On November 27, 2020, the Securities and Exchange Board of India (SEBI) restrained Prannoy Roy & Radhika Roy from accessing the securities market for two years for making a wrongful gain of ₹16.97 crores by trading in the shares of NDTV based on insider information.
The two were asked to jointly or severally, disgorge the amount of wrongful gain of ₹16,97,38,335/- as computed in the show cause notice served to them along with interest at the rate of 6% per annum from April 17, 2008. The board explicitly 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.
The 90-page order passed by Whole Time Member S K Mohanty of SEBI stated as following: "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importance that trading by the insiders is monitored and regulated, especially when they are in possession of UPSI (Unpublished Price Sensitive Information). Wherever such trading results in the accrual of unlawful gain, such insiders are required to forgo such gain." NDTV had previously complained to SEBI alleging that Mr. Sanjay Dutt and certain other entities, viz. Quantum Securities Private Limited and SAL Real Estates Private Limited 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 during the period September 2006 to June 2008. In response to a complaint received from NDTV, SEBI initiated an investigation in which it also detected that Mr. Prannoy Roy and Mrs. Radhika Roy have carried out insider trading in the scrip of NDTV during the Investigation Period. On the basis of the findings from the investigation, a common show cause notice was issued on August 31, 2018, to Mr. Prannoy Roy and Mrs. Radhika Roy. The salient aspects thereof are as under:
- That Mr. Prannoy Roy and Mrs. Radhika Roy were insiders in terms of regulation 2(e) of the PIT Regulations, 1992;
- That Mr. Prannoy Roy and Mrs. Radhika Roy indulged in the act of insider trading have violated the provision of sections 12A(d) and (e) of the SEBI Act, 1992 read with regulations 3(i) and 4 of the PIT Regulations, 1992.
- That Mr. Prannoy Roy and Mrs. Radhika Roy sold their shares of NDTV on April 17, 2008, during the trading window closure period, i.e., within 24 hours of the public announcement pertaining to PSI-6 on April 16, 2008, and as such have violated NDTV's Code of Conduct and the provisions of regulation 12(2) read with regulation 12(1) of the PIT Regulations, 1992.
- That Mr. Prannoy Roy and Mrs. Radhika Roy together have made a wrongful gain of ₹16.97 crores by trading in the shares NDTV while in possession of UPSI relating to the reorganization of the Company.
The board mentioned that the Prohibition of Insider Trading Regulations, 1992 have been repealed by the SEBI (Prohibition of Insider Trading) Regulations, 2015. Regulation 12 of the Regulations, 2015, provides as under:
“Repeal and Savings. 12. (1) The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 are hereby repealed. (2) Notwithstanding such repeal, — (a) the previous operation of the repealed regulations or anything duly done or suffered thereunder, any right, privilege, obligation or liability acquired, accrued or incurred under the repealed regulations, any penalty, forfeiture or punishment incurred in respect of any offense committed against the repealed regulations, or any investigation, legal proceeding or remedy in respect of any such right, privilege, obligation, liability, penalty, forfeiture or punishment as aforesaid, shall remain unaffected as if the repealed regulations had never been repealed; (b)anything done or any action taken or purported to have been done or taken including any adjudication, inquiry or investigation commenced or show-cause notice issued under the repealed regulations prior to such repeal, shall be deemed to have been done or taken under the corresponding provisions of these regulations; (3) After the repeal of Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, any reference thereto in any other regulations made, guidelines or circulars issued thereunder by the Board shall be deemed to be a reference to the corresponding provisions of these regulations.”
Hence, the board concluded that any proceedings initiated for contraventions of provisions of the Prohibition of Insider Trading Regulations, 1992 are saved and, hence, can be proceeded with under the same. Considering the foregoing, the instant proceedings initiated against the Noticees for their alleged violations of provisions of the Prohibition of Insider Trading Regulations, 1992 can very well be continued. The Authorized Representatives appearing for the Noticees had asked for a short adjournment as the Noticees had filed a Writ Petition in the High court. To this, the board also clarified to the noticee that "the mere filing of a writ petition cannot be a ground for further postponement of the proceedings/hearing unless directed by the Hon’ble High Court. " The Roys had defended their positions by stating that made the purchases of the shares on December 16, 2007, with an intention to avoid a hostile takeover of the Company, while the sale on April 16, 2008, was 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. However, the board rejected their claims and held that they 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. They were also held liable 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 concluded by adding: "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 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."
Additionally, SEBI has also prohibited CEO of NDTV, Vikramaditya Chandra; senior advisor Ishwari Prasad Bajpai; CFO Saurav Banerjee, and few other from accessing the market for a period varying from one to two years on the charges of Insider Trading. [Read Order]