SEBI Levied Fine Against Promoter Entity of ZEEL For Disclosure Lapses

SEBI Levied Fine Against Promoter Entity of ZEEL For Disclosure Lapses

The Securities and Exchange Board of India (SEBI) has penalized Cyquator Media Services, a promoter entity of ZEE Entertainment Enterprises Ltd (ZEEL), for certain disclosure lapses. A fine of Rs. 4 lakhs have been imposed on Cyquator for failing to make adequate disclosures regarding certain trades in shares of ZEEL.

The regulator had conducted an examination of trading in ZEEL shares by the entity to ascertain any possible violations of insider trading norms during the period from January 1 to 26 December, 2019.

SEBI in its order observed, “It was observed that the noticee (Cyquator Media Services) being a promoter has made delayed disclosure with respect to creation of pledge and also failed/made delayed disclosures with respect to invocation and sale of pledge to ZEEL and exchanges.”

In association with the discrepancies, a show cause notice was issued to the noticee, which submitted its reply.

The promoter entity, Cyquator Media Services, contended that failure to make disclosures within the set time was unintentional, technical or inadvertent and that no gain or unfair advantage has accrued to it.

In this regard the SEBI on perusal of SEBI (Prohibition of Insider Trading) Regulations (PIT Regulations) and SEBI (Substantial Acquisition of Shares and Takeovers) Regulations (SAST Regulations) stated that these regulations are meant to ensure timely dissemination of material and price sensitive information to enable investors to make well-informed investment decisions.

In the instant case, the SEBI noted that disclosure requirement with respect to invocation of pledge as per Regulation 7(2)(a) of PIT Regulations was triggered on 8 April, 2019 and thus, it was mandatory on the part of the Noticee to file the disclosure of the same on 10 April, 2019. Similarly, all the remaining transactions were required to be disclosed within 2 trading days of each of the transactions as each of them were in excess of Rs 10 lakh. However, Noticee disclosed the entire transactions to ZEEL vide letter dated 7 June, 2019.

Thus, the board held that Noticee failed to comply with the disclosure requirements outlined in Regulation 7(2)(a) of the PIT Regulation.

The SEBI Adjudicating Officer (AO) Vijayant kumar Verma observed, “as per regulation 31 of the SAST Regulations, the promoter of a target company is mandatorily required to disclose details of shares encumbered by them or persons acting in concert with them. This includes disclosing any invocation or release of such encumbrance. The disclosures should be made within seven working days from the creation, invocation, or release of the encumbrance. The disclosures should be made to every stock exchange where the shares of the target company are listed and to the target company at its registered office.”

The Noticee had contended that failure to make disclosures within the stipulated time, was unintentional, technical or inadvertent and that no gain or unfair advantage has accrued to it.

In this regard the AO referred to the decision passed in the case of Akriti Global Traders Ltd. vs. SEBI, (2014), wherein it was held that, argument of appellant that the delay was unintentional and that the appellant has not gained from such delay and therefore penalty ought not to have been imposed is without any merit, because, firstly, penal liability arises as soon as provisions under the regulations are violated and that penal liability is neither dependent upon intention of parties nor gains accrued from such delay.

The SEBI clarified that the company had also violated mandatory disclosure requirement under PIT Regulations and SAST Regulations. The regulator said that such grave violations cannot be termed merely technical and venial.

Accordingly, the SEBI imposed a penalty of Rs. 4 lakhs under section 15-I of the SEBI Act read with Rule 5 of the SEBI Adjudication Rules, on the promoter entity- Cyquator Media Services Pvt Ltd.