ABC Ltd. is a public limited company listed on NSE and BSE. The company is enjoying cash credit limit of ₹ 10 crores with Trust Bank against the book debts. The said cash credit limit is renewed from time to time and for

CS Professional · Governance, Risk Management, Compliances and Ethics · PYQS · June 2019
ABC Ltd. is a public limited company listed on NSE and BSE. The company is enjoying cash credit limit of ₹ 10 crores with Trust Bank against the book debts. The said cash credit limit is renewed from time to time and for this purpose the Trust Bank requires the financial papers from the company which include the Balance Sheet and Profit and Loss Account, list of sundry debtors (with age-wise outstanding) and projected financial data viz: Turnover, Profit, Non-performing debtors etc. The company was in the process of the finalisation of its annual accounts as of 31st March, 2018 and the same was to be put before the Audit Committee of Board (ACB), meeting of which was schedule to be held on 5th July, 2018, for recommendation to the Board of Directors. The CC limit with the Trust Bank which was due for renewal from 31st March, 2018, renewed on ad-hoc basis for three months only on the basis of provisional data, subject to the submission of final papers, else the CC limit account of the company will turned in to non-performing account. Since the Trust Bank also wants the CC Limit account in performing status, it insisted the company to submit the final data even before the approval of the ACB/ Board in order to renew the limit and prevent the account from turning into NPA. Based on the above facts the Company approaches you, being a Corporate Law Consultant. Answer the following queries raised by the ABC Ltd. : Whether HP Ltd can provide the financial information (which is price sensitive information) to its banker without getting it perused and approved by the ACB and Board ? Quote your answer with relevant provisions of law.

Answer & Explanation:

In terms of Sub-Regulation (1) of Regulation 3 of SEBI (Prohibition of Insider Trading) Regulations, 2015, no insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. Sub-Regulation (2) of Regulation 3 states that no person shall procure from or cause the communication by any insider of unpublished price sensitive information relating to a company or securities listed or proposed to be listed, except in furtherance of legitimate purposes, performance of duties or discharge of legal obligations. Sub-Regulation (2A) of Regulation 3 provides that the board of directors of a listed company shall make a policy for determination of "legitimate purposes" as a part of "Codes of Fair Disclosure and Conduct" formulated under regulation 8. The Explanation to Sub-Regulation (2A) of Regulation 3 further clarifies that for the purpose of illustration, the term "legitimate purpose" shall include sharing of unpublished price sensitive information in the ordinary course of business by an insider with partners, collaborators, lenders, customers, suppliers, merchant bankers, legal advisors, auditors, insolvency professionals or other advisors or consultants, provided that such sharing has not been carried out to evade or circumvent the prohibitions of these regulations. Thus, as a prudent rule the price sensitive information should not be passed on until it is for legitimate purposes. However, as per Explanation to Sub-Regulation (2A), unpublished price sensitive information can be shared with banker/lender for legitimate purposes like renewal of Credit limits provided that such sharing has not been carried out to evade or circumvent the prohibitions of these regulations.

Topics: Insider Trading

Open in Interactive Practice Hub · Full Practice Hub · Chapter Weightage · More in this subject

Related Questions in this Topic