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J.C. Mansukhani and Others Versus Securities and Exchange Board of India, Mumbai

2016 (8) TMI 918 - SECURITIES APPELLATE TRIBUNAL MUMBAI

Disclosing of price sensitive information belatedly - violation of the PIT Regulations - Contracts for supply of goods entered into by the Company with foreign enterprises - Held that:- Every contract for supply of goods manufactured by a company may not be a price sensitive information, however, in the facts of present case, the contracts to supply 65% of the yearly contracts received by the company, constituted price sensitive information which ought to have been disclosed. - It is relevan .....

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considered the mitigating factors under Section 15-J of SEBI Act and thereafter imposed a penalty of ₹ 25 lac under Section 15-HB of SEBI Act (maximum penalty provided for under this Section is Rs.One crore), we do not find any merit in the contentions raised on behalf of the Appellants. - Appeal No.192 of 2014, Appeal No.185 of 2014 - Dated:- 26-7-2016 - J.P. Devadhar, Jog Singh and Dr. C.K.G. Nair, JJ. For The Appellant : Mr. Sharan Jagtiani a/w Mr. Amit Dey, Advocates i/b Mindspright L .....

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ion. The impugned order, based on an investigation conducted by SEBI into the dealings in the shares of Man Industries (India Limited) ( Company for convenience) for the period 15/4/2009 to 14/5/2009 imposed a penalty of ₹ 25 lac jointly and severally on the Appellants (in both Appeal Nos. 185 and 192 of 2014) under Section 15-HB of Securities and Exchange Board of India Act, 1992 ( SEBI Act for short) for violation of certain provisions of SEBI (Prohibition of Insider Trading) Regulations .....

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nasukhani. The Company and some of the Directors and officials are Appellants in Appeal No.185 of 2014 while Shri J.C. Mansukhani who was the Vice Chairman and Managing Director of the Company during the relevant time preferred a separate Appeal (No.192 of 2014). 3. SEBI conducted an investigation into the dealings of shares of Man Industries for the period from April 15, 2009 to May 14, 2009. It was revealed that the Company and its Board of Directors delayed disseminating price sensitive infor .....

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act Date of Contract Date of information to the exchange Delay in days 1 Niroo Gustar 90 million euros March 01, 2009 April 29, 2009 59 days 2 GRC 12 million euros April 22, 2009 April 29, 2009 7 days The issue of disclosure has emanated from two orders bagged by the Company from Niroo Gustar Institute ( Niroo Gustar for short) and Green Refinement Company ( GRC for short) - two Iranian Companies. The contract with Niroo Gustar was signed on March 1, 2009 and with GRC was signed on April 22, 200 .....

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ese orders constituted more than 50% of the annual order book of the Company for the relevant year and as such they were not just normal business activity of a manufacturing company. ii. The information relating to such huge orders was price sensitive meaning any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company . iii. Information becomes price sensitive irrespective of whether actual price witne .....

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ct of the first order and 7 days in respect of the second order. 7. The relevant provisions of the PIT Regulations are reproduced below:- PIT Regulations. Regulation 12(1) All listed companies and organizations associated with securities markets including: (a) the intermediaries as mentioned in section 12 of the Act, asset management company and trustees of mutual funds; (b) the self-regulatory organizations recognized or authorized by the Board; (c) the recognized stock exchanges and clearing h .....

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ion (1), shall abide by the code of Corporate Disclosure Practices as specified in Schedule II of these Regulations. (3) All entities mentioned in sub-regulation (1), shall adopt appropriate mechanisms and procedures to enforce the codes specified under sub-regulations (1) and (2). Part A of Schedule I to regulation 12(1) of PIT Regulations: Clause 1.2 The compliance officer shall be responsible for setting forth policies and procedures and monitoring adherence to the rules for the preservation .....

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us and immediate basis. 8. Two questions fall for consideration in these two Appeals; they are:- (a) Whether on the facts and in the circumstances of the present case, the AO of SEBI was justified in holding that the contracts for supply of goods entered into by the Company with foreign enterprises on 1/3/2009 and 22/4/2009 were price sensitive information and disclosing the said price sensitive information belatedly on 29/4/2009 was in violation of the PIT Regulations? (b) Assuming that the sai .....

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inty regarding the orders as it was only a preliminary agreement. It is contended on behalf of the Appellants that the information relating to signing of the contracts did not make the information price sensitive. The date of commencement of the contract, as per the provisions contained in Clause 7 of the contract, distinguishing between the date of effectiveness and date of commencement, is the relevant date. Conditions under Clause 7 of the Contract, inter alia, include receipt of 25% of advan .....

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sure was made immediately after that. 10. It was further argued by the Counsel for the Appellants that the contract signed on 1st March, 2009 was not a final contract as several modifications to that contract were made and as is evident on record. These amendments to the contract including changes in the quantities and hence the total value of the contract which are important considerations. There is no dispute on these facts. 11. Though nothing is on record, this Tribunal specifically asked the .....

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stage. There is no allegation that the non-disclosed information was misused by the Appellants in any manner. Therefore, the PIT Regulations are not the appropriate law to be invoked; it could have been at best violative of Section 36 of the Listing Agreement. There was no delay in informing the second order (Contract dated 22nd April, 2009) as this Contract was fructified only on 28th April, 2009 and disclosure was made on 29th April, 2009. The show-cause notice does not distinguish between the .....

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guments, learned Counsel for the Appellants concluded that mere bagging of big sized contracts itself does not make them price sensitive; they become price sensitive only from the date when they become effective; there is a need for the distinguishing between the contract date and effective date of commencement; the contract itself has given provisions (Clause 7) specifying the conditions under which they become effective and, therefore, when the information becomes price sensitive. These factor .....

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information has to be careful about the timing of disclosing the information. 13. The learned Counsel for the Respondent emphasized the contentions in the impugned order. Quoting relevant provisions of the PIT Regulations, he emphasized that disclosures should be made on an immediate and continuous basis. Orders worth ₹ 1340 crore out of total order book of ₹ 2000 crore in the relevant year are not like normal small value orders. There is no reference to any proposed amendments to th .....

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opening of letter of credit, receipt of advance payment, termination, etc. are part of any standard contract. Sub-clause 7.2 of the contract further provides for additional grace period of 120 days in the event the commencement date has not happened within the agreed schedule and asserted that disclosure cannot wait for such indefinite period if such conditions in a contact are to be taken as condition precedent for commencement of contract and such commencement date is to be taken as the effect .....

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of a third party involvement in the second contract, Counsel for the Respondent stated that it should have been part of the contract itself, which is, however, not found in the said contract. 14. We find no merit in the arguments advanced by the Counsel for the Appellants. Their contention that the orders bagged by the Company became price sensitive only on the date of receiving the advance cannot be sustained in view of the fact that the orders constituted about 65% of the annual order book of .....

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about any proposed amendment to the contracts on the date of signing the contracts; third party agreement (of PEDEC) as a condition for fulfilling the second contract (signed on 22nd April 2009) was not stated in the contract itself. Constraints on trading with Iran, if any, should also have been factored in either in the contracts or otherwise before signing the contracts. In view of these reasons, the contracts became binding and effective on the date of signing of the contract i.e. 1st April .....

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be disclosed under PIT Regulations, the argument that they were at best liable to be disclosed under Section 36 of the Listing Agreement only does not stand merit. Accordingly argument set out by the A.O. in the impugned order that the information was price sensitive and liable to be disclosed on the date of signing the contracts cannot be faulted. The contra-position taken by the Appellants that premature disclosure may invite penal action has no merit since it is the responsibility of any ent .....

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e based regulatory regime. 15. It was further argued by Counsel for the Appellant in Appeal No.192 of 2014 that the Vice Chairman and Managing Director of the Company preferred a separate Appeal because he was not involved and responsible for setting up of the Code of Conduct or disclosing information and therefore, cannot be held liable for the same. Similarly, Counsel for the Appellants in respect of Appeal No.185 of 2014 stated that Appellant Nos.2&3 in this Appeal also did not have any r .....

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, it is submitted by the Counsel for the Appellants that the said decision of this Tribunal, namely Man Industries (India) Limited v/s SEBI (Appeal No. 208 of 2011 decided on 30.03.2012) is distinguishable on facts because, in that case the company had conceded that entering into a contract therein for sale of goods manufactured by the company was a price sensitive information under the PIT Regulations. Since the aforesaid decision was based on the consensus made by the company and the said cons .....

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l activity of the company, mere entering into contracts for sale of goods could not be said to be a price sensitive information so as to disclose the same immediately on entering into such contracts. It is submitted that apart from the fact that the contracts were subjected to further negotiation which resulted in reduction of the quantum of sale and also amendment of the contract disclosures were made immediately on deposit of initial amount of US $ 1.5 million and therefore, in the facts of pr .....

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ny during the year, it is abundantly clear that entering into such contracts constituted a price sensitive information which ought to have been disclosed under Scheduled II of regulation 12(1) of the PIT Regulations. Apart from the above, in the past, the Company had conceded before SEBI that bagging orders worth about ₹ 1200 crore in that year was a price sensitive information. In the present case, the contracts bagged were to the tune of ₹ 1340 crore. Therefore, in the present case .....

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ation or discussion or correspondence affecting the basis of the communication referred to therein, the said communication constituted a concluded contract. In the present case, the contracts are concluded contracts and the clauses in each contract specifically provide that the respective contract shall be effective and binding from the date of entering into the contract. Thus, it is evident that as in the earlier case, the Appellants were aware that entering into contracts was a price sensitive .....

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ment regarding the acquisition of coal mines. However, there was no corporate announcement regarding its decision to dispose of its investment. Question raised therein was, whether the information regarding the decision to dispose of its investment was price sensitive. In that context it was held that earning income by an investment company by buying and selling securities held by it as investments being the normal activity of an investment company, every decision by it to buy or sell its invest .....

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n other words, every contract for supply of goods manufactured by a company may not be a price sensitive information, however, in the facts of present case, the contracts to supply 65% of the yearly contracts received by the company, constituted price sensitive information which ought to have been disclosed. 20. Strong reliance was also placed by the learned Counsel for the Appellant on the decision of this Tribunal in case of Mr. Anil Harish v/s SEBI (Appeal No. 217 of 2011 decided on 22.06.201 .....

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