TMI Blog2019 (5) TMI 1685X X X X Extracts X X X X X X X X Extracts X X X X ..... d informed to SEBI in January 2011 itself, no one in PEL was aware of the information to sell the domestic healthcare business at any time prior to the Board meeting and subsequent positive announcement on 21.05.2010. We also find that the Chairman of the PEL informed the members of the Board of PEL on 10.05.2010 of the possibility of the pending deal that may take place, and none of the persons identified as being privy to the deal had sought any pre-clearance for trading in the scrip of PEL. SEBI had made an investigation and found that only one designated employee had traded in the scrips. The AO found that the said employee was not associated in any manner with the process of domestic healthcare business and was not in possession of the Unpublished Price Sensitive Information (UPSI) relating to the deal. AO accordingly exonerated him of the charge of insider trading. Apart from the aforesaid instance, the AO has not found any other instance where the UPSI was misused by any employee of PEL, outsider, directors of the PEL, or the individuals who were identified to sell the domestic healthcare business. The purpose of closing the trading window is for a salutary purpose. It ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ionate. This Tribunal, in appeal, apart from exercising the powers of the Board can also exercise powers to make such orders and give such directions as may be necessary or expedient to secure the ends of justice as specified under Rule 21 of the Securities Appellate Tribunal (Procedure) Rules, 2000. These powers have been conferred upon the Tribunal with a view to do complete justice between the parties which is equitable in nature to be exercised to ensure justice between the parties or to prevent injustice. Imposition of penalty is converted into one of warning with a further direction that if any such incident occurs in future, it would be open to SEBI to proceed in accordance with law. - Appeal No. 466 of 2016, 467 of 2016 - - - Dated:- 15-5-2019 - Justice Tarun Agarwala, Presiding Officer And Dr. C.K.G. Nair, Member Mr. Pesi Modi, Senior Advocate with Mr. Sumit Agrawal, Ms. Kalpana Desai and Ms. Prachi Jain, for Appellants. Mr. Pradeep Sancheti, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, for the Respondent. JUDGMENT Tarun Agarwala, 1. These two appeals are filed to challenge the order passed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 010 and accordingly these meetings were held on May 21, 2010 wherein some of the Board Members joined telephonically. In this meeting the Board of Directors approved the acceptance of the offer from Abbott for a consideration of 3.72 billion USD and a corporate announcement was made by the PEL at 11:59 AM to both BSE Limited and National Stock Exchange of India Limited. These facts are undisputed. 4. An investigation was done by SEBI into possible violation of PIT Regulations, 1992 and possible violations of Clause 49 of the Listing Agreement etc. by the PEL. During the investigation, vide letter dated January 21, 2011 the PEL informed SEBI that, in addition to the appellants in Appeal No. 467 of 2016, Shri Anand Piramal, Shri Rajesh Laddha and Prof. Nitin Nohria were privy to the decision at every stage in the matter of sale of its domestic healthcare business to Abbott. Shri Anand Piramal is the son of the Chairman and Managing Director, Appellant No. 1 and 2 in Appeal No. 467 of 2016. Further, Shri Anand Piramal is neither a Board Member nor holds any position in the PEL. Shri Rajesh Laddha was an Executive Director and Chief Operating Officer of the PEL. He held a pos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r setting forth policies, procedures, monitoring adherence to the rules for the preservation of Price Sensitive Information , pre-clearing; of designated employees and their dependents trades (directly or through respective department heads as decided by the company), monitoring of trades and the implementation of the code of conduct under the overall supervision of the Board of the listed company. Explanation : For the purpose of this Schedule, the term designated employee shall include :- (i) officers comprising the top three tiers of the company management [***]; (ii) the employees designated by the company to whom these trading restrictions shall be applicable, keeping in mind the objectives of this code of conduct. Citing the aforesaid, the learned counsel for the appellants further submitted that the Compliance Officer was responsible for closing the trading window since as per the Model Code of Conduct adopted by the PEL it is the responsibility of the Compliance Officer and that is the reason why a senior level officer had been appointed as Compliance Officer. The impugned order passed directions against him as well which has be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, therefore, on the Board of Directors acting on behalf of the PEL. He cited Regulations 2(c), 2(e), 2(h) (viii), 2(ha), (vi) (vii), 2(k), 3, 4 and 12(2) of the PIT Regulations, 1992 to further explain the violations as held in the impugned order. For convenience relevant PIT Regulations, 1992 are extracted as below: Definitions. 2. In these regulations, unless the context otherwise requires :- (a) .. (b) .. (c) connected person means any person who- (i) is a director, as defined in clause (13) of section 2 of the Companies Act, 1956 (1 of 1956), of a company, or is deemed to be a director of that company by virtue of sub-clause (10) of section 307 of that Act or (ii) occupies the position as an officer or an employee of the company or holds a position involving a professional or business relationship between himself and the company [whether temporary or permanent] and who may reasonably be expected to have an access to unpublished price sensitive information in relation to that company: [Explanation :-For the purpose of clause (c), the words connected person shall [mean] any person who is a c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 12.(1) All listed companies and organisations 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 organisations recognised or authorised by the Board; (c) the recognised stock exchanges and clearing house or corporations; (d) the public financial institutions as defined in section 4A of the Companies Act, 1956; and (e) the professional firms such as auditors, accountancy firms, law firms, analysts, consultants, etc., assisting or advising listed companies, shall frame a code of internal procedures and conduct as near thereto the Model Code specified in Schedule I of these Regulations [without diluting it in any manner and ensure compliance of the same]. 12(2) The entities mentioned in sub-regulation (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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... FOR PREVENTION OF INSIDER TRADING FOR LISTED COMPANIES 1.0 Compliance Officer 1.1 The listed company has appointed a Compliance Officer senior level employee who shall report to the Managing Director/Chief Executive Officer. 1.2 The compliance officer shall be responsible for setting forth policies, procedures, monitoring adherence to the rules for the preservation of Price Sensitive Information , pre-clearing; of designated employees and their dependents trades (directly or through respective department heads as decided by the company), monitoring of trades and the implementation of the code of conduct under the overall supervision of the Board of the listed company. Explanation : For the purpose of this Schedule, the term designated employee shall include :- (i) officers comprising the top three tiers of the company management 60[***]; (ii) the employees designated by the company to whom these trading restrictions shall be applicable, keeping in mind the objectives of this code of conduct. 1.3 The compliance officer shall maintain a record of the designated employees and any changes made in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be opened 24 hours after the information referred to in para 3.2.3 is made public. 3.2-5 All directors/officers/designated employees of the company shall conduct all their dealings in the securities of the Company only in a valid trading window and shall not deal in any transaction involving the purchase or sale of the company s securities during the periods when trading window is closed, as referred to in para 3.2.3 or during any other period as may be specified by the Company from time to time. 3.2-6 In case of ESOPs, exercise of option may be allowed in the period when the trading window is closed. However, sale of shares allotted on exercise of ESOPs shall [not] be allowed when trading window is closed. 3.3 Pre-clearance of trades 3.3.1 All directors/officers/designated employees of the company [and their dependents as defined by the company] who intend to deal in the securities of the company (above a minimum threshold limit to be decided by the company) should pre-clear the transaction as per the pre-dealing procedure as described hereunder. 3.3.2 An application may be made in such form as the company may notify in this regard ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In case the sale of securities is necessitated by personal emergency, the holding period may be waived by the compliance officer after recording in writing his/her reasons in this regard. 5.0 Reporting Requirements for transactions in securities 5.1 All directors/officers/designated employees of the listed company shall be required to forward following details of their securities transactions including the statement of dependent family members (as defined by the company) to the Compliance Officer: (a) all holdings in securities of that company by directors/ officers/ designated employees at the time of joining the company; (b) periodic statement of any transactions in securities (the periodicity of reporting may be defined by the company. The company may also be free to decide whether reporting is required for trades where pre-clearance is also required); and (c) annual statement of all holdings in securities. 5.2 The Compliance Officer shall maintain records of all the declarations in the appropriate form given by the directors/officers/designated employees for a minimum period of three years. 5.3 The Complianc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charge is only that the information was shared with him by the appellants. Since as a promoter and as a person is deemed to be a connected person the information was shared with him only on a need to know basis which is as provided under PIT Regulations 1992. In the light of this the penalty imposed for the alleged violation of Clauses 3.2.1 and 3.2.3(f) of the Model Code of Conduct and 1.1, 1.2 and 12(3) and of PIT Regulations, 1992 is not sustainable. 15. As far as the second charge is concerned that the trading window was not closed at the relevant time we find that admittedly the trading window was not closed at any point of time. The contention that the trigger came in only when the Board approved the BTA on May 21, 2010 cannot be accepted. It is on record that the said information was disclosed by the Chairman of the PEL to other Board Directors on May 10, 2010. According to the regulations the trading window had to remain closed for 24 hours further to the disclosure to the stock exchange but at no point of time the trading window was closed. 16. The argument that only the Compliance Officer is responsible for the closure of the trading window since ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that: Fairness, integrity and transparency are the hallmark of the stock market in India. The Securities and Exchange Board of India (hereinafter referred to as SEBI ) is the vigilant watchdog, whether the factual matrix justified the watchdogs bite is the issue arising for consideration in this case. 20. This is precisely the question which is required to be answered in the present facts of the case. In the instant case, in January 2010, Abbott approached the Chairman of PEL with an offer to acquire the domestic healthcare business of PEL. We find that due diligence was carried out by PEL upto May 2010 in strictest confidence. Except for certain individuals, who were identified as being privy to the transaction and informed to SEBI in January 2011 itself, no one in PEL was aware of the information to sell the domestic healthcare business at any time prior to the Board meeting and subsequent positive announcement on 21.05.2010. We also find that the Chairman of the PEL informed the members of the Board of PEL on 10.05.2010 of the possibility of the pending deal that may take place, and none of the persons identified as being privy to the deal had sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s should be taken in the first instance and not punitive measures. In the absence of any direct or clinching evidence of insider trading or misuse of UPSI, a reasonable benefit of doubt should be extended to the PEL instead of mechanically imposing a penalty. Other factors should be considered including those stated in Section 23J of the Act which apparently was not considered. 25. When fairness and transparency was shown by PEL in the execution of the deal and there is no evidence of lack of integrity on the part of PEL, it would be harsh to penalize PEL, howsoever small the penal amount it may be. 26. The AO has imposed a penalty upon PEL for a technical violation of the Model Code. The compliance officer has already settled the matter with SEBI. We feel that in the given situation the imposition of penalty upon PEL and its directors was unwarranted and, in any case, disproportionate. This Tribunal, in appeal, apart from exercising the powers of the Board can also exercise powers to make such orders and give such directions as may be necessary or expedient to secure the ends of justice as specified under Rule 21 of the Securities Appellate Tribunal (Procedure) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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