Directions in the matter of Bata India Limited
- Order No.WTM/MPB/ISD/149/2018
Ratio decidendi
The rule this decision rests on
Where unpublished quarterly financial results of a listed company circulate in a private messaging group before their official announcement, and the circulated figures match the announced figures while the results were finalised before the circulation began, leakage of that UPSI may be inferred prima facie from those facts even though its source cannot be identified. Such leakage constitutes a contravention of regulation 3(1) and (2) of the PIT Regulations and section 12A(e) of the SEBI Act, which prohibit communication and procurement of UPSI. Such prima facie leakage is attributable to the inadequacy of the processes, controls and systems the listed company has put in place, and it is incumbent on every listed company to maintain processes, controls and systems that ensure UPSI is not procured or communicated. In the interest of the securities market, and under sections 11 and 11B read with section 19 of the SEBI Act, the regulator may direct a listed company to strengthen its processes, systems and controls forthwith, to report on those measures and on the persons responsible for monitoring them and the periodicity of monitoring, and to conduct an internal inquiry into the leakage with a scope covering those with access to the information, reporting its outcome within a fixed period.
Written by Miss Lucy from the judgment below, not taken from a headnote.
Judgment
As delivered
1. In the recent past, certain articles have been published in newspapers / print media referring to the circulation of Unpublished Price Sensitive Information (“UPSI”) in various private WhatsApp groups about certain companies ahead of their official announcements to the respective Stock Exchanges.
2. In this backdrop, Securities and Exchange Board of India (“SEBI”) initiated a preliminary examination in the matter of circulation of UPSI through WhatsApp groups. During the course of preliminary examination, it was observed that in respect of company named Bata India Limited (“Bata India”), the messages circulated in WhatsApp matched with the quarterly financial results of the company for December 31, 2015, which were published subsequently. The following was, inter alia, noted in respect of messages relating to Bata India: The message in circulation in WhatsApp was with respect to quarterly financial results of Bata India for the quarter ended December 31, 2015, prior to the official announcement by Bata India. The actual results of Bata India were announced at Stock Exchanges on February 10, 2016 at 15:20 hours. As per information on record including the extracts of WhatsApp message, the message was in circulation since 12:28 hours on February 10, 2016. It was observed that the figures that were in circulation in WhatsApp about Bata India were matching with the actual announcements as can be seen in the following table: Particulars Whatsapp Post Actual Results Sales ` 617 crores ` 617.23 crores EBITDA ` 80 crores ` 79.83 crores PAT ` 44 crores ` 44.56 crores Date & Time 12:28 hours on 15:20 hours on February 10, February 10, 2016 2016 EBITDA- Earnings before Interests, Taxes, Depreciation and Amortization, PBT- Profit before Tax; PAT- Profit after Tax 3. In this context, information was sought from Bata India with regard to the aforesaid circulation of its quarterly results for the quarter ended December 31,
Directions in the matter of Bata India Limited
2015 in WhatsApp prior to its official announcement.
4. In response thereto, Bata India submitted that it has received confirmation from its employees as well as Auditors involved in the process of finalization of quarterly results relating to quarter ended December 2015 that they did not discuss the financial results for the quarter ended 31st December 2015 with any person outside the company prior to publication of the said results.
5. Bata India also provided the chronology of events relating to preparation and finalization of its financials relating to quarter ended December 2015. It was submitted that the preparation of financial results started from January 20, 2016. The financial results were formally disclosed on February 10, 2016.
6. It is noted from the information provided by Bata India that the work relating to preparation of financial results for the quarter ended December 2015 started on January 10, 2016 with preparation of quarterly results as per the Indian GAAP. Thereafter, there was internal review of results from January 21-25, 2016. Then the quarterly results were reviewed by Statutory Auditors and final confirmation for publication and presentation to Board during January 26-February 09, 2016. The final results were discussed with the Managing Director and presented before Audit Committee and Board for approval on February 10, 2016. Finally, the results were officially declared on February 10, 2016 at 15:20 hours (as per BSE website).
7. Thus, it prima facie appears that the financial results of Bata India for quarter ended December 2015 were finalized on or before February 9, 2016, which was before circulation of WhatsApp message on February 10, 2016.
8. It is observed that the financial figures pertaining to the quarterly results of Bata India were matching with the figures that were in circulation prior to its official announcement by Bata India. Such resemblance of the information circulated on WhatsApp with the actual financial results prima facie indicates that the financial figures of Bata India, were in circulation prior to official announcement/ publication by Bata India. The same could not have been possible without leakage of information from the person(s), who were privy to the information relating to financials prior to its official announcement.
9. In this context, it is noted that leakage of unpublished quarterly financial results (covered under the definition of UPSI under regulation 2(n) of PIT Regulations) which eventually led to circulation of messages through WhatsApp is prohibited and is in contravention of regulation 3(1) and (2) of SEBI (Prohibition of Insider Trading) Regulations 2015 (“PIT Regulations”) read with section 12A(e) of the Securities and Exchange Board of India Act, 1992 (“SEBI Act”) which prohibit procurement or communication of UPSI. The said provisions read as under:
Regulations 3(1) and (2) of PIT Regulations: 3. (1) No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. (2) No person shall procure from or cause the communication by any insider of unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.
Section 12A (e) of the SEBI Act
12A. No person shall directly or indirectly— … (e) deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder;
10. It is observed that at this stage, the source / origin of the leakage of UPSI cannot be ascertained. However, it can prima facie be inferred on the basis of the afore-discussed facts and circumstances that the UPSI relating to financials of Bata India was leaked. Such leakage is prima facie attributable to the inadequacy of the processes / controls / systems that Bata India as a listed company had put in place. While procurement or communication of UPSI by any person is identified as a violation of regulation 3 of PIT Regulations and section 12A(e) of the SEBI Act, it becomes incumbent upon every listed company to put in place processes/ controls/ systems that would ensure that such procurement or communication of UPSI does not take place.
11. In view of the foregoing, I, in exercise of powers conferred upon me under sections 11 and 11B of the SEBI Act read with section 19 thereof, in the interest of securities market, hereby direct as under: i) Bata India shall strengthen its processes/ systems/ controls forthwith to ensure that such instances of leakage of unpublished price sensitive information do not recur in future; ii) Bata India shall submit a report on The present systems and controls and how the present systems and controls have been strengthened. Who are the persons responsible for monitoring such systems. The periodicity of monitoring. The said report shall be submitted along with the inquiry report mentioned below. iii) Bata India shall conduct an internal inquiry into the leakage of unpublished price sensitive information relating to its financial results and take appropriate action against those responsible for the same, in accordance with law. The scope of such inquiry shall include and not be limited to determination of the possible role of following persons in relation to the aforesaid leakage of UPSI: a) Persons / members of committees involved in generation of the original data for the purpose of determination of key figures pertaining to financial figures. b) Persons involved in the consolidation of the figures for the financial results. c) Persons involved in the preparation of board notes and presentations. d) Persons involved in dissemination of information relating to financial results in the public domain. e) Any other persons who had access to the information. iv) The inquiry directed above shall be completed within a period of 3 months from the date of this order, and within 7 days from the completion thereof, Bata India shall file a report to SEBI in that regard.
Sd/- DATE: March 12th, 2018 MADHABI PURI BUCH PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA
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