Market regulator Securities and Exchange Board of India (SEBI) has banned Rajesh Bhatia and his wife Geeta Bhatia, both promoters of Tree House Education and Accessories (THEAL), from accessing the stock market for one year. SEBI also imposed a penalty of Rs28 lakh on the Bhatias for indulging in insider trading during the company's merger with Zee Learn (ZLL) in 2015.
In an order passed by SK Mohanty, whole-time member, SEBI says the Bhatias have been found to have traded and executed sale of 40 lakh shares of the company on 3 December 2015, just a day prior to the public announcement of the proposed merger of Zee Learn with the company.
“The information pertaining to the proposed merger was a price sensitive information and possessed by certain people connected with the company. Rajesh Bhatia has passed on the information to his wife (Geeta Bhatia) who herself being a director and connected person was an insider of the company.”
Bhatias have acknowledged to have discussed and decided jointly to sell 40 lakh shares on 3 December 2015.
Rajesh Bhatia and his wife Geeta were managing director and non-executive director, respectively, and were also promoters of the company. Both of them were part of the management of the company during the investigation period. Both of them were insiders. Geeta being the spouse of Rajesh Bhatia is also deemed to be a connected person as per regulation 2 (1) (d) (ii) (a) of the PIT Regulations. On 30 November 2015, a discussion on merger between THEAL and ZLL took place.
On 4 December 2015, before market hours, the company made a corporate announcement relating to merger between THEAL and ZLL. The price of the scrip of the company witnessed a rise from a closing price of Rs202.40 on 3 December 2015 to the closing price of Rs222.60 on 4 December 2015 i.e., an increase by 9.98% in one trading day.
In terms of regulation 2 (1) (n) of the PIT Regulations, prior to its disclosure to the stock exchanges on 4 December 2015, the aforesaid corporate announcement by the Company relating to consolidation or merger options with ZLL was an Unpublished Price Sensitive Information (UPSI).
Both had obtained pre-clearance (on 2 December 2015) of trades executed by them on 3 December 2015 and are therefore, alleged to have given incorrect declaration to the company regarding non-possession of UPSI for the purpose of obtaining pre-clearance and hence, are alleged to have acted in violation of Clause 6 of the Minimum Standards for Code of Conduct to Regulate, Monitor and Report Trading by Insiders as specified in Schedule B read with regulation 9(1) of the PIT Regulations.
In their common reply to the show cause notice, the Bhatias said “The present SCN has been issued with an inordinate delay of almost 4 years and is merely an afterthought. They claimed that the copy of Investigation Report was not furnished to them and it was denied despite a specific request made in this regard. In a weak defensive argument, they contended that the sale of 40 lakh shares of the company was altogether a different transaction unrelated to the merger talks for which appropriate disclosure on the stock exchanges was made. They further claimed that the said sale was made only with the purpose to repay the loan due to the banks.
They averred “Proposal of merger was mooted by Subhash Chandra Goel only after ZLL and Subhash Chandra Goel acquired about 9% stake in the Company. There was no UPSI in existence either on 2 December 2015 or 3 December 2015 when shares were sold under block deals”.
The Bhatias also tried to insinuate that the allegations are only based on remote possibilities and are not backed by any concrete document or evidence which support or even suggest any insider trading.
The market regulator noted that “indulgence in insider trading is considered a very serious charge inter alia for the reason that it creates an advantageous position to person who is an insider and is connected to a company so as to be aware of the true and correctness of information vis-a-vis others, who have no connection with the company and thereby are deprived of inside information. Knowing inside information creates opportunities to take advantage, as the person who is aware of such inside information cannot claim to be enjoying level playing field as far as the person not having connection with the company is concerned. Knowing more than anybody else about a company being an insider further creates opportunity to indulge in fraudulent activities”.
“The fact that Bhatias is not able to justify their indulgence in selling of shares of the company further leads to an irresistible conclusion that the same was done under the influence of unpublished price sensitive information,” the SEBI order said.
Hence, Bhatias are restrained from accessing the securities market and further prohibited from dealing in securities in any manner for one year, concluded the SEBI order.
