BEFORE THE SECURITIES APPELLATE TRIBUNAL
MUMBAI
Appeal No. 178 of 2011
Date of Decision : 22.12.2011
Shri Mahendra Pandey
Maitri, Plot No. 10, Road No. 10,
Nutan Laxmi Society, JVPD,
Juhu, Mumbai – 400 054
…Appellant
Versus
Securities and Exchange Board of India
SEBI Bhavan, Plot No. C-4A, G-Block,
Bandra-Kurla Complex, Bandra (East),
Mumbai – 400 051.
…Respondent
Mr. V.M. Singh, Advocate for the Appellant.
Mr. Prateek Seksaria, Advocate with Mr. Mobin Shaikh, Advocate for the
Respondent.
CORAM : P.K. Malhotra, Member
S.S.N. Moorthy, Member
Per : S.S.N. Moorthy, Member
This appeal is directed against imposition of a penalty of ` 10 lacs for failure
to make disclosures under Regulation 13( 4) read with 13(5) of Securities and
Exchange Board of India (Prohibition of Insider Trading) Regulation, 1992 (for short
Insider Trading Regulations). The Securities and Exchange Board of India (for short
the Board) observed a sudden spurt in the pr ice and trading volumes in the shares of
Alka Securities Ltd. (for short the compa ny). Detailed investigations were conducted
in respect of dealings in the scrip of the company during the period September, 2008
to July, 2009. During investigation it was observed that the appellant had sold /
transferred 5,23,690 shares of the compa ny and bought / received 8,04,490 shares of
the company. The adjudicating officer issued a show cause notice to the appellant on
July 15, 2010 alleging that the appellan t, being a promoter director, traded
substantially in the shares of the company, but failed to make disclosures as per
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Insider Trading Regulations and so it was proposed to take necessary action for the
above omission of the appellant.
- On receipt of the show cause notice, the appellant acknowledged its receipt
but sought adjournment on various occasions for filing replies. After several
opportunities the appellant, along with other directors of the company, filed certain
common submissions to the show cause noti ce. The adjudicating officer came to the
finding that the appellant, being a promot er director of the company, was under
obligation to make the prescribed disclosu res under Insider Trading Regulations and
for violating the relevant provisions of Regulation 13(4) and 13(5) of the above
regulations penalty was called for. Accordingly, a penalty of ` 10 lacs was imposed. - We have heard the learned counsel for the parties. The principal argument of
the appellant’s counsel is that the appellant is neither a director nor an officer of the
company and so there is no question of fa ilure to comply with the provisions of
Insider Trading Regulations contained in Regulation 13(4) and 13(5). According to
the learned counsel for the appellant, the adjudicating officer has proceeded on the
assumption that the appellant is a director of the company. It is strenuously argued
that the imposition of penalty on the appellant, who is neither a director nor an officer
of the company, is not sustainable. - On a consideration of the facts of the case and the provisions relating to
Insider Trading Regulations we are of th e view that the case requires a fresh
consideration and so it deserves to be re manded. Regulation 13(4) of Insider Trading
Regulations reads as under:
“Any person who is a director or officer of a listed company, shall
disclose to the company and the stock exchange where the
securities are listed in Form D, the total number of shares or voting
rights held and change in shareholding or voting rights, if there has
been a change in such holdings of such person and his dependents
(as defined by the company) from the last disclosure made under
sub-regulation (2) or under this sub-regulation, and the change
exceeds Rs. 5 lakh in value or 25,000 shares or 1% of total
shareholding or voting rights, whichever is lower.” 3
It is clear that a disclosure has to be made by a person who is a director or officer of a
listed company. In the grounds of appeal it is submitted that the appellant is not a
director of the company. However, the adjudicating officer has proceeded on the
assumption that the appellant is a director of the company. He has not brought on
record any material in support of the sta nd taken by him. During the hearing of the
appeal, learned counsel for the respondent filed a communication from the National
Stock Exchange Ltd. which confirmed that the appellant was the compliance officer
of Alka Securities for the pe riod under investigation. However, it is contended that a
compliance officer may not fall within the definition of ‘office r’ as appearing in
Regulation 2(g) of Insider Trading Regulatio ns. It is necessary to have a look at
Section 2(30) of the Companies Act, 1956 to understand the meaning of the term
‘officer’ as contained in Regul ation 2(g) of the Insider Trading Regulations. Section
2(30) of the Companies Act, 1956 defines an ‘officer’ as under:
“officer” includes any director, manager or secretary or any person
in accordance with whose directions or instructions the Board of
directors or any one or more of the directors is or are accustomed
to act;”
A reading of the above provision makes it clear that an ‘officer’ envisaged in Section
2(30) of the Companies Act, 1956 is one who can direct or influence the affairs of the
company as distinguished from a mere compliance officer.
- In the impugned order by which penalty has been imposed, the adjudicating
officer has dealt with the requirements under Regulation 13(4) and 13(5) of the
Insider Trading Regulations in para 16 of the order. Af ter considering the common
submissions filed by the directors, the adjudicating officer has concluded as under:
“I also hold that the Noticee was under an obligation to make the
required disclosures under Regulation 13(4) of PIT Regulations to
the Company and to the Stock Exchange, which the Noticee failed
to do. Therefore, the Noticee has violated the provisions of
Regulation 13(4) read with 13(5) of PIT Regulations.”
It is necessary to bring on record necessary material to establish that the appellant is
either a director or an officer of the co mpany. The adjudicating officer has failed in
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this regard. On a perusal of the record it is noticed that the appellant has also failed to
avail himself of the opportunities provided by the adjudicating officer and thereby
failed in specifically answering the charges levelled in the show cause notice. The
appellant has not put forward any argumen t upfront in respect of the provisions
contained in Regulation 13(4) and 13(5) on which the show cause notice was based.
- In view of the facts and legal position stated above, we remand the case to the
Board for fresh consideration. The appellant shall file his reply or explanation, if any,
within a period of three weeks from today. The Board shall consider the explanation /
reply of the appellant and pass necessary orders in accordance with law.
In the result, the impugned order is set aside and the matter remanded to the
Board for fresh consideration as mentioned above with no order as to costs.
Sd/-
P.K. Malhotra
Member
Sd/-
S.S.N. Moorthy
Member 22.12.2011
Prepared & Compared By: msb