BEFORE THE SECURITIES APPELLATE TRIBUNAL MUMBAI Date of Decision: 24.5.2019 Misc. Application No.56 of 2018 And Appeal No.59 of 2018

1. Mr. Pawan Kumar Ruia 5, Sunny Park, Ballygange, Kolkata 700019, West Bengal.

2. Mr. Sunil Bhansali Flat No.6, Shiv Shankar Apartment, V. Teynampet, Chennai 600086.

3. Mr. Subbarathnam Ravi 9A, Meghdoot Apartment, 12, Rowland Road, Kolkata – 700020.

4. Mr. Mahaveer Chand Bhansali No.893, 7th Main, Gokulam, 3rd Stage, Mysuru, Karnataka – 570002. ….. Appellants

Versus

1. Securities & Exchange Board of India SEBI Bhavan, C-4A, G Block, Bandra Kurla Complex, Bandra (E), Mumbai 400051.

2. Falcon Tyres Limited KRS Road, Metagalli, Mysore 570016. … Respondents

Mr. Yadunath Bhargavan, Advocate i/b. R. Bhargavan & Associates for the Appellants. Mr. Gaurav Joshi, Senior Advocate with Mr. Mihir Mody and Mr. Sushant Yadav, Advocate i/b. K. Ashar & Co. for the Respondent no.1. None for the Respondent no.2. CORAM: Justice Tarun Agarwala, Presiding Officer Dr. C.K.G. Nair, Member Justice M.T. Joshi, Judicial Member Per : Justice M.T. Joshi (Oral)

1. Aggrieved by the order of the Adjudicating Officer

dated 27th March, 2017 imposing penalty of Rs.1,00,00,000/- under Section 15HB of the Securities and Exchange Board of India Act, 1992 (referred to hereinafter as ‘SEBI Act’) for 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 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 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.

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, 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 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