2019 (11) TMI 1554 - AT - SEBI

Insider Trading for listed companies - Penalty imposed on appellant as working as Senior Vice President and Company Secretary of Financial Technologies (India) Limited who traded beyond threshold limit of 5000 shares of the Company without obtaining pre-clearance of the transactions as mandated by clause 9(b)(i) of the Code of Conduct - HELD THAT - The penalty imposed by the Adjudicating Officer is disproportionate to the violation in the circumstances, as detailed by the appellant. The appellant had a long career of 28 years prior to the violation. He had undergone multiple angioplasties. He explained that due to a communication gap between him and the broker the violation had occurred which resulted into a meager profit of ₹ 17,467/-. Taking into consideration these factors in our opinion a penalty of ₹ 2 lakhs instead of ₹ 12 lakhs as imposed by the Adjudicating Officer would be just and sufficient. Appeal is partly allowed. The impugned order is affirmed except the penalty which is reduced from ₹ 12 lakh to ₹ 2 lakh which shall be paid within four weeks from today by the appellant to respondent SEBI.

Summary

Issues Involved:
Violation of insider trading regulations leading to the imposition of a penalty.

Detailed Analysis:

1. Violation of Insider Trading Regulations:
The appellant was penalized for breaching the provisions of the Model Code of Conduct for Prevention of Insider Trading for listed companies, as specified in the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 and 2015. The violation involved trading beyond the threshold limit without obtaining pre-clearance for transactions, which occurred over two months in 2012. The total profit gained from these transactions was quantified at ?17,467.

2. Adjudication of Penalty:
The Adjudicating Officer considered the repetitive nature of the violation and the factors outlined in the SEBI Act for determining the penalty amount. While the gain or loss resulting from the default could not be precisely quantified, a penalty of ?12 lakhs was imposed due to the repetitive nature of the violation over two months.

3. Appellant's Defense and Submissions:
The appellant, through his counsel, acknowledged the violation but argued that the penalty was excessively harsh. It was highlighted that the appellant's health issues and communication gap with the broker led to the inadvertent violation, resulting in a minimal profit. Reference was made to Section 15HA of the SEBI Act, suggesting that a penalty three times the profit amount would be just and reasonable, equating to ?55,000.

4. Respondent's Counter-arguments:
The respondent's counsel contended that the penalty imposed was appropriate considering the repetitive nature of the violation and opposed any reduction in the penalty amount.

5. Tribunal's Decision:
After considering both parties' arguments, the Tribunal found the penalty of ?12 lakhs disproportionate to the violation, given the appellant's long career, health issues, and minimal profit from the violation. Consequently, the Tribunal reduced the penalty to ?2 lakhs, which the appellant was directed to pay to SEBI within four weeks from the date of the judgment.

In conclusion, the appellate tribunal partially allowed the appeal, affirming the order but reducing the penalty amount, emphasizing the specific circumstances and factors presented by the appellant in defense of the violation.