Introduction:
For any information to be classified as unpublished price sensitive information (“UPSI”), it should primarily satisfy the following three criteria, (1) It should relate to the company or its securities, directly or indirectly, (2) It should not be generally available, and (3) There should be a likelihood of the information materially affecting the price of the securities. Generally available information is information available in the public domain (on a non-discriminatory basis). Basis this, the Securities and Exchange Board of India (“SEBI”) analyses and identifies whether information can be termed as UPSI and classifies whether trades conducted by Insiders[1] are in violation of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“2015 PIT Regulations”).
The concept and scope of ‘generally available information’ assumes significance in cases of alleged insider trading. Naturally, once information is classified as generally available, it ceases to be UPSI and any trades conducted by an Insider on the basis thereof would not fall foul of the 2015 PIT Regulations, irrespective of how ‘price sensitive’ the information actually is.
There have been diametric deviations in the approach of SEBI when it comes to the interpretation of what constitutes UPSI, whilst framing a charge of insider trading under the 2015 PIT Regulations read with SEBI Act, 1992. However, vide the recent decision in Future Corporate Resources Pvt. Ltd. v. SEBI[2],the Securities and Appellate Tribunal (“SAT”) has clarified and largely settled the interpretation and scope of “generally available information” as defined in Reg. 2(1)(e) of the 2015 PIT Regulations and mentioned in the definition of “unpublished price sensitive information” under Reg. 2(1)(n) of the 2015 PIT Regulations.
Factual Background:
SEBI investigated the scrip of Future Retail Limited (“FRL”) and issued show cause notices to inter alia the promoters and promoter group of FRL basis several trades made by them, before announcing a scheme of arrangement to the stock exchanges. The demerger resulted in hiving off FRL’s HomeTown business and its merger with Bluerock e-Services Pvt. Ltd’s (“BSPL”) FabFurnish business.
Preliminary discussions for the proposed scheme of arrangement were initiated on March 10, 2017, and FRL made a corporate announcement to the stock exchange on April 20, 2017, regarding a scheme of arrangement between FRL, BSPL and Praxis Home Retail Pvt. Ltd. The announcement had a positive impact on the price of the scrip of FRL. SEBI’s aim was to investigate whether the noticees had traded in the aforesaid scrip during the March 10-April 20, 2017, period, i.e., the alleged USPI period, on the basis of UPSI.
The investigation purportedly revealed that the noticees, being “insiders”, had traded in the FRL scrip during the alleged UPSI period. Hence, show cause notices were issued.
Arguments of the Noticees:
The noticees took the following arguments before the SEBI Whole Time Member (“WTM”):
- The information about the scheme of demerger was “generally available” and did not constitute UPSI since it was widely reported across numerous media platforms, prior to the dates on which the trades were undertaken;
- Evidence was filed to show that the noticees had, in multiple television interviews and in print and digital publications, made it public that they planned to merge HomeTown with FabFurnish and discussions were ongoing in relation thereto; and
- HomeTown and FabFurnish businesses’ contribution to FRL’s overall revenues was miniscule (3.28% and 0.03% respectively) and thus did not have any significant impact to the price movement of the shares. Therefore, the information of the demerger was not likely to materially affect the price of the securities.
Findings of the WTM:
On the issue under discussion, the WTM was of the opinion that[3]:
- The articles and interviews were nebulous and did not give specific particulars about the de-merger of the HomeTown business;
- As the information was not concrete and did not contain material particulars required to be disclosed to the stock exchange, pursuant to 2015 PIT Regulations and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“LODR Regulations”), such as consideration to be received by the shareholders, proportionate holdings in the new entity, etc., it cannot be held that the information was “generally available” and that it was non-discriminatory;
- Moreover, in response to the clarification sought by the stock exchanges from FRL on March 3, 2017, regarding a news article published in The Economic Times, FRL had informed the exchanges that its board was considering various options for the HomeTown format, but no final understanding had been arrived at till date; and
- Accordingly, the WTM issued directions inter alia imposing penalties on the noticees and for disgorging the unlawful gains made by them. It also debarred the noticees from accessing the securities market for one year under Section 11 and 11B of the SEBI Act, 1992.
Findings of SAT:
While overturning the WTM’s order, SAT held that:
- The WTM arrived at an erroneous understanding that “generally available information” only means information which has been disseminated on the platform of a stock exchange;
- The news coverage was fairly specific and the nature of transactions was highlighted in-depth as it had references to the HomeTown business and to the demerger of FabFurnish and HomeTown into a new listed company;
- The clarification given by FRL to the stock exchange only stated that no final decision had been taken, but did not deny that the discussions regarding the merger had taken place; and
- Relying on the SEBI’s decision in 63 Moons Technologies Ltd., SAT held that it was the approach of SEBI itself that once the information in question is reported by the media, then it cannot be held to constitute UPSI.
Analysis:
The meaning and scope of “generally available information” and consequently “UPSI” has undergone a tectonic shift over the last few decades.
Position under 1992 PIT Regulations and progress therefrom:
The decision of the Appellate Authority for Industrial and Financial Reconstruction (the then appellate forum of SEBI) in Hindustan Lever Limited v. SEBI[4] was the turning point for excluding information published/ reported by the media from the purview of UPSI under the (erstwhile) SEBI (Prohibition of Insider Trading) Regulations, 1992 (“1992 PIT Regulations”). An analysis of the decision of the Appellate Authority can be found here. Briefly put, the Appellate Authority accepted Hindustan Lever Limited’s contention that since the news of merger was widely known by virtue of various news articles before the purchase of shares, its actions did not amount to violation of 1992 PIT Regulations.
The decision in Hindustan Lever Limited prompted SEBI to amend the 1992 Regulations in 2002, by adding the following explanation to the definition of ‘unpublished’ under Reg. 2(k) of the 1992 PIT Regulations (“2002 Amendment”):
“unpublished” means information which is not published by the company or its agents and is not specific in nature.
Explanation — Speculative reports in print or electronic media shall not be considered as published information.”
Recommendations by NK Sodhi Committee:
The recommendations of the High-Level Committee, constituted in 2013 under the Chairmanship of Justice N K Sodhi (“Committee”), to review the 1992 Regulations, gave shape to the extant 2015 PIT Regulations. In its recommendations, the Committee highlighted that the problem with the 2002 Amendment was that even information published by large newspapers and television channels would still amount to UPSI merely because it was not published on the website of the stock exchanges[5]. Consequently, an insider who trades when in possession of such information would be regarded as violating the law. Hence, the explanation appended to the definition of “unpublished” in the 1992 Regulations was omitted from the regulations proposed by the Committee.
The Committee proposed a definition for “generally available information”, so that it would be easier to crystallise the scope of UPSI and laid down the principles for ascertaining general availability. The definition of “generally available information” as it appears in Reg. 2(1)(n) of 2015 PIT Regulations is broadly based on the Committee’s recommendations. It was understood by the Committee that information capable of being accessed by any person, without breach of any law, on a non-discriminatory basis, would be considered generally available[6]. It is interesting to note that the recommended definition also included ‘research’ and ‘analysis’ based on ‘generally available information’ within its ambit. However, the same was excluded from the subsequently enacted 2015 PIT Regulations. Therefore, the question of whether an analytical piece of research work, which is available on a discriminatory basis, but is entirely based on generally available information, should be classified as UPSI or not, still remains unanswered.
The Committee intentionally kept the term “non-discriminatory access” undefined in the 2015 PIT Regulations as it was felt that over-stipulating the term can risk narrowing its meaning. It was also observed that whether some information is available on a non-discriminatory basis would be a question of fact, to be answered by adopting the standard of a reasonable man. For instance, merely because a report or news article is accessible upon payment would not make it discriminatory, since it is accessible by any person willing to pay the price to access it.
SEBI and SAT’s approach under the 2015 PIT Regulations
In 2018, in 63 Moons Technologies Limited [7], where the alleged UPSI was made public by a single article in The Economic Times, SEBI held that once a price sensitive information is published even in a single media report, which contained precise and specific facts, such information ceased to be UPSI on account of it being generally available.
In 2020, in Bharti Airtel Ltd.[8], SEBI held that the proposed acquisition of the consumer mobile business of two companies by Bharti Airtel Ltd. was already in the public domain, for the reason that news about the acquisition (a) had been published in articles in Economic Times and Live Mint, which have ‘fairly large subscription’; and (b) had been relayed on mainstream business news channels like Zee Business, ET Now and CNBC TV18, all of which have ‘very wide viewership’. Even though a perusal of the news reports and articles showed that it lacked specific details as would appear on the website of a stock exchange, SEBI held that it was tantamount to the information being ‘generally available’ and not UPSI.
However, in FRL Limited[9], the WTM took a completely different view and curious departure from the previous approach and held that for price sensitive information to be ‘generally available’, it has to be shown that media reports and interviews set out all material particulars which are required to be disclosed to stock exchanges under the 2015 PIT Regulations or the LODR Regulations[10]. This approach was flawed and more in line with the erstwhile 1992 PIT Regulations, which has since been overhauled in light of the Committee’s recommendations elucidated above. SAT was justified in overturning the WTM’s decision, which erroneously interpretated the 2015 PIT Regulations, and restoring the position of law in line with the Committee’s recommendations and legislative intent behind the 2015 PIT Regulations.
Conclusion and the way forward:
To our mind, the position of law, re. information published by newspaper(s)/ reported by media, with large readership/ viewership, constituting “generally available information” has been correctly crystallised by the SAT order. With this, it is clear that reporting of information on the website of a stock exchange is not the only way in which information can be designated as ‘generally available’. It also emerges that determination of whether any information is ‘generally available’ or ‘unpublished’ is a mixed question of law and fact, to be decided on a case-to-case basis, on the parameters laid down by SEBI and SAT.
Having said that, the jurisprudence on insider trading, more specifically on the interpretation of UPSI, is still evolving and set to evolve further. One such instance of the evolving jurisprudence is when SAT paved the way for the “Heard on Street” defence in the case of Shruti Vora v. SEBI[11].SAT overturned the SEBI order holding that ‘forwarding as received’ circulated on a WhatsApp group without any knowledge of such message being UPSI would also tantamount to a violation of the 2015 PIT Regulations and SEBI Act, 1992. In such a scenario, SAT held that the knowledge and intention of the circulator/ circulators must be proved, for them to be held liable for circulating messages containing price-sensitive information on social media. This decision attained finality when SEBI’s appeal was dismissed by the Supreme Court[12].
The abovementioned decisions in Future Corporate Resources Pvt. Ltd. v. SEBI and Shruti Vora v. SEBI highlight SAT’s progressive perspective. It has effectively settled the scope of what constitutes generally available information and has also imported the element of intention within the language of the 2015 PIT Regulations.
[1] “Insider” as defined under Reg. 2(g) of SEBI (Prohibition of Insider Trading) Regulations, 2015.
[2]Appeal No. 81 of 2021 https://sat.gov.in/english/pdf/E2023_JO202181.PDF
[3] Para 16.8-16.10 https://www.sebi.gov.in/enforcement/orders/feb-2021/final-order-in-the-matter-of-future-retail-limited_49001.html
[4] Hindustan Levers Limited v. SEBI, [1998] 18 SCL 311 (Misc).
[5] Para 32, Report of the High Level Committee to Review The SEBI (Prohibition Of Insider Trading) Regulations, 1992 https://www.sebi.gov.in/sebi_data/attachdocs/1386758945803.pdf
[6] Ibid., Para 25, 27.
[7] Para 26-28 https://www.sebi.gov.in/enforcement/orders/jan-2018/order-in-the-matter-of-insider-trading-in-the-scrip-of-63-moons-technologies-limited-erstwhile-financial-technologies-india-limited-_37649.html
[8]Para 34, https://www.sebi.gov.in/enforcement/orders/oct-2020/adjudication-order-in-respect-of-gopal-vittal-bharti-telecom-ltd-rohit-krishan-puri-and-sunil-bharti-mittal-in-the-matter-of-trading-by-certain-entities-in-the-scrip-of-bharti-airtel-limited_47950.html
[9] Para 16.8, supra note 2.
[10] Regulation 30 of LODR Regulations.
[11] Appeal No. 308 of 2020, https://sat.gov.in/english/pdf/E2021_JO2020313_25.PDF
[12] https://www.thehindubusinessline.com/markets/sc-dismisses-sebis-appeal-in-whatsapp-leaks-case/article65942104.ece
