SEBI Finds Piramal Enterprises, Ajay Piramal Guilty Of Violating Insider Trading Regulations

SEBI imposes Rs 6 lakh fine on Piramal Enterprises for insider trading

Ajay Piramal, chairman of Piramal Healthcare Ltd. (Photographer: Dhiraj Singh/Bloomberg)
Ajay Piramal, chairman of Piramal Healthcare Ltd. (Photographer: Dhiraj Singh/Bloomberg)

Market regulator SEBI on Monday passed an order against Piramal Enterprises Ltd., its chairman Ajay Piramal, his wife Swati Piramal, their daughter Nandini Piramal and N Santhanam, the former executive director of the company for violation of insider trading regulations, after investigating the 2010 Piramal Enterprises-Abbott Laboratories deal.

The investigation by the Securities and Exchange Board of India (SEBI) was prompted by alleged irregularities in the stock of Piramal Enterprises – formerly known as Piramal Healthcare Ltd. – in the backdrop of the sale of its domestic healthcare business to Abbott Laboratories in 2010.

Rajat Sethi, a partner at law firm S&R Associates told BloombergQuint that the timing of the order is curious.

An interesting issue that arises from the order is in relation to the time that was taken to issue a show cause notice (February 2016) in respect of a transaction that took place in May 2010. The order does not disclose any subsequent facts or information that have become available that may have warranted such a long intervening period.
Rajat Sethi, Partner, S&R Associates

Sharing Of Unpublished Price Sensitive Information

The market regulator, in its order, has found the five failed to handle price sensitive information and close the trading window in time.

The order said that prior to the public announcement of the deal, the sale of Piramal Enterprises’ domestic healthcare formulation business to Abbott was ‘unpublished price sensitive information’ (UPSI) under the Prevention of Insider Trading (PIT) Regulations.

SEBI took note of Piramal Healthcare’s 2011 letter which stated that Anand Piramal, son of Ajay Piramal and part of the Piramal Enterprises’ promoter group, was aware of the sale. Relying on this letter, the market regulator concluded that involving Anand Piramal was a violation of the Model Code of Conduct for PIT regulations as he was neither a director nor an employee of Piramal Enterprises and that UPSI has to be shared on a ‘need to know’ basis.

But Rajat Sethi pointed out that SEBI’s order does not seem to address whether Anand Piramal played a role in the transaction which warranted disclosure to him.

It is not necessary that disclosure on a “need to know” basis can only be to a director or an employee. For example, the list of persons who had knowledge of the transaction, as identified by the company itself, refers to another person identified as a “consultant”. That has not been impugned by SEBI.  
Rajat Sethi, Partner, S&R Associates

Closure Of Trading Window

The second violation SEBI said was the failure to announce closure of the trading window on account of the information pertaining to the sale of the domestic healthcare business to Abbott.

The Model Code of Conduct leaves it to a company to decide the commencement of closure of trading window but it has to be necessarily closed from the time a notice announcing a board meeting is sent to the stock exchanges, so that entities in possession of price sensitive information cannot trade based on it. The window is allowed to be opened only 24 hours after price sensitive information is made public.

In its order, SEBI noted that the notice for board meeting to consider the sale was given on May 20, 2010 and the board met on May 21, 2010 to approve the transaction. The stock exchanges were informed about the deal on the same day. As per the Model Code on Insider Trading, the trading window should’ve been closed from May 20 and opened only 24 hours after the information was made public. SEBI pointed out that Piramal Enterprises failed to adhere to this requirement.

In the same order the market regulator dismissed allegations of insider trading against Harinder Sikka, an employee of Piramal Enterprises. SEBI pointed out that had the company closed the trading window, Harinder Sikka would have either sought pre-clearance or would have not been able to carry out the transactions that he did during the supposed closure period.


Having concluded violations under its insider trading regulations, SEBI imposed a penalty of Rs 6 lakh on Piramal Enterprises, Ajay Piramal, Swati Piramal, Nandini Piramal and N Santhanam.

“This issue pertains to a procedural provision with no gains to the promoter family or the management. Once we receive the order from SEBI, we will evaluate our options,” Piramal Enterprises said in an emailed statement.