SEBI INFORMAL GUIDANCE- PURCHASE AND SALE OF SHARES INTER SE INSIDERS DURING CLOSURE OF TRADING WINDOW – Eshwars
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SEBI INFORMAL GUIDANCE- PURCHASE AND SALE OF SHARES INTER SE INSIDERS DURING CLOSURE OF TRADING WINDOW

Authored by Praveen Pandian

Applicant: KCP Limited.

Date of the Guidance: 08.02.2021.

Factual Background:

1. KCP Limited (hereinafter referred to as Applicant) is a Public Limited Company, whose equity shares are listed on National Stock Exchange and permitted to trade on BSE Ltd.

2. Jeypore Sugar Co Limited (hereinafter referred to as JSCL) (now in liquidation) was managed by the relatives of the promoters of the Applicant and were classified as belonging to the Promoter Group. JSCL has 2,78,370 (0.22%) equity shares in the Applicant Company as investment

3. JSCL went into liquidation and the Official Liquidator of JSCL in the process of realising the investments has made a proposal for sale of shares of the applicant held by JSCL and Dr. V. L. Indira Dutt, Promoter and Chairperson-cum-Managing Director (hereinafter CMD) of the Applicant Company, has agreed to purchase the shares at market price.

4. KCPL has closed the trading window from 1st January 2021 till 48 hours on declaration of financial result for the quarter ended 31st December 2020.

Guidance sought:

1. Whether the CMD of the Applicant company can acquire 2,78,370 shares from the Liquidator of JSCL at market price, during the closure of trading window as off-market sale, as JSCL is also a promoter group of the Applicant and both are considered as insiders and both of them have confirmed that there is no material information about the company and that they are making a conscious and informed trade decision.

2. Whether the compliance officer can give clearance for sale of shares during the closing period of trading window?

3. What are the other declarations/confirmations required to be obtained from the Liquidator of JSCL and promoter & CMD of the Applicant company for the sale?

Provisions Involved:

Regulation 4(1)[i] read with Clause 4(3) of Schedule B[ii] of the SEBI (Prohibition of Insider Trading) Regulations, 2015(hereinafter referred to as ‘PIT Regulations’)

Informal Guidance by SEBI:

1. Since the promoter CMD and the promoter company are ‘insiders’ in terms of Regulation 2 (1) (g) of PIT Regulations, SEBI expressed that the transaction will be construed to be an inter-se insiders (indicating no information asymmetry) and come within Regulation 4 (1) (i) of PIT Regulations so long as there is no breach of Regulation 3 of PIT Regulations.

2. Hence, it was expressed by SEBI that the promoter CMD may buy/acquire equity shares of the Applicant company from the Liquidator of JSCL subject to pre-clearance by the Applicant ‘s compliance officer under Regulation 4(1) r/w Clause 4(3) of Schedule B and Regulation 3 of the PIT Regulations.

3. With regard to the third query, SEBI while reiterating, that the compliance officer has the power to give pre-clearance for a transaction covered In Cluse 4(1)(i) of PIT, advised that compliance officer may seek declarations/confirmations that the proposed transaction is in compliance with the provisions of the Insolvency and Bankruptcy Code, 2016.

The letter of SEBI can be read at: https://www.sebi.gov.in/enforcement/informal-guidance/feb-2021/in-the-matter-of-kcp-ltd-under-sebi-prohibition-of-insider-trading-regulations-2015_49050.html

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.

[i] Regulation 4(1),SEBI(Prohibition of insider trading) Regulation:

4 (1) No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information:

Provided that the insider may prove his innocence by demonstrating the circumstances including the following:

(i) the transaction is an off-market inter-se transfer between insiders who were in possession of the same unpublished price sensitive information without being in breach of regulation 3 and both parties had made a conscious and informed trade decision.

Provided further that such off-market trades shall be reported by the insiders to the company within two working days. Every company shall notify the particulars of such trades to the stock exchange on which the securities are listed within two trading days from receipt of the disclosure or from becoming aware of such information.

[ii] Clause 4(3) of Schedule B of the SEBI (Prohibition of insider trading) Regulations, 2015:

The trading window restrictions mentioned in sub-clause (1) shall not apply in respect of –

(a) transactions specified in clauses (i) to (iv) and (vi) of the proviso to sub-regulation (1) of regulation 4 and in respect of a pledge of shares for a bona fide purpose such as raising of funds, subject to pre-clearance by the compliance officer and compliance with the respective regulations made by the Board.

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