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2020 (8) TMI 83 - Board - SEBIFailure to close the trading window - provisions of Clause 4 of Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders mentioned in Schedule B read with Regulation 9(1) of PIT Regulations, 2015 - As alleged that the acquisition of AIMIN by Ecap was a price sensitive information which had come into existence on January 25, 2017 upon signing of Term Sheet - HELD THAT - Price movement of the scrip of EFSL at the relevant point of time. Corporate announcement was made on the platform of BSE at 18 56 48 hours on April 05, 2017 i.e. after the market had closed on the said day. The scrip of EFSL had closed at ₹ 167.90 on the said day. However, I note that the scrip had opened at ₹ 175.95 the next day. This shows that the price of the scrip of EFSL had registered a spike of 4.79% on April 06, 2017. EFSL had made another announcement on April 06, 2017 wherein it had informed BSE and NSE that the Insurance Regulatory Development Authority of India ( IRDAI ) had accepted the registration application form IRDA/R2 of Edelweiss General Insurance Company, a wholly owned subsidiary of EFSL, for carrying on business as a general insurance company in India ( IRDAI Approval ). The said information was disseminated on BSE at 13 40 34 on April 06, 2017. Therefore, the said information cannot be said to have had a role in price spike observed at the time the market opened. In light of this, I am of the view that the acquisition of AIMIN by Ecap was not only a price sensitive information but also was effective in pulling up the price of the scrip of EFSL. From this angle note that the announcement considered to be not UPSI is grossly misconceived. Term sheet has fructified and transformed into a final transaction by way of an SPA. Therefore, hold it not incorrect to take the view that the UPSI had come into existence on the day of signing of Term Sheet itself. In spite of the above, note that the allegation in the present matter is non closure of trading window which admittedly had not been closed, therefore, it seldom matters when the UPSI had actually begun. There was certainly a duty cast upon the Noticee to close the trading window in view of the existence of UPSI which the Noticee had admittedly failed to comply with. Therefore, hold that the Noticee has violated the provision of Clause 4 of Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders under Schedule B read with Regulation 9(1) of PIT Regulations, 2015. Whether the Noticee is liable for penalty? - As established in the pre-paragraphs, the Noticee has violated the provision of Clause 4 of Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders under Schedule B read with Regulation 9(1) of PIT Regulations, 2015.Therefore, the Noticee is liable for a penalty under Section 15HB of SEBI Act. In view of the contentions of the Noticee regarding technical violation and mitigating factors as prescribed in Section 15J of the SEBI Act, 1992, it became necessary to understand the repetition, if any, of the violation committed by the Noticee. To ascertain the same, the Noticee was advised to furnish information on past closure of trading window since the commencement of PIT Regulations, 2015 when the onus of compliance shifted to the Compliance Officer. The practice of merely making the relevant employees cognizant of their responsibilities does not tantamount to closure of trading window as has been expected in the law. If mere intimation of the people privy to the information is what is expected then the law would have been designed in such a fashion. Any short cut in the practices to a clearly laid down law is not acceptable - law casts a responsibility on the compliance officer to take a call on Closure of trading window and to disseminate the same to the stock exchanges. As incidentally note that the Noticee has admittedly begun intimating stock exchanges on trading window closure only from January 2019. From the replies of the Noticee, find non-compliance on the part of the Noticee by failing to close trading windows when necessary as per law. Therefore, there were repeated instances wherein the Noticee had failed to close the trading window. In view of the above the argument of the Noticee that there was no repetition of violation is not acceptable. A repetitive violation, in disregard to the applicable provisions of law, cannot be construed to be a technical violation. Material/facts on record, the reply submitted by the Noticee and also the factors mentioned in the preceding paragraphs, in exercise of the powers conferred upon me under Section 15-I of the SEBI Act read with Rule 5 of the Adjudication Rules, in exercise of the powers conferred upon me under Section 15-I of the SEBI Act read with Rule 5 of the Adjudication Rules, hereby impose a penalty of ₹ 5,00,000/- (Rupees Five Lakh only) on the Noticee. Said penalty is commensurate with the lapse/omission on the part of the Noticee. Noticee shall remit / pay the said amount of penalty within 45 days of receipt of this order through online payment facility available on the website of SEBI - In the event of failure to pay the said amount of penalty within 45 days of the receipt of this Order, recovery proceedings may be initiated under Section 28A of the SEBI Act for realization of the said amount of penalty along with interest thereon, inter alia , by attachment and sale of movable and immovable properties.
Issues Involved:
1. Whether the Noticee violated Clause 4 of Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders under Schedule B read with Regulation 9(1) of PIT Regulations, 2015. 2. Whether the Noticee is liable for penalty and the quantum of such penalty. Issue-wise Detailed Analysis: 1. Violation of Clause 4 of Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders under Schedule B read with Regulation 9(1) of PIT Regulations, 2015: Facts and Allegations: The Securities and Exchange Board of India (SEBI) conducted an investigation into the dealings in the scrip of Edelweiss Financial Services Ltd. (EFSL) for the period from January 25, 2017, to April 05, 2017. It was observed that Ecap Equities Limited, a wholly-owned subsidiary of EFSL, acquired Alternative Investment Market Advisors Private Limited (AIMIN) on April 05, 2017, which was considered price-sensitive information (UPSI). The Noticee, who was the compliance officer and company secretary of EFSL, failed to close the trading window during the period of UPSI, thus allegedly violating Clause 4 of Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders under Schedule B read with Regulation 9(1) of PIT Regulations, 2015. Noticee's Defense: The Noticee contended that the acquisition of AIMIN was not price-sensitive information, citing the gross income and net worth of EFSL, which made the acquisition insignificant. The Noticee also argued that the reliance on a newspaper article to determine the UPSI period was misplaced and that the final decision to acquire AIMIN was only made at the time of signing the Share Purchase Agreement (SPA) on April 05, 2017. Furthermore, the Noticee argued that the acquisition was a routine business activity and did not materially affect the price of EFSL's securities. Adjudicating Officer's Findings: The Adjudicating Officer found that the acquisition announcement was indeed price-sensitive information, as it was likely to materially affect the price of EFSL's securities. The Officer noted that the Term Sheet signed on January 25, 2017, indicated a concrete intention to acquire AIMIN, making it UPSI from that date. The Officer also observed that the Noticee had a duty to close the trading window during the UPSI period, which the Noticee failed to do. The Officer concluded that the Noticee violated Clause 4 of Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders under Schedule B read with Regulation 9(1) of PIT Regulations, 2015. 2. Liability for Penalty and Quantum of Penalty: Noticee's Arguments: The Noticee argued that there was no disproportionate gain or unfair advantage made as a result of the default, no loss caused to investors, and no repetitive nature of the default. The Noticee cited the decision of the Hon'ble Supreme Court in the matter of Siddharth Chaturvedi vs SEBI, arguing that no penalty should be imposed for a technical default where the parameters of Section 15J are satisfied. Adjudicating Officer's Findings: The Officer noted that the investigation report did not quantify any profit made or loss caused to investors due to the violation. However, the Officer found that the Noticee had a pattern of not closing the trading window for various corporate announcements, indicating a repetitive nature of the default. The Officer emphasized the importance of compliance officers in ensuring adherence to regulatory standards and maintaining market integrity. Conclusion: The Adjudicating Officer concluded that the Noticee's failure to close the trading window during the UPSI period constituted a violation of the relevant regulations. Considering the repetitive nature of the default and the role of the compliance officer, the Officer imposed a penalty of ?5,00,000 on the Noticee under Section 15HB of the SEBI Act. The Noticee was directed to remit the penalty within 45 days, failing which recovery proceedings would be initiated.
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