Cases disclose penalties for common business practices

The Securities and Exchange Board of India (SEBI) has levied penalties in two recent cases concerning common business practices. In both cases the penalties could have been avoided had the (inadverdent) acquirer/pledgor been aware of the requirements of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (takeover code), and the SEBI (Prohibition of Insider Trading) Regulations, 1992. However, even seasoned practitioners at times can overlook the finer nuances of the compliance requirements.

Invocation of pledged shares

In a recent order, the adjudicating officer (AO) levied a penalty of ₹1 million (US$16,600) on the promoter shareholders/pledgors (noticees) for delay in making disclosures relating to a change in their shareholding as required by the takeover code and the insider trading regulations. The change in the noticees’ shareholding was as a result of invocation of pledge by the pledgee.

The AO did not accept the noticees’ argument that the pledgee invoked the pledged shares without any intimation to the pledgor.

Suhail Nathani is a partner and Yogesh Chande is an associate partner at Economic Laws Practice. This article is intended for informational purposes and does not constitute a legal opinion or advice.