2025 (5) TMI 1149 - AT - SEBI

Violation of Principle 4 of Schedule A of the PIT Regulations - SEBI imposing a monetary penalty of Rs. 30 lakhs u/s 15I of the SEBI Act upon the appellants - disclosure obligations under PIT Regulations and LODR Regulations - Whether the appellants had an obligation under Regulation 30(11) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 ( LODR Regulations ) to confirm or deny the market rumours regarding the Facebook investment in Jio Platforms Limited ( JPL ) during the period prior to formal announcement. HELD THAT - Appellants plea that only till a binding agreement is signed the information cannot be held as concrete or credible is devoid of merit which if acceded to would defeat the spirit of PIT regulations. There would be nothing left in a deal once a binding agreement is signed as the listed entity has to mandatorily make due disclosure. This implies nonrecognition of Principle-1 as the listed entity is required to make UPSI generally available to public when it comes to being as a credible and concrete piece of information. If appellants view is to be accepted no information relating to a potentially price sensitive transaction enumerated in Reg. 2(n) of PIT regulations may be treated as UPSI till such a transaction is actually culminated through a binding agreement. That will defeat the very purpose of the said regulations. There was no need to disclose any information since the information was already got disclosed in Media and was already generally available - This plea is devoid of merit as it is the responsibility of the company to give clarity on the matter to the investors and public at large with a credible and concrete explanation. In the absence of this such a speculative information would keep floating around which may break the integrity of the securities market. If at this stage the appellant had disclosed the basic facts about the deal clarifying that no binding agreement has been signed it would have settled the dust and stabilized speculative trends. In our view selective leakage of the information howsoever accurate or otherwise or complete or in bits and pieces does not discharge the company from its responsibility of making prompt disclosure to make it generally available moreso when such information has been classified by company as UPSI. Till the information is disclosed by the company it remains unauthenticated. The information leaked to news agencies remains selectively available to their subscribers / readers only and cannot be held as generally available to the entire universe of investors of the company for whom the company appointed a Chief Investor Relations officer to make such UPSI generally available . It takes the characteristics of a generally available information only when the company authenticates it. Otherwise it is only a speculative piece of information. This is evident by the fact though there was a price rise of 15% through speculative reporting in Newspapers etc. on March 24 2017 but despite of such a steep price rise later when the company made a formal disclosure on April 21 2020 making the information generally available there was a further significant spike of 10% noted in market price. Thus in respect of a materially price sensitive matter in the nature of significant cross-border investment in a company such as RIL the information may be held as generally available only when company authenticates it and not merely on the basis of a newspaper leakage not authenticated by the company. In terms of the Principle-4 if the information gets selectively disclosed whether inadvertently or otherwise whether or not due to anyone s omission or commission it definitely shows lack of due care by the company. Undisputedly the company had suo motu not made prompt disclosure of information under the Principle-1. The least the company could have done on noticing selective leakage of the information was to make a timely and prompt disclosure of information to one and all. Company was not required to come clean with regard to bits and pieces of UPSI - The news which was flashed globally and was followed in Indian media on March 24 2017 based on which the Market price was significantly increased relates to substantial equity infusion in its material subsidiary by Facebook (which was proved to be correct in a few weeks later). By this stage certainly such an information had reached a stage to be treated as concrete while it was certainly credible since signing of NDA between two sides. Hence we find no merit in the plea that the said information would have been PSI only when valuation figures were to be available after due diligence. We note that both the sides have extensively debated on LODR Regulations specifically whether Regulation 30(11) is discretionary or mandatory. The respondent s case is that while a listed entity shall be bound to disclose the information to the exchange when called upon to do so it may on its own initiative also do the same and therefore when read together it makes obligatory on the company to make suo motu disclosure where it has not been asked by the regulator. The appellant s plea is based on interpretation of Regulation 30(10) independent of Regulation 30(11). We are in agreement with Mr. Sancheti that correct interpretation of Regulation 30(11) can be made when read in juxtaposition with Regulation 30(10). The term may used in Regulation 30(11) when read with Regulation 30(10) provides for compliance by the listed entity in the given circumstances whether in response to any query raised by the exchange or otherwise. Here may needs to be read as an adjunct to mandatory requirement of Regulation 30(10). This requirement was applicable to all listed entities till the beneficial proviso brought in w.e.f. June 14 2003 restricted its applicability to only top 100 companies. However having held so we are of the view that this issue is not germane to the violation under PIT Regulation. We have already held in the preceding paragraphs that it was incumbent on the appellant to disclose the information which is in the nature of UPSI in terms of Schedule A of the PIT Regulations. We therefore limit our observations in foregoing paragraphs to current facts circumstances and records made available to us. We find the appellants in violation of Principle 4 of Schedule A of the PIT Regulations and uphold the order of the AO.

Summary

The core legal questions considered in this appeal revolve around the alleged violation of principles and regulations governing the disclosure of unpublished price sensitive information (UPSI) under the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations) and the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations). Specifically, the issues are:

1. Whether the appellants were under a mandatory obligation to confirm or deny the market rumours regarding the investment by Facebook in Jio Platforms Limited (JPL) under Regulation 30(11) of the LODR Regulations, given the information published by various media outlets on March 24, 2020.

2. Whether the appellants violated Principle No. 4 of Schedule A of the PIT Regulations by failing to promptly disseminate UPSI that was selectively disclosed, inadvertently or otherwise.

3. The interpretation and applicability of the terms "credible" and "concrete" as used in Principle No. 1 of Schedule A of the PIT Regulations in relation to the obligation to disclose UPSI.

4. The interplay and distinction between the disclosure obligations under the PIT Regulations and the LODR Regulations, and whether compliance with one can excuse non-compliance with the other.

5. Whether the information published in the media on March 24, 2020, was "generally available" or remained selectively disclosed, thus triggering the obligation for prompt disclosure by the appellants.

Issue-wise Detailed Analysis

Issue 1: Obligation under Regulation 30(11) of the LODR Regulations

Legal Framework and Precedents: Regulation 30(11) of the LODR Regulations states that a listed entity "may" on its own initiative confirm or deny any reported event or information to stock exchanges. The provisos introduce mandatory obligations for top 100 and 250 listed entities from specified future dates to confirm, deny, or clarify any reported event or information that is not general in nature and indicates rumours of a specific material event circulating amongst the investing public.

Court's Interpretation and Reasoning: The appellants argued that the use of "may" in Regulation 30(11) clearly indicates discretion and no mandatory obligation existed at the relevant time (March 2020) to confirm or deny rumours. The amendments making such disclosure mandatory for top entities were introduced later (effective June 2023 and April 2024). The Court acknowledged this but held that this issue was not germane to the violation under the PIT Regulations, which impose a separate and higher standard of disclosure.

Treatment of Competing Arguments: The respondent contended that Regulation 30(11) must be read with Regulation 30(10), which mandates that the company shall provide specific and adequate replies to queries from stock exchanges, and that the "may" in 30(11) implies "shall" when read in conjunction with 30(10). The Court agreed with this interpretation but emphasized that the key violation was under PIT Regulations, not LODR.

Conclusion: While the "may" in Regulation 30(11) was discretionary at the time, the Court found that the issue of non-disclosure under LODR was not determinative of the violation under PIT Regulations.

Issue 2: Violation of Principle No. 4 of Schedule A of the PIT Regulations

Legal Framework and Precedents: Principle 4 mandates prompt dissemination of UPSI that gets disclosed selectively, inadvertently, or otherwise, to make such information generally available. Principle 1 requires prompt public disclosure of UPSI when it becomes credible and concrete. The principles are part of the Code of Practices and Procedures for Fair Disclosure under the PIT Regulations.

Court's Interpretation and Reasoning: The Court emphasized that the principles are integrated and complementary. Principle 1 requires disclosure when UPSI is credible and concrete. However, if such information is disclosed selectively before it becomes generally available, Principle 4 requires the company to promptly disseminate it to avoid selective disclosure and information asymmetry.

The Court found that the information relating to Facebook's investment was UPSI, classified as such by the company, and was selectively disclosed through international media on March 24, 2020. This selective disclosure triggered the obligation under Principle 4 to promptly disseminate the information to the market at large.

Key Evidence and Findings: The Court relied on the timeline of events, including the execution of confidentiality agreements, non-binding term sheets, due diligence, and the media reports. It noted a 15% rise in the market price of the shares following media reports, indicating the price sensitivity and materiality of the information. The Court rejected the appellants' contention that the information was not credible or concrete as no binding agreement had been signed by March 24, 2020.

Application of Law to Facts: The Court held that the information was both credible and concrete by March 24, 2020, given the extensive negotiations, confidentiality agreements, and the broad terms agreed upon. The selective disclosure by media, without prompt confirmation or denial by the company, violated Principle 4.

Treatment of Competing Arguments: The appellants argued that the information was already in the public domain via media reports and thus generally available, negating the obligation to disclose. The Court rejected this, holding that media reports are selective and reach only a subset of investors. Only company-authenticated disclosure makes the information generally available. The Court also dismissed the argument that only binding agreements trigger disclosure obligations.

Conclusion: The Court upheld the violation of Principle 4, finding that the appellants failed to promptly disseminate UPSI after selective disclosure, thereby violating the PIT Regulations.

Issue 3: Interpretation of "Credible" and "Concrete" in Principle 1

Legal Framework: Principle 1 requires prompt public disclosure of UPSI that would impact price discovery no sooner than credible and concrete information comes into being.

Court's Interpretation and Reasoning: The Court referred to dictionary definitions and legal dictionaries to define "credible" as "worthy of belief" and "concrete" as "based on facts, not guesses." It examined the facts and events leading up to March 24, 2020, including negotiations, term sheets, due diligence, and legal counsel involvement.

Findings: The Court found that by March 24, 2020, the information was both credible and concrete, even though the final binding agreement was executed later. The market's reaction and the involvement of reputable international media corroborated the credibility.

Application of Law to Facts: The Court held that the appellants' argument that disclosure was only required post-binding agreement was untenable and contrary to the purpose of PIT Regulations, which aim to prevent information asymmetry at the earliest stage.

Conclusion: The information was credible and concrete by March 24, 2020, triggering disclosure obligations under Principle 1 and Principle 4.

Issue 4: Interplay between PIT Regulations and LODR Regulations

Legal Framework: PIT Regulations prohibit insider trading and impose stringent disclosure requirements for UPSI. LODR Regulations require continuous disclosure of material events but do not automatically equate material information with UPSI.

Court's Interpretation and Reasoning: The Court explained that while the two regulations overlap, their scopes differ. Material information under LODR is not necessarily UPSI under PIT. The standard of disclosure under PIT is higher, focusing on price sensitivity rather than mere materiality.

Key Precedents: The Court referred to previous decisions holding that information required to be disclosed under listing agreements is not necessarily price sensitive and that price sensitivity is determined by impact on price.

Application of Law to Facts: The Court rejected the appellants' reliance on LODR regulations to negate obligations under PIT Regulations. It held that compliance with LODR disclosure requirements does not absolve the company from obligations under PIT Regulations.

Conclusion: The appellants' arguments based on LODR Regulations were not relevant to the PIT Regulations violation.

Issue 5: Whether the information was "generally available" or selectively disclosed

Legal Framework: UPSI must be made generally available to the investing public to avoid selective disclosure. Principle 4 mandates prompt dissemination when selective disclosure occurs.

Court's Interpretation and Reasoning: The Court held that media reports, even if widely circulated, constitute selective disclosure as they reach only a segment of investors. The company's authenticated disclosure is essential to make information generally available.

Key Findings: The market's reaction to media reports was speculative, with a 15% price rise, followed by a further 10% rise upon company's formal disclosure. This demonstrated that media reports alone did not make the information generally available.

Application of Law to Facts: The appellants failed to promptly disseminate the information after selective media disclosure, violating Principle 4.

Conclusion: The information was not generally available until the company's formal announcement, and the failure to promptly disclose after selective leakage was a violation.

Significant Holdings

"The entire scheme of Schedule - A is very well integrated. Principle 1 makes it obligatory on the part of listed entity to make prompt disclosure of UPSI, as soon as it comes into being as a concrete and credible information, to make it generally available (in contrast with selectively made available). For this purpose, Principle-2 calls for uniform and unusual dissemination of UPSI by the company to avoid selective disclosure. Principle 3 requires it to designate a Chief Investors Relation Officer in this regard. However, despite this, if a UPSI gets disclosed selectively (whether intentionally or otherwise) the listed entity is required to promptly disseminate the UPSI, to make such information 'generally available' (Principle 4)."

"Selective leakage of the information, howsoever accurate or otherwise or complete or in bits and pieces, does not discharge the company from its responsibility of making prompt disclosure to make it generally available, moreso when such information has been classified by company as UPSI. Till the information is disclosed by the company, it remains unauthenticated."

"The appellants' plea that only till a binding agreement is signed, the information cannot be held as concrete or credible is untenable. If appellants' view is to be accepted, no information relating to a potentially price sensitive transaction may be treated as UPSI till such a transaction is actually culminated through a binding agreement. That will defeat the very purpose of the said regulations."

"Material information under LODR may not be price sensitive for the purpose of PIT regulations. Conversely, merely because material information is required to be disclosed to the stock exchanges, it cannot be held to be UPSI. What is 'price sensitive' is essentially 'material', but the converse is not true."

"The term 'may' used in Regulation 30(11), when read with Regulation 30(10) provides for compliance by the listed entity in the given circumstances, whether in response to any query raised by the exchange or otherwise. Here, 'may' needs to be read as an adjunct to mandatory requirement of Regulation 30(10)."

Final determinations:

- The appellants violated Principle 4 of Schedule A of the PIT Regulations by failing to promptly disseminate UPSI after selective disclosure through media.

- The information relating to the Facebook investment was credible and concrete as of March 24, 2020, triggering disclosure obligations.

- The appellants' reliance on discretionary language in Regulation 30(11) of LODR Regulations and the absence of a binding agreement at the time were rejected.

- The obligations under PIT Regulations are independent and more stringent than those under LODR Regulations; compliance with one does not excuse non-compliance with the other.

- Media reports alone do not constitute "generally available" information; authenticated company disclosure is necessary.