Light Blue Arrow Right
Back to Publications & Events

SAT order in the matter of Piramal Enterprises

0 mins read


On May 15, SAT issued an order in the matter of Piramal Enterprises v. SEBI, whereby the penalty imposed by SEBI on Piramal Enterprises Limited (PEL) and its directors for inter alia violation of the SEBI (Prohibition of Insider Trading) Regulation 1992 (PIT Regulations) was set aside. The order has again clarified that mere communication of ‘unpublished price sensitive information’ (UPSI), without any subsequent trades, would not amount to an offence under the erstwhile PIT Regulations.

In the present matter on January 18, 2010, Abbott Laboratories Limited (ALL) had approached the chairman of PEL with an offer to acquire PEL’s domestic healthcare business (Proposal). On May 10, 2010, the Chairman of PEL (Chairman) informed all the board members about the Proposal and subsequently, in a meeting held on May 21, 2010, the board of PEL approved the Proposal. During an investigation, PEL informed SEBI that Anand Piramal, the son of the Chairman was privy to the Proposal. The AO in his order held that provisions of the PIT Regulations had been violated as i) UPSI was shared with Anand Piramal who was neither a board member nor did he hold any position in PEL and ii) there was a failure to close the trading window at the appropriate time.

SAT observed that as Anand Piramal was a promoter holding 2% equity in PEL he had to inter alia give undertakings related to non-compete provisions under the business transfer agreement between ALL and PEL. Therefore, there existed a need for Anand Piramal to be aware of the Proposal in advance. Further, he had not indulged in insider trading when he was in possession of the UPSI. SAT held that as information about the Proposal was shared with Anand Piramal only on a ‘need to know’ basis the penalty imposed under the PIT Regulations was not sustainable. It is to be noted that under the PIT Regulation 1992, mere communication of UPSI was not considered to be an offence unless subsequently trades were undertaken based on the UPSI. Presently, under the PIT Regulation 2015, communication of UPSI is considered to be an offence even if no trades are undertaken based on the UPSI.

Regarding the second charge, SAT was of the view that the onus of closing trading windows could not be placed only on the compliance officer (CO) in all circumstances. SAT held that for an important event such as sale of a division of the company the board of PEL was required to take a decision on the trigger of window closure and inform the CO about the same which they failed to do. However, SAT opined that it was only a technical violation and in the absence of any trade in the shares of PEL by designated employees during the relevant period, PEL ensured compliance in pith and substance of the PIT Regulations. In light of the above, SAT set aside the penalty imposed by the AO. This order has discouraged SEBI from adopting a mechanical method of imposing a penalty on defaulters and emphasised on implementing remedial measures as the first step in case of a breach of a rule.

This order may be used by appellants as a precedent to set aside penalties imposed by SEBI for violation of securities law which may not have harmed the interest to investors and securities market at large. Further, the order has clarified that the obligations related to trading window closure with respect to important events are a shared responsibility of the board and the CO of a company.