In a recent order passed by an adjudicating officer (AO) of the Securities and Exchange Board of India (SEBI), an aggregate penalty of `2.5 million (US$41,500) was imposed on five officers of a listed company – the chairman, the vice-chairman and managing director (MD), two executive directors, and the company secretary and compliance officer.

The penalty was imposed under section 15HB of the SEBI Act, 1992, for: (1) delay in disseminating price sensitive information to the stock exchanges regarding bagging of certain orders; and (2) the company’s code of conduct not being in line with the one prescribed under the SEBI (Prohibition of Insider Trading) Regulations, 1992.

The company’s code of conduct did not take into account an amendment to the regulations on 19 November 2008, pursuant to which the dependants of directors, officers and designated employees were required to seek preclearance of trades from the company secretary and compliance officer.

Facts of the case

The inquiry and investigations revealed as follows: (1) the company announced to stock exchanges on 29 April 2009 that it had bagged two orders worth `13.4 billion; (2) the contracts for the orders were entered on 1 March and 22 April 2009; (3) there were thus delays of 59 days and seven days between entering the contracts and the announcement to stock exchanges; (4) on 29 April 2009 the stock price closed 4.74% higher than the opening price; and (5) the MD’s daughter traded in the scrip without seeking pre-clearance for certain trades.

Due to insufficient evidence, no penalty was levied as regards trades done by the MD’s daughter. The penalty of `2.5 million was levied on the five officers (jointly and severally) for delay in disseminating the price sensitive information in terms of the insider trading regulations.


The AO’s order deals with what constitutes “price sensitive information” which needs to be disclosed by a listed company to stock exchanges on a continuous and immediate basis. The regulations define the term to mean “any information which relates directly or indirectly to a company and which if published is likely to materially affect the price of securities of company”.

The AO, while explaining the term, observed that “the information has to be construed as price sensitive information irrespective of actual price witnessed post disclosure of the information”. This suggests that while the definition states that, if published, the information is likely to have “material effect” on the price of securities, the actual impact on the price is immaterial.

The AO observed that the orders constituted a substantial percentage of the company’s turnover, i.e. the orders were worth `13.4 billion as against the net sales turnover of `18.83 billion for the year ended March 2009 and `15.06 billion for the year ended March 2010. In view of the relative enormity of the orders, they were considered as constituting “price sensitive information”.

While what constitutes “price sensitive information” which should be disclosed to stock exchanges is subjective in nature, one of the guiding factors available to listed companies in determining their disclosure obligation could be if they receive orders in the ordinary course of business that constitute a substantial percentage of the company’s sales turnover. In this case, the orders represented around 71% based on sales to March 2009 and around 89% based on sales to March 2010.

Suggested action

It can be argued that: (1) it is the business of the company to bag such orders; (2) the orders it obtained were in the nature of stock in trade in the business; and (3) it was not an unusual occurrence. However from a practical standpoint, it is advisable for listed companies to have an internal policy for example stating that as and when the company reaches a level of orders of a particular amount, or as and when the company reaches a single order aggregating a particular amount, the amount will be immediately disclosed to stock exchanges.

Such an approach will assist the company in ensuring compliance with the insider trading regulations and clause 36(7) of the equity listing agreement (dealing with disclosure of any other information having bearing on the operation or performance of the company), and perhaps also act as a mitigating factor in case of an inquiry or investigation by SEBI or stock exchanges.

Like the bagging of orders, the writing off of slow moving orders, forming a material part of parameters such as the existing order book and sales turnover of the company, and which, if published, is likely to have an impact on the price of the securities of the company, will also require disclosure in terms of the regulations.

Disclaimer: This article was first published in the May 2014 issue of the India Business Law Journal magazine. It has been authored by Suhail Nathani, who is a partner and Yogesh Chande, who is an Associate Partner at Economic Laws Practice (ELP), Advocates & Solicitors. They can be reached at or for any comment or query. The information provided in the article is intended for informational purposes only and does not constitute legal opinion or advice. The contents of this article/update are intended for informational purposes only and do not constitute legal opinion or advice. Readers are requested to seek formal legal advice prior to acting upon any of the information provided herein.