While the Securities and Exchange Board of India (Sebi) awaits Hindustan Levers reply on the issue of insider trading, there are certain grey areas which remain unanswered regarding the issue of considering a company as an `insider.
Sebi officials are tightlipped about the issue. However, the SEBI (Insider Trading), Regulations, 1992 define an insider in the following manner:
Insider means any person who, is or was connected with the company or is deemed to have been connected with the company and is reasonably expected to have access, by virtue of such connection, to unpublished price sensitive information in respect of securities of the company, or who has received or has had access to such unpublished price sensitive information.
The definition does not say that a `company can be termed as an insider. However, the vital link of the company to the definition of an insider has been provided by the definition of `person. The definition extends to a company under the same management, or any subsidiary company thereof within the meaning of sub-section (1B) of section 370, or sub-section (11) or section 372 of the Companies Act, 1956 (1 of 1956), of sub-clause (g) of section 2 of the Monopolies and Restrictive Trade Practice Act, 1969 (54 of 1969), as the case may be.
The Regulation also empowers Sebi to issue directions to the insider as it deems fit on receipt of explanation to protect the interest of investors and in the interest of the securities market. The regulations provide Sebi the option of directing the insider not to deal in securities in any particular manner, prohibiting the insider from disposing of any of the securities acquiried in violation of these regulations, and restraining the insider to communicate or counsel any person to deal in securities.
Reactions to the Sebi move against the Unilever subsidiary has been mixed. While some say that the intent of the acquisition of shares by HLL may not have been to make profits, some feel that there was no need to purchase these shares when the merger was anyway bound to happen.
Most of the observers declined to come on record on this issue.
Justice P N Bhagwati, when contacted in New Delhi, held that that it is possible to term a company as an insider depending on circumstances. This is provided if the unpublished information has been used to make investments that have appreciated in value close to the announcement of the merger. He declined to comment specifically about the HLL case.
However, experts are reserving their opinion for more information about deals struck by HLL.
The intent of the deal with UTI will be clear only when the explanation is submitted to Sebi, said a leading investment banker.
Sebi will fix a date for the hearing to HLL after they submit their explanation within a fortnight. Sources say a personal hearing could take place on the issue with the Sebi chairman D R Mehta.
Some have expressed surprise at the Sebi action. There has been no case that we have heard of a company being accused of insider trading. It is also important to check out if anyone has suffered because of the HLL move. UTI has given a clean chit, there are no investor complaints or a proper complaint by any aggrieved party. The intent of the transaction also needs to be taken into accont, said another market observer.
