SEBI slaps penalty for inside trading

SEBI slaps penalty for inside trading

SAT has consistently held that the obligation to make the disclosures within the stipulated time is a mandatory obligation

A penalty of Rs. 3 lakh has been imposed upon the Silver Stallion Limited under the provisions of Section 15A(b) of the SEBI Act. This matter pertained to an investigation conducted by the Securities and Exchange Board of India (SEBI) into the initial public offer of Birla Pacific Medspa Limited (BPML or Company), for the investigation period of7 July 2011 to 15 July 2011, since there was high volatility on the day of listing.

Based on the findings of the investigation, SEBI initiated adjudication proceedings against Silver Stallion Ltd. (Noticee) under Section 15A(b) of the SEBI Act, 1992 for the alleged violation of Regulation 13(1) of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations) and Regulation 7(1) of the SEBI(Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (SAST Regulations).

As per the Adjudicating Officer(AO) of SEBI, the disclosure requirements under the PIT and SAST Regulations are triggered when the shareholding of an entity/person crosses five per cent of the share capital of that company. In the instant matter, the Noticee acquired 9.47 per cent of the share capital of BPML.

Consequently, the Noticee was required to make the disclosures to the Company and the BSE in the prescribed format within two working days of the allotment in terms of Regulation 7(1) read with Regulation 7(3) of the SAST Regulations and 13(1) of the PIT Regulations.

It was also noted that no such disclosures were made by the Noticee in the stipulated time frame and the same had also been admitted by the Noticee. The Noticee had submitted that since BPML did not inform it about allotment leading to the acquisition of five per cent, it did not make disclosures.

This submission was held to be not acceptable as the Noticee would have applied for allotment in the IPO of BPML and was expected to be aware of the issue size. Once shares were allotted, the Noticee could itself find out that the allotment was over five per cent. Infact, the Noticee was allotted 9.47 per cent shares which is a huge number and thus, it could not be said that the Noticee was not aware of its holding in BPML.

The Judgment of the Hon'ble SAT in the matter of Akriti Global Traders Ltd. Vs SEBI was referred to wherein it was observed that obligation to make disclosures under the provisions contained in SAST Regulations, 2011 as also under PIT Regulations, 1992 would arise as soon as there is the acquisition of shares by a person above the limits prescribed under the respective regulations and it is immaterial as to how the shares are acquired.

Therefore, irrespective whether the shares were purchased from open market or shares were received on account of amalgamation or by way of bonus shares, if, as a result of such acquisition/receipt, percentage of shares held by that person exceeds the limits prescribed under the respective regulations, then, it is mandatory to make disclosures under those regulations.

It was also opined that the Company while disclosing shareholding on the exchange after the IPO in July 2011 for the quarter ending has shown the name of the Noticee (in the category of public shareholder holding more than one per cent shareholding) along with its shareholding in the Company. Thus, the information about Noticee's shareholding in the Company was in the public domain from July 2011.

The disclosure requirements that have been prescribed under SAST and PIT Regulations are of utmost significance for the protection of interest of the investors, as such information received by them in a time-bound manner would facilitate them to take an informed investment decision as regards their holdings in the Company. Further, the purpose of these disclosures is to bring about transparency in the transactions and to assist the Regulator to effectively monitor the transactions in the securities market.