Hindustan Unilever Limited v SEBI

 

Hindustan Unilever Limited v SEBI

 

Citation:(1998) 18 SCL 311 MOF

Judge: M.S. Ahluwalia. Finance Secretary and C.M. Vasudev, Special Secretary (Banking)

Date of judgement: July 14, 1998

Court: Securities Exchange Board of India

 

Facts:

•       The facts of the case concerned the purchase by HLL of 8 lakh shares of BBLIL from the Unit Trust of India (UTI) on March 25, 1996. This purchase was made barely two weeks prior to a public announcement for a proposed merger of HLL with BBLIL.

 

•       Upon investigation, SEBI by its Order dated March 11, 1998 (Order) found that, at the time of the purchase of shares of BBLIL from UTI, HLL was an “insider” as under Section 2(e) of the 1992 Regulations.

 

•       SEBI held that, since, HLL and BBLIL were subsidiaries of the same London based Unilever, and were effectively under the same management, HLL and its directors had prior knowledge of the merger. Thus HLL was covered under the definition of an insider as above defined.

•       An appeal was filed by HLL against the said SEBI Order before the Securities Appellate Authority.

 

Issues:

 

1. Whether HLL could be termed as an insider?

2. Whether the information available with HLL constituted Unpublished Price Sensitive Information?

 

Held:

 

The Appellate Authority agreed with the SEBI Order that the information available with HLL in relation to the merger was beyond merely self-generated information, i.e., information arising out of its own decision making. It also agreed with the contentions of HLL that, for information to be considered as UPSI, it must meet the dual requirements envisaged under Section 2(k) of the 1992 Regulations. The Appellate Authority also held that for information to be generally known, it is not required to be confirmed or authenticated by the company as it would otherwise fall under the category of information “published by the company”. It agreed with SEBI’s conclusion that information of the merger was price sensitive (though not ‘unpublished’). The matter is currently pending before the Supreme Court.

 

Conclusion:

Insider trading has been a long-standing practice in the corporate sector. Every person wishes to profit himself, but this does not imply the employment of unequal methods. Insider trading was not always given much attention since catching an insider was always difficult due to a lack of laws and regulations. Though, as insider trading became more prevalent, firms began to suffer losses, prompting insider trading to be viewed as a serious concern. Insider trading was also thought to be unfair to the wider community because it benefited only a few people due to the release of non-public information. SEBI enacted many rules to punish and prevent insider trading. Despite the fact that numerous laws have been enacted and adequate regulatory mechanisms have been implemented to combat insider trading in today's society, the pandemic has introduced several new problems. It was easier to keep an eye on this issue in the past, but with the work environment becoming more remote, a lot of vital information may end up in the hands of a potential insider.