Mr. Pawan Kumar Ruia And Others vs Sebi

violation of Regulation 12(1) read with Clause 1.2 under Part

A of Schedule I of the Securities and Exchange Board of

India (Prohibition of Insider Trading) Regulations, 1992

(referred to hereinafter as 'PIT Regulations') the present

appeal has been preferred.

2. The history of the case would show that a similar order

in this case passed by the same Adjudicating Officer was

challenged by the Respondent no.2 Falcon Tyres Limited

(referred to hereinafter as the 'Company') as well as the

present appellants vide Appeal No.131 of 2014. This 3

Tribunal vide order dated 11th July, 2016 remanded the

matter to the Respondent no.1 Securities and Exchange

Board of India (referred to hereinafter as 'SEBI') on the

ground that before passing the said impugned order the

Adjudicating Officer ought to have got the suspicion cleared

regarding the minutes of the Board meeting dated

16th December, 2008 by calling for the copy of the minutes

and also regarding two different statements regarding non-

existence of the trading window which are the bone of

contention.

3. It appears that the inspection as well as the

investigation prior to the issue of show cause notice showed

lacunas in the compliance matter of the Respondent no.2

Company. It was found that the Company had not set any

Code of Internal and Conduct and Code of Corporate

Disclosure Practices of the Company in accordance with the

PIT Regulations, 1992. It was also found that the time and

closing of the trading window system was also not provided

with. Therefore the show cause notice was issued.

4. From the record it appears that the Company from

time to time sought inspection of all the documents collected 4

by SEBI, while the inspection of the documents relevant to

the charge were given. However, Respondent no.2 Company

insisted on getting inspection of all documents.

5. From the record it appears that initially instead of

placing the Code of Internal Procedure and Conduct and

Code of Corporate Disclosure Practices the Respondent no.2

Company had contended that it had a Code of Conduct and

Ethics but the copy of the same was not made available to the

Respondent SEBI. As regards the trading window of the

Respondent no.2 SBEI initially took a stand that there was no

trading window system in the Company.

Later on however it came with a case that earlier it was

inadvertently submitted that the Code of Conduct and ethics

was made while in fact in the meeting dated 16th December,

2008 the Board had prepared a Code of Internal Procedure

and Code of Corporate Disclosure Practices. The copy of the

same was sent. As regarding the trading window the

Company latter on took the stand that the trading window

system was operative and none of the Directors/Employees

of the Company had traded.

5

6. The impugned order would show that pursuant to the

remand of the case opportunity of hearing was provided to

the Respondent no.2 Company as well as to the appellants.

However none of them appeared.

7. The Adjudicating Officer further found that this Code

in fact provided that all Officers and other designated

employees shall pass on price sensitive information directly

or indirectly etc. while the Model Code of Conduct

prescribed that all Officers and other designated employee

shall not pass on any such price sensitive information etc as

given in the Model Code of Conduct. It was further found

that though the appellants had made a statement that they had

placed a system of closure of trading window, the website of

Bombay Stock Exchange did not show the same. The

Adjudicating Officer however found that there are no

allegations against the Respondent no.2 or the appellants that

either they or any of the Officer or designated employee or

their relatives have traded in the securities of the Company

when the trading window should remain closed according to

rules. She also found that Respondent no.2 and appellants

had in fact complied with the provision of PIT Regulations, 6

1992 as well as the Takeover Regulations 1997 and 2011 and

no action in this regard or breach of regulations was noticed

at any point of time. However, finding that Respondent no.2

and appellants have taken a lackadaisical and uninvolved

stand as detailed above, maximum penalty of

Rs.1,00,00,000/- under Section 15HB of SEBI Act was

imposed.

8. Having heard both the sides, in our view it appears

from the impugned order that the Adjudicating Officer was

irked by the act of Respondent no.2 Company of repeatedly

taking stand of non-supply of documents which were not

relevant in the present matter. Further the manner in which

the appellants had conducted themselves in the case before

the Adjudicating Officer has also caused certain discomfort

to the Adjudicating Officer. The Adjudicating Officer

however should have noticed that no Company would form a

Code of Conduct which would grant permission to the

Director etc of passing on any price sensitive information

against the Model Code of Conduct and absence of the word

'no' in the copy of the Code was merely a clerical mistake.

As regard the closure of trading window, the Adjudicating 7

Officer herself had noticed that no breach of the rules

regarding closing of the trading window was found. In that

view of the matter, instead of acting in judicious manner, for

extraneous reasons as detailed above the Adjudicating

Officer unnecessarily imposed the maximum penalty, while

in our opinion no penalty was required to be imposed. For

the reasons stated aforesaid, the impugned order cannot be

sustained and is quashed. The appeal is allowed.

Accordingly the Misc. Application No.56 of 2018 is also

disposed of.

Sd/-

Justice Tarun Agarwala Presiding Officer

Sd/-

Dr. C. K. G. Nair Member

Sd/-

Justice M.T. Joshi Judicial Member

24.5.2019 Prepared and compared by RHN