In Re. Mr. Prannoy Roy & Mrs. Radhika Roy (SEBI)
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.
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 The insiders invariably have access to the unpublished price sensitive information by virtue of their position in the corporate hierarchy or on account of their official duties.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.
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.
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.
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.
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.
FULL TEXT OF THE ORDER OF SEBI
1. Securities and Exchange Board of India (hereinafter referred to as “SEBI”) had received certain complaints from New Delhi Television Limited (hereinafter referred to as “NDTV”) on July 16, 2013 (1st complaint), December 27, 2013 (2nd complaint) and January 9, 2014 (3rd complaint) inter alia alleging that Mr. Sanjay Dutt and certain other entities, viz. Quantum Securities Private Limited (hereinafter referred to as “QSPL”) and SAL Real Estates Private Limited (hereinafter referred to as “SREPL”) were involved in dealing in securities of NDTV in violation of provisions of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as “the PIT Regulations, 1992”) during the period September 2006 to June 2008.
2. Pursuant to the receipt of the complaints from NDTV, SEBI conducted an investigation into the suspected insider trading in the scrip of NDTV (hereinafter referred to as “the Company”) during the period starting from September 01, 2006 to June 30, 2008 (hereinafter referred to as “Investigation Period”). While the investigation conducted into the matter, inter alia, revealed that Mr. Sanjay Dutt and his associated entities had indulged in insider trading in the scrip of NDTV (for which separate proceedings have been initiated) at the same time, the investigation also concurrently detected that the two Noticees in the instant proceedings, namely, Mr. Prannoy Roy and Mrs. Radhika Roy have carried out insider trading in the scrip of NDTV during the Investigation Period. The findings arising from the investigation with respect to the two Noticees in the present proceedings have been highlighted hereunder:
(1) As per NDTV’s Annual Reports for the financial years 2006-07, 2007-08 and 2008-09, Mr. Prannoy Roy, apart from being one of the promoters, was also the Chairman and Whole Time Director of NDTV during the investigation period. Further, Mrs. Radhika Roy, who is the spouse of Mr. Prannoy Roy, was also one of the promoters and also served as the Managing Director of NDTV.
(2) The equity shares of NDTV were listed on National Stock Exchange of India Limited (hereinafter referred to as “NSE”) and BSE Limited (hereinafter referred to as “BSE”). In the course of investigation, information pertaining to various corporate announcements made by NDTV as gathered from the Company and stock exchanges were perused from which it was revealed that the Company had filed six (6) price sensitive information (hereinafter referred to as “PSI”) for disclosure during the Investigation Period. The details of those price sensitive events and the respective periods of unpublished price sensitive information (hereinafter referred to as “UPSI”) with regard to each of those PSIs are depicted in the following table:
