The Securities Appellate Tribunal (“SAT“) by its order dated November 30, 2016 in a series of appeal before it [the main appeal being Appeal No. 121 of 2014 – Shelter Infra Projects Limited Vs SEBI (“Shelter Infra”)] has determined and confirmed the period from which Unpublished Price Sensitive Information (“UPSI“) shall be deemed to have come into force thereby triggering the obligation to close trading window for insiders under the SEBI (Prohibition of Insider Trading) Regulations, 1992 (“PIT Regulations, 1992“).
The brief fact of the case was that Shelter Infra and its promoters had entered into a share purchase agreement on July 31, 2009 (“SPA“) with one Ramayana Promoters Private Limited (“RPL“) for sale of 35% shareholding of the promoters to RPL thereby triggering the open offer obligations under the takeover regulations, 1997.
The SPA was approved by the board of Shelter Infra on July 30, 2009. However, the discussions pertaining to the SPA had commenced from May 21, 2009, and the first draft of the SPA was shared with the board of Shelter Infra on June 20, 2009. As per SEBI’s investigation, it was observed that the board of Shelter Infra had decided to complete the takeover formalities within a week from the board meeting dated June 19, 2009.
As per SEBI, Shelter Infra was bound to intimate its board’s decision approving the SPA within 15 minutes of the conclusion of the board meeting dated July 30, 2009, which was not complied by Shelter Infra till date thus violating the provisions of the Listing Agreement and PIT Regulations, 1992.
Further, Shelter Infra was bound to close the trading window with effect from May 21, 2009, when discussions pertaining to the SPA had commenced and were within the knowledge of the board of Shelter. However, the trading window was closed only after July 30, 2009, thereby enabling the promoters and relatives of the promoters to trade in the shares of Shelter Infra during June 20, 2009, to July 30, 2009 (“UPSI period“) thereby violating the provisions of PIT Regulations, 1992.
The crux of the question is the trigger date of the UPSI.
SAT held that even assuming that the first draft of the SPA was shared with the board of Shelter Infra on June 20, 2016, the board had already taken decision pertaining to the SPA on June 19, 2009, and thus UPSI came into existence on June 19, 2009. Accordingly, the trades executed by directors and relatives of directors and other connected entities during the UPSI period was in violation of PIT Regulations, 1992.
Further, SAT also reversed the order of SEBI holding the compliance officer liable for non-compliance with the PIT Regulations, 1992 and exonerating the directors from the liability by holding that it is the overall responsibility of the Company and the board of the Company to ensure compliance with PIT Regulations, 1992 in the letter and spirit.