Introduction:
Principle 4 of SEBI (Prohibition of Insider Trading) Regulations, 2015 (PIT Regulations), provides for prompt dissemination of unpublished price sensitive information on selective or inadvertent disclosure. Principle 1 of schedule A states that no information shall be disclosed only once concrete and credible information comes into being.
This article analyses interplay between Principle 4 over Principle 1 of the PIT Regulations.
To analyse this we need to answer following questions:
- If there is inadvertent leak of UPSI then whether disclosure of same by listed company is required to be done under principle 4 of Schedule A of PIT?
Principle 1 and Principle 4 of Schedule A of PIT Regulations provide for different scenarios. Principle 1 talks about dissemination of UPSI as soon as it becomes concrete and credible. Principle 4 provides for action to be taken on the part of listed entity whenever there is a leak of UPSI.
Principle 4 mandates that whenever there is inadvertent leak of UPSI, prompt disclosure in this regard is required to be given. A key distinction between the two principles is that Principle 1 stipulates disclosure of UPSI only at the concrete and credible stage, whereas Principle 4 requires immediate disclosure of any selectively or inadvertently leaked UPSI, irrespective of its development phase.
Hon’ble SAT in this regard has held that, “In our view, selective leakage of the information, howsoever accurate or otherwise or complete or in bits and pieces, does not discharge the company from its responsibility of making prompt disclosure to make it generally available, more so when such information has been classified by company as UPSI. Till the information is disclosed by the company, it remains unauthenticated.”
Hence it is clear that once listed company has identified an information as UPSI, and there is a leak of that UPSI, at any stage till UPSI becomes concrete and credible, or on it becoming concrete and credible (but before formal disclosure happens) prompt disclosure needs to be made making information generally available.
- The next question that arises is if disclosure under principle 4 of schedule A of PIT Regulations is given whether company would still be required to disclose details of event or information as per regulation 30(11) of LODR (revised)?
Regulation 30(11) read with SEBI notified Industry Standards on Rumour Verification [‘ISF RV’] rumour verification shall be done by top 250 listed entities in accordance with principles and format laid down in ISF RV. Further ISF RV standards at Part B specify the language that shall be used by top 250 listed entities for confirming, denying or clarifying market rumours.
ISF RV inter-alia provides that where there is an impending merger & amalgamation transaction viz, concerning acquisition of sale of undertaking including share of shareholding in another company or scheme of arrangement etc., at a preparatory stage (viz. signing of NDA or non-binding term sheet etc.) or at an advanced stage (viz. binding term sheet is signed or all material commercial terms have been agreed between the parties etc.) and there is rumour in the market regarding same, then top 250 listed entities will have to confirm, deny or clarify.
Now if the impending merger & amalgamation transaction is also an UPSI, in accordance with PIT Regulations, then listed entities will have to make a prompt disclosure in accordance with PIT Regulations also.
While confirming, or clarifying rumours under reg 30(11) of SEBI LODR, top 250 listed entities will have to disclose in the format specified ISF RV. Further prompt disclosure of UPSI pursuant to leak of UPSI under principle 4 of PIT Regulations and disclosure as per ISF RV framework listed entities may be guided by the language used in ISF RV standards.
So listed entity will confirm or clarify the rumour as per ISF RV also mentioning that this disclosure is also in accordance with PIT Regulations.
Conclusion:
The evolving regulatory landscape, as clarified by the recent SAT pronouncements and reinforced by SEBI’s ISF Rumour Verification standards, unequivocally places a higher onus on listed entities to act decisively in the face of leaks or market rumours involving UPSI. No longer can companies wait for information to become concrete and credible; the responsibility to disseminate UPSI arises the moment any element escapes into the public domain, regardless of its form or completeness. Principle 4 of Schedule A, therefore, assumes central importance, mandating swift, transparent disclosure to restore parity and uphold the fundamental spirit of the PIT Regulations.