Market regulator Securities and Exchange Board of India (SEBI) has imposed fines totalling Rs40 lakh on six, including Brightcom Group Ltd (BGL) and its promoters, for failing to follow regulatory norms on insider trading.
The regulator slapped a fine of Rs12 lakh on Geetha Kancharla, Rs6 lakh each on Vijay Kumar Kancharla, Hindu undivided family (HUF), Vijay Kumar Kancharla karta of the HUF and M Suresh Kumar Reddy (promoter and chairman and managing director -CMD) of the company and Rs5 lakh each on SV Rajyalaxmi Reddy and Brightcom Group.
The market regulator investigated the company to ascertain a violation of provisions of the SEBI Act and SEBI (prohibition of insider trading-PIT) regulations by certain persons or entities while trading in the company scrip between 1 April 2020 to 13 August 2021.
During the examination, it was found that the Mr Kancharla (HUF), Mr Reddy, Ms Reddy and Ms Kancharla traded in the scrip from 1 April 2020 to 12 August 2021, for which necessary disclosures were required to be filed under regulation 7(2) (a) of PIT regulations. However, they failed to file the required disclosures. On multiple instances, the regulatory threshold of Rs10 lakh was breached in violation of regulation 7(2)(a) of PIT regulations for various calendar quarters during the same period.
Brightcom Group, while responding to an email from SEBI, stated that it did not receive any information from any of the five noticees about the disclosures.
All the noticees contended that they did not have any intention to hide nor did they hide any information from general investors, and neither they had any unfair gain or advantage nor any loss or harm caused to the investors. "The alleged non-disclosure is an inadvertent error, and there is no malafide intention behind it. The same is also established by the fact that pursuant to our sale on many occasions, the price of scrip shot up and had there been any malafide intention behind it, we would have sold the shares later or after the price has risen."
In the order, Amit Kapoor, adjudicating officer (AO) of SEBI, observed that the disclosures under regulation 7 (2) (a) of the PIT regulations are required to be given to the company within two trading days of such transaction and as per regulation 7 (2) (b) of the PIT regulations, the company is required to notify the particulars of such transaction(s) to the stock exchange(s) on which the securities are listed within two trading days of receipt of the disclosure.
Rejecting the contention of the five noticees, the AO clarified that the disclosures given under SEBI (listing obligations and disclosure requirements-LODR) regulations did not serve the requirements given under PIT regulations in so far as the timelines are concerned.
SEBI also found that Brightcom Group did not have in place a proper and comprehensive code of conduct. For example, the code of conduct formulated by the company did not specify who are the designated persons, trading restriction periods, trading window, pre-clearance of trades, contra trades and reporting to the stock exchange.
At the same time, the five noticees contended that they carried out the trades as per the code of conduct policy formulated by the company.
Mr Kapoor, the AO of SEBI, says, "I note from records that pursuant to the contra trades, Mr Reddy and Ms Kancharla made profits of Rs72,000 and Rs7.59 lakh, respectively. With respect to the repetitive nature of the default, I note that an interim order has been passed by SEBI against Mr Kancharla, karta of HUF, Mr Reddy and Brightcom Group. I note that adjudication proceedings were initiated by SEBI against Mr Reddy and Ms Reddy and orders levying monetary penalty were passed by SEBI in the past."
In April 2023, while exposing manipulative accounting adopted by Brightcom Group and its promoters and directors, SEBI, in an interim order, barred the company's CMD, whole-time director and promoter Mr Kancharla, independent director and group chief financial officer (CFO) Yerradoddi Ramesh Reddy and CFO Y Srinivasa Rao, from offloading or disposing of their shareholding in the company.
In a hard-hitting order, Ashwani Bhatia, a whole-time member (WTM) of SEBI, says, "The scale of fraud is indeed large. The noticees attempted to camouflage accounting entries in excess of Rs1,280 crore during FY18-19 and FY19-20 to give a distorted picture of the company's financial position. By all yardsticks, the accounting shenanigans and dubious accounting practices, which the noticees resorted to, were to mislead investors."
"The fact that the promoters gave themselves preferential allotment of shares which led to them increasing their shareholding from 3.51% to over 18.47% after the start of the SEBI investigation speaks volumes of their intent to mislead and their brazen approach towards self-enrichment. Further, considering that the scrip of BGL is currently trading at around Rs16.23 (closing price at BSE on 12 April 2023), there is a real risk that the promoters may offload their shares and exit the company. It is thus imperative that the promoters be restrained or prohibited from offloading/ disposing of their shareholding in the company having regard to their conduct in these proceedings," SEBI says in the order. (Read: SEBI Raps Brightcom Group, Promoter-Directors for Manipulating Account Books; Asks To Submit Statement of Impact of Non-compliances