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INTRODUCTION

Insider trading refers to a situation when a person having unpublished price-sensitive information such as financial result, expansion plans, take-over bids, etc. by virtue of his association with a company, trades its share to make undue profits.

It is fairly a breach of fiduciary duties of officers of a


company or connected persons as defined under the SEBI regulations,1992, towards the shareholders.

WHO IS INSIDER
Corporate officers, directors , and employees who traded the corporations securities after learning of significant , confidential corporate developments.

Friends , business associates, family members , and other types of such officers , directors , and employees, who traded the securities after receiving such information.

PRICE RIGGING
Price rigging occurs when person acting in concert with each other collude to increase or decrease artificially the price of a security.

ABOUT THE CASE


HLL bought 8 lakh shares of BBLIL from UTI at Rs 350.35 per share (At a premium of 9.5% of the ruling market price of Rs 320) just two weeks before the formal announcement knowing that the HLL and BBLIL were going to merge. SEBI held that HLL was using unpublished, price-sensitive information to trade, and was therefore guilty of insider trading. In March 1998, SEBI passes an executive order, which sent shock waves through the countrys corporate sector. SEBI directed HLL to pay UTI Rs 3.4 Crore in compensation, and also initiated criminal proceedings against the five directors of HLL and BBLIL.

CONTD
HLL claimed that the purpose of the purchase of shares was to enable Unilever to acquire 51% shares of BBLIL. In July 1998, the Appellate Authority of the Finance Ministry dismissed the SEBI order. However, SEBI was correctly order was correctly based on a simple proposition of law : what can not be done directly can not be done indirectly.

INTERPRETATION IN THIS CASE


SEBI took the stand only HLL knew about the merger and it acted of such unpublished information. According to SEBI,HLL and its directors misused such information. HLL was insider by buying 8lacs share of BBLIL from UTI. Shares where purchased from UTI to ensure 51% stake in unilever with prior knowledge of swap ratio.

Contd
SEBI is also charged HLL of acting in a manner inimical to the interest of thousands of ordinary share holders. Beside HLL depleted its own resources by helping its holding company. SEBI charged HLL deprived the foreign exchange of country and as unilever would have invested nearly Rs 450 -500million to rise its holding to 51% after post merger.

ARGUMENTS FOR AND AGAINST SEBIS RULING


HLL countered that though it was deemed to be connected to BBLIL because it was one of the parties itself and not merely because of its connection to BBLIL. SEBI argued that even BBLIL was construed to be unconnected, HLL should be second type of insider because it would permit a connected or deemed connected person to misuse the price sensitive information because HLL received the information independently.

Contd
According to clause of SEBI on insider trading information which is concern, directly or indirectly to a company, and is not generally known or published. While SEBI argued HLL gone against regulation , HLL pointed out that before the share price of BBLIL moved up from Rs240 to Rs320 between jan to march

HLL asserted that it was unaware of the swap ratio when the company bought BBLIL shares in march 1996. HLL argued information of merger was not enough knowledge to investors to buy its shares until the share-swap ratio was known, the only thing was price sensitive was a swapratio and HLL was not aware of it when it purchased BBLIL shares from UTI

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