The Securities Appellate Tribunal (SAT) has quashed market regulator Sebi's order on Future Retail, asking the promoter group Future Corporate Resources Private Limited, founder Kishore Biyani and Director Anil Biyani to disgorge "unlawful gains" of over Rs 17.78 crore.
The Securities and Exchange Board of India (Sebi) order, which came after an investigating insider-trading allegations, also banned certain entities related to Future Retail from the securities market for a year.
On December 20, SAT quashed this order, saying that the entities did not trade on unpublished price-sensitive information (UPSI) because the information, which was about a demerger, was available in the public domain through media reports.
"We are satisfied that the information relating to de-merger was already in the public domain and, therefore, trading done by the appellants in the shares after the publication of the interviews and news reports cannot be considered as trading while in possession of UPSI. Thus, the charge in the show cause notice fails and the findings given by the WTM cannot be sustained. The impugned order is quashed. All the appeals are allowed with no order as to costs," said the SAT order.
Sebi had conducted an investigation into the scrip of Future Retail (FRL) to find out whether certain entities had traded in the stock between March 10, 2017 and April 20, 2017.
A merger of HomeTown operated by Future Retail and Bluerock e-Services Pvt Ltd (BSPL) operated by another listed entity Future Enterprises was being considered during this period. Sebi's showcause notice alleged that the UPSI period was from March 10, 2017, when the discussion of the merger took place and April 20, 2017, when the merger announcement was made to the stock exchanges.
This resulted in the de-merger of the home improvement business of Future Retail, which had a positive impact on the price of the scrip, according to the regulator.
During this period, some of these entities had traded in Future Retail's shares. But the Tribunal noted that this demerger was discussed by FRL and its senior management across various media channels during this period.
"We find that the WTM (whole-time member of Sebi) has failed to appreciate that the significance, dominance and outreach of the media in financial sector reporting impacts investor sentiment and behavior and impacts the securities market. We find that the publication of information regarding the transaction was also reported in multiple print and digital publications... And various research reports where the imminence and nature of the transaction were highlighted in depth have been entirely ignored by the WTM," SAT said.
"The finding that the interviews and news reports do not amount to concrete information being disclosed on a nondiscriminatory basis and, therefore, cannot be accepted that the information about the transaction was available in the public domain as the said information was very fluid, nebulous and bereft of specific details cannot be accepted."
It said that a review of these media reports showed that the company was going ahead with the merger. "In our opinion, the trades carried out were not on the basis of the UPSI as the information was generally available in the public domain," SAT said.
The WTM had contended that the company had denied the discussion relating to the merger/demerger in a stock exchange filing, after a media report came out on February 28, 2017.
The company had informed the stock exchange: "The board has given an in- principle authority for considering various options with regard to HomeTown format, however, there is no final understanding which has been arrived at till date.”
But this, the Tribunal did not think, was a denial. The SAT order said, "The company did not deny the de-merger discussion but only contended that no final decision had taken placed as yet."
In fact, the tribunal saw this clarification elaborating that the information relating to de-merger was in the public domain.
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