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NOV 22, 2017

PIT Regulations, 2015 – Companies can’t escape the Disclosures liability

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PIT Regulations 2015 have replaced the erstwhile PIT Regulations 1992. While a school of thought that prevails in the Industry is that its only a new packaging, with the major contents being the same in both the sets of Regulations.

But, on the contrary, there is a school of thought as per which there have been certain drastic changes in both the present and old Regulations, which very clearly depict the Capital Market Regulator’s intent of not letting go any wrong doers and their respective companies as well.

Inter alia, 2 major changes that have come up in the disclosure requirements. While in the erstwhile Regulations of 1992, the primary responsibility of Disclosure requirements were cast upon Directors & Officers of the listed firms upon crossing either of the threshold stipulated in monetary terms as well as numbers & %age terms. Then, the spiral obligation was cast upon the listed companies to forward the same disclosures to the Stock Exchanges.

But, with passage of time and involvement of more and more employees other than directors and officers, in the business growth and processes, it was felt the Directors and Officers were not a sufficient genre to make the disclosures, so under the extant Regulations of 2015, the Disclosure requirement was expanded to all the employees of the listed entity, upon crossing the threshold stipulated only in monetary terms.

As against the erstwhile Regulations wherein, the requirement of the Company was merely to forward the Disclosure, as received from directors and officers , one major obligation, that has been cast upon the Companies now is to notify the stock exchange of any trade done by the Employee within the specified period , upon receipt of disclosure or “upon becoming aware of such information”.

That is to say, even if no Disclosure is received from the employee, for whatever reasons, the listed company, whenever it becomes aware of the share transaction done by any employee, in excess of the stipulated limits, has to notify the Stock Exchanges of the same.

Meaning thereby, under the extant Regulations, no shelter can be taken by the Company on the pretext that it did not receive any disclosure from its employees as they had in the earlier regulations..

Thus, its quite evident that PIT Regulations,2015 are far more stringent as compared to the erstwhile Regulations and the ambit of disclosure requirements has been expanded to cover all the employees, promoter, directors of the listed Company and not only the directors or officers as required under the erstwhile regulations. Also the onus of giving the disclosure has been placed on the Company even if it has not received any disclosure but subsequently becoming aware of such information.

A recent judgment in the matter of M/s Tech Mahindra Ltd (the Company), a case under the old regulations the above mentioned analysis became aptly evident. In the said case, SEBI held had the Regulator’s intent been to cover every employee within the ambit of making Disclosures, it would have used the word’’.Employees’’. It also stated that in case the Company has not received disclosure under any of the Regulations viz, 13(1), 13(2), 13(3) and 13(4) of PIT Regulations,1992, there is no liability on its part to disclose the same to Stock Exchange under Regulation 13(6) of PIT Regulations.

Brief facts of the case:

  • In the said case, four designated employees as per the Internal code of conduct of Tech Mahindra undertook certain sale transactions, in respect of which they did not make any Disclosures under the Regulation 13(4) of PIT Regulations, 1992, and thus the Company did not comply with the provisions of Regulation 13(6) of the erstwhile Regulations.
  • However, The Company received disclosures from the said officers for their change in holding under its Internal Insider Code of Conduct, but the Company didn’t filed the same to the Stock exchange in the format specified by the SEBI under Regulation 13(6) of old PIT Regulations,1992.
  • The Company in its submissions stated that the obligation of the company to report the trades to the stock exchanges can arise only if the Employees were required to report the trades to the Company. If the Employees were either: (i) not required to report the trades or (ii) have not in fact reported the trades, the question of the company being required to report the trades, does not and cannot arise. Hence, Company’s secondary obligation to disclose arises only if primary obligation on the officer to disclose is discharged. So, there was no default in its not filing the disclosure under Regulation 13(6).
  • It was also submitted that none of the Noticees, are those designated employees under whose instructions the Board of Directors is accustomed to act or are in a position to direct or influence the affairs of the Company. Hence they were not the ‘officers’ of the Company as per the definition of the Regulation and therefore they were not required to give the disclosures under Regulation 13(4) of erstwhile PIT Regulations,1992.
  • After carrying out a thorough investigation of the matter and considering the replies of all the 4 noticees along with the Company, it was discovered by SEBI that there was no violation of the PIT Regulations, 1992 and all the accused and the Company were given a clean chit and no monetary penalty was also imposed.

Conclusion:

Going by SEBI’s order in the said case, it can be said that though all the noticees and Company were exonerated by SEBI without taking any legal or monetary actions against them by taking the benefit of the lesser stringent provisions regarding disclosures provided under the erstwhile regulations.

But, situation under the current regime is not the same, as now the Companies cannot escape their liability from disclosures even if they have not received the same form the promoters or directors or employees and are required to disclose such information to the stock exchange on becoming aware of such trade.

Going through the Regulator’s intents and usage of the broad term “employees’, as against “Officers, another important aspect that gets highlighted is the need to provide Trainings to the employees about their obligations and responsibilities while undertaking any trades in their company’s scrips. Also, they should be well informed about the provisions of their Code of Conducts, so that no such scenario arises wherein they get exposed to any violations of the PIT Regulations.

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Disclaimer:

The entire contents of this document have been developed on the basis of relevant statutory provisions and the information available at the time of the preparation. Though the author has made utmost efforts to provide authentic information however, assumes no responsibility for any errors which despite all precautions, may be found herein. The material contained in this document does not constitute/substitute professional advice that may be required before acting on any matter. The author and the company expressly disclaim all and any liability to any person who has read this document, or otherwise, in respect of anything, and of consequences of anything done, or omitted to be done by any such person in reliance upon the contents of this document.

About Authors

Ms. Anjali Aggarwal
Partner & Head-Capital Market

Ms. Anjali Aggarwal is a Fellow member of the ICSI and holds diploma in Cyber Laws from Amity Law University. She holds a significant experience of 14 years in Stock Exchange and SEBI related matters, such as Planning & Structuring for various types of further allotments and listing related issues, obtaining SEBI’s Exemptions, Stock Exchange approvals and other clearances.

Ms. Aggarwal has addressed various Seminars and TV Shows on Securities Laws and their impact on India Inc. She, along with her Team, has developed various online ventures for the Organization, viz. www.delisting.in; www.esoponline.in and carved out niche for herself in these areas. Prior to joining Corporate Professionals, she had been a part of the Delhi Stock Exchange and also associated with RPG Group.

Ms. Mohini Varshneya
Assistant Vice President

Ms. Mohini Varshneya, a Fellow Member of the ICSI and post graduate in Commerce from University of Delhi, holds hands on experience of over 12 years in Securities Law Advisory and ESOP Management including Stock Exchange related services. She competently provides end-to-end solutions in Securities Law matters which include Planning, Restructuring, getting complex Listing Approvals, Managing Further Issues, Delisting, Revocation of Suspension from Stock Exchanges, Compliance Management, ESOP Advisory/Scheme formulation and its complete management.

Ms. Varshneya has been deeply involved in formulating online ventures-www.delisting.in and www.esoponline.in and development of web application “ESOP Guardian”, which has earned her many applauds.