2016 (8) TMI 918 - AT - Companies Law

Disclosing of price sensitive information belatedly - violation of the PIT Regulations - Contracts for supply of goods entered into by the Company with foreign enterprises - Held that - Every contract for supply of goods manufactured by a company may not be a price sensitive information, however, in the facts of present case, the contracts to supply 65% of the yearly contracts received by the company, constituted price sensitive information which ought to have been disclosed. It is relevant to note that the penalty is imposed on the Company and the other Appellants after noticing that in the past too, SEBI has found that the Company had committed similar default for which the Company has been penalized. Since the violation is found to be repeated, the decision of the AO to penalize the Company and other Appellants cannot be faulted. Moreover, since the penalty is imposed jointly and severally, it is open for the Company to discharge the entire penalty. Given that the AO has considered the mitigating factors under Section 15-J of SEBI Act and thereafter imposed a penalty of ₹ 25 lac under Section 15-HB of SEBI Act (maximum penalty provided for under this Section is Rs.One crore), we do not find any merit in the contentions raised on behalf of the Appellants.

Summary

Issues Involved:
1. Whether the contracts for supply of goods entered into by the Company were price-sensitive information.
2. Whether the delayed disclosure of the contracts constituted a violation of the SEBI (Prohibition of Insider Trading) Regulations, 1992.
3. Whether the imposition of a penalty of ?25 lac on the Company and its Directors was justified.

Issue-Wise Detailed Analysis:

1. Price-Sensitive Information:
The Appellants argued that the contracts were not price-sensitive at the time of signing because they were preliminary agreements subject to further conditions, such as receipt of advance payment. They contended that the contracts became price-sensitive only upon receiving the advance payment, which was disclosed immediately thereafter.

The Tribunal found that the contracts constituted more than 50% of the Company’s annual order book and were therefore significant enough to be considered price-sensitive. The Tribunal noted that the contracts became "binding and effective" upon signing, as per Clause 7 of the contracts, and should have been disclosed immediately. The Tribunal dismissed the argument that the contracts were not final at the time of signing, as there was no evidence of proposed amendments on the signing dates.

2. Delayed Disclosure:
The Appellants contended that the disclosure was timely as it was made immediately after the contracts became effective upon receipt of advance payment. They argued that the international restrictions on trading with Iran and the need for third-party confirmation delayed the contracts' finalization.

The Tribunal held that the contracts were price-sensitive from the date of signing and should have been disclosed immediately. The delay of 59 days for the first contract and 7 days for the second contract was deemed a violation of the PIT Regulations, which mandate immediate and continuous disclosure of price-sensitive information.

3. Justification of Penalty:
The Appellants argued that the penalty was unwarranted as there was no misuse of the non-disclosed information. They also contended that the responsibility for disclosure did not lie with certain directors who were penalized.

The Tribunal found no merit in these arguments, highlighting that the Company had previously been penalized for similar violations. The Tribunal noted that the penalty was imposed jointly and severally, allowing the Company to discharge the entire penalty. The Tribunal upheld the AO's decision, noting that the maximum penalty under Section 15-HB of the SEBI Act is ?1 crore, and the imposed penalty of ?25 lac was reasonable considering the mitigating factors.

Conclusion:
The Tribunal dismissed the appeals, affirming that the contracts were price-sensitive information that should have been disclosed immediately upon signing. The delayed disclosure constituted a violation of the PIT Regulations, justifying the imposition of a ?25 lac penalty on the Company and its Directors. The Tribunal emphasized the importance of immediate and continuous disclosure in a disclosure-based regulatory regime.