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The Securities Appellate Tribunal (SAT) has upheld the SEBI order on Adlabs founder Mr Manmohan Shetty for violating the provisions of the code of conduct applicable to the top management of listed companies.
But the Tribunal reduced the quantum of fine levied on him from Rs 1 crore (by SEBI) to Rs 25 lakh keeping in view that the Adlabs Films (now called Reliance Mediaworks) had settled issue with SEBI by paying Rs 15 lakh.
SAT said that accepting the interpretation given by the appellant's counsel (that the violation of the code of conduct does not amount to violation of the SEBI regulation), may lead to a situation where a person is not punished by the company for violating the code of conduct and SEBI finds itself unable to take action because the code is framed by the company.
Interpretation tangle
This is what has precisely happened in this case, said SAT as the company in its letter dated February 11, 2008 informed SEBI that Mr. Shetty had resigned as MD and it was not possible to pursue action against him and decided to close the matter.
Allegation & denial
SEBI had found Mr Shetty guilty of violating the 24-hour embargo on directors, officers or designated employees of a company from undertaking any transactions when important corporate announcements are made.
Mr Shetty had sold 10 lakh shares of Adlabs Films Ltd on April 24, 2006, at an average price of Rs 402.60 a share within 24 hours of having declared dividend to shareholders and announcing the de-merger of the FM radio business to a wholly-owned subsidiary.
These shares were allotted to him at Rs 5 a share. In his reply, Mr Shetty admitted to selling ten lakh shares, but said it was the result of an inadvertent and technical error on his part without any mala fide intention.
SEBI observed that Mr Shetty had sold 10 lakh shares of his company through his broker Gupta Equities Pvt Ltd on BSE in two tranches. The first tranche of 7.5 lakh shares was sold between 10.11 and 10.13 a.m. The second tranche of 2.5 lakh shares was sold just after 3.15 p.m. the same day.
The sale of these shares was reported to the BSE under bulk deals. The analysis of the order log on April 24, 2006 and the demat statement of Mr Shetty confirmed the transaction.
Mr Shetty was the Managing Director of Adlabs when the transaction took place. He has the option of approaching the Supreme Court against the SAT order.
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