Prannoy Roy and Radhika Roy, promoters of New Delhi Television Limited (NDTV) moved the Bombay High Court challenging the show-cause notice issued by the Securities and Exchange Board of India (SEBI) for alleged violation of insider trading regulations.
A Division Bench of Justices SC Dharmadhikari and RI Chagla heard a plea filed by Prannoy and Radhika Roy seeking the setting aside of the notice as well as a direction to SEBI to allow them to inspect all documents related to the notice.
The notice pertains to the proposed restructuring of NDTV into news-related businesses and investments beyond news businesses held through NDTV Network during the year 2008.
In this regard, SEBI had issued the notice on August 31, 2018 for alleged violation of Sections 12A(d) and 12A(e) of the SEBI Act read with the Prohibition of Insider Trading Regulations, 1992.
Section 12A of the SEBI Act deals with prohibition of manipulative and deceptive devices, insider trading, and substantial acquisition of securities or control.
Section 12A (d) prescribes that no person shall directly or indirectly engage in insider trading. Section 12A (e) of SEBI Act states:
“No person shall directly or indirectly deal in securities while in possession of material or non-public information or communicate such material or non-public information to any other person, in a manner which is in contravention of the provisions of this Act or the rules or the regulations made thereunder.”
In view of this, the SEBI had issued the notice alleging that the petitioners had traded in shares of NDTV while in possession of unpublished, price sensitive information related to the proposed restructuring.
Challenging the said notice, Prannoy and Radhika Roy have sought inspection of all documents, records, internal files and notings on the basis of which the notice was issued. It was claimed that the said proposal was eventually not implemented.
As per the plea, the SEBI show-cause notice is "ex facie erroneous, arbitrary, unreasonable and issued in gross abuse of power by SEBI and puts the petitioner to risk of detriment, jeopardy, prejudice and hardship."
It was submitted by the petitioners that in their capacity as promoters, they had sought and secured pre-trade clearances in terms of the ‘Code of Conduct for Prohibition of Insider Trading’ adopted by NDTV channel.
Moreover, it was submitted by the petitioners that the notice was issued after a lapse of ten years and that the relevant records are no longer available. Therefore, the notice would prejudice and jeopardize their right to defend irretrievably, claimed the Roys.
Advocate Fereshte Sethna, appearing for the Roys, submitted that the SEBI notice constitutes a "gross abuse of process" and that the allegations were "baseless and unfounded".
It was argued on behalf of the petitioners,
“No shred of evidence or documentation has been furnished to the petitioners to substantiate allegations levelled under the notice.”
Senior Counsel JJ Bhatt, appearing for SEBI, submitted that the market regulator has shown the required documents to the petitioners.
The Bench headed by Justice Dharmadhikari refused to grant immediate relief to NDTV and did not make any observation. The Court posted the matter for further hearing and orders on Monday, January 6 2020.
In September last year, granting relief to (NDTV), the Bombay High Court had allowed its petition seeking condonation of delay in filing a settlement application in the proceedings initiated by SEBI.
In doing so, the High Court had set aside orders of the SEBI under the Securities Contract (Regulation) Act, 1956, which had rejected NDTV’s applications for condonation of delay.
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