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Vivek Law & Namrata Singh
Mumbai, Dec 3: Sebi has initiated criminal prosecution proceedings against Hindustan Lever Ltd (HLL) and five of its top former and current directors including chairman KB Dadiseth for alleged violation of insider-trading norms.
The prosecution complaint, the first of its kind, was filed before the additional chief metropolitan magistrate on November 23. The Sebi complaint is expected to come up for verification on February 20 next year.
The Financial Express had earlier reported that Sebi had received legal advice to go ahead with prosecution proceedings and was planning to do so shortly.
Apart from the company, Sebi has accused former chairman SM Datta, current chairman KB Dadiseth, former vice-chairman R Gopalakrishnan and directors A Lahiri and MK Sharma for having violated insider-trading laws when it sold eight lakh shares of Brooke Bond Lipton India Ltd (BBLIL) to the Unit Trust of India (UTI) prior to the merger of BBLIL with HLL in 1996. According to Sebi, the company and its directorsdid not disclose price-sensitive information about the impending merger to UTI at the time of selling the chunk of BBLIL shares and had hence violated insider-trading norms.
This is the first instance of Sebi initiating criminal prosecution against the violation of insider-trading norms. Sebi had, in its order of March 11 this year, held HLL and the five senior officials guilty of insider trading. Apart from ordering prosecution against the company and the officials it had also asked it to compensate UTI to the extent of Rs 3.04 crore which, according to the regulator, was the notional loss suffered by the Trust.
This order was struck down by the appellate authority on July 14. Sebi went in appeal to the Mumbai high court which stayed part of the appellate authority order on September 28 and admitted Sebi's petition.
In its complaint before the court, Sebi has described the act by HLL as a "serious offence" from the investors' point of view and has charged the accused for having violated the InsiderTrading Regulations, 1992, and the Sebi Act, 1992. Sebi has said that the accused are thus punishable under section 24(1) of the Sebi Act and can be tried under section 26 read with section 27 of the said Sebi Act, 1992.
It has urged the court to conduct a trial of the accused so that they may be dealt with in accordance with the law. "I pray that strict process may be issued against the accused," the Sebi complaint before the court states.
Sebi has contended that its complaint is within time. The regulator has said that it is in the interest of justice to extend the period of limitation if found necessary or if so required to entertain and try the complaint.
Sebi has contended that the Sebi Act provides that if any person contravenes or attempts to contravene the said Act, or any rules or regulations made thereunder, he shall be punishable inter alia with imprisonment for a term which may extend up to a year.
Section 26 of the Sebi Act provides for the courts to take cognizance of offences on acomplaint made by the board. Section 27 of the Act makes provisions in respect of offences committed under the Sebi Act, Sebi has contended in its complaint.
"Each of the accused knew of the amalgamation of HLL with BBLIL and were insiders within the meaning and definition contained in the said regulations. Each of the accused know of the prohibition, yet not knowingly committed the breach in respect of insider trading and violation of the Sebi Act and the said regulation," the complaint states. Sebi has contended that the accused, as directors of HLL which was to merge with BBLIL, were not permitted to buy shares of BBLIL and by doing so had contravened clause 3 (1) of the Sebi Regulation.
Sebi has said that the regulations provide that the board, after considering the investigation report, communicates the findings to the insider and gives an opportunity to the insider of being heard before any action is taken by the board. On receipt of the explanation the board may call upon the insider to take suchmeasures as the board may deem fit.
Clause 11 of the said regulations provides that on receipt of the explanation the board may, without prejudice to its right to initiate criminal prosecution under section 24 of the Sebi Act, give directions.
Section 26 of the Sebi Act provides that the court shall take cognizance of the offence punishable under the Sebi Act only on complaint by the board.
This process, according to Sebi, has been followed as the chairman who has the powers of the board received the full explanation from the accused at the time of the hearing and by final written submission dated November 7, 1997, which were perused by the chairman at the time of passing the said order.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
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