Sunday, 19 April 2015

STATE OF PUNJAB V/s SAURABH BAKSHI DECIDED ON 30.3.2015


India has a disreputable record of road accidents. Drunkenness contributes to careless driving leading to lose of innocent lives. Section 304A of the Indian Penal Code 1860 was inserted in 1870 by the Indian Penal Code (Amendment) Act 1870. The section pertains to causing death by negligence. The present case examines the fundamental purpose of imposition of sentence for causing death by negligence which is based on the principle that the accused must realize that the crime committed by him has not only created a dent in his life but also a concavity in the social fabric. The purpose of just punishment is designed so that the individuals in the society which ultimately constitute the collective do not suffer time and again for such crimes.

Facts

Jagdish Ram and his nephew (the victims) were proceeding to Patiala when an Indica car bearing registration No. HR-02-6800 came from the opposite side at a very high speed and the driver (the Accused/Respondent) of the said car hit straightaway the car of Jagdish and dragged it to a considerable distance as a result of which it fell in the ditches. Both the victims had sustained serious injuries. An FIR was filed against the Respondent, and a case under Section 279/304A of the IPC was registered against the Respondent for rash and negligent driving. The Respondent was convicted for the offences punishable under Section 304A Indian Penal Code and the trial court sentenced him to undergo rigorous imprisonment for a period of one year and pay a fine of Rs. 2000/-. The Respondent thereafter approached the High court vide revision petition against the conviction. The High Court upheld the conviction and reduced the sentence to the period already undergone on the basis that the Respondent had adequately compensated the victims. Hence, the present Appeal has been preferred by the State against the said order.

Issues

The court dealt with the concept of adequacy of quantum of sentence imposed by the High Court under Section 304A of the Indian Penal Code (Indian Penal Code) after maintaining the conviction of the Respondent.

Decision of the Court
·       The court while analyzing a catena of decisions opined that in the present case, the factum of rash and negligent driving has been established. The court further held that the Respondent has graduated himself to harbour the idea that he can escape from the substantive sentence by payment of compensation.
·    Neither the law nor the court that implements the law should ever get oblivious of the fact that in such accidents precious lives are lost or the victims who survive are crippled for life which, in a way, is worse than death. Young age cannot be a plea to be accepted in all circumstances.
·   Needless to say, the principle of sentencing recognizes the corrective measures but there are occasions when the deterrence is an imperative necessity depending upon the facts of the case.
·     The apex court held that the High Court has been swayed away by the passion of mercy in applying the principle that payment of compensation is a factor for reduction of sentence to 24 days. Such being in the realm of misplaced sympathy. 

The court while upholding the conviction reduced the one year sentence imposed by the trial court to a period of six months.

REFUND IS A REFUND AFTER ALL

VIKRAM CEMENT AND ORS V/s STATE OF MADHYA PRADESH DECIDED ON 17.3.2015


India has a well-developed tax structure with clearly demarcated authority between Central and State Governments and local bodies. The present case examines the validity of a notification issued by the State pertaining to reduction of taxes for a particular period for which the taxes had already been paid. Such a notification has been held to be unconstitutional and in contravention to Article 265 of the Constitution of India.

Facts

The Appellant Nos. 1 and 2 are the units of Grasim Industries Limited, which carries on the business of manufacturing and selling cement. It requires raw material in the form of coal, gypsum and bauxite. On the aforesaid raw materials, the Appellants had been paying entry tax for entry of these goods in the territory of the State of Madhya Pradesh. In the year 1997, the entry tax on the aforesaid items of raw materials payable under the Act was Coal at the rate of 2.5%, Gypsum at the rate of 2% and Bauxite at the rate of 10%. In the year 1999, a notification was issued by the Respondent which reduced the entry tax for the aforementioned items to 1% only for the period between 1.5.1997 to 30.09.1997. However, in the same Notification an explanation was also appended stating that the amount which is already paid by the dealer (at the higher rate) shall not be refunded. Since the notification was issued in 1999 and the Appellants had already paid the taxes at the higher rate during the aforementioned period (ie from 1.5.1997 to 30.09.1997), the Appellants demanded refund of the amount and challenged the validity of the notification before the High court. The petition was dismissed by the High court. Against the said order of the High Court, the Appellants have approached the Apex court.

Issue

The main issue for adjudication was whether the explanations to the Notification issued by the Respondent state in May 1999 were in violation of Article 14 and Article 265 of the Constitution thereby being unconstitutional.

Decision of the Court
·         The court opined that the Notification dated 5.7.1999, which states that the amount shall not be refunded in any case on the basis that dealer had filed the tax at a higher rate, results in invidious discrimination towards those who have paid the tax at a higher rate, like the Appellants, when compared with that category of the persons who were defaulters and have now been allowed to pay the tax at the rate of 1% for the relevant period.
·         Further, the court also held that such a notification is in clear violation of Article 14 of the Constitution as it separates the tax payers into two different groups even when they are identically situated. There is no nexus between such a classification and the objective sought to be achieved
·         The court concluded that there is no objective behind such an Explanation appended to the Notification dated 4.5.1999 which is sought to be achieved, except that the Government, after collecting the tax from those who had paid at a higher rate, did not intend to refund the same.
·         Lastly, such an explanation to the notification was held to be in violation of Article 265 of the Constitution which imposes a limitation on the taxing power of the State. Hence the explanations to the notification was held to be unconstitutional.

Conclusion

Hence, a reasonable inference can be drawn from the aforementioned decision that if the substantive provision of a statute provides for refund, the State ordinarily by a subordinate legislation could not have laid down that the tax paid even by mistake would not be refunded. If a tax has been paid in excess of the tax specified, save and except the cases involving the principle of 'unjust enrichment', excess tax realized must be refunded.

COGNIZANCE OF AN OFFENCE NOT TO BE AS A MATTER OF COURSE

MEHMOOD UI REHMAN AND ORS.  V/S KHAZIR MOHAMMAD TUNDA AND ORS. DECIDED ON 31.03.2015

Cognizance of an offence is taken by the Magistrate under Section 190 of The Code of Criminal Procedure, 1973 (hereinafter referred to as ' Code of Criminal Procedure '). The Magistrate is empowered to take cognizance of an offence under section 190(1)(a) of Code of Criminal Procedure upon receiving a complaint of facts which constitute such offence. under section 200 of Code of Criminal Procedure, the Magistrate, taking cognizance of an offence on a complaint, shall examine upon oath the complainant and the witnesses, if any, present and the substance of such examination should be reduced to writing and the same shall be signed by the complainant, the witnesses and the Magistrate. Under Section 202 of Code of Criminal Procedure, the Magistrate, if required, is empowered to either inquire into the case himself or direct an investigation to be made by a competent person "for the purpose of deciding whether or not there is sufficient ground for proceeding". 

If, after considering the statements recorded under section 200 of Code of Criminal Procedure and the result of the inquiry or investigation under section 202 of Code of Criminal Procedure, the Magistrate is of the opinion that there is no sufficient ground for proceeding, he should dismiss the complaint, after briefly recording the reasons for doing so. If, in the opinion of the Magistrate taking cognizance of an offence, there is sufficient ground for proceeding, the Magistrate has to issue process under section 204(1) of Code of Criminal Procedure for attendance of the accused.

Facts

An order was passed by the Judicial Magistrate First Class, Srinagar on 03.04.2007 on a complaint filed by the first Respondent. As alleged by the Appellants, the complaint filed by the first Respondent did not constitute an offence and hence they were not liable to be called by the Magistrate to defend the criminal proceedings. Thus, aggrieved, the Appellants filed a petition to quash the proceedings initiated by the Magistrate by order dated 03.04.2007. The High Court, by the impugned order, rejected the petition holding that the veracity of allegations made in the complaint filed by the first Respondent before the Magistrate "is a question of evidence and can be settled only when the evidence is adduced". The Appellants have thus approached the Apex Court in appeal.

Issues

The main issue for consideration was the scope of the opinion of the Magistrate while issuing process to the accused. In other words, how does a Magistrate, while taking cognizance of an offence on complaint, indicate his satisfaction regarding the ground for proceeding against the accused was the moot point of discussion.

Decision of the court

·         The court while replying upon a catena of decisions concluded that cognizance of an offence on complaint is taken for the purpose of issuing process to the accused. Since it is a process of taking judicial notice of certain facts which constitute an offence, there has to be application of mind as to whether the allegations in the complaint, when considered along with the statements recorded or the inquiry conducted thereon would constitute violation of law so as to call a person to appear before the criminal court. It is not a mechanical process or matter of course.

·         The scope of Section 190 of the Code of Criminal Procedure was also examined by the court. It was held that under Section 190(1)(b) of Code of Criminal Procedure, the Magistrate has the advantage of a police report and under section 190(1)(c) of Code of Criminal Procedure, he has the information or knowledge of commission of an offence. But under section 190(1)(a) of Code of Criminal Procedure, he has only a complaint before him. Therefore, if the complaint, on the face of it, does not disclose the commission of any offence, the Magistrate shall not take cognizance under section 190(1) (a) of Code of Criminal Procedure. The complaint is simply to be rejected.

·         There must be sufficient indication in the order passed by the Magistrate that he is satisfied that the allegations in the complaint constitute an offence and when considered along with the statements recorded and the result of inquiry or report of investigation under section 202 of Code of Criminal Procedure, if any, the accused is answerable before the criminal court, there is ground for proceeding against the accused under section 204 of Code of Criminal Procedure, by issuing process for appearance. Hence, a prima facie case must exist against the accused.

·         Application of mind is best demonstrated by disclosure of mind on the satisfaction. If there is no such indication in a case where the Magistrate proceeds under sections 190 and 204 of Code of Criminal Procedure, the High Court under section 482 of Code of Criminal Procedure is bound to invoke its inherent power in order to prevent abuse of the power of the criminal court
     
     Conclusion

Owing to the aforementioned reasoning given by the Apex Court, the order dated 03.04.2007 passed by the Judicial Magistrate First Class, Srinagar and the impugned order passed by the High Court was set aside and the matter was remitted back to the Magistrate for fresh consideration.

ANOTHER ONE UNDER RTI

SUBHASH  CHANDRA AGRAWAL &ORS  V/S OFFICE OF ATTORNEY GENERAL OF INDIA DECIDED ON 10.3.2015

In a move that might have far reaching consequences towards creating transparency and accountability in the legal system, the Delhi High Court has ruled that the office of the Attorney General will be covered under the ambit of the Right to Information Act, 2005 (RTI Act). The decision came in view of the writ petition filed by an RTI Activist, Mr. Subhash Chandra Agrawal, which was against the order passed by the full bench of Central Information Commission (CIC) wherein it had held that the office of Attorney General was not a public authority under the RTI Act.

Brief Facts

1. Mr. R.K Jain had filed an application on January 7, 2013 with the office of the Attorney General of India (herein after the “AGI” being the Respondent) seeking information under the RTI Act. The said application was returned stating that as per the decision of the CIC, the office of the AGI is not a “Public Authority”.

2. Mr. Subhash Chandra Agrawal (herein after the “Petitioner) had also filed an application on November 15, .2011 addressed to the CPIO office of the AGI seeking certain information under the RTI Act. The office declined to accept the application and informed the Petitioner, “There is no CPIO in AGI’s Office”.

3. The Petitioner then filed a complaint under Section 18 of the RTI Act and approached the CIC. The CIC vide order dated December 10, 2002 (the “Impugned Order) rejected the complaint filed by the Petitioner and decided against him. The CIC was of the view that the AGI was only a person and could not be considered as an “authority” and hence fell outside the scope of Section 2(h) of the RTI Act.

4. It was against the abovementioned order passed by the CIC that the Petitioner approached this Hon’ble Court.

5. It was contended by the Petitioner that the “office of the AGI is established by virtue of Article 76 of the Constitution of India and, therefore, AGI would be answerable to the people of India.” The petitioners also submitted, “The right to information is a fundamental right under Article 19(1) (a) of the Constitution of India and, therefore, the RTI Act must be interpreted in furtherance of the said fundamental right.

6. On the contrary, it was contended by the Respondent that , “the AGI does not have the necessary infrastructure to support the applicability of the RTI Act in as much as, the AGI is a single person office and, therefore, would have to act as a CPIO as well as the Appellate Authority. Since the same is not feasible, the AGI cannot be held as Public Authority.”
Issue for Consideration

The main issue for consideration was:-

1. Whether the office of Attorney General of India is a “Public Authority” within the meaning of section 2(h) of the Right to Information Act, 2005?

Decision of the Court

1. The High Court analyzed Article 76 of the Constitution that mandates for office of the Attorney General and also delved upon the conditions of services of the AGI under Article 309 of the Constitution that are also applicable to Law Officers ( the term law officer includes the AGI). Article 76 of the Constitution of India provides for the appointment of the Attorney General for India and reads as under:-

"76. Attorney-General for India.-(1) The President shall appoint a person who is qualified to be appointed a Judge of the Supreme Court to be Attorney-General for India.
(2) It shall be the duty of the Attorney-General to give advice to the Government of India upon such legal matters, and to perform such other duties of a legal character, as may from time to time be referred or assigned to him by the President, and to discharge the functions conferred on him by or under this Constitution or any other law for the time being in force.
(3) In the performance of his duties the Attorney-General shall have right of audience in all courts in the territory of India.
(4) The Attorney-General shall hold office during the pleasure of the President, and shall receive such remuneration as the President may determine."
2. The court rejected the contentions raised by the Respondent and held The expression “authority” would also include all persons or bodies that have been conferred a power to perform the functions entrusted to them. Merely because the bulk of the duties of the AGI are advisory, the same would not render the office of the AGI any less authoritative than other constitutional functionaries. There are various bodies, which are entrusted with ‘staff functions’ (i.e. which are advisory in nature) as distinct from ‘line functions’. The expression “authority” as used in Section 2(h) cannot be read as a term to exclude bodies or entities which are, essentially, performing advisory functions.”
3. The court also stated that, “The expression ‘authority’ as used in Section 2(h) of the Act would encompass any office that is conferred with any statutory or constitutional power. The office of the AGI is an office established under the Constitution of India; the incumbent appointed to that office discharges functions as provided under the Constitution. Article 76(2) of the Constitution expressly provides that the AGI would perform the duties of a legal character and also discharge the functions conferred on him under the Constitution or any other law in force. Indisputably, the appointee to that office is, by virtue the constitution, vested with the authority to discharge those functions.”
4. The court further negated the reference to the meaning of the term “authority” under Article 12 of the Constitution of India and negated the reliance placed by the Respondent on certain cases by observing, “The decisions of the court rendered in the cases cited are under Article 12 of the Constitution of India and it may not be apposite to apply them for interpreting Section 2(h) of the RTI Act.”
5. However, the court didn’t focus on the issue of the disclosure of the information if the same falls under the ambit of the exceptions listed in Section 8 of the RTI Act.

Important amendments:Rules to Companies Act, 2013.


A.   Clarification with regard to section 185 and 186 of the Companies Act 2013 (loans and advances to employees)

General Circular No. 04/2015 dated March 10, 2015

It has been clarified that loans and/or advances made by the companies to their employees, other than the managing or whole time directors (which is governed by section 185 of the Companies Act, 2013) are not to be governed by the requirements of section 186 of the Companies Act, 2013. Hence, companies can provide loans and advances to employees without restrictions and procedural requirements mandated under section 186 of the Companies Act, 2013, if they are doing this in accordance with the conditions of service applicable to such employees and the remuneration policy, if any.


B.   Companies (Meetings of Board) Amendment Rules, 2015

F. No. 1/32/2013-CL-V-Part

March 18, 2015

Section 179 (3) of the Companies Act, 2013 specifies that ‘The Board of Directors of a company shall exercise the specified powers on behalf of the company by means of resolutions passed at meetings of the Board’.

Rule 8 of the Companies (Meetings of Board) Rules, 2014 specifies heads which were required to be passed only by way of a resolution at the Board Meeting, which has now undergone an amendment by way of Companies (Meetings of Board) Amendment Rules, 2015. This amendment has excluded the following items from the list: -

i)             Rule 8 (3) to take note of appointment(s) or removal(s) of one level below the Key Managerial Personnel – The specific post to which this refers is not clear but it seems to indicate to any person who holds a post which in hierarchy falls just below the Key Managerial Personnel.

ii)       Rule 8 (5) to take note of the disclosures of the director's interest and shareholding.

iii)            Rule 8 (6) to buy, sell investments held by the company (other than trade investments) constituting 5 % or more of the paid up share capital and free reserves of the investee company – All investments constituting any percentage of the paid up share capital can now be bought or sold without passing a resolution in the board meeting.

iv)             Rule 8 (7) for inviting or accepting or renewing public deposits and related matters.

v)          Rule 8 (8) for reviewing or changing the terms and conditions of public deposits.

vi)    Rule 8 (9) for approving quarterly, half yearly and annual financial statements or financial results as the case may be – This has been taken out of the purview of being passed by a resolution and has an express bar in Rule 4 (1) (i) of the Companies (Meetings of Board) Rules, 2014 to not to be passed by video conferencing either.

Hence, according to section 117 read with Rule 24 of the Companies (Management and Administration) Rules, 2014, every resolution passed in terms of section 179 (3) of the Companies Act, 2013 is required to be filed to the Registrar of Companies in Form MGT – 14. Now, there would be no requirement of filing Form MGT-14 in respect of the above 6 heads.

C.   Companies (Share Capital and Debentures) Amendment Rules, 2015

F. No. 1/4/2013-CL-V(Pt I)

March 18, 2015

Several changes have been made to the Companies (Share Capital and Debentures) Rules, 2014 as: -

i)                 Rule 3 wherein the provisions of this rule are to apply to a listed company only to the extent that they do not contradict or conflict with any other provisions framed in this regard by SEBI– This is though obvious but has been still clarified.

ii)       In Rule 5 (3) (b) the first proviso stating ‘Provided that, in companies wherein a Company Secretary is required to be appointed under the provisions of the Act, he shall deemed to be authorised for the purpose of this rule’ has been omitted. This is to remove confusion as to whether a company secretary will be an authorised signatory in companies which are not compulsorily required to have a company secretary.

iii)      In Rule 6 (2) (c), a listed company can now issue duplicate share certificates within 45 days from the date of submission of complete documents instead of the previous 15 days timeline.

iv)          In Rule 12 (1) explanation (c) the words ‘or of an associate company’ have been omitted, hence, the provisions related to ESOPS shall not apply in case of an employee of an associate company.

v)            In Rule 13 (1) another proviso has been added stating that, ‘Provided that in case of any preferential offer made by a company to one or more existing members only, the provisions of Rule 14 (3) (1) of Companies (Prospectus and Allotment of Securities) Rules, 2014 shall not apply’. This clarification removes the flaw in the earlier provisions wherein a private placement procedure was required to do even in case of a preferential allotment.

vi)          In Rule 18 (1) (d) (i), any specific movable property of the company which may even be in the nature of pledge, can be used to create a security for the debentures by way of charge or mortgage in favour of the debenture trustee. In case of a Non Banking Financial Company (NBFC), a charge or mortgage may be created on a moveable property.

vii)         Two proviso's have been added after Rule 18 (1) (d) (ii) to state that: -

a.  In case of issue of debentures by a government company which are fully secured by the guarantee given by the Central Government or one or more State Governments or by both, the requirement of creating a charge under this rule would not apply.

b.  in case of a loan taken by a subsidiary company from any bank or financial institution only, the charge or mortgage may be created on the property of the holding company.

viii)       In Rule 18 (5), the trust deed to be executed by the company issuing debentures in favour of the debenture trustees can now be executed within three months of closure of the issue or offer instead of the previous timeline of 60 days from allotment of debentures.

ix)          After Rule 18 (8), two new sub-rules have been inserted stating that: -

a.  Nothing stated in this rule would apply to any amount received by a company against the issue of commercial paper or any other similar instrument which is issued under the guidelines/regulations/notifications issued by the Reserve Bank of India (RBI).

b.  These rules would also not apply to the offering of a foreign currency convertible bond issued in accordance to the Foreign Currency Convertible Bonds and Ordinary Shares (through depository receipt) scheme, 1993 or its regulations etc. issued by RBI unless it is so stated in such scheme, regulations or directions.

      x)  In Rule 14, for Form SH-14, the Form SH-13 is to be substituted.

Securities and Exchange Board of India (Insider Trading) Regulations, 2015


Securities and Exchange Board of India (SEBI) formulated new regulations on the concept of insider trading to create a strong legal framework. These regulations named SEBI (Prohibition of Insider Trading) Regulations, 2015 (Regulations, 2015) were published on January 15, 2015 but are awaiting enforcement which is to begin 120 days after its publication in the official gazette i.e. May 15, 2015.

Insider Trading relates to unpublished price sensitive information (UPSI) i.e. information which is not generally available and has the potential to affect the price of a security, which is available to a ‘Connected Person’, who communicates, provides or allows access of it to any other person. This was and continues to be a prohibited act. The new regulations have just increased the ambit within which these were applied along with a few other changes. The SEBI (Prohibition of Insider Trading) Regulations, 2015 has tailored the framework in accordance to the emerging needs by following three different methods: -

A.   Increasing scope of Definitions: -

Definition
Regulations 1992 (Existing Regulation)
Regulation 2015 (New Regulation)
Connected Person
Regulation 2 (c) refers towards the position holders in a company like Directors, officers, employees etc. rather than applying practically as to the persons who possess UPSI. Also the act of procuring UPSI was not covered.
In regulation 2 (d) of the Regulations, 2015 the definition of a connected person has been simplified. A connected person now means to include any person who has a connection with the company wherein he possesses or accesses UPSI or allows procurement by any other person.
Section 2 (d) (ii) provides a list of persons deemed to be connected but who can establish the contrary including: -
   i.        immediate relatives,
  ii.        holding or associate or a subsidiary company,
iii.        intermediary or its employee or director,
 iv.        investment or trustee or asset management company including their employees and directors,
  v.        official of the exchange or clearing house or corporation,
 vi.        member of board of trustees of a mutual fund,
vii.        Board of Directors (BoD) or employee of a financial institute,
viii.        official or employee of a self regulatory organization which is recognized or authorized by the BoD,
ix.        a banker of the company,
  x.        firm/trust/HUF/company/association of persons where a director or his immediate relative or banker has more than 10 % of the holding of interest.
Relative
It was defined as per Section 6 of the Companies Act, 1956 and included the members of a HUF, spouses, and the list given in Schedule 1A therein
The new regulations  modified the word “relative” to “immediate relatives” and defines it in regulation 2 (f) as a spouse, parent, sibling, child of the connected person or the spouse, any of whom is either dependant financially on such person or consults such person in taking decisions relating to trading in securities.
Though this is a rebuttable presumption that the immediate relatives are also connected persons in lieu of their being covered by this definition.
Insider
In regulation 2 (e), the words used are quite ambiguous like persons reasonably expected to possess UPSI, persons deemed to be connected with the company, which was further explained in terms of the list of persons deemed to be connected as per section 2 (d) (ii) of Regulation 2015.
Regulation 2 (g) streamlines the previous definition and does away with the ambiguous words by simply stating that an Insider is any person who is: -
i.        a connected person or
ii.        in possession of or has access to a UPSI

So, even if a person does not hold a formal position with the company, he/she still can be covered under the definition of an Insider due to their having any type of an access to a UPSI.
UPSI
Defined in two parts, the first part is in regulation 2 (ha) where ‘price sensitive information’ is referred to as the information relating to the company which if published would materially affect the price of the securities of the company.
The second part containing the definition of ‘unpublished’ is in regulation 2 (k) as any information which is not published by the company or its agents and is not specific in nature.
Regulations, 2015 combined these two parts and define UPSI under regulation 2 (n) as any information relating to a company as well as to its securities that is not generally available (definition has been inserted in Regulation, 2015) which upon becoming so generally available be likely to materially affect the price of the securities.
Compliance Officer
In schedule 1, table A, 1.0, compliance officer has been defined as a senior level employee who reports to the Managing Director/CEO of the company.
Regulation 2 (c) defines a compliance officer as a senior officer, designated as a compliance officer who reports to the Board of Directors of a company or to the head of the organization.

B.   Other Changes: -
Particular
Regulations 1992
Regulation 2015
Change of the term ‘Dealing’ to ‘Trading’
The word used in regulation 2 (d) is dealing. This definition was specifically for any person either principal or agent.
The word used in regulation 2 (l) is trading, there has been no change in the definition except that the specification of ‘any person either principal or agent’ has been deleted.

C.   New Insertions: -
Particular
Regulations 1992
Regulation 2015
Definition of ‘Generally Available Information’
Did not exist.
Regulation 2 (e) defines generally available information as any information that is accessible to the public at a non-discriminatory basis.
Trading Plan
Did not exist.

Instead of this concept, there was another concept of trading window. The time period was specified as the trading period wherein the trading window was open which allowed the directors/officers/employees of a company to trade in securities but the window was kept closed before declaration of financial results, dividends, or issue of securities, any major expansion or amalgamation, merger, takeover, disposal of undertaking or changes in policies or plans of the company.

This time period was also left for being decided by the company.

These dealings in the open trading window had to be given a pre-clearance by the Compliance Officer as per the procedure given in Schedule 1, part A and part B, 3
As per regulation 5, an insider may trade in securities by formulating a single trading plan for the whole year and present it to the compliance officer for approval and public disclosure at least six months prior to commencing any trading which should not be at a period around the declaration of financial results.

The trading plan should set out either the value of trades to be effected or the number of securities to be traded along with the nature of the trade and the intervals at which such trade shall be effected.

The compliance officer can ask for any undertakings that he/she deems fit to save the purpose of this regulation.

Also, implementation of the trading plan will not be allowed to commence if any UPSI in possession of the insider at the time of formulation of the trading plan has not become generally available at the time of commencement of implementation.

The compliance officer after approving the trading plan shall notify it to the stock exchange.

The trading plan once approved will have to be compulsorily complied with, hence the insider cannot deviate, change or trade outside the scope of the trading plan.

Also, the above compliances of formulating and implementing the trading plan do not grant absolute immunity to the insider.
Unpublished Price Sensitive Information (UPSI)

Two new insertions have been made to its definition by including that ‘changes in key managerial personnel’ and ‘material events in accordance with the listing agreement’ are also within the scope of UPSI.

Frequently Asked Questions (FAQ’s)

Question 1 : Would a lawyer, advocate or law firm providing investment advice to its clients be considered an Investment Advisor under the SEBI (Investment Advisers) Regulations, 2013?

Answer: No, on a perusal of regulation 3 (application for grant of certificate of investment advisor) and regulation 4 (exemption from registration) of the SEBI (Investment Advisers) Regulations, 2013 it becomes clear that any advocate, solicitor or law firm, who provides investment advice to their clients, incidental to their legal practise will not be covered in the definition of an Investment Advisor.
Question 2 : What is the punishment for the contravention of Regulations, 2015?

Answer: Regulation 10 of the Regulations, 2015 provides that any contraventions of the regulations will be dealt by the Securities and Exchange Board of India (SEBI) in accordance to the SEBI Act, 1992.

The SEBI Act, 1992 under section 15G states that the penalty for insider trading shall not be less than Rs. 10 lakhs (ten lakh) but which may extend to Rs. 25 crore (twenty-five crore) or 3 (three) times the amount of profits made out of insider trading, whichever is higher.

In Addition to Penalty: In section 24 (1) of the SEBI Act, 1992 it is stated that, ‘without prejudice to any award of penalty by the adjudicating officer under this Act, if any person contravenes or attempts to contravene or abets the contravention of the provisions of this Act or of any rules or regulations made there under, he shall be punishable with imprisonment for a term which may extend to 10 (ten) years, or with fine, which may extend to Rs. 25 crore (twenty-five crore) or with both.’

If Penalty is Not Paid: In section 24 (2) it states, ‘if any person fails to pay the penalty imposed by the adjudicating officer or fails to comply with any of his directions or orders, he shall be punishable with imprisonment for a term which shall not be less than 1 (one) month but which may extend to 10 (ten) years, or with fine, which may extend to Rs. 25 crore (twenty-five crore) or with both.’

Compounding of Offence: Section 24A states that, ‘Notwithstanding anything contained in the Code of Criminal Procedure, 1973 (2 of 1974), any offence punishable under this Act, not being an offence punishable with imprisonment only, or with imprisonment and also with fine, may either before or after the institution of any proceeding, be compounded by a Securities Appellate Tribunal or a court before which such proceedings are pending.

Question 3 : What is the law laid down in Companies Act, 2013 for insider trading?

Answer: The Companies Act, 1956 was silent on this regard but Section 195 of the Companies Act, 2013 states that, ‘No person including any director or key managerial personnel of a company shall enter into insider trading’. The definitions of ‘Insider Trading’ and ‘Price Sensitive Information’ mean the same as are defined in the Regulation, 1992 and the Regulation, 2015.
The punishment laid down under the Companies Act, 2013 for contravention by any person is for imprisonment for a term which may extend to 5 (five) years or with fine from a minimum of Rs. 5 lakh (five lakh) up to Rs 25 crore (twenty-five crore) or three times the amount of profit made out of such insider trading, whichever is higher, or with both.

Question 4 : Which act/regulation/rules would be attracted on the non-efficiency or malafide actions of a Compliance Officer?

Answer: The Regulation, 2015 confer upon the compliance officer a wide range of powers and duties. The question is what if the compliance officer himself/herself is inefficient or does not do his/her duties in accordance to the regulations or what if he/she becomes an insider and start trading on the same lines?
The regulation regulating the conduct of a compliance officer is laid down under the SEBI (Procedure for Holding Inquiry and Imposing Penalties by Adjudicating Officer) Rules, 1995. The procedure laid down under these rules is: -

1.   SEBI conducts investigation under section 15-I of the SEBI Act, 1992 upon suspicion or complaint of misconduct of compliance officer.
2.   Based on the findings, SEBI appoints an Adjudicating Officer (AO).
3.   The AO issues a show cause notice to the compliance officer who is under investigation as to why such investigation should not take place.
4.   On the reply of the compliance officer, the AO decides the course of action. If the inquiry is held then the compliance officer is given an opportunity by way of personal presence to defend himself/herself.
5.   Thereafter, the AO considers the issues, evidence and findings of the inquiry.
6.   If the compliance officer is found guilty then the penalty levied is specified under section 15 HB of the SEBI Act, 1992[1]
7.   The copy of the final order is sent to the compliance officer and SEBI.
8.   An appeal from such order lies within 45 days of receiving such order to the Securities Appellant Tribunal as per section 15T of the SEBI Act, 1992.
9.   An appeal from the Securities Appellant Tribunal shall lie to the Supreme Court of India under section 15Z within 60 days of communication of such decision for resolving a question of law.

An example of such a proceeding being held for inquiring the actions of compliance officer was in the case of Satyam Computer Services Limited, wherein an order was passed in 2011, for Mr. G. Jayaram who was the compliance officer of the company, who was found guilty and was levied a fine of Rs. 5 lakh.  

Question 5: In the definition of ‘connected person’, aren’t the words ‘including by reason of frequent communication with its officers’ and ‘reasonably expected to allow such access’ too wide?

Answer: Yes, these terms may be defined as too wide to include almost anybody who has even the remotest link to an officer who is in possession of UPSI. The burden of proof is on such connected person to prove otherwise.

Question 6: What is the scope of regulations 3 and 4 of the Regulation, 2015. Is a procurer of UPSI included in the scope of regulation 4?

Answer: Regulation 3 (1) & (2) read together bar an insider to communicate, provide or allow access to any UPSI of any person including other insiders and also bars all other persons from procuring or causing communication of UPSI by any insider. Hence, it seeks to bar not only the insider but also any other person from procuring a UPSI. An exception to this bar is if such communication, procurement or permission flows from the furtherance of legitimate purposes, performance of duties or discharging of legal obligations.

Regulation 4 bars only insiders from trading in securities when they are in possession of UPSI. The instances whereupon the insider may be discharged are if all the parties to a transaction were conscious of the existence of a UPSI and took an informed trade decision or the persons holding UPSI were different from the persons taking the trading decision who did not possess any UPSI at the time they took the decision or arrangements of such a nature were in place that ensured the compliance under these regulations, 2015 were not violated or the trades were in lieu of the trading plan set up in accordance to these regulations, 2015.

So, a procurer of a UPSI who may be barred under regulation 3 shall not be so barred in regulation 4 of the regulation, 2015.

Question 7: What is the meaning of the words, ‘Securities listed or proposed to be listed on the Exchange’ used in the Regulations, 2015?

Answer: These regulations cover companies whose securities are listed or proposed to be listed. A company whose securities are not listed will not be covered under these regulations. The words 'proposed to be listed' apply to securities of a company which are proposed to be listed provided that the company is already listed.

Question 8: ‘Insider may prove his innocence’ – too vague a word to be used?
Answer: Yes, a better choice of words could have been used like ‘defences taken by an insider’ or ‘insider may shift burden of proof’ etc.

Question 9: Chapter III relating to investigation by SEBI in regulations, 1992 has been removed from the regulations, 2015 so now what will be the procedure for investigation by SEBI?

Answer: Chapter III of the regulations, 1992 expressly stated the procedure for investigation by SEBI. In the regulations, 2015 the whole chapter has been deleted. So, now the investigation procedure given in section 11C of the SEBI Act, 1992 will be followed.

Question 10: Regulation 5 of regulations, 2015 states that, ‘an insider shall be entitled to formulate a trading plan’, the meaning of which is not very clear as to whether it is a mandatory requirement or not?

Answer: If we go by the meaning of the word ‘entitled’, it means ‘right to a particular privilege or benefit, granted by law or custom’. In the present question, the right is to formulate a trading plan, the privilege is that even as an insider, the person may trade in securities and reap the benefits of it granted by the law established by these regulations, 2015.

Hence, an insider is not barred from trading in securities completely, he/she may do so if they follow the route of formulating a trading plan and going by it as laid down under regulation 5 of regulations, 2015.

Question 11: Regulation 5 states that, ‘a trading plan shall be presented to the compliance officer for approval and public disclosure pursuant to which trades may be carried out’, would that not amount to disclosure of UPSI to the public? Why is there a need for any public disclosure?

Answer: The answer to this question probably lies in the definition of ‘generally available information’ under regulation 2 (1) (e) of regulations, 2015. The sole purpose for this public disclosure seems to be adequate to make any UPSI as generally available to public. If any information upon which a trading plan was formulated is generally available to the public on a non-discriminatory basis, it ceases to give any special or secretive privilege to the actual holder of such UPSI. Upon a public disclosure, everybody knows of the existence of the information upon which the trading plan was formulated. This ensures a free, unbiased decision making.

Question 12: What does ‘not entail trading in securities for market abuse’ mean in regulation 5(vi)?

Answer: Formulating a trading plan by an insider who wants to trade in securities would not grant him/her absolute immunity from being prosecuted for market abuse. If upon an investigation it is discovered that the release of the trading plan was such that it led to the circumvention of regulation 4 of regulations, 2015, the insider would be prosecuted for fraud under regulation 2 (1) (c) (9) of SEBI (Prohibition of Fraudulent and Unfair Trade Practices Relating to the Securities Market) Regulations, 2003 which states that, ‘Fraud is the act of an issuer of securities giving out misinformation that affects the market price of the security, resulting in investors being effectively misled even though they did not rely on the statement itself or anything derived from it other than the market price’ and also under regulation 4 (2) (a) and (f) which state that, ‘Dealing in securities shall be deemed to be a fraudulent or an unfair trade practice if it involves fraud and may include all or any of the following, namely: (a) indulging in an act which creates false or misleading appearance of trading in the securities market’ and (f) publishing or causing to publish or reporting or causing to report by a person dealing in securities any information which is not true or which he does not believe to be true prior to or in the course of dealing in securities’.

Question 13: As per regulation 5 (4), doesn’t the mandatory application of a formulated and approved trading plan seem harsh and an impractical suggestion?

Answer: A trading plan would specify all the dealings in securities of an insider for the whole year, also once it is approved it will have to be compulsorily complied with by the insider which seems impractical based on the fact that presupposing the market conditions or even one’s own condition in the market for such a long period of time is not possible.

Having said that, the purpose for which this period was decided to be an year long was because it seemed undesirable to SEBI that there are frequent announcements of trading plan for short periods of time which would in turn render meaningless the defence of a reasonable time gap between the decision to trade and the actual trade for which the reasonable time was decided to be of one year. Also, allowing deviation from the trading plan would negate the intent behind the regulation itself. There can also not be two or more trading plans for the same time period which may create an overlap.

Question 14:  As per regulation 5 (5), after approval of the trading plan by the compliance officer, the compliance officer shall inform the same to the stock exchange. Why?

Answer: Allowing an insider who possesses UPSI to trade in securities by formulating a trading plan is an exception to the bar in regulation 4 of the regulation, 2015. The compliances for the trading plan are to ensure that such a trading plan is publicly disseminated. When the compliance officer informs the stock exchange about the existence of a trading plan of an insider, the investors in the market at large can take the potential factors of such a trading plan into view and assess the securities with the knowledge as to how the insiders perceive the prospects or approach the securities in their trading plans.

Authors: Shreya Seth, Saman Naseem 


[1] Section 15HB of the SEBI Act, 1992 states, ‘Penalty for contravention where no separate penalty is provided- may extend from Rs. 1 lakh to Rs. 1 crore’. While deciding the penalty the AO takes into consideration section 15J of the SEBI Act, 1992 i.e. the amount of disproportionate gain or unfair advantage, wherever quantifiable, made as a result of the default; (b) the amount of loss caused to an investor or group of investors as a result of the default; and (c) the repetitive nature of the default.”