Security and Exchange Board of India (SEBI): Ananta Barua, (Whole Time Member) found Chairman of Future Group, Kishor Biyani and its other promoters indulged in insider trading. The Board, in addition to a year ban on Kishor Biyani, Anil Biyani and Future Corp. Resource Pvt. Ltd. (FCRPL), had also imposed the penalty of Rs 1 crore on each.
The order was passed in connection with an announcement dated 20-04-2017 related to the “Composite Scheme of Arrangement between FRL, BSPL, PHRPL and their respective Shareholders”. SEBI had passed a show-cause notice regarding the said arrangement, alleging insider trading and wrongful gain thereby.
Whether there was an Unpublished Price Sensitive Information (UPSI)?
On 20-04-2017, Future Retail Ltd. (FRL) made a corporate announcement to the stock exchanges regarding segregation of certain business of FRL through a Composite Scheme of Arrangement between FRL, BSPL and PHRPL and their respective Shareholders. The information related to scheme of arrangement, which resulted in the de-merger of certain business from FRL, had its own appreciable impact on the price of the shares of FRL and therefore, information was price sensitive.
Regulation 2(1) (n) of the Prevention of Insider Trading (PIT) Regulations, 2015 prescribes as under:
“………(n) “unpublished price sensitive information” means any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities”
Therefore, the information which was disclosed to the stock exchanges by FRL on 20-04-2017, prior to its disclosure was UPSI.
Whether Noticees except Noticee 7, are insiders?
The definition of “insider”, as given in Regulation 2(1)(g) of PIT Regulations, 2015 showed that any person,
- who is connected person; or
- who is in possession of or having access to UPSI,
Regulation 2(1)(d)(ii)(j) of PIT Regulations, 2015 inter alia provides that a company wherein a director of a company or his immediate relative or banker of the company, has more than ten per cent. of the holding or interest, shall be deemed to be connected person unless the contrary is proved. Noticee 2, Kishor Biyani had been shown as person exercising significant influence on FRL being significant beneficial owner of shares held by noticee 1 FCRPL in FRL. Kishor Biyani, having held beneficial interest in 32% shares of FCRPL was an insider as per the provisions. Noticee 3, Anil Biyani, (Promoter of FRL) being immediate relative of Kishor Biyani was deemed to be connected persons in terms of the Regulations, 2015. FCRPL, being a connected entity was an insider as mentioned above. Noticee 4, the employee trust formed by FCRPL i.e., FCRPL Employee Welfare Trust (FCRPLWT) was deemed to be a connected person. Noticee 5 and 6 i.e., Rajesh Pathak and Rajkumar Pande were also directors in other group companies of Future Group and had frequent communication with Kishor Biyani which had suggested direct or indirect association of with FRL, which was the requirement under Regulation 2(1)(d) of the PIT Regulations, 2015 for terming a person as “connected person”. Noticee 8, Arpit Maheshwari was part of the emails where issue related to the scheme was being discussed. Since, he was privy to the UPSI, he was an insider in terms of Regulations 2(1)(g)(ii) of PIT Regulations, 2015.
Whether Noticees except Noticee 7, have traded in the securities of FRL when in possession of the UPSI?
The Board observed that FCRPL purchased Rs. 36,25,000 shares and FCRPLWT purchased Rs. 8,00,500 shares, of FRL during the period of UPSI. While Kishor Biyani and Anil Biyani who were insiders of FRL and were holding beneficial interest in 32% and 15% shares in FCRPL, respectively, were the persons who took the decisions for impugned trades on behalf of FCRPL, in the shares of FRL during the UPSI period. Noticee 5, in consultation with noticee 6, had issued instructions to IDBI to purchase the shares of FRL on behalf of noticee 4 during the UPSI period. IDBI then placed the order with Sajag Securities Pvt. Ltd., Stock Broker of Noticee 4, for purchasing the shares of FRL. While noticee 8 employed with FRL as Deputy Manager, had traded in the scrip of FRL during the period of UPSI. The Board held,
“Once it is established that an insider when in possession of UPSI has traded in the securities then it is a natural inference that such trades were on the basis of the UPSI.”
SEBI observed that noticee 7 (as a compliance officer of FRL) had violated Clause 4 of the Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders as specified in Schedule B read with Regulation 9(1) of PIT Regulations, 2015 as he failed to close the trading window with respect to the aforesaid announcement dated 20-04-2017. The Board further noticed that as per the list of people/entities submitted by FRL to whom pre-clearance was given for trading in the scrip of the FRL, noticee 7 gave pre-clearance to FCRPL for trading in the scrip of FRL while knowing the fact that FCRPL and its directors i.e. Kishor Biyani and Anil Biyani were insiders and might have access to the UPSI.
Directions:
In view of the aforesaid findings, SEBI issued following directions:
- FCRPL, Kishor Biyani, Anil Biyani along with noticees 5 and 6 were restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, for a period of one (1) year;
- Noticees 1, 2, 3, 5 and 6 were restrained from buying, selling or dealing in the securities of the Future Retail Limited (FRL) for a period of two (2) years;
- Noticee 8 was restrained from accessing the securities market and further prohibited from buying, selling or otherwise dealing in securities, for a period of one (1) year; and further from buying, selling or dealing in the securities of the Future Retail Limited (FRL), for a period of two (2) years;
- FCRPL, Kishor Biyani and Anil Biyani were directed to jointly and severally disgorge an amount of Rs. 17,78,25,000.
- Noticee 8 was directed to disgorge an amount of Rs. 13,320 along with an interest at the rate of 12% per annum to Investor Protection and Education Fund (IPEF).
- FCRPL and FCRPLWT were directed to jointly and severally disgorge an amount of Rs. 2,75,68,650 along with an interest at the rate of 12% per annum.
- Penalty of Rs. 1 crore was imposed on FCRPL, Kishor Biyani and Anil Biyani each which was directed to be paid within a period of 45 days,
- Noticee 5 and 6 were imposed with a penalty of Rs. 25 lakh, each and were directed to pay their respective penalties within a period of 45 days;
- Noticee 7 was imposed with penalty of Rs. 10 lakh, and was directed to pay penalty within a period of 45 days,
However, SEBI clarified that the obligation of the noticees in respect of settlement of securities, purchased or sold in the cash segment of the recognized stock exchange(s), would be allowed to be discharged irrespective of the restraint/prohibition. Further, all open positions, if any, of the noticees, in the F&O segment of the recognised stock exchange(s), were permitted to be squared off, irrespective of the restraint/prohibition imposed by this Order. [Future Corporate Resources (P) Ltd.., In Re., 2021 SCC OnLine SEBI 28, decided on 03-02-2021]
Kamini Sharma, Editorial Assistant has put this story together