SHRI MAHENDRA PANDEY MAITRI Vs. SECURITIES AND EXCHANGE
SECURITIES APPELLATE TRIBUNAL
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S.S.N.Moorthy, Member -
(1.) THIS appeal is directed against imposition of a penalty of Rs. 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 price and trading volumes in the shares of Alka Securities Ltd.
(for short the company). 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 company 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 appellant, being a promoter director, traded
substantially in the shares of the company, but failed to make
disclosures as per Insider Trading Regulations and so it was proposed to
take necessary action for the above omission of the appellant.
(2.) 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 notice.
The adjudicating officer came to the finding that the appellant, being a
promoter director of the company, was under obligation to make the
prescribed disclosures 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 Rs. 10
lacs was imposed.
(3.) WE have heard the learned counsel for the parties. The principal argument of the appellants counsel is that the appellant is neither a
director nor an officer of the company and so there is no question of
failure 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 the view that the case
requires a fresh consideration and so it deserves to be remanded.
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.
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 stand 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 period under investigation.
However, it is contended that a compliance officer may not fall within
the definition of officer as appearing in Regulation 2(g) of Insider
Trading Regulations. 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 Regulation 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.;
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