Appeal No. 107 of 2011. Case: 1. Hindustan Dorr Oliver Limited, 2. Shri Prabhakar Ram, Chairman, 3. Shri E. Sudhir Reddy, Vice Chairman, 4. Shri E. Sunil Reddy, Managing Director, 5. Shri S. C. Sekaran, Executive Director, 6. Shri R. Balarami Reddy, Non-Executive Director, 7. Shri K. H. K. Prasad, Independent Director, 8. Shri T. N. Chaturvedi, Independent Director, 9. Shri S. K. Tamotia, Independent Director, 10. Ms. Pragya Sahal Vs Securities and Exchange Board of India. Securities and Exchange Board of India
| Case Number | Appeal No. 107 of 2011 |
| Counsel | For Appellants: Mr. J. J. Bhatt, Senior Advocate with Mr. Neerav Merchant, Mr. Bharat Merchant, Advocates and For Respondents: Mr. Shiraz Rustomjee, Senior Advocate with Mr. Ajay Khaire, Advocate |
| Judges | N. K. Sodhi, Presiding Officer and P. K. Malhotra, S. S. N. Moorthy, Members |
| Issue | Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 - Regulation 12(1) |
| Judgement Date | October 19, 2011 |
| Court | Securities and Exchange Board of India |
Order:
P. K. Malhotra, Member, (At Mumbai)
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The short question that arises for our consideration in this appeal is whether the appellants have violated Clauses 1.2, 3.2(1) and 3.2(3)(d) of the Model Code of Conduct for prevention of insider trading for listed companies under Regulation 12(1) of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 (for short the Regulations).
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The appellants before us are a public limited company, its Chairman, Vice- Chairman, Managing Director, Directors and Compliance Officer. The company is listed on the National Stock Exchange and on the Bombay Stock Exchange. The company is into the business of contracting and executing engineering contracts. It receives orders for project execution in various fields and is said to have a dominant presence in the Pulp and Paper, Chemicals, Food and Pharmaceuticals, Breweries and Distilleries, Refineries and Petrochemical Sectors, Oil and Gas, Phosphatic Fertilizers, Industrial and Water Management Solution and manufacturing contracts like setting up of plants for the clients. The appellant company also offers service on lumpsum turn key basis to its clients.
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The Securities and Exchange Board of India (for short the Board) carried out investigations into the affairs of the company during the period from February 2, 2009 to March 25, 2009 and noted that the company had informed the stock exchanges on February 25, 2009 about its having been awarded an order for Uranium Ore Processing Plant from Uranium Corporation of India Limited worth ` 441 crores for their Greenfield Ore Mining and Processing facility in Andhra Pradesh. The company had also bagged another order worth ` 24 crores from HPCL -- Mittal Energy Limited for detailed engineering, shop and site fabrication, transportation and supply of Process Pressure Vessels and has informed the stock exchanges about the same on March 2, 2009. However, on both the occasions it is alleged that the company had failed to close the trading window, as required under Clauses 1.2, 3.2(1) and 3.2.(3)(d) of the model code of conduct, for prevention of insider trading for listed companies mandated under Regulation 12(1) of the Regulations. The Board issued separate but identical show cause notices dated January 24, 2011 to the company, its Chairman, Vice Chairman, Managing Director, Executive Director, four Independent Directors and Compliance Officer asking them to show cause as to why enquiry should not be held against them in terms of Rule 4 of the Securities and Exchange Board of India (Procedure for Holding Enquiry and Imposing Penalties by Adjudicating Officer) Regulations, 1995 and why penalty should not be imposed for the aforesaid violations. The noticees submitted their replies and denied the allegations levelled against them. It was submitted that the projects in question were undertaken by the company in the course of its normal business activity of setting up projects for third party which is the primary business of the company. The company, being an engineering contractor, sets up projects for other parties in the ordinary course of its business. The company is not involved in the expansion or execution of a new project for itself as contemplated by Clause 3.2(3)(d) of the model code of conduct and, therefore, it was not obliged to close the trading window. However, bagging of the project itself being price sensitive information...
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