REPETITIVE NATURE OF VIOLATIONS SUBJECT TO PENALTY DESPITE NOT CREATING DISPROPORTIONATE GAINS OR UNFAIR ADVANTAGE – Eshwars
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REPETITIVE NATURE OF VIOLATIONS SUBJECT TO PENALTY DESPITE NOT CREATING DISPROPORTIONATE GAINS OR UNFAIR ADVANTAGE

Authored by Padma Akila

DATE(S) OF ORDER: 15th April 2021

PURPORTED CONTRAVENTION COMMITTED: One of the directors of the Company traded in its scrip during the window closure period without taking pre-clearance for executing trades, leading to violation of Cl. 4.2.2 and 4.3.1 of Code of Conduct for Prevention of Insider Trading (COC) of the Company r/w Cl. 3.2.2 & 3.3.1 respectively, of Model Code of Conduct for Prevention of Insider Trading for Listed Companies (Model COC) specified in Part A of Schedule I to Regulation 12(1) & 12(2) of the PIT Regulations, 1992, r/w Regulation 12(2) of PIT Regulations, 2015.

PERSONS CHARGED AND WHO ARE THEY: M Narasimha Rao- Director (Noticee)

COMPANY THAT DID NOT FULFILL THE DISCLOSURE REQUIREMENTS: Trinethra Infra Ventures Limited (Company)

BACKGROUND OF THE CASE:

1. Pursuant to an investigation for the period from 1st January 2009 to 31st March 2010, it was found that the Noticee traded in the scrip of the Company during the window closure period, without taking pre-clearance for executing trades, leading to the contraventions of the provisions mentioned in the table above.

2. The Show Cause Notice (SCN) was sent through speed post with acknowledgement due which was returned undelivered. Thereafter, SCN was served on the Noticee through publication, and the Noticee was also granted an opportunity of personal hearing. However, no reply was received from the Noticee.

FINDINGS BY THE ADJUDICATING OFFICER (“AO”):

1. The Noticee traded in the scrip of the Company during the two window closure periods, over four trading days. Owing to this fact, the Company had issued two warning letters dated 5th November 2009 and 4th February 2010 pertaining to the two window closure periods to Noticee.

2. On perusal of the Trade Integrated Order log of the Company, it was noted that the Noticee carried out 113 such trades comprising of 93 sell and 20 buy trades, spread over the four trading days.

3. The Noticee also carried out the said trades in the scrip of the Company without obtaining requisite pre-clearance for such trades. As per Cl. 4.3.1 of the COC of the Company r/w Cl. 3.3.1 of Model COC specified in PIT Regulations, 1992, Noticee, being a Director of the Company during the investigation period, was required to obtain pre-clearance for trading in the securities above a threshold of 5000 shares, which he failed to perform,

4. The AO observed that the material available on record does not quantify any disproportionate gains or unfair advantage, made by the Noticee and the losses, if any, suffered by the investors due to such violations on the part of the Noticee. However, it was noted that Noticees actions indicated the repetitive nature of violations committed in this regard.

DECISION OF THE AO:

Having concluded that the Noticees had violated Cl. 4.2.2 and 4.3.1 of COC of the Company r/w Cl. 3.2.2 & 3.3.1 of the Model COC specified in Part A of Schedule I to Regulation 12(1) & 12(2) of the PIT Regulations, 1992, r/w Regulation 12(2) of PIT Regulations, 2015, the AO imposed a penalty of 1 lakh on the Noticee.

COMMENTS: This is a decision that highlights that under the SEBI Act, there is no specification of the limitation period and nor is the concept of “laches” applicable to adjudication by SEBI. In this case, the period of investigation has been from January 2009 to March 2010, and the show-cause notice to the Noticee was issued only in December 2020. It is also noteworthy to mention that SEBI imposes a penalty for an offense of a regulation ten years after it has been superseded, merely under the strength that there was no sunset clause in the new regulation for either commencement or completion of the investigation or adjudication under the PIT, 1992.

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