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2018 (7) TMI 1683 - AT - Companies LawProhibition of Insider Trading - Violation of the PIT Regulations 1992 - Held that - The argument that the actual write down was much less than the potential write down disclosed does not come to the help of the appellant because if the audit disclosures were factored in by the public they would have taken their decision based on that and in the process could have incurred huge losses in view of the fact that subsequently the actual hit is almost 40% less than what was projected. A disclosure based regime means proper and exact disclosure not an indicative disclosure, as argued by the appellant. In any case even the indicative disclosure was discounted by the Board of Directors of PVP Ventures. We find no merit in the argument of the appellants that after publication of the results of the quarter ending September 2009 there was no substantial decline in the price of the shares of PVP Ventures since the market had already factored in the loss that the company would incur. Prices of the shares prevailed in September 2009 was in the range of ₹ 60.30 to ₹ 42.70 and in October 2009 between ₹ 51.70 to 39. However, it declined to ₹ 39.50 and ₹ 26.20 in November and further down in December 2009. The average price reckoned by the appellants for valuing the shares still being held by Appellant No. 1 was ₹ 45. We are not convinced by the argument that the journal vouchers 231 to 233 were entered in the books on or about October 30, 2009 given their sequential character. Even assuming that the tally software facilitated the same during those times taking the October sales for crystallizing the amount of loss as on September 30 was a huge jump beyond both the requirement for crystallizing the value of loss and from the spirit of AS 4. It is in the affidavit of the appellants itself (dated March 6, 2017) that they crystallized the value of their investment in the securities of its parent company by ascribing a value of ₹ 45 per share considering the average trading price as of October 30, 2009 in respect of 80,36,235 shares which Appellant No. 1 continued to hold as on that date. Therefore, for crystallizing the value of the loss as on September 30, 2009 it was not necessary that the shares had to be actually sold and the actual sale price had to be taken; the books could have been valued using what was actually sold and the remaining securities valued notionally using the average price available. Therefore, the argument that the appellant continued to sell the shares in October (during the UPSI period, as held in the impugned order) was to crystallize the value of loss that they would have incurred does not have any merit. We do not agree with the argument of the appellant that AS 4 (8.2) enables juxtaposing the October sales value on to the September 30 quarterly statement since AS 4 (8.3) clearly states that such an approach is not correct in respect of investments. We also do not agree with the argument of the appellant that both the company and its Director cannot be punished for the same set of transactions as it is now a settled position in law that the Directors are equally liable for the offences of the company. In the instant matter it is also important to note that the Director concerned is the same responsible person in both the listed parent company and the unlisted 100% subsidiary. We agree with the appellants in their submissions that the ratio of this Tribunal s order in the matter of Ravi Mohan (2016 (3) TMI 93 - SECURITIES APPELLATE TRIBUNAL MUMBAI) is available to the appellant as far as violations of Regulation 7(1A) of SAST as held in the impugned order is concerned. Accordingly, penalty of ₹ 15 Lakh each imposed on both the appellants cannot be sustained. While finding no fault in holding that both the company and its Director are liable for punishment we do not find it appropriate that both are to be punished with the same force; same quantum of penalty. It is on record that the disputed transactions had led to a loss avoidance (or gain) to the tune of ₹ 10,94,12,571 to the company because of the insider trading done by the company and its authorized director. There is nothing on record to show that the Director himself has sold any shares which he held. Therefore while both are liable for the said violation both need not be punished on equal measure when only the company has actually benefited of about ₹ 11 crore. Once it is proved that the appellant company has violated the disclosure requirements under Regulation 13(6) of PIT Regulations 1992 Appellant No. 2 who was the CMD of Appellant No. 1 cannot be absolved of the responsibility. We also note that the penalty imposable under Section 15A(b) shall not be less than 1 lakh rupees for each day of such failure subject to a maximum of 1 crore rupees. Since the non-disclosure relates to four occasions and continued open ended and transactions involved were a total of about 15% of the shares of the Appellant No. 1, we hold that the penalty of ₹ 15 lakh each imposed on the appellants cannot be considered harsh or disproportionate. In Appeal No. 357 of 2015 penalty of ₹ 15 lakh each imposed on both the appellants under Regulation 7(1A) of SAST Regulations 1997 is set aside and penalty of ₹ 15 crore imposed on Appellant No. 2 in Appeal No. 357 of 2015 is reduced to ₹ 5 crore while retaining the penalty of ₹ 15 crore imposed on Appellant No. 1 in the same appeal.
Issues Involved:
1. Violation of SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations 1992). 2. Violation of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (SAST Regulations 1997). 3. Failure to make disclosure under Regulation 13(6) of PIT Regulations 1992. Detailed Analysis: Violation of SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations 1992): The appeals challenged the penalties imposed for insider trading violations. PVP Global, a subsidiary of PVP Ventures, sold shares of PVP Ventures during the period when unpublished price-sensitive information (UPSI) existed. The UPSI related to the diminution in the value of investments held by PVP Ventures in PVP Global, which was disclosed to the public on October 30, 2009, but came into existence on September 30, 2009. The sales between October 1-30, 2009, were considered violative of PIT Regulations 1992 as the appellants were insiders. The appellants argued that the potential loss was already disclosed in the annual financial statement on July 15, 2009, and the actual loss was lower than the disclosed amount, which was positive news. They also contended that the sales were necessary to crystallize the value of the assets held by the company and that the accounting standards allowed such adjustments. The tribunal found no merit in the appellants' arguments, stating that the indicative disclosure was not accurate and the actual loss was less than projected, which could mislead the public. The tribunal also noted that the sales during the UPSI period were not justified by the need to crystallize the value of the loss, as the shares could have been valued notionally. Violation of SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (SAST Regulations 1997): The tribunal agreed with the appellants that the ratio of the tribunal’s order in the matter of Ravi Mohan (supra) was applicable, which held that there was no violation in cases involving only the sale of shares. Consequently, the penalty of ?15 lakh each imposed on both appellants under Regulation 7(1A) of SAST Regulations 1997 was set aside. Failure to Make Disclosure Under Regulation 13(6) of PIT Regulations 1992: PVP Ventures failed to disclose changes in its shareholding structure exceeding 2% to the stock exchanges within two working days as required. PVP Global's shareholding in PVP Ventures declined significantly due to sales, and these changes were not disclosed as required under Regulation 13(6) of PIT Regulations 1992. The appellants claimed that they had sent the required disclosures via fax, but both stock exchanges denied receiving them. The tribunal found no reason to disbelieve the stock exchanges and noted that the appellants had previously admitted to inadvertently failing to make the disclosures. The tribunal upheld the penalties of ?15 lakh each imposed on the appellants for failing to make the required disclosures, considering the significant shareholding changes and the ongoing nature of the non-disclosure. Conclusion: 1. The tribunal dismissed Appeal No. 356 of 2015, upholding the penalties for failure to make disclosures under Regulation 13(6) of PIT Regulations 1992. 2. In Appeal No. 357 of 2015, the tribunal set aside the penalties under SAST Regulations 1997 but reduced the penalty on the director from ?15 crore to ?5 crore while retaining the ?15 crore penalty on the company for insider trading violations. 3. Both appeals were disposed of with no order as to costs.
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