Divi's CFO, associates to pay penalty amount in an escrow account

Earlier this week, markets regulator Sebi came out with a penalty order of Rs 96 lakh on the L Kishore Babu, CFO of pharma major, Divi's Laboratories and his close affiliates for violating the Prevention of Insider Trading rules.

Sebi's investigation found that Divi's CFO and others including his son prima facie made wrongful gains from having access to unpublished price sensitive information over a few days in July 2017 regarding the lifting of an import alert by the US drug administration.

Treating the findings of its investigation as allegations, Sebi has imposed the Rs 96 lakh penalty on all the accused in its ad-interim ex-parte order. The disgorgement includes the interest component (12% simple interest per annum) and the regulator has asked the banks and depositories to not allow any debits from the accounts.

The accounts will only be defreezed once any of the persons named provides proof that total penalty amount has been deposited in an escrow account created specially for the purpose in a nationalised bank. A lien in favour of Sebi will be executed.

Sebi recognises that the findings of its investigation can be challenged by the Divi's CFO and his associates in subsequent legal proceedings and as a precautionary measure has ensured that the penalty amount is protected.

"With the initiation of quasi-judicial proceedings, it is possible that the noticees may divert the unlawful gains which may result in defeating the effective implementation of the direction of disgorgement, if any, that may be passed after adjudication on merits," the regulator explains in its order.

"Non-interference by the Regulator at this stage would therefore result in irreparable injury to interests of the securities market and the investors," it adds.

A CFO comes under the definition of Key Managerial Personnel (KMP) under section 2(51) of Companies Act, 2013.