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TMI Blog2025 (5) TMI 1149X X X X Extracts X X X X X X X X Extracts X X X X ..... r :- (i) The appellant No. 1 Reliance Industries Limited (RIL) and Facebook Incorporation (Facebook) were in preliminary discussions of investments by Facebook in Jio Platforms Limited (JPL), a subsidiary of RIL. Appellant No. 2 and Appellant No. 3 are Compliance Officers of RIL. (ii) On September 30, 2019, RIL and Facebook executed a confidentiality and non-disclosure agreement and on March 4, 2020 executed a non-binding term-sheet. (iii) During the period of negotiations and due diligence, on March 24, 2020, the Financial Times, London published a news article which stated that "Facebook was close to signing a preliminary deal for a 10 per cent share in Reliance Jio." This news with different headings was also published on the same day by Reuter, Economic Times, Business Today and Mint. The above news contents were then published by Indian media houses on the same day and the next day. Some of these articles reported that RIL had declined to comment on the matter. (iv) On April 18, 2020, the Board of directors of RIL and JPL approved the execution of the transaction documents in connection with the investment by Facebook in JPL. (v) On April 21, 2020, the definitive tra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11) in juxtaposition with Regulation 30(10), was clearly discretionary and did not impose any mandatory obligation on the appellants to confirm or deny any reported event or information. Such an obligation to verify market rumours by the listed entities was introduced by SEBI in July 2023 by way of amendment to LODR Regulations and said regulations brought into effect from June 1, 2024 for top 100 listed entities and later for top 250 listed entities from April 1, 2024. The insertion is in the nature of a substantive amendment, which is a new obligation on specified entities. To support this submission, he relied on Vidarbha Industries Power Limited v. Axis Bank Limited7. Further, where the legislature has in successive provisions used both "may" and "shall", it clearly conveys that the former is discretionary while latter is mandatory. To support this submission, he relied on M/s Mahaluxmi Rice Mills & Ors v. state of U.P.& Ors8; Jamatraj Kewalji Govani v. The State of Maharashtra9; Labour Commissioner, Madhya Pardesh v. Burhanpur Tapti Mills and Ors10. (b) That the SEBI (PIT) Regulations seek to correct information asymmetry and to prohibit trading by persons who have asymmetri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ludes information that gets disclosed "inadvertently or otherwise." It is therefore not necessary that the obligation to make disclosure arises only when the information is leaked by the company or somebody working with the company. (e) Principle 4 cannot be eclipsed by referring to Principle 1. Each Principle has its own purpose. If the disclosure requirement is only upon the information becoming credible and concrete, then Principle 4 would be rendered nugatory. (f) That the disclosure requirements under PIT Regulations and the disclosure requirements under the LODR Regulations are separate and independent requirements arising under the respective regulations. The stringent requirement under PIT Regulations cannot be diluted or ignored by referring to the requirements under the LODR Regulations. (g) That the appellant's interpretation with respect to Regulation 30 (11) of LODR Regulations was accepted by the AO, but that by itself does not exonerate the appellant of the charge of violation of PIT Regulations. (h) That the appellant raised a fresh contention for the first time during the arguments that the disclosure requirements under PIT Regulations must be read in c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not an excuse not to comply with Principle No. 4 for prompt dissemination of UPSI. In support of this submission, he relied on Basic v. Levison11 . (k) That the appellants relied upon the Circulars issued by NSE and BSE "Disclosure of Unpublished Price Sensitive Information by Listed Companies" in support of the interpretation of the relevant regulations, which is based on a selective reading of the Circulars. The Circulars read in their entirety make it clear as to obligation of disclosure under Schedule A to PIT Regulations. A newspaper and its readers are third parties for the purpose of BSE/NSE Circulars and if confidential UPSI gets disclosed, even inadvertently, then it needs to be mandatorily disseminated. Thus, the appellants are bound to make disclosure under the principles laid down in Schedule A to the PIT Regulations, not only under Principle No. 4 but also Principle 5. Stock exchanges have issued a general directive to the listed entities to make disclosure in the nature of appropriate and fair response to the queries on news reports and requests for verification of market rumours by regulatory authorities. The Circulars expressly mandated to make disclosure requi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the said information got disclosed in international print media even though due diligence was not completed and valuation was not agreed to by both sides. (2) Just like any other cross-border investment transactions, the discussion between two sides was followed by execution of NDA / confidentiality agreement and exchange of broad terms of investments by RIL, which were discussed till February 27, 2020 and on agreement thereon, resulted in a final term sheet on March 4, 2020. Thereafter, due diligence for valuation purpose started on March 7, 2020 with JPL giving data room access to Facebook, enabling both sides to carry out respective valuations. The information at this stage got disclosed by unknown persons before the due diligence / final valuation was to be completed. (3) The information about the deal was classified as UPSI by RIL with entries made in Structured Digital Database (SDD) since the time the discussion started with Facebook in September 2019 and continued so even when it got disclosed on March 24, 2020. (4) It has not been brought on record, whether after making entry in SDD, any confidentiality agreements were signed with KMPs or any designated persons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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. Reference in this regard may be made to paragraph 31 of the Report of the High-Level Committee to review the SEBI (Prohibition of Insider Trading) Regulations, 1992 (TK Vishwanathan committee), which mentions that 'no piece of information should mandatorily be regarded as price sensitive'. 6.3.2 This Tribunal in Anil Harish v. SEBI16, has held that if certain information is bound to be disclosed to a stock exchange under listing agreement, the information is not necessarily a price sensitive information. On the contrary, price-sensitivity is to be determined solely on the basis of its impact upon the price. In Gujarat NRE Mineral Resources v. SEBI17, it is held by this Tribunal that a transaction of divestment being carried out in the normal course of business operations of the company has no effect whatsoever, on the price of its securities and such information, even though material for the purpose of disclosure to the stock exchange, is not price-sensitive. 6.3.3 It is, therefore, evident that the sco ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le. 2. Uniform and universal dissemination of unpublished price sensitive unpublished price sensitive information to avoid selective disclosure. 3. Designation of a senior officer as a chief investor relations officer to deal with dissemination of information and disclosure of unpublished price sensitive information. 4. Prompt dissemination of unpublished price sensitive information that gets disclosed selectively, inadvertently or otherwise to make such information generally available ". In our view, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;. 6.3.7.2 In the light of the above, whether the information in question was 'credible' and 'concrete' or not may be examined in the light of the following key events / milestones relating to the deal, reported in the impugned order :- Date Events / Discussions (Phone / meetings, etc.) Particulars (Details of matters discussed) 01/09/2019 Initial discussion of the intent to explore a potential transaction with Facebook Inc. Initial Discussion 10/09/2019 Entries made in structured digital database "SDD" Entries made in structured digital database "SDD" 30/09/2019 Execution of Confidentiality and Non-Disclosure Agreement between RIL and Facebook Inc. Confidentiality and Non- Disclosure Agreement with Facebook Inc. 30/10/2019 to 31/10/2019 Visit by Facebook Inc's Corporate Development teak to RIL Group and business overview 12/11/2019 Visit to Facebook Inc's Menlo Initial Management Meeting to 13/11/2019 Park Office 18/11/2019 to 10/02/2020 Follow-up questions on various aspects of business and financial statements Follow on calls 26/11/2019 to 22/04/2020 Davis Polk assisted RIL and JPL in preparing for and then facilitating due dili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a 9.99% Stake" wherein they have announced signing of binding agreements between RIL, JPL and Facebook Inc. for an investment of Rs. 43,574 crore by Facebook into JPL which will translate into a 9.99% equity stake in JPL Corporate announcement 6.3.7.3 In our considered view, the fact that the two major global conglomerates decided to go for cross-border investment of significant amount, which required discussion/nod at the highest level in both groups, shows that the information was highly credible for the company and its insiders. Eventually, the company RIL had entered into SDD and both sides had signed NDA / confidentiality agreement way back on September 30, 2019. Thus, the information cannot be treated as 'not credible' as on March 24, 2020. Further, we find that much before signing the final binding agreement, there was clarity on the number of shares of JPL to be acquired by Facebook. The broad terms and conditions of investment were discussed and finalized by February 27, 2020 and based on discussion, Non-binding terms sheets were executed on March 4, 2020. Thus, as on March 24, 2020, the information of investment was concrete as well and it made no difference if ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... egulation 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. 7.1 In view of the above, we find the appellants in violation of Principle 4 of Schedule A of th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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