Board Resolution of Essar to convert FCCBs into equity wasn’t an UPSI

Case Details: Awaneesh Srivastava v. Securities and Exchange Board of India - [2022] 139 taxmann.com 380 (SAT-Mumbai)

Judiciary and Counsel Details

• • Justice Tarun Agarwala, Presiding Officer & Ms Meera Swarup, Technical Member
  • Prashant Phophale & Ms Reena Lange, Advs. for the Appellant.
  • Abhiraj Arora, Harshvardhan Nankani, Ms Anshu Mehta & Shourya Tanay, Advs. for the Respondent.

Facts of the Case

In the instant case, the appeal has been filed against the order of the Adjudicating Officer of the SEBI whereby a penalty of Rs. 1 lakh has been imposed under section 15HB of the SEBI Act, 1992 for violation of the Model Code of Conduct under the SEBI (Prohibition of Insider Trading) Regulations, 2015.

Appellant was Compliance Officer in M/s Essar Shipping Limited. The company issued Foreign Currency Convertible Bonds (FCCBs). IDH International Drilling Holdco Limited (formerly known as Essar Shipping & Logistics Limited, Cyprus) subscribed to these FCCBs amounting to USD 280 million. These FCCBs were convertible into equity shares of Rs. 10/- each at a conversion rate of Rs. 91.70 per equity share at a fixed exchange rate of Rs. 46.94 on the expiry of the period.

The Board of Directors of M/s Essar Shipping Limited resolved to allot 122,852,787 fully paid-up equity shares to IDH and accordingly intimated IDH requesting them to exercise the option of converting the FCCBs into equity shares before the maturity date.

SAT Held

The SAT observed that FCCBs were issued in 2010 which were convertible into equity shares of Rs. 10/- each at a convertible rate of Rs. 91.70. Thus, the fact that the FCCBs were to be converted into equity shares at the predetermined price on the due date of August 24, 2017, at a fixed exchange rate was disseminated in the public domain from the financial year 2012-2013 onwards. Accordingly, the Resolution of the Board of Directors only reiterated the conversion of the FCCBs into equity shares which in our opinion was not a UPSI as the

The SAT further observed that the disclosure of the status of the FCCBs in the Annual Reports from 2012-2013 to 2016-2017 was publically available information and was not a UPSI.

In view of the aforesaid, it was held that the appellant being the Compliance Officer was not required to close the trading window from July 31, 2017, as the Resolution of the Board was not price-sensitive information. Accordingly, the appellant did not violate any provision of the Model Code of Conduct. So, no penalty could be levied.