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Supreme Court Exempts NDTV Promoters Prannoy Roy & Radhika Roy From Making Deposit Before SAT For Hearing Appeals Against SEBI Penalty

15 Feb 2021 7:58 AM GMT
Supreme Court Exempts NDTV Promoters Prannoy Roy & Radhika Roy From Making Deposit Before SAT For Hearing Appeals Against SEBI Penalty

In a relief to NDTV promoters Prannoy Roy & Radhika Roy, the Supreme Court on Monday exempted them from making deposit before the Securities Appellate Tribunal(SAT) for hearing their appeals against the penalty of over Rs 16.97 crores imposed by the Securities and Exchange Board of India(SEBI) in a case related to insider trading.A bench headed by the Chief Justice of India ordered...

In a relief to NDTV promoters Prannoy Roy & Radhika Roy,  the Supreme Court on Monday exempted them from making deposit before the Securities Appellate Tribunal(SAT) for hearing their appeals against the penalty of over Rs 16.97 crores imposed by the Securities and Exchange Board of India(SEBI) in a case related to insider trading.

A bench headed by the Chief Justice of India ordered that "no amount shall be coercively recovered from the appellants(Prannoy Roy and Radhika Roy) for hearing the case".

When the Solicitor General of India, Tushar Mehta, raised an apprehension on behalf of the SEBI that such an order is likely to be used in other similar pending cases, the bench clarified that the order "will not be treated as a precedent".

The bench, also comprising Justices AS Bopanna and V Ramasubramanian, was hearing the appeals filed by NDTV promoters Prannoy Roy and Radhika Roy against an order of the Securities Appellate Tribunal which directed them to pay 50% of the "wrongful gains" found to have been made by them via insider trading.

On the last hearing date, January 28, Senior Advocate Mukul Rohatgi had told the court that the Roys were willing to offer their shares in NDTV as security for the penalty of Rs 16.97 crores imposed by the Securities and Exchange Board of India(SEBI) for insider trading.

The bench was told that they hold nearly 50 lakh shares, which are trading at Rs 37 per share, and therefore the share value was more than the penalty amount.

Today, the Solicitor General, appearing for the SEBI, opposed the proposal to offer shares as securities. The SG informed the bench that the shares of the appellants are frozen by another order of the SEBI and that they are restrained from creating encumbrances on the shares.

However, the bench opined that deposit of shares in a court proceeding will not amount to creating encumbrance.

"This is a deposit in Court. Not an encumbrance or a pledge. There is a difference", CJI SA Bobde observed.

The SG submitted that if the appellants can give any other security, it will solve the problem. Rohatgi then replied that they don't have any other security.

The SG further submitted that the appeals are listed before the SAT on March 6 for hearing, and the deposit was not a pre-condition for hearing the appeals. The deposit is only a condition for stay and the only consequence of non-deposit will be that the appellants will not be able to enter the share-market, the SG added. Since the appellants are not regular sharedealers, the SG continued, the non-deposit will not cause much hardship to them.

Disagreeing with the SG, Rohatgi said that if there is no stay, the appellants' properties will be attached and sold.

The bench ultimately proceeded to direct the SAT to hear the appeals without deposit and put a halt on the recovery proceedings against them.

On November 27 last year, the Securities and Exchange Board of India(SEBI) had directed Roys to disgorge the amount of wrongful gain of ₹16.97 crores along with interest at the rate of 6% per annum from April 17, 2008, till the date of actual payment, within 45 days. The market regulator held that the NDTV promoters made wrongful gains by dealing in company shares in April 2008, while being in possession of Unpublished Price Sensitive Information (UPSI) pertaining to the proposed reorganization of the company.

The SEBI also banned Roys 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.

Aggrieved with this order, they approached the Securities Appellate Tribunal(SAT). On January 4, 2021, the SAT declined to grant a complete stay and directed them to deposit 50% of the penalty within 4 weeks.

It was challenging this order that they filed civil appeal in the Supreme Court.


The SEBI noted that the discussions pertaining to reorganization of the Company started on September 07, 2007 and the disclosure was made to the public post trading hours on April 16, 2008. Hence, the UPSI period was from September 07, 2007 to April 16, 2008 and, the trading window was required to be closed upto April 17, 2008 (till 24 hours after the UPSI was made public).

It further noted that Prannoy Roy was the Chairman and whole time Director and Radhika Roy was the Managing Director at the said time and were a part of the decision-making chain that had led to crystallization of the UPSI.

Nevertheless, the two promoters being in possession of the UPSI sold company shares on April 17, 2008, when the trading window for them was closed and made a profit of Rs 16,97,38,335.

"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," the Board said.

The Promoters had defended their actions by stating that they attributed full knowledge of all their trades to SEBI and the stock exchanges and argued that none of the leading law firms advising them on their transactions ever alerted them on possible infraction of the Prevention of Insider Trading Regulations, 1992, in respect of any of these transactions.

The Roys further stated that the purchases of shares of NDTV were made on December 16, 2007, with an intention to avert a hostile takeover of the Company, while the sale of shares on April 16, 2008, were made as part of a prior agreement with the buyer to raise funds to meet their open offer obligations that were triggered by their purchases made on December 16, 2007.

Rejecting this explanation, the Board said,

"It is pertinent to bear in mind that creeping acquisition and acquisition pursuant to possession of UPSI are diametrically opposite actions. The instant case does not pertain to and is in no manner concerned with the disclosure under the PIT Regulations, 1992 or the Takeover Regulations, 1997, for an incremental acquisition of shares which might have been similar to creeping acquisition. On the contrary, it deals with a grave allegation of dealing in shares by an insider while in possession of UPSI (PSI-6). Any acquisition by an insider on the basis of an UPSI cannot be camouflaged as a creeping acquisition for seeking of immunity from such a serious violation. The fact that the insider was privy to an UPSI in the instant case and has acquired shares while in possession of such UPSI, in my opinion, is more than adequate to negate the claims put forth by the Noticees to justify their acquisition of shares."

It said that the Promoters had contravened Regulation 3(i) and 4 of the Prohibition of Insider Trading (PIT) Regulations, 1992 r/w Regulation 12 of the SEBI (Prohibition of Insider Trading) Regulations, 2015 and Section 12A(d) and (e) of the SEBI Act, 1992.

Further, they are said to be in contravention of NDTV's Code of Conduct and regulation 12(2) read with 12(1) of the PIT Regulations, 1992.

The Board said,

"such conduct on the part of the Noticees is not in compliance with Code of Conduct of NDTV and regulation 12(2) read with 12(1) of the PIT Regulations, 1992, as it was impermissible for them to trade in the shares of the Company within 24 hours of disclosure of the price sensitive information by the Company to the stock exchange. The above conduct of the Noticees reinforces the charge of insider trading given the fact that the Noticees purchased the shares of NDTV during the operation of UPSI in contravention of law and also sold shares of NDTV when the trading window was closed for them. Considering that the Noticees held top management positions in the Company and were being actively assisted by legal advisors/professionals, the explanations offered by them to justify such acts are far from satisfactory."

In conclusion, the Board made the following observations with respect to insider trading:

"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."

Inter alia, SEBI barred seven individuals and entities from accessing the market for a period varying from one to two years, for indulging in insider trading. Some of them have also been asked to disgorge the illegal gains.

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