NDTV Promoters Prannoy & Radhika Roy Guilty Of Insider Trading
BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA
The Relevant Text of the Order as follows :
108. The Noticees, apart from insisting on the disclosures made by them about their transactions in the shares of the Company to SEBI and Stock Exchanges under the Takeover Regulations, 1997 and bulk deal mechanism, have also stressed that they have executed the imputed trades after having pre-clearance from the Company and were not influenced by any UPSI while executing those trades. However, the Noticees have ignored the fact that the charges herein against them are not related to any non-disclosure or trading without obtaining pre-clearance. Rather, the SCN has a serious charge of insider trading against the Noticees, who have traded in securities while in possession of the UPSI. So far as the claims of obtaining a pre-clearance and indulging in bulk or block deals are concerned, it is relevant to note that bulk or block deal is a methods of dealing in securities permitted by the Regulator subject to applicable laws/regulations. Hence, they do not, ipso facto grant any immunity from violations committed under the PIT Regulations. 1992 while executing such trades. Similarly, the Code of Conduct applies to listed companies for the purpose of regulating, monitoring and reporting by the insiders of their dealing in securities as insiders, as specified under the provisions of PIT Regulations. The above stated mechanism only prescribes the mode and manner in which an insider is expected to act while dealing in securities. It cannot be contemplated that the regulatory regime under the PIT Regulations read with the Code of Conduct can envisage of a situation in which the Company can give pre-clearance to anybody to engage in insider trading in violation of the PIT Regulations, 1992. Therefore, compliances relating to disclosure (under the Takeover Regulations, etc.) and obtaining a pre clearance from the Company before indulging in such activities would not legitimize any insider trades executed in violations of the statutory provisions governing the same. In other words, any pre clearance without disclosure by the designated person that he is in possession of unpublished price sensitive information even if the trading window is not closed, would amount to violations of regulations 3 and 4 of the PIT Regulations, 1992, since the requirement of pre-clearance of trade has been mandated as a preventive measure to contain insider trading and certainly not to abate, mitigate or facilitate insider trading. Under the circumstances, if an insider trades in the shares of his company when in possession of UPSI, he irrefutably indulges in insider trading, notwithstanding any pre-clearance obtained to execute such trades or resorting to block or bulk deals during the existence of UPSI period. Therefore, the attempt of the Noticees to seek shelter under the plea of having obtained pre-clearance for carrying out the insider trading, cannot possibly be upheld by any yardstick, be it under the SEBI Act or under the provisions of the PIT Regulations, 1992.
109. It is a fact on record that Mr. Prannoy Roy was the Managing Director/Promoter and Mrs. Radhika Roy was the Chairman/Promoter of NDTV during the UPSI period and were in possession of the UPSI (PSI-6). That the Noticees have purchased 4835850 shares of NDTV while in possession of an UPSI-6 during the UPSI period and have sold shares of NDTV within 24 hours of public disclosure of the said price sensitive information (PSI) to the stock exchanges is borne out of undisputed facts. But for their purchases of those 4835850 shares on December 16, 2007, while in possession of UPSI, which triggered the obligation of open offer, there would not have been any necessity for the Noticees to enter into the sale transaction of NDTV shares on April 17, 2008. Thus, unquestionably the imputed insider trading of December 16, 2007 had a direct link with the sale transaction of April 17, 2008 (pursuant to a trigger of open offer under the Takeover Regulations, 1992) as those purchases of shares of NDTV made on December 16, 2007, led to the consequent sale of shares on April 17, 2008. Admittedly, the Noticees had traded only in the shares of NDTV during the UPSI period (i.e., September 7, 2007 to April 16, 2008) and were part of the decision making chain that had led to crystallization of the UPSI (PSI-6) on September 07, 2007. Under the circumstances, the plea taken by the Noticees – first by arguing that the PSI-6 pertaining to reorganization of the Company did not fall within the ambit of regulation 2(ha)(ii) of the PIT Regulations, 1992, and then by asserting that various disclosures were made by them while complying with their open offer obligations on their insider trades, are futile. They do not serve to assist or exonerate the Noticees from their liabilities as insiders under the PIT Regulations. I, therefore, find that the Noticees have unambiguously contravened:
(a) Regulation 3(i) and regulation 4 of the PIT Regulations, 1992 read with regulation 12 of the SEBI (Prohibition of Insider Trading) Regulations, 2015 and section 12A(d) and (e) of the SEBI Act, 1992; and
(b) NDTV’s Code of Conduct and regulation 12(2) read with 12(1) of the PIT Regulations, 1992.
110. It is trite law that the corporate insiders stand in a fiduciary relationship with the shareholders of the company concerned. The insiders invariably have access to the unpublished price sensitive information by virtue of their position in the corporate hierarchy or on account of their official duties. This access creates an information asymmetry between those having access to such information and the multitude of shareholders/ investors who have no access to such information. The protection of investors in the securities market requires that there should not be any information asymmetry between these two classes of stakeholders. The PIT Regulations, 1992, are aimed at addressing the information asymmetry. It prohibits trading in the shares of the company by the insiders while in possession of UPSI. It also requires the listed companies to draw up a code of conduct so that any trading by the insiders remains above board. Such regulation of trades of the insider is necessary to protect the interest of investors in the securities market and also for regulation and development of the market. If insider trading is not contained, prohibited and dealt with firmly, it would hamper and jeopardize the interest of a normal shareholder. Typically, insider traders get an unfair advantage over people with whom they engage in securities transactions and such trades executed by the insiders are, therefore, wrong on grounds of justice and equity. The insider information is available to the insiders on account of their important corporate hierarchical position. Any fiduciary holds a position in trust for others. If the persons like the Noticees, who are obligated to observe fiduciary duties while exercising their powers fail to do so and instead use their position to their own advantage pecuniary or otherwise, it constitutes a fraud perpetrated on the common shareholders whose trust reposed in them has been blatantly breached. It is, therefore, of paramount importance that trading by the insiders is monitored and regulated, especially when they are in possession of UPSI. Wherever such trading results in accrual of unlawful gain, such insiders are required to forgo such gain. Considering the foregoing, the following two issues are to be decided:
(a) Direction to disgorge an amount equivalent to the wrongful gains made on account of insider trading in the scrip of NDTV along with interest thereon;
(b) Direction to refrain from accessing the securities market and prohibiting them from buying, selling or otherwise dealing in securities for an appropriate period.
111. I note from the SCN and have already pointed out earlier in this order that the Noticees had made a wrongful gain of ₹16,97,38,335 while trading in the shares of the Company. The gains made by the Noticees have been calculated as the difference between actual sell price (i.e., ₹435.1) received and actual buy price (i.e., ₹400) of 4835850 shares of NDTV incurred by the Noticees. For the reasons enumerated above and in order to protect the interest of investors and the integrity of the securities market, I, in exercise of the powers conferred upon me under section 19 of the SEBI Act, 1992, read with section 11, 11(4) and 11B of the SEBI Act, 1992, hereby issue the following directions:
(a) The Noticees herein, namely, Mr. Prannoy Roy (PAN: AAHPR6037K) and Mrs. Radhika Roy (PAN: AAHPR6038G) shall, jointly or severally, disgorge the amount of wrongful gain of ₹16,97,38,335/- as computed in the show cause notice, alongwith interest at the rate of 6% per annum from April 17, 2008, till the date of actual payment of disgorgement amount alongwith interest, within 45 days from the date of coming into force of this order; and
(b) The Noticees herein, i.e., Mr. Prannoy Roy (PAN: AAHPR6037K) and Mrs. Radhika Roy (PAN: AAHPR6038G) shall be restrained from accessing the securities market and further prohibited them from buying, selling or otherwise dealing in securities, directly or indirectly, or being associated with the securities market in any manner, whatsoever, for a period of 2 years.
112. It is clarified that during the period of restrain the existing holding of securities, including the units of mutual funds shall remain under freeze in respect of the aforesaid Noticees.
113. The obligation of the aforesaid Noticees, in respect of settlement of securities, if any, purchased or sold in the cash segment of the recognized stock exchange(s), as existing on the date of this Order, can take place irrespective of the restraint/prohibition imposed by this Order only, in respect of pending unsettled transactions, if any. Further, all open positions, if any, of the Noticees debarred in the present Order, in the F&O segment of the stock exchanges, are permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order.
114. This Order shall come into force with immediate effect. A copy of this Order shall be served on the Noticees, recognized Stock Exchanges, Depositories, Registrar and Share Transfer Agents and Mutual Funds to ensure compliance with above directions.
Tags: SEBI
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