Rs3 Lakh Fine Imposed On Shilpa Shetty, Raj Kundra For Flouting Insider Trading Norms By SEBI

BACKGROUND OF THE CASE

• Raj Kundra is presently under investigation for allegedly being involved in the production and distribution of porn films through a subscriber driver mobile application called HotShots.
• He is currently under judicial custody after being arrested by the Mumbai Police on July 19.
• The police have claimed that, young aspiring actors and models were lured into making these porn films in exchange for promising them a break in the film industry.

INTRODUCTION

• Actor Shilpa Shetty, her husband and businessman Raj Kundra and his firm Viaan Industries were fined Rs 3 lakh by the Securities and Exchange Board of India (SEBI) for flouting SEBI's regulations on insider trading.
• An investigation was conducted by SEBI into the dealings of Viaan Industries Limited, which was formerly known as Hindustan Safety Glass Industries Limited, for the time period between September 01, 2013 and December 23, 2015.
• Bombay Stock Exchange (BSE) has the shares of this company.
• Ripu Sudan (alias Raj Kundra) and Shilpa Kundra (alias Shilpa Shetty) were found to be its promoters during the period when the company was under investigation.
• Shilpa Shetty was also one of the company’s directors but she resigned last year.

RULES VIOLATED

• Viaan Industries Limited made a "preferential allotment of 5,00,000 equity shares to four persons", following the order issued by SEBI, on October 29, 2015.
• According to the order, preferential allotment for 1,28,800 shares each were allotted to Ripu Sudan and Shilpa Kundra.
• Abiding by the allotment of the shares through the preferential allotment, Shilpa Shetty and Raj Kundra were required to make the required disclosure to the company.
• As the value of the transactions exceeded Rs 10 lakh, the disclosure was essential.
• The company had to make the necessary stock exchange discolousers following the terms of Regulation 7 (2) (b) of the PIT Regulations.
• The order stated that, it was to be carried out within two trading days of the receipt of the disclosures from Shilpa Shetty and Raj Kundra or from becoming aware of such information pertaining to the transactions.

INVESTIGATION REPORT

• During the course of investigation, SEBI found that Shilpa Shetty and Raj Kundra failed to make relevant disclosures that were required under Regulations 7 (2) (a) and 7 (2) (b) of the PIT Regulations within the given time period, thus violating the PIT Regulations.
• Then, under Section 15 A (b) of the SEBI Act, 1992, an adjudication proceeding was initiated against them by the SEBI.
• After the investigation was complete, it was found that the duo were guilty of violating the SEBI (Prohibition of Insider Trading) Regulations, 2015.
• Hence, SEBI imposed Rs 3 lakh penalty on Shilpa Shetty, Raj Kundra and Viaan Industries Limited.

PIT REGULATIONS PROVISION

• Regulation 7(2)(a) of the PIT Regulations: It states that if the amount of the securities traded exceeds Rs 10 Lakhs in a calendar quarter, then the concerned person is required to give a disclosure. And the value of securities is exclusive of taxes, brokerage and other charges.
• Regulation 7(2)(b) of the PIT Regulations: It states, within a stipulated time of two days of receipt of disclosures or when the company becomes aware of the information, it must notify about such trading to the stock exchange on which the securities are listed.

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