Last week the Securities Appellate Tribunal (SAT) set aside orders of SEBI in a part of the proceeding against the family of Tata Finance Limited’s (TFL) Managing Director, Dilip Pendse.
After reading the order, I had more questions than a final conclusion on what actually happened. Dilip Pendse was the managing director of TFL and came across price sensitive information in middle of March 2001. His wife Nalini Pendse and a company controlled by her sold 40,000 shares of TFL. It is not disputed that both are deemed to be insiders because of their relationship with Dilip Pendse. What is in dispute is when the shares were sold.
SEBI argued that the shares were sold in end of March 2001 when the insiders had access to privileged price sensitive information. Nalini Pendse and the associated company asserted that they sold the share in Sept of 2000 to a broker, who bought on its own account and sold them in Sept 2000 in a back to back transaction to a third party. The broker issued contract notes (though with a delay of a few days), and the evidence is available because the delay in issue of contract notes resulted in disciplinary action by the Bombay Stock Exchange against the broker and the contract notes therefore were not evidently back-dated. There appears other evidence too including a stamp of the exchange on the contract notes’ covering letter etc.
What makes the case curious is that the shares were delivered only in late March 2001 to the broker and the broker made the payment also in late March (when the parties were in possession of inside information). Leaving aside the issue of this being an illegal forward contract, this is a very unusual transaction because the broker claims to have in turn sold these shares to a third party. Did the broker sell them from its inventory, or was the sale to the third party a non genuine transaction? Questions which will perhaps remain unanswered.
It should also be mentioned that previous orders of SEBI against certain other entities in the same TFL insider trading case had been earlier upheld by SAT.
Sourcelivemint.com
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