Market watchdog fines former Ranbaxy director Rs 60 lakh for insider trading

In a rare instance of action against insider trading,the Securities and Exchange Board of India (Sebi) has imposed a penalty totalling Rs 6000000 on VK Kaul,former Independent Director of Ranbaxy Laboratories — the largest pharma company in the country — and his wife Bala Kaul for insider trading in the purchase and sale of scrips of Orchid Chemicals and Pharmaceuticals (OCPL). While Kaul has been fined Rs 5000000,his wife Bala Kaul has been handed a fine of Rs 1000000 in a case relating to the sale of 6. Kaul was at that time an independent director of Ranbaxy Laboratories (RLL),the holding company of Solrex Pharmaceuticals which bought the shares of OCPL during the period. The Sebi’s investigation report observed that during the period March 17,2008 to April 9,2008,Kaul had provided funds to Bala Kaul to trade in the scrip of OCPL and the latter through her broker Religare Securities bought 35,000 shares at an average price of Rs 131.71 between March 27 and March 28,2008 prior to start of the buying of shares by Solrex on March 31,2008. She sold them on April 10,2008 at an average price of Rs 219.94. The Sebi report alleged that Kaul was in possession of the information that Solrex is going to buy shares of OCPL and had traded on behalf of his wife ahead of the share purchase by Solrex. “Thus,it was alleged that noticee (Kaul) being a connected person of RLL as per Regulation 2 (c) (i) of Sebi (Prohibition of Insider Trading) Regulations,1992 had traded on behalf of his wife in the scrip of OCPL based on unpublished price sensitive information which led to the violation of Sections 12A (d) and (e) of the Sebi Act,1992,” the Sebi order said. The promoters of OCPL also had substantial quantity of shares pledged with Indiabulls Financial Services and Religare Finvest Limited on which margin calls were due but the promoters were unable to meet the same. These shares were also offloaded by these financiers on the same day leading to a steep drop in price of the scrip to Rs 111.6 at closing. The scrip fell a further 11% on the next day. However,the scrip recovered from Rs 115 on March 25,2008 to Rs 163.85 on April 1,2008 and went on to rise to Rs 319.7 on April 16,2008. Several alerts were generated at the NSE and the BSE and the scrip was taken up for joint investigation by the exchanges on the basis of which a report was submitted by them in April that year. Kaul submitted that no evidence has been provided by the Sebi to suggest that the “noticee was ‘insider’ of OCPL”. He said that the his connection with Ranbaxy cannot be construed to imply or to allege that he was connected with OCPL or to allege that he engaged in insider trading in its shares. According to the Sebi,Malvinder Mohan Singh (the then CEO and MD of RLL) in his email dated January 27,2011 had informed that the matter as per his recollection came up during the last week of March 2008 and few directors from the offices of partners of Solrex approached RLL,indicating that it desired to acquire shares of OCPL and needed funds . Further,Kaul’s wife made a considerable profit of Rs 30,88,103 which was possible only because “the noticee had received/access to unpublished price-sensitive information”,Sebi said.