SEBI, on 24 August 2022, imposed fines of INR 1,00,000 each on 8 individuals for violation of insider trading norms (pertaining to disclosure requirements for trades in excess of INR 10,00,000 in a calendar quarter) in the shares of Titan Company Limited (“Titan”), in 8 separate yet similar orders.
This analysis is in relation to the order passed by SEBI in the case of O Boopathi.[1]
Analysis of the order passed in the case of O Boopathi[2]:
O Boopathi was a designated person/employee of Titan Company Limited (“Titan”), under the SEBI (Prohibition of Insider Trading) Regulations 2015 (“PIT Regulations”).
During the quarter ended March 2019, O Boopathi placed the following trades in Titan: (a) 15 February 2019 – INR 10,24,000; (b) 18 February 2019 – INR 10,24,386; (c) 21 February 2019 – INR 10,36,598; (d) 25 February 2019 – INR 10,43,500; and (e) 9 March 2019 – 10,50,466. (“Transactions”). He did not disclose any of these Transactions to Titan. Further, he has not disputed these Transactions.
Regulation 7(2)(a) of the PIT Regulations reads: “Continual Disclosures. Every promoter, member of the promoter group, designated person and director of every company shall disclose to the company the number of such securities acquired or disposed of within two trading days of such transaction if the value of the securities traded, whether in one transaction or a series of transactions over any calendar quarter, aggregates to a traded value in excess of ten lakh rupees or such other value as may be specified.”
SEBI (Adjudicating Officer) held as follows:
(i) The value of each of the 5 Transactions exceeded INR 10,00,000. As per Regulation 7(2)(a) of the PIT Regulations, O Boopathi (being an employee of Titan) should have disclosed each of the 5 Transactions to Titan, within 2 working days.
[Note: Separately, SEBI, in the case of Soma Bhattacharya (another employee of Titan), also ruled that the following contentions are not relevant with respect to the fact of non-disclosure under Regulation 7(2)(a) of the PIT Regulations: (a) UPSI did not motivate the decision to trade; (b) she did not accrue any illegal profit; and (c) no individual suffered any loss or detrimental consequences owing to the error.];
(ii) O Boopathi claiming that he was ignorant of the regulatory provisions is not justified, as postulated by the maxim ‘ignorantia juris non excusat’.
(iii) Since O Boopathi violated Regulation 7(2)(a) of the PIT Regulations, he would be liable for monetary penalty under Section 15A(b) of the Securities Exchange Board of India Act 1992 (“SEBI Act”)[3].
(iv) With respect to the quantum of penalty, in light of Section 15J of the SEBI Act,[4] SEBI ruled that the purpose of these disclosures is to bring about transparency in the transactions of employees and assist SEBI to effectively monitor the transactions in the market and underscored the importance of timely disclosures.
(v) SEBI also considered the fact that O Boopathi had violated Regulation 7(2)(a) of the PIT Regulations on 5 occasions. In light of the above, under Section 15A(b) of the SEBI Act, SEBI imposed a penalty of INR 1,00,000 on O Boopathi.
Footnotes
[1] https://www.business-standard.com/article/pti-stories/titan-case-sebi-fines-eight-individuals-for-breach-of-insider-trading-norms-122082401181_1.html [2] https://www.sebi.gov.in/enforcement/orders/aug-2022/adjudication-order-in-respect-of-o-boopathi-in-the-matter-of-titan-company-ltd-_62316.html. [3] Section 15A reads: “If any person, who is required under this Act or any rules or regulations made there under… (b) to file any return or furnish any information, books or other documents within the time specified therefore in the regulations, fails to file return or furnish the same within the time specified therefore in the regulations, he shall be liable to a penalty which shall not be less than one lakh rupees but which may extend to one lakh rupees for each day during which such failure continues subject to a maximum of one crore rupees.” [4] Section 15J reads: While adjudging quantum of penalty under section 15-I, the adjudicating officer shall have due regard to the following factors, namely: (a) the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; (c) the repetitive nature of the default.”