On June 19th, the Securities and Exchange Board of India (SEBI) took action against 6 entities for violating insider trading regulations related to Shilpi Cable Technologies. SEBI has barred these entities from participating in the securities markets for a duration of one year. Additionally, penalties totaling ₹70 lahks have been imposed on them.
Furthermore, the regulator has instructed the entities involved to surrender the illicit gains amounting to ₹27.59 crores, along with an interest rate of 9% per annum, starting from May 2017 until the actual date of payment.
The 6 Entities Involved
The entities involved in this action are Dinesh Gupta, Dinesh Gupta HUF, Rajesh Gupta, Rajesh Gupta HUF, Nirmala Gupta, and Ajay Fincap Consultants. Collectively, they are referred to as the Noticees.
The current proceedings originated from a show cause notice issued in March 2022. This notice was a result of an investigation conducted by SEBI into the trading activities of Shilpi Cable Technologies Ltd (SCTL) between March and May 2017.
About the Investigation
The Securities and Exchange Board of India conducted an investigation to determine if certain entities engaged in trading Shilpi Cable Technologies Ltd (SCTL) shares based on unpublished price-sensitive information (UPSI), thereby violating the Prohibition of Insider Trading (PIT) rules.
- The UPSI in question pertained to a demand notice issued on behalf of Macquarie Bank Ltd on March 8, 2017, seeking payment of $3.01 million (equivalent to approximately ₹19.55 crore). SCTL received the demand notice on March 10, 2017.
- The trading activity in question occurred between March 10, 2017, and April 30, 2017.
- SEBI’s final order concluded that the noticees engaged in insider trading on multiple occasions and unlawfully avoided significant losses.
- Consequently, the trades executed by the Noticees in SCTL shares during the UPSI period were in violation of the PIT regulations.
- SEBI observed that Dinesh Gupta, Dinesh Gupta HUF, and Rajesh Gupta had frequent communication with the promoters-directors of SCTL, which strongly suggests their connection as connected persons and insiders under the PIT rules.
- The regulator also found that Nirmala Gupta is a relative of Dinesh and Rajesh, which qualifies her as a connected person. All the trades conducted in her account were executed by her relatives, who were insiders of SCTL.
- Furthermore, Dinesh Gupta HUF is the Hindu Undivided Family of Dinesh Gupta, who has been identified as an insider. Hence, the trades carried out by such a HUF would also be classified as insider trading, according to the regulator.
- Moreover, Rajesh Gupta HUF is the major shareholder of Ajay Fincap Consultants, which further categorizes it as an insider of SCTL, as stated by SEBI.
- Consequently, SEBI imposed fines of ₹15 lahks each on Dinesh Gupta, Dinesh Gupta HUF, and Rajesh Gupta, ₹10 lahks on Nirmala Gupta and Ajay Fincap Consultants, and ₹5 lakhs on Rajesh Gupta HUF.
- In a separate order, SEBI also levied a penalty of ₹5 lahks on Orix Corporation for violating Mutual Fund regulations.
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What is the role of SEBI?
The main objective of SEBI is to protect the interests of investors in securities and to promote the development of, and regulate, the securities market and for matters connected therewith and incidental thereto.