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2016 (11) TMI 1643 - AT - SEBITrigger date of Unpublished Price Sensitive Information ( UPSI ) - whether the company failed to keep the trading window of its scrip closed during the period when UPSI was in force? - whether this enabled some of the Promoter-Directors and some other entities to share the UPSI with other entities and/or trade in the shares of Shelter Infra Projects Ltd. thereby violating relevant provisions of securities laws? - HELD THAT - Draft SPA did not specify the price at which the shares were to be sold, cannot be a ground to hold that there was no UPSI on June 19, 2009, because, in the present case, the price fixed was a negotiated price and in the facts of present case, it is reasonable to hold that it is only after arriving at the negotiated price, the draft SPA was forwarded on June 20, 2009, however, the negotiated price was not disclosed in the draft SPA. Admittedly, the promoter-directors and their relatives and other connected entities started dealing in the shares from June 22, 2009. In these circumstances, even if it is held that the UPSI came into existence on 19th June, 2009 and not with effect from 21st May, 2009 as held by the AO, in the facts of present case, no fault can be found with the decision of AO, because, it is only from 22nd June, 2009 the directors, their relatives and connected entities sought to deal in the shares of the target company on the basis of UPSI which came into existence on 19th June, 2009. Since the existence of UPSI from 19th June, 2009 cannot be doubted, it was the duty of the company (Shelter Infra) to keep the trading window closed till the date of announcement of public offer on 7th August, 2009. Since this has not been done, the Company is in violation of the relevant provisions of Listing Agreement and the PIT Regulations. Accordingly, the penalty of ₹ 50 lakh imposed on the company for not closing the trading window cannot be faulted. It was contended by the Counsel for the company that the delay in disclosing the board decision to the Stock Exchange, is attributable to the Compliance Officer and the directors of the company. It is submitted that since the promoter-directors of the company have been exonerated vide order of the AO of SEBI dated 28th June, 2013,in the present case, the company cannot be made liable. We see no merit in the above contention. Overall responsibility of the company and the board of directors to ensure that the Code of Conduct is followed in letter and spirit. In our opinion, the AO was not justified in holding the Compliance Officer alone was responsible for closing the trading window and disclosing the Board resolution to the Stock Exchange. Therefore, fact that the AO has erroneously held that the directors are not liable cannot be a ground to hold that the company must also escape penal liability for failing to close the trading window during the existence of UPSI and failing to make disclosures to the Stock Exchange within the stipulated time. Argument of the Counsel for the company that penalty of ₹ 50 lakh imposed under Section 23A(a) of SCRA is unreasonably excessive deserves acceptance. According to the Counsel for the appellant, there was only delay of 7 days i.e. from 30th July, 2009 to 7th August, 2009 when public announcement relating to the public offer was made. Though, respondent has stated that the public announcement cannot be treated as disclosure, in the peculiar facts of present case, where the company already has suffered penalty of ₹ 50 lakh on account of failure of Compliance Officer/directors to close the trading window and since the directors have been exonerated, it would be just and proper to restrict the penalty till the public announcement was made. Penalty under Section 23A(a) of SCRA for 7 days delay at the rate of ₹ 1 lakh per day would be ₹ 7 lakh. Accordingly, while sustaining the penalty of ₹ 50 lakh imposed under Section 15HB of the SEBI Act for not closing the trading window, we reduce the penalty of ₹ 50 lakh imposed under Section 23A(a) of the SCRA to ₹ 7 lakh for not disclosing the Board resolution to the Stock Exchange. Whether appellant was an insider? - Admittedly, trades were executed by the appellant on 3rd July, 2009 i.e. during the subsistence of UPSI. The argument made by the Counsel for the appellant that she did not sell the shares bought on 3rd July, 2009 and as such did not benefit from the UPSI even assuming that if she was privy to the UPSI is also without any merit. Under the relevant regulations trading in the shares of the company (whether buy or sell) by an insider is prohibited. On the ground taken by the appellant that the penalty of ₹ 1 crore imposed is too harsh, we note that in other penalty orders in Appeal Nos.120 and 143 of 2014, penalty imposed on each person comes in the range of ₹ 20-30 lakh. Further, given that the appellant is an old lady who depended on her husband and the then Compliance Officer Mr. Surana and the fact that both have expired, we deem it proper to reduce the penalty from ₹ 1 crore imposed in the impugned order to ₹ 30 lakh. Very fact that the director of Shelter Infra was a business partner of the Parekh Group and that the Parekh Group traded in the shares of Shelter Infra for the first time after the UPSI came into existence, is sufficient to hold that UPSI was the reason for the appellants to trade in the shares of Shelter Infra. Accordingly, there is no reason to interfere with the AO s order in both these appeals. The argument that the appellants were not privy to the UPSI and had authorized the Chairman of Shelter Infra to negotiate in respect of their shares without being privy to the UPSI cannot be sustained since it is conclusively proved that UPSI was in existence from 19th June, 2009. Further, argument that the appellant no.1 did not sell shares which he bought during July, 2009 in the open offer or that the appellant no.2 did not sell the shares even during the open offer period do not absolve the appellants from being penalized for violating the PIT Regulations. Hence, the penalty of ₹ 30 lakh imposed on the appellant no.1 for two violations (code of conduct and PIT regulations) and ₹ 20 lakh imposed on appellant no.2 for one violation (PIT regulations) in the impugned order cannot be said to be unreasonable or excessively harsh. In these appeals before us, it is established beyond doubt that UPSI came into existence at least on 19th June, 2009. All the directors and their relatives are covered under the definition of insider . The Parekh Group having business dealings and partners in business concern with an insider are covered under connected people. Passing on the information needs to be judged from the context and in the instant context it is not disputed that the Parekh Group started trading from 22nd June, 2009 after the UPSI came into existence. Thus, the company, its directors and their relatives and connected entities are guilty of violating the provisions of the securities laws, they are liable for action under the SEBI Act and/or SCRA. Appellants in all these appeals are directed to pay the penalty amount within a period of 45 days from today to SEBI. If the amount of penalty is not paid within a period of 45 days from today, SEBI is at liberty to recover the penalty with interest at 12% per annum from the date of the orders impugned in the respective appeals till payment.
Issues Involved:
1. Trigger date of Unpublished Price Sensitive Information (UPSI). 2. Failure to keep the trading window closed during the UPSI period. 3. Sharing of UPSI by Promoter-Directors and other entities. 4. Violation of SEBI (Prohibition of Insider Trading) Regulations, 1992. 5. Penalties imposed under Section 15HB of the SEBI Act, 1992 and Section 23A(a) of SCRA. Detailed Analysis: APPEAL NO. 121 OF 2014: Issue: Trigger Date of UPSI and Failure to Close Trading Window - Facts: Shelter Infra Projects Ltd. (formerly CCAP Ltd.) was investigated by SEBI for a substantial rise in its scrip price from ?9 to ?62.05 between 01.04.2009 to 22.09.2009. The investigation revealed that the company, along with its promoters, entered into a Share Purchase Agreement (SPA) for selling 35.5% shares, which was not disclosed timely to the stock exchange. - Arguments: The appellant argued that UPSI came into existence only on board approval on 30.07.2009 and that the Compliance Officer was responsible for closing the trading window. The respondent contended that UPSI existed from 21.05.2009 and the company failed to close the trading window and disclose the board decision timely. - Judgment: The Tribunal held that UPSI existed from 19.06.2009, and the company failed to close the trading window, violating relevant regulations. The penalty of ?50 lakh under Section 15HB of the SEBI Act was sustained, but the penalty under Section 23A(a) of SCRA was reduced from ?50 lakh to ?7 lakh due to the delay being only 7 days. APPEAL NO. 126 OF 2014: Issue: Insider Trading by a Senior Citizen - Facts: The appellant, wife of the late Chairman and Promoter of Shelter Infra, was penalized ?1 crore for insider trading as she bought 5000 shares during the UPSI period. - Arguments: The appellant argued that she was not privy to UPSI, and the shares were bought by her husband without her knowledge. She also contended that she did not benefit from the UPSI as she did not sell the shares. - Judgment: The Tribunal held that being an insider, trading during the UPSI period was prohibited. However, considering her age and dependency on her husband and the Compliance Officer, the penalty was reduced from ?1 crore to ?30 lakh. APPEAL NO. 128 OF 2014: Issue: Sharing of UPSI by a Director - Facts: The appellant, a director of Shelter Infra and RPL, was penalized ?1 crore for allegedly sharing UPSI with the Parekh Group. - Arguments: The appellant argued that he was not present in the board meetings discussing SPA and had no close association with the Parekh Group. - Judgment: The Tribunal found sufficient circumstantial evidence proving that the appellant was privy to UPSI and shared it with the Parekh Group. The appeal was dismissed. APPEAL NO. 120 OF 2014: Issue: Insider Trading by Parekh Group - Facts: The Parekh Group was penalized ?2 crore jointly and severally for trading in Shelter Infra shares during the UPSI period based on insider information. - Arguments: The appellants argued that they traded based on market buzz and had no connection with the insider information. - Judgment: The Tribunal held that the Parekh Group's trading in Shelter Infra shares during the UPSI period was based on insider information shared by Shanti Ranjan Paul. The appeal was dismissed. APPEAL NO. 143 OF 2014: Issue: Insider Trading by Director and Son - Facts: The appellant, a whole-time director of Shelter Infra, and his son were penalized for trading during the UPSI period. - Arguments: The appellants argued that they were not privy to UPSI and did not benefit from the trades. - Judgment: The Tribunal held that both appellants were insiders and traded during the UPSI period. The penalties of ?30 lakh on the director and ?20 lakh on his son were upheld. Conclusion: - Appeal No. 120 of 2014: Dismissed. - Appeal No. 121 of 2014: Penalty under Section 15HB sustained; Penalty under Section 23A(a) reduced to ?7 lakh. - Appeal No. 126 of 2014: Penalty reduced to ?30 lakh. - Appeal No. 128 of 2014: Dismissed. - Appeal No. 143 of 2014: Dismissed. Directive: All penalties to be paid within 45 days, failing which SEBI may recover with 12% interest per annum. Appeals disposed of with no order as to costs.
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