SEBI Penalizes Future Corporate For Insider Trading; Bars Founder Kishore Biyani From Securities Market For One Year

The Securities and Exchange Board of India has penalized Future Corporate Resources Pvt Ltd,  Kishore Biyani and Anil Biyani, founder and co-founder of Future group respectively, and five others for insider trading.

Future Corporate Resources Pvt Ltd(FCRL), Kishore Biyani, Anil Biyani and five others have been prohibited from dealing in securities market for a period of one year.

Further, FCRL, Kishore Biyani and Anil Biyani have also been barred from dealing with the securities of Future Retail Ltd(FRL),whether directly or indirectly, for a period of two years.

They have also been have been directed to jointly disgorge an amount of Rs 17.78 crore, along with 12% interest from April 20, 2020 onwards till the date of actual payment. According to SEBI, this amount reflects the undue profits made by Biyanis, FCRL and other notices through their trade of shares on the basis of Unpublished Price Sensitive Information(UPSI).

FCRL and FCRL Employee Welfare Trust has been additionally directed to disgorge an amount of Rs. 2,75,68,650/- along with an interest at the rate of 12% per annum from April 20, 2020 till the date of actual payment.

The market regulator has imposed an additional penalty of Rupees One Crore each under Section 15G of the SEBI Act, 1992 on FCRL and Biyanis.

The order relates to the trade of shares of Future Retail Ltd (FRL) between March 10, 2017 to April 20, 2017 on the basis of unpublished price sensitive information  in contravention of the provisions of the Securities and Exchange Board of India Act, 1992 read with the SEBI (Prohibition of Insider Trading ) Regulations, 2015 ("PIT Regulations, 2015").

On April 20, 2017, FRL made an announcement of demerger of some of its businesses. This announcement had a positive impact on its shares.

The SEBI found that Future Corporate Resources and FCRL Employee Welfare Trust purchased Future Retail's shares prior to the public announcement of the scheme of arrangement.

Corporate veil lifted

The SEBI found that trades were authorised by Kishore Biyani and Anil Biyani. They hold beneficial interest in 32% and 15% shares of FCRL, respectively.

"Noticee no. 2(Kishore Biyani) was in possession of UPSI. Noticee no. 2 and 3(Anil Biyani) opened the trading account of Noticee no. 1 just prior to the impugned trades which were in violation of the provisions of PIT Regulations, 2015. Noticee no. 3 placed order on behalf of Noticeeno. 1. Noticee no. 2 and 3 authorised transfer of funds to Indiabulls for purchase of shares of FRL in the name of Noticee no. 1. Thus, observations made by Hon'ble SAT in Amalendu Mukherjee case (supra), where the Hon'ble SAT has observed that the corporate veil can be lifted to find out the decision maker behind a juristic person, is one of the guiding factors in the present case", the 77-page order passed by SEBI Whole Time Member Ananta Barua stated.

The SEBI rejected the submissions of the noticees that they were not in possession of the UPSI.

Regulation 4(1) of the PIT Regulations, 2015 prohibits insiders from trading in securities when in possession of UPSI.

"The fact that the trades by Noticee no. 1(FCRL) was carried out to benefit the promoter group of FRL of which Noticee no. 1, 2 and 3 were part and Noticee no. 2 and 3 were privy to UPSI shows that the impugned trades were undertaken in the account of Noticee no. 1 because of possession of UPSI by Noticee no. 2 and 3.

This fact and the totality of facts of circumstances of the present case particularly, but not limited to, the fact that trading account of Noticee no. 1 was opened during the UPSI period just prior to the impugned trading and the trading was done at the fag end of the financial year 2016-17, show that impugned trades were undertaken in the account of Noticee no. 1 because of possession of UPSI by Noticee no. 2 and 3, the real decision takers for the trades of Noticee no. 1. Additionally, having regard to the facts and circumstances of the case I do not find that the purchase of shares by Noticee no. 1 was in the ordinary course of business as Noticee no. 1 has not contended that it was in the business of buying and selling of shares", the order stated.

FRL-Reliance deal unlikely to be impacted

The SEBI has however clarified that the restraint on dealing with share will not apply to those existing holding of securities in respect of which any scheme of arrangement under Section 230-232 of Companies Act 2013 is approved by NCLT.

"During the period of restraint, as directed in para33above, the existing holding of securities including the units of mutual funds, of the concerned Noticees, shall remain under freeze.Debarment/restraint/freeze imposed under this order shall not apply to thos eexisting holding of securities of such debarred entities, in respect of which any scheme of arrangement under Section 230-232 of the Companies Act, 2013, is approved by NCLT, requiring extinguishment of such securities and/or receipt of other securities in lieu of such securities", the order said. This clarification might save the FRL- Reliance deal, which is embroiled in a litigation initiated by Amazon.

Yesterday, the Delhi High Court had ordered status quo on FRL-Reliance deal on a plea by Amazon.

Click here to read/download the SEBI order

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