Ratan Tata’s fight with Cyrus Mistry gets a Sebi boost3 min read . Updated: 23 Jan 2017, 05:18 AM IST
Sebi says sharing price-sensitive information with a chairman emeritus not a violationof insider trading norms
Mumbai: Sharing price-sensitive information with a chairman emeritus does not violate insider trading rules, the board of Securities and Exchange Board of India (Sebi) observed, in effect giving a clean chit to Ratan Tata.
Insider trading regulations “allows communication of unpublished price sensitive information if it is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations," according to a 14 January Sebi board note reviewed by Mint. The board meet took stock of the boardroom battle at Tata group, among other things.
Sebi’s observations comes after Cyrus Mistry, the ousted chairman of Tata Sons, and Nusli Wadia, who was removed as independent director from the boards of three Tata listed firms, had alleged some trustees of Tata Trusts including Ratan Tata had sought information on the operating firms. The regulator’s board highlighted issues that have larger learnings for corporate governance in India, including sharing information with a chairman emeritus and appointing and removing independent directors.
The Sebi note said sharing information with a chairman emeritus is normal course of business. “Though such a person has left the company, the benefit of his expertise would be invaluable to the company. Sometimes agenda items and other sensitive papers pertaining to board and committee meeting could be circulated to him," the note said.
Ratan Tata was chairman emeritus of Tata Sons before he took over as interim chairman ousting Mistry. When Mistry was appointed chairman of Tata group firms in December 2012, some group companies including Tata Motors Ltd and Tata Steel Ltd also conferred the title of chairman emeritus on Ratan Tata. He is also a trustee on the Tata Trusts, which own two-thirds of Tata Sons, the holding company of group firms.
The regulator has also written to four group firms—Tata Motors, Tata Chemicals, Tata Steel and Tata Power Co. Ltd—seeking clarifications and comments after Wadia’s complaint about some trustees for Tata Trusts such as Ratan Tata and Noshir Soonawala seeking information, the board note said. The reply is awaited, it added.
Emails sent to Sebi, Tata Motors, Tata Chemicals and Tata Power on Saturday were not answered.
“Sebi and stock exchanges have on a few occasions requested comments from the company with respect to the events that unfolded over the past few months and the company has complied with those requests," a Tata Steel spokesperson said in an emailed response. “The company has strong governance and ethical processes. We take our compliance obligations seriously and the company has always complied with the law and governance norms both in letter and spirit."
A spokesperson for Tata Trusts said everyone’s conduct in every respect is as per law and expected norms.
The legal fraternity is split on the issue.
Trustees in possession of price sensitive information is a clear violation of insider trading regulations, said Sandeep Parekh, a former Sebi executive director and founder Finsec Law Advisors.
J.N. Gupta, a former Sebi executive director and founder of proxy advisory firm Stakeholder Empowerment Services, said it’s a strict interpretation. “There should be an institutional mechanism for majority shareholders to get information pertinent to the company for increasing shareholder value. And there should be an undertaking within this mechanism that this information would not be used for trading. Anyways, the trustees as per law are not allowed to trade," said Gupta.
In November, Sebi sought legal opinion on whether the Tata Trusts trustees calling for price sensitive information is a violation of insider trading norms. The board note did not say what advice the regulator received on this matter.
The board note also took note of Mistry’s allegations related to commercial decisions taken by boards. It said the audit panel of the board and company boards are the best decision makers.
“Intervention by the regulator is not envisaged in such situation unless there appears to be a violation of securities laws," it added.