Order against Shri A L Shilotri in the matter of insider trading in the shares of Tata Finance Limited by Shri J.E. Talaulicar.

Jan 02, 2004

Orders : Orders of Chairman/Members

SECURITIES AND EXCHANGE BOARD OF INDIA

ORDER

Directions under section 11 read with section 11B of the Securities and Exchange Board of India Act, 1992 and SEBI (Prohibition of Insider Trading) Regulations, 1992 against Shri A L Shilotri in the matter of insider trading in the shares of Tata Finance Limited by Shri J.E. Talaulicar.

WTMO/18/IVD/12/03

Shri Avadhoot L Shilotri (hereinafter referred to as "Shri Shilotri") was the President and Chief Executive Officer of Niskalp Investment and Trading Company Limited (hereinafter referred to as "NITCL"), then a virtually wholly owned subsidiary of Tata Finance Limited (hereinafter referred to as "TFL") during the period 6.2.2001 to 20.7.2001. Immediately, prior to this period, he was the Vice President (Investments) of TFL. NITCL is an investment company incorporated under the Companies Act, 1956. The shares of TFL are listed on The Stock Exchange, Mumbai (hereinafter referred to as "BSE’) and the National Stock Exchange of India Ltd. (hereinafter referred to as "NSE").
1. The Securities and Exchange Board of India (hereinafter referred to as "SEBI") ordered preliminary investigation on 28.08.01 into the alleged manipulation and insider trading in the shares of TFL by Shri J.E. Talaulicar.
2. The preliminary investigation revealed that Shri J E Talaulicar (hereinafter referred to as "Shri Talaulicar"), the Chairman of NITCL and a director of TFL along with his family members had received a sum of Rs.69 lakhs from one JIP Investment (hereinafter referred to as "JIP"), a sub broker of JHP Securities Pvt. Ltd. (hereinafter referred to as "JHP") a member of BSE on March 31, 2001 and that Shri Talaulicar had delivered 1,00,000 shares of TFL on April 04, 2001 to JIP. The said Rs.69 lakhs was a consideration for sale of 1 lakh shares of TFL @ Rs.69. Subsequently, during 18^th to 30^th May 2001, the shares were sold in the market by JIP through JHP and Prashant J. Patel, a member of NSE on behalf of Shri Talaulicar and his family at a price of about Rs.34/- per share. It was also observed that Shri Talaulicar refunded Rs.34.79 lakhs being the difference in prices to the JIP.
3. It was also noticed that an amount of Rs.70 lakhs was paid by NITCL to JHP on March 30, 2001 and that on the next day i.e. 31.3.2001, an amount of Rs.69 lakhs was transferred by JHP to its sub-brokers, JIP which in turn paid the said amount to Shri Talaulicar and his family. Copies of bills dated 06.09.2000 purportedly issued by JIP in favour of Shri Talaulicar and his family for sale of 1,00,000 shares of TFL at a price of Rs.69 per share were traced during the investigations. These documents along with the payments made by JIP to Shri Talaulicar and family in March 2001 when the market price of TFL was only about Rs.40/-, raised suspicions about insider trading. In view of this, vide order dated 8.11.2001, SEBI initiated a formal investigation into the dealings of Shri Talaulicar and his family in the scrip of TFL.

Findings of the Investigation
1. Rights Issue by TFL
  1. It was seen that, TFL, at its Board meeting on 04.01.2001 decided to come out with a rights issue of 9% Cumulative Convertible Preference Shares (CCPS). This was confirmed by a further resolution in the board meeting on 29.01.2001. Shri Talaulicar as a Director was present in both the meetings. The issue opened on 30.3.2001 and closed on 30.4.2001.
  2. Subsequently, in the light of complaints received by SEBI and TFL in April, 2001 alleging non-disclosure of losses of NITCL in the letter of offer, TFL vide letter dated 30.4.2001, disclosed to its shareholders that there was a substantial erosion in the value of the stocks held by it and that NITCL had incurred a provisional loss of Rs.79.37 crores as on 31.3.2001 mainly on account of erosion of value of investments held by it as against a reported profit of Rs.11.46 crores as on 30.9.2000. TFL also gave an option to the subscribers in the rights issue to withdraw their subscriptions.
2. Payments to Shri. Talaulicar and his dealing in the shares of TFL

Name	Amount
J. E. Talaulicar	Rs.24,15,000/-
Aparna Talaulicar	Rs.15,52,000.-
Sandeep Talaulicar	Rs.6,90,000/-
Anant Talaulicar	Rs.6,90,000/-
Usha Talaulicar	Rs.15,52,000/-
Total	Rs.69,00,000/-

The payment was made to Shri Talaulicar in the form of 5 cheques, which were banked by him. The monies were debited from the bank account of JIP on 04.04.2001 and 07.04.2001. According to the submission made by Shri Talaulicar, no sale contract / bills for the sale of 1,00,000 shares of TFL were received by him.

It was observed that the Board of Directors of TFL on 20.3.2001 approved the letter of offer in respect of the rights issue. This final letter of offer contained financial results of TFL and NITCL as on 31.12.2000 and 30.9.2000 respectively. These showed that Profit After Tax (PAT) for TFL and NITCL was Rs.16.41 crores and 11.46 crores respectively. It was also noted that for the financial year ended 30.6.2000, dividends from NITCL, which amounted to Rs.10.81 crores, was largely responsible for the profits of TFL. Thus, any loss suffered by NITCL would adversely impact the profits of TFL, which would in turn affect the price of the shares of TFL. According to subsequent disclosures by TFL on 30.4.2001 NITCL had indeed suffered a loss of Rs.79.37 crores as on 31.3.2001. The information regarding the losses being suffered by NITCL was price sensitive information.

It was also noted that the information of the losses suffered by NITCL was not available to the public prior to 30.4.2001 and was therefore unpublished price sensitive information. It was further noted from the minutes of the Board meeting dated 2.2.2001 that the estimated Profit and Loss account for NITCL for the period 1.4.2000 to 31.1.2001, which was tabled at the said meeting, disclosed a loss of Rs.17.10 crores. It was also observed that Shri Talaulicar was present at the said meeting and was therefore aware from 2.2.2001 of the fact that NITCL had suffered loss. Further, Talaulicar received daily statements regarding the Net Asset Value (NAV) of NITCL from September 2000 onwards. These statements indicated that the value of the shares comprising NITCL’s investments showed a persistent downward trend. Therefore, it was alleged that Shri Talaulicar was in possession of unpublished price sensitive information relating to the shares of TFL and that he had dealt in 1,00,000 shares of TFL on the basis of the unpublished price sensitive information regarding the losses suffered by NITCL.

2.3 Role of Shri Shilotri in the Insider Trading

1. 1. In his letter dated 30.11.2001to SEBI, Shri Talaulicar stated that he had intended, after retirement from the Tata Group of Companies to settle down in Goa and intended to sell his shares to raise the money. He also stated that Shri Dilip S Pendse, the Managing Director of TFL advised him that rather than selling the shares of TFL, he should take a loan from Tata Home Finance Ltd. (THFL). He further stated that Shri Pendse had advised him not to take a loan from another financial institution as it would reflect badly on the Tata name if a senior Tata Executive like himself were to take housing loan from an outside institution when the same was available in-house with THFL. Shri Talaulicar submitted that since he was a Director of TFL the company made an application to the Department of Company Affairs, Ministry of Law and Justice, New Delhi for permission under Section 295 of the Companies Act. Shri Pendse arranged for the application and also pursued the same.
  2. Shri Talaulicar further stated in his letter dated 30.11.2001 that as non Executive Director of TFL, he was not involved in the preparation of the proposal, which led to the Rights Issue. His role with respect to the said rights issue was restricted to the decision taken at the Board meeting held on 04.01.2001 at which the rights issue was passed on the strength of the recommendation of Shri Pendse. He further stated that in March 2001, Shri Pendse orally informed him that the approval of the DCA under Section 295 was not likely to come through. He stated that he spoke with Shri Pendse and Shri Shilotri of his desire to sell the shares in view of the fact that he was unable to get a loan from THFL and they offered to organise the sale of his shares. He stated that at the time of entrusting the sale of his shares in TFL to Shri Pendse, he had implicit trust and faith in Shri Pendse who was a trusted Tata employee and whom he considered to be a friend.
  3. Shri Talaulicar further stated that on 31.03.2001, Shri Pendse and Shri Shilotri gave him the cheques aggregating to Rs.69 lakhs towards the sale of his shares and the shares of his family. He further stated that Shri Pendse while handing over the cheques orally informed him that the said cheques represented the sale consideration of 1 lakh shares of TFL held by him and his family and that the same was to a close friend of Shri Pendse. Shri Talaulicar further states that Shri Pendse requested him to issue necessary instructions bearing the name of the transferee blank to his depository viz. HSBC for the transfer of 1 lakh shares. He stated that he had no reason to doubt the reason / explanation offered by Shri Pendse. He also stated that since he was not a regular trader in the Stock Exchange, he believed the word of Shri Pendse.
  4. Shri Talaulicar further submitted that when he contacted Shri Pendse and Shri Shilotri in early May 2001, they represented to him that the shares had not been sold and that they had organised the sale then and that he would have to refund the difference between the price paid to him and the ruling market price. He reiterated that he had trusted Shri Pendse and had no cause to doubt that he was acting for his benefit in agreeing to sell the shares held by him and his family.
  5. Shri Talaulicar further stated that none of the Executive Directors of TFL including himself was aware on any erosion in TFL’s fortunes. Only at the Board meeting of TFL on 25.05.2001, were he and other non executive Directors informed of the various illegal an unauthorised actions of Shri Pendse and his team.
  6. The statements of Shri Shilotri indicated that Shri Pendse and Shri Shilotri had arranged the sale of the shares through JIP. It was therefore alleged that Shri Shilotri had aided Shri Talaulicar in insider trading through "counselling" the dealings in the shares of TFL and had thereby violated Regulation 3 of SEBI (Insider Trading) Regulations, 1992 (hereinafter referred to as Insider Trading Regulations).

Show Cause Notice was issued to Shri Shilotri on 08.08.2002 communicating the findings of the investigations and also advising him to submit his explanations on the said findings. Shri Shilotri submitted his written submissions in respect of findings of investigation through his advocates Federal & Rashmikant vide their letter dated 25.11.2002. The written submissions on behalf of Shri Shilotri are as under:
1. The following documents were not furnished to them despite an express reference thereto and a request for the same.
a complete copy of the report of the internal independent committee constituted by the Tata Group.

Submissions of Shri Bharat Patel to the said internal independent committee.
1. That he was furnished only copies of pages 5 and 6 of the report containing the Internal Independent Committee’s summary of Shri Bharat Patel’s submissions and that full text of the report was not submitted to him and therefore it was a violation of principles of natural justice.
2. The alleged violation of Regulation 4 and the basis thereof was not substantiated either by the Report of investigation or the documents referred to therein and that he was not involved in the day to day operations regarding payments to brokers and it was not within his authority to authorise the payment of Rs.70 lakhs or any such payments
3. The payment of an advance of Rs.70 lakhs on 30^th March 2001 by NITCL to JHP as advance was a routine payment and that his initials on the vouchers were obtained only as a matter of convenience so as to comply with internal signature procedure requirements.
4. The findings of the investigation that there was an "understanding reached between Shri Talaulicar, Shri Pendse, JHP and JIP for arranging for the sale of shares of Shri Talaulicar and his family and transferring the funds to them" and that "Shri Talaulicar with the help of Shri Pendse arranged through JIP to backdate the contract to suitably match with the consideration of Rs.69/- per share" substantiates his case of total un-involvement in any understanding or any role in any alleged backdating of contract.
5. His only involvement in the matter was after Mid May 2001 when Shri Talaulicar told him that there were some shares lying with Mr. Bharat Patel and required him to follow up with Mr. Bharat Patel in respect of the sale of the said shares and organise for repayment of the amount from Mr. Bharat Patel to NITCL. Only subsequently in June, 2001 he learnt that the sale pertained to the 1,00,000 shares (of Shri Talaulicar & family) which was conducted by an Associate / known entity of Mr. Bharat Patel on behalf of Shri Talaulicar’s family.
6. At the point of time, TFL had already issued additional information to its shareholders (by letter dated 30^th April 2001) disclosing that NITCL was expected to show a provisional loss of Rs.79.37 crores as on 31^st March 2001 as against the profit of Rs.11 crores as on 30^th September 2000 disclosed in the letter of offer. The Investigation Report confirmed that "at this point of time this information came to the public knowledge", and thus ceased to be unpublished price sensitive information or information likely to materially affect the price of shares of TFL in the market.
7. The sale of shares by Shri Talaulicar between 18^th May 2001 and 1^st June 2001 being prior to a public disclosure, or was not on the basis of any unpublished price sensitive publication.
8. The investigation report did not have any findings that he is or was, at the material time, an "insider" with regard to TFL or its shares; or he had received or had access or was reasonably expected to have access to any "unpublished price sensitive information" in respect of the securities of TFL.
9. He could not fall within the definition "Insider" at all.
10. The term "connected person" as defined in Regulation 2(c) had no applicability to him nor can be deemed to be connected person as defined by Regulation 2(h) of the said Regulations, since he was, at the material time, (viz. March 2001 and thereafter) the President and Chief Executive Officer of M/s Niskalp Investment & Trading Company Ltd., (hereinafter "NITCL") a wholly owned subsidiary of TFL and not a Director, Officer or employee of TFL nor did he hold any position involving a professional or business relationship with TFL nor a person described in clauses (i) to (vii) of Regulations 2(h). He argued that NITCL was only one of the subsidiaries of TFL, which had two other subsidiaries. As the president and CEO of NITCL, he was not aware of nor did he have access to any information about the affairs (financial or otherwise) of TFL or its other subsidiaries. The knowledge of the diminution / appreciation in NITCL’s portfolio (which at the highest would only be an unrealised loss / profit) by virtue of his position in NITCL, could not be deemed to be unpublished price sensitive information and that he was not in possession of any price sensitive information in respect of shares of TFL, whether unpublished or otherwise.
11. Even assuming for the sake of argument, whilst denying, that he was an insider having access to unpublished price sensitive information in respect of the shares of TFL, mere follow up by him at the instance of a superior of the sale of the said shares (in May 2001) belonging to the admitted "insiders" cannot by any stretch of imagination, be termed as counselling or procuring any person (who would necessarily have to be a person not privy to such unpublished price sensitive information) to deal in securities whether in violation of the provisions of the said regulations or otherwise. Though he did not counsel or organize any dealing of shares merely "organizing dealing in shares" is not prohibited by nor violative of the said regulations.
12. He had not violated Regulation 4 of the said Regulation and any purported finding to that effect is without any basis.
13. Shilotri submitted the following material events would substantiate the point that there was no violation on his part of the said Regulations:

He joined the employment of TFL some time in or about October, 1995 as General Manager – Merchant banking. Thereafter, he was promoted to the post of Vice President – Investments of TFL. With effect from 6^th February 2001, he was appointed President and Chief Executive Officer of NITCL by the Board of Directors of NITCL (and not by D S Pendse) and continued as such till 20^th July 2001 when his services were terminated.

On 30^th March 2001, NITCL paid to JHP Securities (JHP) an advance of Rs.70 lakhs. The said payment was of a routine nature and appears to relate to payment of ad-hoc margin. The voucher dated 30^th March 2001 reflects that the same was prepared and submitted by the Accounts Department to Mr. Karyekar and that the same was signed / initialled by Mr. Karyekar and DSP. All payment to be made by NITCL including payments pertaining to the Equity Investment Division were the responsibility of and looked after by Mr. Karyekar who as stated earlier used to report to Mr. Ramanujam. It is likely that his initials on the said voucher were obtained only as a matter of convenience so as to comply with the signature requirements having regard to the fact that the Accounts Department was located in the same building as our client’s office whereas Mr. Ramanujam had his office at Andheri. Payments to brokers were scrutinised and made by the Back office and Accounts Department of NITCL and he was never involved in the day to day operations in that behalf nor did he have jurisdiction to authorise any such payments. There was nothing unusual about Rs.70 lacs being advanced to JHP as advance margin although there was already a credit balance of Rs.83 lacs in NITCL’s Account in the books of JHP. As far as he can recollect, the Board of Directors of NITCL at the meeting held in December 2000 had approved further investment upto the aggregate limit of Rs.20 crores in select scrips and directed the management to buy at best possible price and at appropriate times keeping in view the market conditions. In view thereof, a close vigil was kept on the market movement awaiting a good opportunity to buy shares at lower prices in order to average out the huge diminution in NITCL’s portfolio. In fact, NITCL invested in shares of over Rs.6 crores during March 2001 to June 2001, out of which shares of the purchase value of over Rs.5.75 crores were purchased in the month of March 2001 itself. It was decided to purchase the shares through JHP only after Tata TTD Waterhouse declined to do so as it had already exhausted limits for NITCL. Thus, the advance of the said sum of Rs.70 lacs to JHP as adhoc margin appears to have been given in the light of the aforesaid investment decision and in view of the then high volatility and fluctuating margins imposed by SEBI to control the vagaries of the market and as the margins on the stocks in which NITCL was interested investing were very high. However, no shares were subsequently, purchased as the market condition became very fluid and unpredictable including a daily deterioration in the market scenario.

It is only after learning of the complaint filed by one Mr. Shankar Sharma that it was pointed out to our client in mid May 2001 that there was a payment of around Rs.70 lacs due from JHP to NITCL which probably related to some personal transactions of Shri Talaulicar.. On hearing of the same, our client immediately met Shri Talaulicar and informed him what he heard and that it would be advisable, considering Shri Talaulicar’s reputation and status, to see that the concerned money is returned immediately if at all he was a beneficiary. It is only thereupon that Shri Talaulicar told our client that there were some shares lying with Mr. Bharat Patel or his associate and pressurized him to follow up with Mr. Bharat Patel regarding the sale of the concerned shares and to organize repayment of the monies to NITCL, etc. It is only in June 2001 (after Rs 70 lacs was repaid by JHP to NITCL) that our client learnt that the sale pertained to the said 1 lac shares of Talaulicar and his family in TFL.

Having regard to the facts and events briefly recapitulated above, it is respectfully submitted that mere follow up by our client (a subordinate who cannot be expected to defy his superior) in respect of the sale of the said shares in May 2001 (at the directions of Shri Talaulicar and admittedly at the then prevailing market price) cannot, be a violation of the said Regulation.

The Investigation Report does not ascribe any role or involvement on the part of our client in the transactions of March 2001 in respect of the said shares of Shri Talaulicar and his family, save and except the observations that :
1. Shri Talaulicar has contended that DSP along with our client "arranged for putting through the transactions through JHP and also transfer of funds through them from NITCL to Shri Talaulicar and family" and;
2. It has been alleged by Jigesh I Patel (JIP) that the amount of Rs.69 lakhs was paid to Shri Talaulicar as loan and that our client had negotiated with him for the loan and that our client had told him after the money was received by Shri Talaulicar and Shri Talaulicar was willing to transfer 1,00,000 shares of TFL to him to be kept by him till settlement of the loan.

3.15 The aforesaid allegation imputed to Shri Talaulicar is conspicuously absent in Shri Talaulicar’s sworn statement date 18^th June 2002 before SEBI. Even in his letter dated 30^th November 2001, SHRI TALAULICAR has not made the aforesaid allegation but only submitted that the Internal Independent Committee constituted by the Tata Group "could have reached" inter alia, the following findings:

"It appears that the funds for the alleged back dated transaction unknown to me were allegedly arranged by Mr. Pendse and Mr. Shilotri in collusion with one another by preparing a voucher with the help of which a sum of Rs.70 lacs was allegedly shown as paid by NITCL to JHP the brokerage firm of Mr. Patel, allegedly towards ad hoc margin amounts."

1. Whilst confirming that it was he who decided to sell the said shares on his allegedly being informed orally in March 2001 that the Central Government approval was not likely to come through Shri Talaulicar has falsely alleged that :
he therefore spoke to Mr. D S Pendse and our client in March 2001 and that Mr. D S Pendse and our client allegedly offered to "organise the sale" of the said shares.

On 31^st March 2001, Mr. D S Pendse and our client gave him five cheques issued by JIP aggregating to Rs.69 lacs towards sale of the said shares (in the reply dated 19^th September 2001 to the Tata Internal Committee though not in the statement dated 18^th June 2002 or letter dated 30^th November 2001).

He repeatedly followed up the matter with Mr. D S Pendse and our client for the sale contracts to which they allegedly informed him that the shares were purchased by a close friend of theirs and that they would give the contract notes soon;

In early May 2001 Mr. DS Pendse and our client on being contacted by Shri Talaulicar represented to him that the shares had in fact not been sold and that they would organise the sale now and that he would have to refund the difference between the price.
1. However, subsequently in the said letter dated 30^th November 2001, itself, Shri Talaulicar has contended that it was Mr. D S Pendse from whom he had been demanding contract notes for the sale of the said shares and that it was DSP who informed him that the shares had in fact not been sold on 31^st march 2001 and offered to sell the same at the then prevailing market price and that he had to refund the difference between the prevailing market price and the amount paid to him on 31^st March 2001. Significantly, in his statement dated 18^th June 2002, Shri Talaulicar has not even alleged any involvement on our client’s part in the events of March 2001, whether of having informing our client of his decision to sell the said shares, any alleged offer made by our client to organise sale of the said shares or our client having handed over the cheques for Rs.69 lacs to him otherwise. As correctly found by the Tata Internal Committee one can only wonder "what was there to organize in a sale of listed shares which could easily have been transacted through a broker".
2. By letter dated 25^th September 2001, the said Mr. Kale, inter alia, whilst placing on record that the papers sent by Shri Talaulicar did not include the letter dated 9^th April 2001 from THFL to the Department of Company Affairs giving clarifications and ending with a request "to expedite the approval" also referred to with the handwritten note by Mr. Wagh dated 16^th April 2001 (on the update memo dated 10^th April 2001 addressed by him to Mr. D S Pendse assuring best efforts to process the proposal) to the effect that he had discussed the matter with Mr. DS Pendse on 16^th April 2001 and that D S Pendse suggested that the application be withdrawn and that he would keep Shri Talaulicar informed. Mr. Kale also placed on record Shri Talaulicar’s own admission in his letter dated 2^nd July 2001 to the Chairman Tata Finance Ltd. "I was advised on April 11, 2001 that the Central Government approval was not likely" A request was also made as the identity of the person in THFL who informed Shri Talaulicar orally that the Central Government approval was not likely to come through.
3. Significantly Shri Talaulicar in his reply dated 19^th October 2001 whilst alleging that the file he received did not include the letter dated 9^th April 2001 and that he did not recall exactly which was the officer from THFL, Pune who informed him that Central Government approval was not likely to come through but that he was generally dealing with Mr Wagh had no answer to offer regarding the handwritten note of Mr. Wagh or even his own letter dated 2^nd July 2001 to the Chairman of TFL.
4. In the light of the above and in any view of the matter, it is obvious that the contention of Shri Talaulicar that in March 2001 he allegedly learnt or was informed that the Central Government approval was not likely to come through and that he therefore decided to sell the said shares is false beyond shadow of doubt. The question of our client having offered to organise any sale of the said shares or any involvement in the events of March / April 2001 simply does not arise.
5. Shri Talaulicar has sought to feign ignorance of the profitability and financial position of NITCL and has falsely alleged that right up to 25^th May 2001 the "entire non Executive Directors" of TFL and NITCL were given impression by DSP that TFL would continue to make profit. Nothing can be farther from the truth. Admittedly Shri Talaulicar was Chairman of NTICL and its Investment Committee and received NAV statements on daily basis from September 2000 onwards. In fact, NAV statements of NITCL’s portfolio were also furnished to the Chairman of TFL on a daily basis. At the relevant time Shri Talaulicar was also Director of TFL and member of its Audit Committee. Further at the Board meeting of NITCL held on 2^nd February 2001 NITCL’s estimated Profit and Loss Account for the period 1^st April 2000 till January 2001 was tables which disclosed a loss of Rs.17.10 crores as against the profit of Rs.11.46 crores as on 30^th September 2000. It is incredible for Shri Talaulicar to even have suggested that that the receipt of consideration of Rs.69/- per share (when the market rate was around Rs.40/- per share) did not arouse any concern as he was allegedly more interested in the aggregate value that the shares would fetch rather than the price per share or that he did not allegedly look at the price of the shares of TFL, particularly, in view of the statement of Shri Talaulicar himself that the said 1 lac shares held by his family and himself in TFL constituted about 60% of his savings. In fact, Shri Talaulicar in his letter dated 19^th October 2001 to Tata Inquiry Committee has, in terms stated that "Although I was aware that the price being offered for the shares was higher than the prevailing market price, I had no reason to doubt the reason/ explanation offered by Mr. Pendse to me, that this was on account of the fact that these shares were being sold to his friend who was committed to buying the same at this price". Curiously, the words "Although I was aware that the price being offered for the shares was higher than the prevailing market price" (which demonstrate beyond any shadow of doubt that Shri Talaulicar was much aware of the prevailing market price of the said shares in March / April 2001) are conspicuous by their absence in Shri Talaulicar’s letter dated 30^th November 2001 to SEBI. Taking into account the Circuit Breaker for increase or decrease in the price of shares (in one day) there was no question of the price of a share increasing by almost 200% in a single day. The contention of Shri Talaulicar of alleged sale of the said shares to a close friend of DSP who was committed to buying the same at the rate of Rs.69/- per share is of no substance whatsoever.
6. In furtherance of his attempts to foist blame on others for his own misdeeds, Shri Talaulicar has not hesitated to make a valid and reckless allegations and accusations, inter alia, against our client and has sought to lend credence to the same taking support of an FIR filed by the Tatas against various persons including our client. In this behalf, it is pertinent to note that the Police Authorities have after a detailed investigation filed a report of Jurisdictional Metropolitan Magistrate that no case for criminal prosecution has been made out.
7. Our client reiterates that he was pressurized by Shri Talaulicar to follow up with Mr. Bharat Patel regarding the sale of the concerned shares, etc. and the statements / submissions to the contrary are denied. Admittedly, as stated in the said Investigation Report itself, Shri Talaulicar who admittedly received daily net asset value statements which indicated the diminution / appreciation in the value of shares comprising NITCL’s investments was aware that NITCL was incurring losses. The question of our client having allegedly advised Shri Talaulicar to sell shares does not arise at all. Similarly, the observation that the decision to sell the shares held in TFL by Shri Talaulicar and family was made with our client’s help is also incorrect and denied. Our client reiterates that it was only in or about Mid May 2001 it was pointed out to him that there was payment of Rs.70 lacs due from JHP to NITCL which probably related to the personal transactions of Shri Talaulicar and that on hearing of the same, our client immediately met Shri Talaulicar and informed him that it would be advisable to see that the concerned money is returned immediately if at all he was a beneficiary. The question of our client having been "alerted" to "regularise the payments made by NITCL to Shri Talaulicar and the sale of shares by Shri Talaulicar and his family" also does not arise. To the contrary our client’s actions in ensuring that NITCL duly received its monies were only in conformity with the principles of good corporate governance and not any delinquency on his part.

Subsequently upon his request Shri Shilotri was granted an opportunity to be heard before me on 25.8.2003. Shri Shilotri appeared before me along with Shri Dinyar D Madon and S S Kalambi, Advocates. In brief, the following are the submissions made on behalf of Shri Shilotri:

NITCL was formed in 1989 and Shri Talaulicar was the Chairman of the Company since inception. He was a member of the Investment Committee of NITCL, which took all decisions relating to investment made by it. In view of the above, there was no necessity for Shilotri to counsel Shri Talaulicar for selling the shareholding of family members and his shareholding in TFL.

Shri Shilotri had nothing to gain or benefit by counselling Shri Talaulicar. Shri Talaulicar being Insider in regard of the shares of TFL was privy to all the information regarding NITCL and TFL.

As found in the investigation report, Shri Dilip S. Pendse had brokered the sale of shares by Shri Talaulicar. The finding against Shri Shilotri is on account of the fact that his signature was affixed on one of the vouchers of NITCL. This signature was affixed since the voucher came to him for signature after the Managing Director had signed the document and because his colleague in accounts department was not present. Therefore, he had no option but to sign the voucher.

The investigation report presupposes an understanding between Shri Dilip Pendse and Shri Shilotri. This is not true. In fact, Shri Pendse never required his involvement or assistance for effecting the sale of shares. Further, there is no allegation that Shri Shilotri had benefited from the sale. As mentioned in para 13 of his reply dated 25.08.2002, his involvement was restricted to following up with JHP Investments regarding sale of shares.

Regulation 3(2) of Insider Trading Regulation makes counselling a person to sell shares based on unpublished price sensitive information an offence. In this instance, there was no necessity for him to counsel Shri Talaulicar. Further, organising the sale of shares was not an offence under the Insider Trading Regulations.

The statement of Shri Talaulicar that he had spoken to Shri Shilotri about the sale of shares (mentioned in the Report of the Kale Committee) is denied as not true.

Consideration of issues :

5.0 I have considered the facts of the matter, the findings of the investigation, the reply of Shri Shilotri and the submissions made on his behalf during the personal hearing before me. The following issues arise for consideration:

1. Whether Shri Shilotri was an insider?
  1. According to the then existing provisions of Regulation 2(e) of the Insider Trading Regulations,
2. Whether Shri Shilotri had counselled Shri Talaulicar regarding sale of the shares of TFL held by him and his family?
  1. The then Regulation 3 (iii) of the Insider Trading Regulations prohibited any insider from counselling or procuring any other person to deal in securities of any company on the basis of unpublished price sensitive information.
  2. I have already found Shri Talaulicar having indulged in insider trading in the shareholdings held by him and his family in TFL and prohibited him from being associated with the capital market and dealing in securities for a period of 5 years – vide order WTMO/9/IVD/10/03 dated 14.10.2003. I have also found Shri D.S. Pendse having violated the provisions of the Insider Trading Regulation in view of his complicity in the insider trading indulged in by Shri Talaulicar, which amounted to more than ‘counselling’ an insider, Shri Talaulicar and he has been directed to dissociate himself from the securities market and not to deal in securities for a period of 6 months vide order no.WTMO/17/IVD/12/03 dated 22^nd December, 2003.
  3. Both Shri D.S. Pendse and Shri Shilotri had been associated with Shri Talaulicar in the insider trading transactions in question. It is noted that Shri Shilotri had been a co-signatory to the voucher concerned for transfer of a sum of Rs.70 lakhs by NITCL to JHP, which, in turn, transferred Rs.69 lakhs to JIP, the sub-broker. As circumstantial evidence shows, the diversion of NITCL’s funds was meant to enable JIP to pay Shri Talaulicar and his family the amount of consideration for sale of their shareholdings in TFL.
  4. It has been argued that due to his hierarchical position, Shri Shilotri had been obliged to his superior Shri Talaulicar and had to follow up the matter regarding sale of his and his family’s shareholdings in TFL. It is also stated that Shri Talaulicar pressurised Shri Shilotri in this regard. Shri Shilotri had co-signed the voucher relating to the said transfer of funds by NITCL to JHP, which, as per circumstantial evidence, was for the purpose of enabling the broker to pay to Shri Talaulicar and his family the amount f consideration for sale of their shareholdings in TFL, on unpublished price sensitive information. Shri Shilotri’s argument that the voucher had already been signed/ initialled by Shri Karyekar and Shri D.S. Pendse and that his own signature was secured only "as a matter of convenience" so as to comply with the signature requirement seems somewhat specious. As the Chief Executive of NITCL, Shri Shilotri cannot abdicate his accountability for the transfer of company’s funds to a broker entity for the personal benefit of Shri Talaulicar. Shri Shilotri claims ignorance of the real purpose for which the amount was transferred till the receipt of complaint in this regard. It is claimed that only after hearing the complaint Shri Shilotri learnt about the real purpose of the transfer of funds by NITCL to JHP and advised Shri Talaulicar to return the money. It is also stated that Shri Talaulicar, thereupon pressurised Shri Shilotri to organise repayment of the monies to NITCL. While that the positional delicateness did not permit Shri Shilotri to defy his superior in the matter of following up the sale of shares is understandable to an extent, Shri Shiltori’s co-signing the voucher concerned for diversion of the Company’s funds for the personal benefit of Shri Talaulicar, trivialised by his statement that it was only as a matter of convenience that his signature was obtained on the voucher and his plea of ignorance of the real purpose of the fund-transfer is somewhat intriguing. The complicity (which is more than mere counselling) of Shri Shilotri (with hand in glove with Shri D.S. Pendse) in the matter of the insider trading indulged in by Shri J.E. Talaulicar, emerges visibly through the fog of specious arguments put forward in self defence.
  5. As regards transfer of company’s funds to the broker entity, Shri Shilotri, as Chief Executive of the Company should have exercised due diligence before signing the voucher and could have established his professional probity by refusing to sign the voucher. This act of Shri Shilotri, in any case falls outside the scope of SEBI’s enforcement action. It is however, observed that certain legal proceedings had been initiated by the Company against Shri Shilotri and that his services stand terminated.

6.0 The foregoing analysis of the facts and circumstances of the case does throw up evidence of Shri Shilotri’s complicity, which is more than "counselling" in the matter of Shri Talaulicar’s dealing in the shares of TFL based on unpublished price sensitive information.

1. It is noted that based on certain complaints/ allegations of fraudulent and unfair trade practices against Shri Shilotri, separate investigation is in progress. The order to be passed in the instant case will not preclude any penal action that may be warranted, based on the outcome of the pending investigation by SEBI.
2. In the light of the findings, I hold that Shri A.L. Shilotri has violated regulation 3 of SEBI (Prohibition of Insider Trading Regulations), 1992.
3. In view of the above, in the interests of investors and in order to protect the integrity of the securities market it is imperative to prohibit Shri A.L. Shilotri from dealing in securities for a particular period. Therefore, in exercise of the powers conferred on me vide Sections 19, 11 (4) (b) and 11B of the SEBI Act and Regulation 11 of the SEBI (Insider Trading) Regulations, 1992, I hereby direct that Shri A.L. Shilotri shall dissociate himself from the securities market and that he shall not deal in securities henceforth for a period of 6 months.
4. This order shall come into force with immediate effect.

	T. M. NAGARAJAN
Date: Jan. 2, 2004	WHOLE TIME MEMBER
Place: MUMBAI	SECURITIES AND EXCHANGE BOARD OF INDIA