#TataMistry: Will Tata’s letter to SEBI for violation of insider trading norms merit a response?

Varun Marwah

Following its letter addressed to Cyrus Mistry on December 26 2016, Tata Sons has filed a ‘complaint’ with the Securities and Exchange Board of India (SEBI) against Cyrus Mistry for having violated Regulation 3(1) of the SEBI (Prohibition of Insider Trading) Regulations, 2015 (Insider Trading Regulations).

Regulation 3(1) of the Insider Trading Regulations restricts insiders from communicating or providing any ‘unpublished price sensitive’ information to any other person, including other insiders ‘except in furtherance of legitimate purposes’.

As per the ‘complaint’ filed with SEBI, Tata Sons has alleged that petition filed by Cyrus Mistry’s investment entities in the National Company Law Tribunal (NCLT) against Tata Sons and others, for oppression and mismanagement, has revealed certain information which is being viewed as ‘unpublished price sensitive information’ of various Tata Group listed entities.

This information gained by Cyrus Mistry in his capacity as the Director and Executive Chairman of Tata Sons, has flown from himself to his investments entities (being the petitioners at NCLT), and from there to the NCLT.

Aggrieved by Mistry’s ‘reckless’ behaviour, Tata Sons has alleged that he has acted in complete breach of ‘all legal duties and obligations he was subjected to’ with the ‘sole intention of causing harm and loss to Tata Sons and other Tata Companies’. The letter reads,

It is not the case of Tata Sons that Mr. Mistry should not be relying on relevant documents to support his case in the Petition. However, it is the grievance of Tata Sons that Mr. Mistry did not exercise care and caution while using Confidential & Sensitive Information by not redacting portions of the Confidential & Sensitive Information which have no relevance or are wholly unrelated to the case made out in the Petition.”

While Tata Sons has reached out to SEBI to exercise its powers under Sections 11B, 11C and 11D of the SEBI Act, 1992, there may (arguably) be reasons why this time Tata Sons might find themselves on the other side of maintainability.

While the NCLT is not bound by the strict procedure of a Civil Court, it is vested with the ‘same powers’ as a Civil Court under the Civil Procedure Code, 1908 (CPC) as per Section 424 of the Companies Act, 2013 for various enumerated matters.

1. Sections 15Y and 20A of the SEBI Act, not only expressly oust the jurisdiction of  a Civil Court from entertaining any suit or proceeding in respect of any matter which is pending before the SEBI but also bar ‘any court or other authority’ from granting any injunction in respect of matters which are pending before the SEBI.

Would a plain reading of these two provisions suggest that SEBI cannot take cognizance of this matter while it is pending before the NCLT? And if SEBI does, would the NCLT be barred from adjudicating the matter?

2. The letter addressed to SEBI rightly points out that Regulation 3(1) restricts sharing of any unpublished price sensitive information. But what is also relevant to note is Regulation 3(2), which also restricts ‘procurement’ of such information, thereby putting the recipient of such information on an equal footing as the informant- except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

As stated before, the ‘unpublished price sensitive information’, in this case, has flown from Cyrus Mistry to his investment entities and from there to the NCLT.

Does this make NCLT a party that has procured unpublished price sensitive information? Since the punitive powers under the SEBI Act, 1992 extend to recipient of such information as well.

3. The powers of a Civil Court vested with the NCLT, inter alia, allows ‘receiving evidence on affidavits’. And Order 13 Rule 3 of the CPC reads as under,

The Court may at any stage of the suit reject any document which it considers irrelevant or otherwise in admissible, recording the grounds of such rejection.”

This could be interpreted to mean that the NCLT is vested with the power to reject any such information which is being viewed as price sensitive.

Based on the information available in the public domain, neither has Tata Sons applied to the NCLT for the removal of such information from the record nor has the NCLT done so, suo moto.

This raises two questions. Firstly, as stated in the last point, would NCLT then become a party that has procured such price sensitive information and secondly, why would Tata Sons not apply to the NCLT for removal of such information from the record?

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