Insider Trading: 4 Including TV Vision, Markand Adhikari, Company CFO Fined Rs51 Lakh
Moneylife Digital Team 03 April 2023
Market regulator Securities and Exchange Board of India has imposed a fine of Rs51 lakh on four for insider trading in the TV Vision Ltd (TVVL) scrip. Those fined by SEBI include TVVL, the company’s promoter-director Markand Adhikari, its chief financial officer (CFO) Anand Shroff and his wife, Rupal Shroff. 
In the order, Vijayant Kumar Verma, adjudicating officer (AO) of SEBI, says “ I note that there is no doubt that TVVL has failed to promptly disclose the unpublished price sensitive information (UPSI) and did not provide an explanation to stock exchanges for delaying the disclosure of information of downgrading of rating and, accordingly, I conclude that the company has violated Regulation 30(6) of SEBI (LODR) Regulations, 2015 and Clause 1 and 4 of Schedule A r/w Regulation 8(1) of SEBI (PIT) Regulations, 2015. Further, I conclude that Mr Adhikari being MD and director of TVVL has failed to ensure compliance with Regulation 4(2)(f) (8) of SEBI (LODR) Regulations, 2015 when he was well apprised of the company’s affair and as per submission of Mr Anand, he was hands-on in company’s affair and aware of company’s situation. Further, he cannot simply shrug off his responsibility to oversee the process of disclosure and communications made being the MD and the board of directors of the company by stating that he came to know about the downgrading of rating on 25 September 2017.”
National Stock Exchange (NSE) carried out an examination based on alerts generated concerning the trading activity in the scrip of TVVL from 1 September 2017 to 31 October 2017. It was observed that, on 27 September 2017, an announcement was made by TVVL about the credit rating downgrade of its long-term loan facilities from CARE BBB- (SO) to CARE D. Before the announcement, the price of the scrip was observed to have moved to a close price of Rs126.15 on 27 September 2017 from an open price of Rs159.70 on 1 September 2017. The scrip registered a price fall of 21.01% in 19 trading days.
Later, on 31 October 2017, TVVL fell to Rs41.20. It was observed that there was a delay of six days in TVVL intimating the exchanges about the rating downgrade from the time of receiving the communication from CARE Ratings Ltd. Since the downgraded credit rating had an impact on the price fluctuation of the scrip an investigation was launched into the buy and sell patterns of the scrip.
NSE observed that one Rashesh Purohit sold 61,000 shares on 5 September 2017 and on 18 September 2017 at an average price of Rs160.30 per share in the pre-announcement period,  avoiding a notional loss of Rs31.59 lakh. On these days, he also sold 29,000 shares in the pre-announcement period on the BSE  and avoided a notional loss of Rs16.13 lakh. The total loss avoided by Mr Purohit was Rs47.72 lakh. NSE observed that, before the negative announcement, he was holding 93,000 shares and had pledged 5 lakh shares. He sold almost 97% of his free holdings in the pre-announcement period to avoid losses and is still holding the pledged share.
The perusal of his bank statements revealed that Rs50 lakh was transferred from the account of Kaanchan Markand Adhikari, the wife of Markand, into the account of Mr Purohit. Further, Ms Shroff was also found trading in the scrip dubiously.
Since the trade was performed based on the unpublished price-sensitive information (UPSI) and prior information about the downgrading by CARE Ratings the investigation was further enhanced to cover Mr Adhikari and Mr Shroff as they were in possession of the UPSI. A show-cause notice was issued to them, along with other alleged entities.
In reply to the notice, Mr Adhikari contended that there was no UPSI post-21 September 2017 as the revision of rating was issued in the press release dated 21 September 2017 and such information was available in the public domain free of charge on a non-discriminatory basis at the website of CARE. Therefore, the trades undertaken as a response to such disseminated information on the website of CARE cannot be taken as traded based on UPSI.
He argued that the delay in publishing the information was because deceased Gautam Adhikari, another director of TVVL was ill during that period.
In the contention, Mr Shroff, the CFO denied the allegation of sharing UPSI with his wife. He argued that his wife is a financially independent professional individual with a doctorate degree and has been working with an educational institute for more than a decade. She takes the individual personal decisions, and hence, her intelligence in the execution of trades cannot be discounted merely because she is his wife, he says.
A similar contention was also made by Ms Shroff, who stressed on her professionalism.
SEBI, in response to the contention of Mr Adhikari, stated that the downgrading of rating by CARE did not happen in one day and the whole process of revision of the rating of TVVL started with the non-submission of NDS (non-default statement) by the company. CARE was continuously following up with the TVVL from 1st September to 19 September 2017. Thus, such contentions were not accepted.
“I conclude that the genesis of the correct UPSI period in the present matter started with the whole interaction of CARE with the company which started with non-submission of NDS, i.e., from 1 September 2017 pursuant to which CARE started following up with the company and then issued revised rating based on the due diligence conducted by it with the lender bank of the company and ends when CARE published the information on its website, i.e., 21 September 2017.” AO Verma says.
The trading pattern of Mr Purohit, the bank transactions, and the kinship of Mr Purohit and Mr Adhikari substantially confirmed insider trade. Moreover, Mr Adhikari was the personal guarantor to the loan taken by Density Global Trading Services Pvt Ltd and Vinil Trading Pvt Ltd which are companies owned and controlled by Mr Purohit and his wife Sonal, SEBI says.
The perusal of the trade patterns of Mr Shroff and his wife revealed that matching trades and choosing the same scrip on the same day between husband and wife leave no room for doubt about their communication with each other in respect of trading decisions taken by them and meeting of minds.
While Markand Adhikari is directed to remit a fine of Rs25 lakh, Mr Anand and Ms Anand were imposed a fine of Rs10 lakh each. TVVL is asked to pay a penalty of Rs6 lakh.
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