventing undue punitive measures in cases of technical violations.
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