TMI Blog2020 (1) TMI 365X X X X Extracts X X X X X X X X Extracts X X X X ..... cient to attract the provisions. Prior to 2002, the Regulation 3 was on the line of the provisions of Section 15G of the SEBI Act, which provided that the insider trading in securities should be on the basis of unpublished price sensitive information. It has been now established by the catena of cases that even if the penalty would be imposed only when the trading is done on the basis of any unpublished price sensitive information, the person against whom the charges are levelled will have to show that the trading was not done on the basis of the information but for other reasons, since the explanation would be especially within his own knowledge. In the present case, the appellant provided the explanation which remained uncorroborated. Non-closure of the trading window during the period or non action by SEBI on this count is irrelevant. It is established that the present appellant being a Vice President of Jubilant Life Sciences had sold shares when adverse information reached him and purchased when positive news reached him when both remained to be published. AO has provided the table of price fluctuation in the scrip to show that the warning letter had adverse im ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d directors of Jubilant Stock Holding, as well as Chairman and Co-Chairman respectively Jubilant Life Sciences. Appellant Amit Arora was a Vice President of appellant Jubilant Life Sciences during the relevant period. Appellant Jubilant Life Sciences has various subsidiaries which are located all over the world. 3. The order would show that five instances between February 21, 2013 to February 28, 2014 were under the scanner. Briefly, those can be stated as under : Canada Warning : 4. On January 25, 2013, US Food and Drugs Administration (FDA) had issued a warning letter to one of the manufacturing facility of appellant Jubilant Life Science's another subsidiary - Jubilant HollisterStier General Partnership (JHSGP), located in Canada. It was warned by the said letter that significant violations of good manufacturing practices were noticed. This warning was received at Canada office of JHSGP on February 22, 2013. It was sent by the Vice President of Canada facility to the CEO of Spokane in USA on February 23, 2013. The said CEO vide an e-mail dated February 24, 2013 sent the same to the head office of the appellant Jubilant Life Sciences; to the Chairma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ceived by corporate office of the appellant Jubilant Life Sciences as well as by the appellant, Amit Arora on February 25, 2014 vide an e-mail from the CEO. It is alleged that belated announcement of the same was made on February 27, 2014 to BSE in violation of Clause 36 of the Listing Agreement. Not only this, while in possession of this information, appellant Amit Arora on February 26, 2014 purchased 450 shares of the appellant Jubilant Life Sciences in violation of Regulation 3 of the PIT Regulations. Memorandum of Understanding of Sale of Hospital Business : 9. Appellant Shyam Sunder Bhartia and Hari Shankar Bhartia during the relevant period were authorized signatories and directors of appellant Jubilant Stock Holding. They were Chairman and Co-Chairman of the appellant Jubilant Life Sciences. Jubilant First Trust Healthcare (not before us) an unlisted entity is a subsidiary of Jubilant Life Sciences. This Jubilant First Trust Healthcare (hereinafter referred to as, 'Jubilant First Trust') entered into a Memorandum of Understanding (MOU) for sale of one of its hospital on December 24, 2013 with Narayana Hrudalaya Pvt. Ltd. (NHPL). This transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olations Jubilant Life Sciences Ltd. ₹ 10,00,000/-(Rupees Ten Lakh Only) Under Section 23A(a) of the SCRA for violation of clause 36 of Listing Agreement read with Section 21 of the SCRA. Jubilant Stock Holding Pvt. Ltd. ₹ 10,00,000/-(Rupees Ten Lakh Only) Under Section 15G of the SEBI Act for violation of regulation 3A of the PIT Regulations. Mr. Shyam Sunder Bhartia ₹ 10,00,000/-(Rupees Ten Lakh Only) Under Section 15G of the SEBI Act for violation of regulation 3(i) of the PIT Regulations. Mr. Hari Shankar Bhartia ₹ 10,00,000/-(Rupees Ten Lakh Only) Under Section 15G of the SEBI Act for violation of regulation 3(i) of the PIT Regulations. Mr. Amit Arora ₹ 10,00,000/-(Rupees Ten Lakh Only) Under Section 15G of the SEBI Act for violation of regulation 3(i) of the PIT Regulations. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration of the Jubilant Life Sciences. Therefore, not only the warnings received by the subsidiaries were insignificant and technical in nature, the subsidiaries themselves were insignificant in terms of consolidated revenue of the appellant Jubilant Life Sciences. The price movement after disclosure would not show that it had adversely affected the price of the shares. The information, therefore, was not a price sensitive information. It was alternatively submitted that a conscious decision was required to be taken as regard their disclosure with BSE. Therefore, in the circumstances, a period of a day or two had elapsed from receipt of the information and the disclosure of the same to BSE. Clause 36 of the Listing Agreement requires that the price sensitive information shall be disclosed immediately, meaning that the disclosure needs to be made within reasonable time considering the nature and importance of event. 16. As already detailed, the AO accepted the explanation of time spent in decision taking process as regards the first of the warning i.e. Canada Warning. As regard the Washington warning, the AO, however, concluded that same explanation would not be acceptable. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Jubilant Life Sciences on May 28, 2013. The disclosure of the same was made by the appellant Jubilant Life Sciences to the stock exchanges on July 25, 2013. 21. The appellants replied to the show cause notice of SEBI that the announcement of Ministry of Commerce China was available in the public domain. Further, the imposition of the provisional duty was not expected to have a bearing on the performance of the appellant Jubilant Life Sciences. It was not price sensitive information. Since the export of the product Pyridine to China to a large extent was for consumption in the domestic market, the appellant company, in fact, was not covered under the levy of anti dumping duties. Further, as the price of the product had increased by around 25% in the Chinese market due to strong demand, the imposition of provisional duties did not have any negative impact on Jubilant Life Sciences in the financial year 2013-14. In the circumstances, the appellant Jubilant Life Sciences was of the view that the information was not required to be disclosed. However, as some requests were made for clarification from the market on the impact of the notice, by way of abundant caution, the manage ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 27, 2014 at 7:47 P.M. i.e. after one working day from the working day on which the appellant Jubilant Life Sciences had received the communication. It was, therefore, submitted that there was inherent time lag in the communication of the information and taking decision on account of hierarchical line of reporting and differences of the time zone. 25. The AO reasoned that when the appellant Jubilant Life Sciences had already earlier taken a decision of disclosure of the warning letter, the withdrawal cum acceptance letter thereafter did not require any examination at various hands. Therefore, according to AO, it could have been disclosed immediately upon receipt of the same. However, for the reasons already forwarded as regard the Washington warning, the reasoning of the AO in this regard cannot be sustained. The appeal, therefore, will have to be allowed to that extent. Memorandum of Understanding of Sale of Hospital Business : 26. As already noted, it is an admitted fact that the appellants Shyam Sunder Bhartia and Hari Shankar Bhartia in Appeal No. 174 of 2018 were having the knowledge of existence of MOU dated December 24, 2013 for sale of o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... On the other hand, Shri Pesi Modi, the learned senior counsel for the appellants took us through the copy of the MOU to show that it was merely an understanding and not an agreement between the parties to sell the hospital. He points towards the covering letter of the MOU at page No. 133 wherein it is noted that the proposed purchase may be either through slump sale or other appropriate type of transactions. Clause 4.2 of the MOU would show the confirmation of 'intent to sale' for INR 440 million. The binding offer was only to the extent that for the period of 60 days, appellant Jubilant Life Sciences would not sell or offer for sale the hospital to any other person if the Narayana Hrudayala agrees to pay the maximum consideration. However, the appellant Jubilant Life Sciences reserved the right to terminate the offer. Further, the proposed price was subject to the completion of due diligence and actual consideration Narayana Hrudayala would be willing to pay. There was also a confidentiality clause. It was also agreed vide the MOU that the offer shall end on 60th day on announcement of the same. However, if both the parties agree, the offer was to terminate on any other d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve information is found in Regulation 2(ha) of the PIT Regulations which runs as under :- '2(ha) price sensitive information means 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. Explanation. - The following shall be deemed to be price sensitive information :- (i) periodical financial results of the company; (ii) intended declaration of dividends (both interim and final); (iii) issue of securities or buy-back of securities; (iv) any major expansion plans or execution of new projects; (v) amalgamation, mergers or takeovers; (vi) disposal of the whole or substantial part of the undertaking; (vii) and significant changes in policies, plans or operations of the company;' 31. Clause (vi) of the above definition would show that disposal of the whole or substantial part of the undertaking can be termed as price sensitive information as well as any information likely to be materially affect the price of the securities of the company. 32. The appellant submits that the sale of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in these two cases however would show that non-selling of the shares by the appellants therein was one of the factors out of many factors considered by this Tribunal to absolve the appellants, therein from the similar charge. In the present case what we find that the MOU was executed long back on December 24, 2013, the shares were purchased on February 28, 2014 while the actual transfer was effected on March 3, 2014 when the MOU had practically ripened into the transfer as detailed (supra). The submissions of the appellant therefore, in this regard cannot be accepted and the reasoning of the AO needs no interference on this ground. 36. To conclude, in Appeal No. 175 of 2018, we find that the appellants have committed violation of Clause 36 of the Listing Agreement only as regard the China warning. Appeal No. 174 of 2018 will have to be dismissed. 37. In Appeal No. 157 of 2018, appellant Amit Arora during the relevant time was the Vice President of Jubilant Life Sciences. On February 24, 2013, he as Vice President received the communication about the Canada warning. He sold 830 shares of the Jubilant Life Sciences on February 25, 2013 and thereafter the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son to deal in any securities of any body corporate on the basis of unpublished price sensitive information, shall be liable to a penalty of twenty-five crore rupees or three times the amount of profits made out of insider trading, whichever is higher. 40. It is to be noted that while having the negative information of slapping of the warning, the appellant sold shares of Jubilant Life Sciences on February 25, 2013. His explanation for the same is that he required funds for renovation of his house is not substantiated by any material on record. 41. It was argued before us that for penalizing a person for insider trading, SEBI has to establish that the appellant has traded on the basis of the unpublished price sensitive information as provided by Section 15G of the SEBI Act as quoted above. On the other hand, the AO has relied on the provisions of Regulation 3 of the PIT Regulations as amended in 2002 which provided that only having possession of unpublished price sensitive information is sufficient to attract the provisions. 42. Prior to 2002, the Regulation 3 was on the line of the provisions of Section 15G of the SEBI Act, which provided t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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