SAT upholds Sebi order on Adlab's Shetty

Reduces the amount of fine from Rs 1 crore for insider trading to

It may be noted that the market regulator Sebi had earlier slapped a penalty of Rs 1 crore on Shetty, having found him guilty of “insider trading.”

Though SAT upheld the order on Friday, it reduced the amount of fine levied on Shetty as he was found only violating the provisions of the code of conduct applicable to the top management of listed entities. However, Adlabs Films had settled the issue with SEBI by paying Rs 15 lakh.

The SAT order made it clear that “the charge is not of violation of insider trading regulations but only of violation of the code of conduct by selling shares during the period when trading window was closed and after the decision of the Board was communicated to the stock exchanges and disseminated on their websites.”

In the changed situation, Shetty will now have to fork out the additional Rs 10 lakh or has the option of approaching the Supreme Court against the SAT order.

On April 23, 2006, the board of directors at Adlabs Films approved the proposal for demerger of the FM radio business to a wholly-owned subsidiary company.

Issuance of pro rata shares was done via SPV (special purpose vehicle) to the existing shareholders of the company in the ratio of two shares of the SPV for every one share of the company. The board also recommended a dividend of 45 per cent for the year ending March 31, 2005-06.

Those decisions were intimated to stock exchanges (both BSE and NSE). According to the regulatory guidelines, any director, officer or designated employee of a company cannot undertake any share transaction when important corporate announcements are made.

Manmohan Shetty, CMD of Adlabs, who was holding 82,91,234 shares, sold 10 lakh shares of the company on April 24, 2006. He sold 7.5 lakh shares between 10:11:30 hours to 10:12:34 hours and 2.5 lakh shares at 15:16:44 hours. The sale of 10 lakh shares was reported to BSE under bulk deal, but Sebi observed this share sale was prior to the expiry of 24-hours.

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