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Authored by Aishwarya Lakshmi VM

Applicant: Raghav Commercial Ltd. Date of the guidance:  04.06.2020

Factual Background

1. HEG Ltd. [Company] has its equity shares listed in BSE and NSE. There are around 23 promoters, comprising of both individuals and non-individuals, in the company.

2. Certain Non-individual Promoters of the Applicant intend to carry out inter-se transfer of shares not exceeding 5%, by block deal mechanism, among the Promoter / Promoter Group.

Guidance sought

1. Whether the contra-trade restrictions under PIT Regulation applies to each Promoter(s), or whether the entire Promoter Group is considered for this provision?

2. Whether the proposed transaction will attract trading window restrictions under PIT Regulation?

3. Whether exemptions for obligation to make Open Offer under the SAST Regulations are required for the proposed transaction?

Provisions Involved

1. Proviso (ii) to Regulation 4(1) of SEBI (Prohibition of Insider Trading) Regulations, 2015.[1]

2. Regulation 9 (1) of SEBI (Prohibition of Insider Trading) Regulations, 2015.[2]

3. Clause 3, Schedule B, SEBI (Prohibition of Insider Trading) Regulations, 2015.[3]

4. Regulation 3(2) of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011.[4]

5. Regulation 10 of SEBI (Substantial Acquisition of Shares and Takeover) Regulations, 2011.[5]

Informal Guidance by SEBI

a. SEBI clarified that contra-trade restrictions, that is required to be specified in the code of conduct under Reg. 9(1) of PIT Regulations, apply only to trades made by promoters individually and not the entire promoter group.

b. SEBI confirmed that when the parties to the block deal trade without being in breach of Reg. 3 of PIT Regulations, and made a conscious and informed decision, the transaction will not attract trading window restriction, but would be subject to clearance by the compliance officer.

c. The proposed transaction, as intimated by the Applicant, wasn’t to exceed 5% of the gross acquisitions. Hence, SEBI clarified that there would be no necessity to make an open offer. However, SEBI brought to the attention of the Applicants that while construing the limits of 5%, all the acquisitions by the concerned parties in the financial year must be taken into account.

The letter of SEBI can be read at:

As per the Informal Guidance [Scheme] 2003 of SEBI, the guidance provided is applicable only to the Applicant, and is should not be construed as a conclusive decision or determination of any question of law or fact by SEBI, and is also not an Order u/S 15T of SEBI Act, 1992.

[1] Proviso (ii) to Reg 4(1)(ii), PIT Regulations: The provisos to Reg. 4(1), specify certain instances that an `Insider’ may demonstrate to prove his innocence, even if he had traded while in possession of UPSI, and proviso (ii) gives one such instance. It reads as “The transaction was carried out through the block deal window mechanism between persons who were in possession of the unpublished price sensitive information without being in breach of regulation 3 and both parties had made a conscious and informed trade decision; Provided that such unpublished price sensitive information was not obtained by either person under sub-regulation (3) of regulation 3 of these regulations.”

[2] Reg 9(1), PIT Regulations: The board of directors of every listed company and the board of directors or head(s) of the organization of every intermediary shall ensure that the chief executive officer or managing director shall formulate a code of conduct with their approval to regulate, monitor and report trading by its [designated persons and immediate relatives of designated persons] towards achieving compliance with these regulations, adopting the minimum standards set out in Schedule B [(in case of a listed company) and Schedule C (in case of an intermediary)] to these regulations, without diluting the provisions of these regulations In any manner.

[3] Clause 3, Schedule B, PIT Regulations: Designated Persons and immediate relatives of designated persons in the organization shall be governed by an internal code of conduct governing dealing in securities.

[4] Reg 3(2), SAST Regulations: No acquirer, who together with persons acting in concert with him, has acquired and holds in accordance with these regulations shares or voting rights in a target  company  entitling  them  to  exercise  twenty-five  per  cent  or  more  of  the  voting rights  in  the  target  company  but  less  than  the  maximum  permissible  on public shareholding,  shall  acquire  within  any  financial  year  additional  shares  or  voting rights in such target company  entitling them to exercise more than five per cent of the voting rights, unless the acquirer makes a public announcement of an open offer  for  acquiring  shares  of  such  target  company  in  accordance  with  these regulations.

[5] Reg. 10, SAST Regulations: The following acquisitions shall be exempt from the obligation to make an open offer under regulation 3 and regulation 4 subject to fulfillment of the conditions stipulated therefor acquisition pursuant to inter se transfer of shares amongst qualifying persons, being (ii) persons named as promoters in the shareholding pattern filed by the target company in terms of the listing regulations or as the case may be, the listing agreement or these regulations for not less than three years prior to the proposed acquisition.

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