- SEBI has passed an adjudication order pursuant to non-compliance in provisions of the SEBI (Prohibition of Insider Trading) Regulations, 2015 ("SEBI Insider Trading ").
- It was delivered in the matter of Ms. Pragnaben Suryakant Shah, (Independent Director) of Gala Global Products Limited.
∆ Summary of the Case:
- Director of the Company executed transaction(s) in excess of INR 10 lakh in the scrip of the Company, without making any disclosure to the stock exchange or the Company.
- It is important to note that, in the present case Director of the Company was appointed as Independent Director. Due to age and certain health issues trades were carried out by authorised stock broker of Director. Transactions carried out from her account as enumerated below:
Summary of Transactions:
i. Transaction of INR 65,91,582.90 took place on February 20, 2018;
ii Transaction of INR 32,34,319.20 took place on February 21, 2018;
iii. Transaction of INR 18,64,622.85 took place on March 9, 2018 and
iv. Transaction of INR 18,93,378.60 took place on March 13, 2018
- In short, single as well as cumulative value of the transaction was in excess of Rs. 10 lakh on four occasions in one quarter and that all the transactions were through on-market.
∆ Provisions of SEBI Insider Trading Regulations:
✓ Continual Disclosure - Regulation 7(2)
- It states that "Every promoter, employee and
director of every company shall disclose to the company the
number of such securities acquired or disposed of within
2 trading days of such transaction if the value of the securities traded,
whether in one transaction or a series of
transactions over any calendar quarter, aggregates to a traded value in excess
of Rs. 10 lakh or such other value as may
be specified.
∆ SEBI Order:
- The violations found in this case defeat the purpose of principles laid down under the SEBI PIT Regulations keeping in mind the mandate of protecting the interest of investors.
- Further, the details of transactions (as stated above) shows that
the failure of making requisite disclosures under SEBI PIT Regulations by the director was on four occasions and hence, it is repetitive in nature.
- Subsequently, the repeated failures of the director as found in this case attracts imposition of monetary penalty under section 15A (b) of the SEBI Act.
- As a result, SEBI imposes a penalty fixed penalty of Rs. 2,00,000/- under Section 15A (b) of SEBI Act, 1992.
- Failure to pay the penalty within 45 days of the receipt of the Order,
recovery proceedings, for realization of the penalty along with interest thereon, by attachment and sale of movable and immovable properties under section 28A of the SEBI Act, 1992 may be initiated.
∆ Key Takeaways from the SEBI Order:
- SEBI clarified that Regulation 7(2) (a) of the Regulations that -
(a) is squarely applicable in the facts and circumstances of the case.
(b) it does not differentiate between independent directors and non-independent directors. Hence, all the directors, whether independent or non-
independent, are covered under its ambit.
- Independent director should be more vigilant about law, lack of awareness about disclosure requirements cannot be considered as an excuse from compliance with the SEBI PIT Regulations.
- The key objective of the disclosure under the SEBI PIT Regulations is to place the information
of the occurrence of the trade in the public domain in order that the transaction does not take place in a favoured manner which may be detrimental to the general investors.
- Disclosure under SEBI PIT Regulations is mandated at
two levels; one is the immediate disclosure of any material information and the other is the disclosure of transactions undertaken. While the first disclosure is meant to prevent insider trading, the second disclosure is for revealing insider trading, if any.
- Insiders and the company are obligated to disclose all the price sensitive/ material information to the public at the earliest. The objective is to create a level playing field by making information accessible to all market participants i.e. the shareholders and proposed investors.
- Resultantly, when the information is equally available to all, there should not be distinct advantage available with insiders which they can capitalize on.
∆ Reference(s) of Supreme Court case taken by SEBI in its order:
✓ Guidelines issued by Hon’ble Supreme Court of India in SEBI Vs Bhavesh Pabari vide judgement dated
February 28, 2019.
- Where it was noted that from the material available on record, any quantifiable gain or unfair advantage accrued to the Noticee or the extent of loss suffered by the investors as a result of the default cannot be computed.
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