2019 (3) TMI 828 - AT - SEBI

Insider trading - Reported statement of the Chairman of a Company regarding his interest to acquire another Company is sufficient to invoke the provisions of PFUTP Regulations, 2003 - Prohibition of manipulative and deceptive devices, insider trading and substantial acquisition of securities or control - HELD THAT - First of all the statement attributed to the appellant is as reported by a news reporter. There is no evidence as to the appellant acquiring any shares of Amrutanjan. On the other hand, what is available on record is that no effort in acquisition has been made. The appellant has clarified to the Stock Exchange immediately on receiving their communication on April 5, 2010 that it was a general statement relating to his business interest. The statement is further emphasized by the clarification provided by Amrutanjan itself which also stated that the said news item is false and without basis and the promoters of the Company have no intention to sell out and the promoters do not foresee any reason to dilute their stake and exit from the company . While dealing with a serious issue of fraud the authorities need to ascertain the motive in the absence of any connecting evidence. Is nothing to prove that the quoted statement in the news report is exactly what is stated by the appellant unless the statement is derived from a written communication issued by the Chairman or by his Company which is not the case here. There is no evidence to link to a motive. Neither the appellant nor his Company Emami had / have acquired the shares of Amrutanjan. In any case they were actually interested in acquiring; the Chairman of the acquiring company would not have talked up the prices of the shares of the acquiring company (Target Company). In the absence of any motive or a scheme or any evidence a reported news item alone is not sufficient to prove a serious charge like fraud. If at all the reported statement is correct it could an expansive mood of the person. Silence as a sign of wisdom cannot be stretched to a point of total silence in the world of securities market. Substantial movement in the prices etc. of a profitable company with sufficient liquidity cannot be attributed to such a reported statement alone. Before parting with, the limitations of a comparative static analysis as given in the impugned order also needs to be emphasized. The comparison made in the impugned order is by taking the price / volume data of April 1, 2010 and April 5, 2010. However a look at the data for 30th and 31st March, 2010 also give a different picture. On April 1 the volumes traded in NSE was 308538 shares and in BSE was 144644 shares which is shown to have increased to 887705 shares in NSE and 474050 in BSE on April 5, 2010. But if we take the volume on March 31, 2010 instead of April 1, 2010 the volume in NSE was 834070 and in BSE 393896. So, the volumes on March 31, 2010 and April 5, 2010 are not much different while when one compares the volume of April 5 with that of April 1 the volumes are quite different. This shows that a two day comparison can be misleading and is not sufficient to establish evidence for a serious offence like fraud.

Summary

Issues Involved:
1. Whether a reported statement by the Chairman of a Company about his interest to acquire another Company is sufficient to invoke the provisions of PFUTP Regulations, 2003.
2. Whether the statement impacted the price and volumes in the scrip of the target company, thereby violating SEBI regulations.
3. Whether the appellant is liable to be penalized under section 15HA of SEBI Act for the alleged violation.

Issue-wise Detailed Analysis:

1. Sufficiency of the Reported Statement to Invoke PFUTP Regulations, 2003:
The primary issue in this appeal is whether the statement made by the Chairman of Emami Ltd. regarding his interest in acquiring Amrutanjan Healthcare Ltd. is sufficient to invoke the provisions of the Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating to Securities Market) Regulations, 2003 (PFUTP Regulations, 2003). The Adjudicating Officer (AO) of SEBI answered this affirmatively and imposed a penalty of ?8 lakh on the appellant. The appellant clarified that the statement was a general expression of interest in the Pharma or FMCG sectors, including Amrutanjan, which would contribute to the growth and expansion of his company. The Tribunal noted that "fraud" in the securities market is a serious offence and the PFUTP Regulations aim to deter fraudulent and manipulative behavior.

2. Impact of the Statement on Price and Volumes:
The investigation by SEBI found that the statement made by the Chairman of Emami Ltd. impacted the price and volumes in the scrip of Amrutanjan. The price of Amrutanjan's scrip increased significantly from the first week of March 2010 to April 1, 2010, and further increased after the statement was reported. The Tribunal, however, noted that there was no evidence of the appellant acquiring any shares of Amrutanjan. The appellant had clarified to the Stock Exchange that the statement was a general expression of business interest. Amrutanjan also clarified that the news item was false and without basis. The Tribunal emphasized that a reported news item alone is not sufficient to prove a serious charge like fraud in the absence of any motive or evidence.

3. Liability for Penalty under Section 15HA of SEBI Act:
The Tribunal examined whether the appellant is liable to be penalized under section 15HA of SEBI Act for the alleged violation. The Tribunal found that there was no evidence to prove that the quoted statement in the news report was exactly what was stated by the appellant. There was no written communication issued by the Chairman or his Company. Further, there was no evidence to link the statement to a motive or a scheme. The Tribunal concluded that the reported statement alone is not sufficient to establish evidence for a serious offence like fraud. The comparison of price and volume data in the impugned order was found to be insufficient and potentially misleading.

Conclusion:
The Tribunal concluded that the impugned order cannot be sustained and quashed the same. The appeal succeeded and was allowed. No order on costs was made.