'Christie fiction': Biocon chief slams Sebi order on Allegro Capital

An order by stock market regulator Securities and Exchange Board of India (Sebi), punishing an employee of a Biocon-funded charitable foundation for insider trading, has raised the hackles of Biocon Chairperson Kiran Mazumdar-Shaw, who called the Sebi judgment an “Agatha Christie fiction” meant to damage the reputation of “innocent people”.

“The order is pure harassment and has caused huge reputational damage to us and goes against the principles of good governance promised by this government,” Mazumdar-Shaw told Business Standard. “The order reads like an Agatha Christie murder mystery and is a pure work of fiction,” Mazumdar-Shaw said.

In the order dated July 8, Sebi whole-time member Madhabi Puri Buch directed Allegro Capital and its owner Kunal Kashyap to disgorge over Rs 25 lakh, and imposed a penalty of Rs 10 lakh each, for dealing in the shares of Biocon while in possession of price-sensitive information. The regulator also imposed a ban of one year and said their existing holdings, including units of mutual funds, would remain frozen.

The case dates back to January 2018, when Biocon had announced an exclusive global collaboration with Sandoz on next-generation biosimilars. The company’s shares had shot up nearly 6 per cent following the announcement.

Allegro Capital and Kashyap are not part of the Biocon group, but Sebi has alleged the firm had a temporary business relationship with Biocon and Kashyap was in frequent communication with officers of the company. 

Kashyap also held the director’s position in Mazumdar Shaw Medical Foundation (MSMF), which funds research at Narayana Health, and Biocon officials used the broking outfit. 

Further, the Sebi order says Kashyap was allotted ESOPs by Biocon, which “shows that the company values his contribution and that there exists a professional relationship between them”. But Kashyap was allotted bonus shares and not ESOPs.

After the order was passed, Mazumdar-Shaw took to social media to criticise the judgment. 

“Sebi bars Allegro Capital, its CEO over insider trading in Biocon shares — crazy logic. What does MSMF have to do with Biocon? The officer concerned needs to explain her convoluted hypothesis.  Sebi needs to act rationally in insider trading judgments,” she said. “Mazumdar Shaw Medical Foundation is a part of Narayana Health — is this a related party? Come on, I think it’s irrational. It has zero link to Biocon ok?” Shaw replied to a comment on her tweets. Mazumdar-Shaw said there were several instances when Sebi alleged insider trading against some people but the orders were overturned. 

“Besides, will Sebi pay for reputational damage if these people win at the appellate tribunal?” she asked. Kashyap sold the shares to buy a house and that, too, when the trading window was open. Besides, he was not privy to any information, Mazumdar-Shaw said.

Sebi launched an investigation in Biocon shares between December 2017 and January 2018. Following the investigation, it issued show-cause notices to Kashyap and Allegro Capital in August 2020. Later, Kashyap and Allegro Capital requested Sebi to provide a set of documents, which they alleged was incomplete.

In their reply to Sebi, they said the notice had failed to establish that the officers of Biocon communicated any price-sensitive information to them. They further said the Sebi had made a “fundamental factual error” when it alleged that Kashyap was given ESOPs by Biocon. “In fact, the shares in question were pursuant to a bonus issue,” the reply said.

It further said the net cast by Sebi that a consultant engaged by a company will be aware of everything that the company is doing and therefore, can be classified as an insider, was very wide.

“… he (Kashyap) not only serves on the board of the charitable foundation of the Promoter of Biocon but also provides broking services to the promoter and the then CEO & Joint MD. It shows that Noticee No. 1 (Kashyap) is in frequent communication with key managerial personnel of Biocon outside his contractual relationship with Biocon and shows his proximity to the management of Biocon. The same makes Noticee No. 1 stand on a different footing as compared to other advisors, if any, contracted by Biocon,” Puri Buch said in the order, which details why the information pertaining to the Sandoz deal was price sensitive.

Last week, in a separate order, Sebi had passed strictures against Shreehas Tambe, senior vice-president of Biocon, and imposed a fine of Rs 2 lakh for dealing in shares of the company while being in possession of the Sandoz deal. Tambe  had sold his shares to settle his housing loan, and that, too, when the trading window was open. Besides, he was not privy to any information, she said. 

“I support good corporate governance and proper disclosures but this is taking things far,” Mazumdar-Shaw said.