BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI

            Appeal No. 208 of 2011 

   Date of decision: 30.3.2012     

MAN Industries (India) Limited
MAN House, 102, SV Road,
Vile Parle (West),
Mumbai- 400 056

                                     ……Appellant 

Versus

Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra Kurla Complex, Bandra (E)
Mumbai- 400 051

                                …… Respondent 

Mr. J.J. Bhatt, Senior Advocate with Mr. Dr. S.D. Israni and Mr. Satyan S. Israni,
Ms. Isha Gada, Advocates for the Appellant.
Mr. Shiraz Rustomjee, Senior Advocate w ith Mr. Mihir Mody a nd Mr. Mobin Shaikh,
Advocates for the Respondent.
CORAM : P.K. Malhotra, Member
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy, Member
This appeal is filed against an adj udication order passed by the adjudicating
officer of the Securities and Exchange Board of India (for short the Board) imposing a
penalty of 33,00,000/-. The adjudicating officer found the appellant guilty of violation of Regulation 12(1) read with Clause 3.2 of Part A of Schedule I of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (PIT Regulations). He also found the appella nt guilty of violation of Regulation 12 (2) read with Clause 2.0 of Schedule II of the PIT Regulations. The former related to failure to close the trading window during th e period when unpublished price sensitive information was available. The latter relate d to delay in making disclosure of price sensitive information. The adjudicating officer imposed a penalty of 11,00,000/- for
the first violation and a sum of 22,00,000/- for the second viol ation, thus imposing a total penalty of 33,00,000/-.

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2. The appellant is a listed company enga ged in the manufacture and exports of
   steel pipes. The shares of the appellant ar e listed on the Bombay Stock Exchange and
   National Stock Exchange Limited. The appell ant lodged a complaint with the Board
   against irregularities committed by Shri J. C. Mansukhani, vice chairman and managing
   director of the company. The complaint rela ted to insider trading and violation of the
   relevant code of conduct. On receipt of the complaint the Board sought periodical
   information and clarifications from the appe llant. On a verification of the procurement
   of orders by the appellant, the period during which price sensitive information relating
   to huge orders was available and the pe riod during which disclosure was made
   regarding the orders to the stock exchange, the adjudicating officer considered that there
   were violations with respect to the code of conduct prescribed for insider trading and
   disclosures of price sensitive information to the stock exchange. A show cause notice
   was issued by the adjudicating officer on May 11, 2011. The show cause notice alleged
   two violations against the a ppellant. The adjudicating officer found that the appellant
   had failed to close the trading window dur ing the period when unpublished price
   sensitive information was available. He he ld the view that the appellant bagged
   substantial orders of contracts during the period August 6, 2010 to September 7, 2010
   and during the above period th e trading window should have been closed. The second
   allegation related to failure to furnish tim ely disclosures of bagging of orders worth
   about ` 1200 crores from domestic and intern ational market. According to the
   adjudicating officer the appellant receive d the orders on August 30, 2010 whereas the
   information was made public only on September 7, 2010 i.e. after a delay of seven days.
   The adjudicating officer found the appellant prima facie guilty of the above two charges
   and called for the appellant’s explanation thereto. The appellant submitted detailed
   replies on June 2, 2011 and June 27, 2011 denying the allegations.
3. We have heard the learned senior couns el for the parties who took us through
   the records of the case. The learned senior counsel appearing for the appellant argued
   that there was no violation of Regulation 12( 1) read with Clause 3.2 of Part A of
   Schedule I of the PIT Regulations. There wa s no need to close the trading window as 3
   the appellant was engaged in procuring orders in the normal course of business. It is
   observed that the appellant’s nature of busin ess consists of substantial orders from
   domestic and interna tional markets and procuring such orders is an ongoing process.
   According to him, procuring orders in the normal course of business in a manufacturing
   company does not fall under any of the clauses mentioned in item no. 3.2.3 of the model
   code of conduct for prevention of insider trading. A reference is made by him to the
   show cause notice where allegation refers to procurement of substantial orders which
   relates to major expansion plan or executi on of new projects. However, according to
   him, in the adjudication order the charge has been modified as rela ting to ‘changes in
   plans or operations of the company.’ It is submitted that bagging of orders for the
   business operations of the appellant cannot be brought un der ‘changes in plans or
   operations of the company.’ The senior c ounsel for the appell ant made a specific
   reference to the order of this Tribun al in Appeal no. 107 of 2011 dated 19.10.2011 in
   the case of Hindustan Dorr Oliver Limited & Ors. vs Securities and Exchange Board of
   India. According to him the facts of the case are similar to the ones in the impugned
   case and the decision therein will squarely apply.
4. The learned senior counsel for the Boar d defended the order of the adjudicating
   officer.
5. On a consideration of the facts of the case and the decision arrived at by this
   Tribunal in the case of Hindustan Dorr Oliver Limited & Ors mentioned supra, we are
   of the view that the adjudicating officer has gone wrong in holding the appellant guilty
   of violating the provisions of Regulation 12( 1) read with Clause 3.2 of Part A of
   Schedule I of PIT Regulations. The Regulation under consideration provides for closure
   of the trading window in certain given circumstances. They are mainly the following:
   “(a) Declaration of financia l results (quarterly, half-
   yearly and annually)
   (b) Declaration of divide nds (interim and final).
   (c) Issue of Securities by way of public/rights/ bonus
   etc.
   (d) Any major expansion plans or execution of new
   projects.
   (e) Amalgamation, mergers, takeovers and buy-back.
   (f) Disposal of whole or substantially whole of the
   undertaking. 4
   (g) Any changes in policies, plans or operations of the
   company.”
   In the appellant’s case the adjudicating officer has considered the bagging of orders
   for normal manufacturing activity to be crucial for closure of the trading window. There
   is no dispute regarding the fact that the appe llant is regularly in receipt of orders of
   contract from various parties and this is an ongoing process throughout the year. This
   does not fall under major expansion plans or execution of new projects in the case of the
   appellant as held in Hindustan Dorr Oliver Limited & Ors vs Securities and Exchange
   Board of India. It goes without saying th at this cannot be brought under changes in
   policies and plans or operations of the comp any. So, the facts of the case do not throw
   up a situation where the trading window has to be closed. In view of this, the appellant
   cannot be held guilty of violating Regulation 12(1) read with Clause 3.2 of Part A of
   Schedule I of the PIT Regulations. Henc e the penalty imposed on this ground
   amounting ` 11, 00,000/- is deleted.
6. The second allegation relates to delay in disclosing to the stock exchange price
   sensitive information concerning orders procured by the company on August 30, 2010.
   According to the show cause notice th e company made public price sensitive
   information relating to bagging of orders only on September 7, 2010 i.e. after a delay of
   seven days and this is in direct violation of Regulation 12(2) read with Clause 2.0 of
   Schedule II of PIT Regulations.
7. It is strongly argued by the learned senior counsel for the appellant that there
   was no confirmation of the order on August 30, 2010 as alleged in the show cause
   notice, since the confirmation of order crystallized only on September 7, 2010 on which
   date relevant disclosure was made to the stock exchange. The impugned order relates to
   a contract with the Republic of Iraq, Minist ry of Oil, State Company for Oil Projects
   (SCOP). According to the appellant the fi nal award of order took place only on
   September 7, 2010 and the documents relie d upon by the Board point to only an
   intention to award the orde r which was followed up with several correspondence and
   procedural formalities. Intention to award an order, according to the appellant’s learned
   senior counsel, does not amount to award of order and so the appellant cannot be found 5
   guilty of non-disclosure. It is pointed out th at in the show cause notice the adjudicating
   officer has referred to a delay of seven da ys whereas in the impugned order the delay
   has been enlarged to twenty two days. With a reference to the reply to the show cause
   notice it is observed that th ere were several negotiations with SCOP after August 15,
   2010 and the final award crys tallized only on Septembe r 7, 2010 on which date the
   appellant sent final comments on the form of contract received from SCOP and there
   was certainty regarding the award of order. It is also submitted that there are no specific
   guidelines provided for disclosu re of price sensitive information and so the appellant
   was in the habit of disclosing price sens itive information whenever the contracts
   attained reasonable confirmation. According to the appellant, its nature of business is
   such that confirmation of order is a long drawn process and there are several formalities
   to be observed before the actual award. So, the appellant could decide about the
   finalization of an order and di sclosure of the same to the stock exchange only when all
   the procedures and documentation were completed.
8. We have considered the rival submissi ons. The relevant prov ision is contained
   in Schedule II under Regulation 12(2) of Code of Corporate Disclosure Practices for
   Prevention of Insider Trading. It relates to prompt disclosure of price sensitive
   information. The provision reads as under:
   “Price sensitive information shall be given by listed
   companies to stock exchanges and disseminated on a
   continuous and immediate basis.”

It is incumbent upon a liste d company to make the disc losure on a continuous and
immediate basis so that price sensitive info rmation is in public domain and is available
to the shareholders for taking informed decisions. In the present case, the appellant has
admitted that bagging of a substantial order from SCOP was a price sensitive
information within the meaning of the regulation s. It is to be noted that the appellant is
in the process of bagging several orders in domestic and international markets and the
total contract finalized as on September 7, 2010 was around 1200 crore. It is not for consideration whether the fixing of the threshold limit of 550 crore is reasonable or
valid since that is not the issue in dispute. The appellant made disclosure to the stock
exchange regarding bagging of substantial orders on September 7, 2010. This confirms

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the fact that the appellant has undisputedly decided that the orders received till that date
constitute price sensitive information. The only issue to be resolved is whether there is a
delay in making the disclosure as provide d for in Clause 2.0 of Schedule II of
Regulation 12 (2) of PIT. Fo r this purpose we have to refer to the correspondence
between the appellant and SCOP which provided the appellant with a substantially high
order. According to the adjudicating officer the appellant had crossed the threshold limit
of ` 550 crores on August 15, 20 10. Therefore, a disclosure should have taken place
immediately. It is necessary to refer to the communication received from SCOP on
August 15, 2010. The relevant communication reads as under:
“From: SCOP
To: MAN INDUSTRIES TLD
E-mail: enquiry@maninds.org
jaffars2005@yahoo.com

Sub: Requisition No. 2090/QR-01/2008
We would like to inform you that we intent to award you
the Req. No. 2090/QR-01/2008 in total amount of
(135 565 800) $ (one hundred thirty five million five
hundred sixty five thousand eight hundred us dollar), to
supply the line pipe of (300KM) size 42 ” with the
accessories CIF Um Qasser.
Therefore you are kindly requested to extend the
validity for your commercial offer up to 30 th Sept, 2010,
to enable us to proceed our procedures to complete the
contract.
…Best Regards…”
The thrust of the arguments of the appellant’ s learned senior counsel is that the above
communication conveys only an intention to award the order and it does not constitute
the award of order per se. So, according to him, there is no need to disclose the intention
to award a contract. On the other hand, the le arned senior counsel for the Board argued
that the tone and tenor of the communica tion convey the decision to award the order
subject to extension of the date for co mmercial offer up to September 30, 2010. On a
perusal of the communication from SCOP referred to above we are also of the view that
the award of order has almost reached fi nalization in the above communication. It
cannot be interpreted as a lett er conveying a mere intention. It is in the nature of a
communication which conveys the final decisi on on the issue subject to compliance of
certain formalities. There is no evidence re garding any further negotiation or discussion

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or correspondence affecting the basics of th e order. SCOP merely wanted an extension
of the date of validity of the commercial offer so as to proceed with the final
documentation of the contract. The submissi on of the learned senior counsel for the
Board has to be given due consideration while appreciating the spirit and scope of the
communication received from SCOP. We are of the view, that the order with SCOP
cannot be regarded as remaining at a stage of negotiation or discussion as on
August 15, 2010. On the other hand, the facts of the case show that the order has almost
crystallized and the communication is in the nature of a confirmation of the order. As
already observed, the receipt of order in the present case has been accepted by the
appellant as a price sensitive informa tion. Since, the appellant received the
communication regarding the ba gging of the order subject to compliance with certain
formalities the appellant was duty bound to make the disclosure as on August 15, 2010.
The appellant has failed to do so. The di sclosure was made only on September 7, 2010.
In the facts of the case, th ere is a clear violation of Clause 2.0 of Schedule II of
Regulation 12(2) of PIT Regulations.

9. The appellant’s learned senior counsel made a strong plea that the penalty of
   22, 00,000/- imposed on the appellant is highly excessive. On a consideration of the facts of the case and the gravity of violation we are also of the view that the penalty imposed is excessive. There cannot be a stra it jacket formula for imposition of penalty. Quantum of penalty has to be assessed ha ving regard to the facts of each case. Admittedly, there is a delay in making disclosure as laid down in the Regulations relating to Prohibition of Insider Trading. However, the delay occurred only because of certain interpretations given to the comm unication received from an international business house. The appellant considered September 7, 2010, the date on which final comments on the form of contract was sent to SCOP, as the day of confirmation of the order. However, the previous communi cation received on August 15, 2010 conveys reasonable crystallization of the order, which is price sensitive and the appellant should have based the disclosure on this communicat ion. Considering these facts we find that there is scope for reducing the quantum of pe nalty. Having regard to the facts of the case, we are of the view, that a penalty of 5, 00,000/- would meet the ends of justice. 8
   So the penalty imposed under Section 15HB of the Securities and Exchange Board of
   India Act, 1992 for violation of Regulation 12( 2) read with Clause 2.0 of Schedule II of
   PIT Regulations is reduced from 22,00,000/- to 5,00,000/-. In the result, penalty of 11,00,000/- for violation of Regulation 12(1) read with Clause 3.2 of Part A of Schedule I is dele ted and penalty for vi olation of Regulation 12(2) read with Clause 2.0 of Schedul e II of the PIT Regulations is reduc ed to 5,00,000/-. Appeal is partly allowed. No order as to costs. Sd/-
   P.K.Malhotra
   Member Sd/-
   S.S.N. Moorthy
   Member
   30.3.2012
   Prepared & Compared By: Pk