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The CMD of this construction company got away lightly. Regulators usually come down heavily when there are material transgressions. Was this a case of “even Homer nods”?

  • A listed Company was finalizing the termination of a shareholders’ agreement that it had signed with another Company. The Board approved the termination on August 09, 2013.
  • On September 03, 2013, the Stock Exchanges were informed about the termination of the shareholders agreement, 3 days after the signing of the agreement on August 30, 2013.
  • On August 22, 2013, the CMD of the Company sold shares of the Company, which represented approximately 70.56% of his holding in the Company.
  • This trade constituted approximately 99% of the trade in the shares of the Company on that day on both the Exchanges together.
  • In September 2013, the CMD resigned from his post, after around 2 weeks of the disclosure to the Stock Exchanges, but continued to be on the Board as a Non-Executive Director (NED).
  • SEBI initiated investigation against the CMD on grounds of insider trading and banned him from trading in the securities market.
  • The annual report of the Company continued to classify the former CMD as a Key Managerial Personnel (KMP) for the time period that he was only an NED (as mentioned elsewhere in the report).
  • In December, 2006 too, SEBI had barred the CMD for one year for his alleged role in the rights issue of the parent Company. In 2008, his appeal to Securities Appellate Tribunal (SAT) was also dismissed.
  • In May, 2016, the Nomination and Remuneration Committee proposed the reappointment of the CMD for a period of 3 years, and the CMD was reappointed. In 2018, he was appointed as Non-Executive Chairperson.
  • In 2020, SEBI disposed off the case stating that considering the minor proportion of the transaction to the turnover of the Company, the information cannot be termed as price sensitive information. The other company in the agreement had not even disclosed the said information to the Stock Exchanges. Even if it is assumed that the information is price sensitive, “still the appellant cannot be blamed of insider trading for the reasons that he did not trade on the basis of the information”. It was also noted that the former CMD was able to show that he needed the money that he garnered from sale of shares for infusing capital in one of his firms that was undergoing corporate debt restructuring (CDR) during the time. Besides, he was even required to sell his agricultural land and flat.
  • This is a rare instance of an insider trading case against a CMD.