Insider Trading in HAL: Fine of Rs. 20 Lakh Imposed

In a significant enforcement action, the Securities and Exchange Board of India (SEBI) recently adjudicated a case involving alleged insider trading by Mr. Rajat Mishra in the shares of Hindustan Aeronautics Limited (HAL). This article delves into the key aspects of the adjudication order, highlighting the facts, findings, and implications of this case.

Background of the Case

The case revolves around insider trading activities detected during SEBI’s investigation into trading patterns surrounding a crucial corporate event at HAL. On June 8, 2023, HAL announced a board meeting scheduled for June 27, 2023, to consider a stock split. This announcement led to a significant spike in HAL’s stock price, from Rs. 3,527.40 on June 8 to Rs. 3,732.9 on June 9, 2023.

The investigation revealed that the sensitive information (Unpublished Price Sensitive Information or UPSI) about the stock split was known internally at HAL from May 1, 2023. The UPSI period, therefore, spanned from May 1, 2023, to June 8, 2023.

Investigation Findings

SEBI’s investigation identified suspicious trading activities by Mr. Rajat Mishra during the UPSI period. On June 6, 2023, Mishra purchased 7,250 HAL shares, and subsequently, he sold 100 shares on June 7, 2023, during the UPSI period itself. The remaining 7,150 shares were sold from June 9, 2023, to June 20, 2023, resulting in a profit of Rs. 28.90 lakhs.

Despite several attempts by SEBI to gather more information and require Mr. Mishra’s cooperation, he consistently failed to provide the requested information or appear before the Investigating Authority (IA). His repeated non-compliance and evasive responses, including sharing irrelevant YouTube video links and making inappropriate comments, further obstructed the investigation process.

Legal Provisions and Violations

The violations by Mr. Mishra fall under the following sections of the SEBI Act, 1992:

Section 11C (2): Duty to preserve and produce records.

Section 11C (3): Requirement to furnish information or produce documents.

Section 11C (5): Examination on oath and appearance before the IA.

The investigation clearly established that Mr. Mishra violated these provisions by failing to furnish the requested information and not appearing before the IA, thus hampering the investigation process.

Adjudication and Penalties

Given the severity of the violations, SEBI’s adjudicating officer imposed a monetary penalty on Mr. Mishra. The penalties were calculated considering the nature of the violations, the need to deter similar conduct, and the lack of cooperation from the notice. The penalties imposed are as follows:

Under Section 15A(a) of SEBI Act, 1992: Rs. 10,00,000 for failure to furnish information.

Under Section 15HB of SEBI Act, 1992: Rs. 10,00,000 for non-compliance with the Act’s provisions.

Mr. Mishra is required to pay the total penalty of Rs. 20,00,000 within 45 days of receiving the order. Failure to comply will result in recovery proceedings under Section 28A of the SEBI Act, 1992.

Conclusion

This adjudication order underscores SEBI’s stringent stance on insider trading and non-compliance with regulatory investigations. It serves as a reminder to all market participants about the importance of adhering to securities laws and cooperating with regulatory authorities. The hefty penalties imposed on Mr. Rajat Mishra reflect the seriousness of his violations and SEBI’s commitment to maintaining market integrity.

Disclaimer: This post has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.