Raju may face insider trading charges

Satyam Computer Services’ founder and Chairman B Ramalinga Raju’s claim of not selling shares in last eight years may not be enough to protect him from the offence of insider trading, say legal experts, citing willful default on shares pledged with lenders. The charge, if proved, could land Raju behind bars for 10 years.

“Pledge will amount to dealing in securities,” said Anoop Narayanan, partner, Majmudar & Co, a Mumbai-based law firm. “A willful default of the obligations to the lender resulting in the implied sale of the pledged securities to satisfy the debt will amount to insider trading,” he said.

The entire 8.27 per cent promoter stake owned by Raju and his family was pledged against the money they had borrowed. On January 6, a day before Raju’s revelations, Satyam disclosed to the Bombay Stock Exchange (BSE) that IL&FS Trust, as a trustee of lenders, had sold about 24.5 million shares of the company, amounting to about 3.64 per cent of the promoters’ stake. These shares were sold between December 23 and January 5. Earlier on January 2, the company had informed the National Stock Exchange (NSE) of the sale of 3.14 per cent of the pledged promoters’ stake by the lenders.

According to another legal expert, violation of insider trading regulations cover “sell” or “buy” and not “pledge” of shares. Strictly speaking, “pledge” of shares is outside the regulation of insider trading. It means that the person is free to pledge his share notwithstanding insider trading regulations. However, there is another word i.e. “deal”.

According Majmudar & Co, under the offence of insider trading, market regulator Sebi may, after adjudication (which will include an enquiry), impose a penalty of up to Rs 25 crore or three times of the profit made through the insider dealing, whichever is higher, under Section 15(G) of the Sebi Act.