Sebi finds no merit in Cyrus Mistry’s insider trading charges against Ratan Tata

MUMBAI: The Securities and Exchange Board of India (Sebi) is of the view that information given to Ratan Tata about Tata group companies was in line with rules on insider trading, according to the minutes of a January 14 meeting held by the regulator's board. This follows allegations made by ousted Tata Sons chairman Cyrus Mistry.

"When a person is appointed as chairman emeritus by the board of a company, the board may discuss the corporate performance, information pertaining to mergers, acquisitions, divestments and other sensitive information with a view to benefit from the experience of that person," according to the minutes, which have been reviewed by ET. "Though such a person has left the company, the benefit of his expertise would be invaluable to the company. Sometimes agenda items and other sensitive papers pertaining to board and committee meeting could be circulated to him. Therefore, such communication appears to be in normal course of business."

Sebi couldn't be reached for comment. Tata and Mistry couldn't immediately be reached for comment.

The rules allow communication of unpublished information that influence stock price in select cases, according to the minutes.

In a petition filed at the National Company Law Tribunal (NCLT) on December 20, Mistry had charged Ratan Tata with having influenced key decisions in the functioning of the conglomerate at a time when he did not have any managerial role and with having sought price-sensitive information from the group's companies. The petition was filed through Mistry's investment firms. It said Tata acted as the "super controller" of the group, giving direction to the trustees and the nominee directors of Tata Trusts, which has a two-thirds stake in holding company Tata Sons.

Despite not being a director at any of the companies, Tata had "demanded or procured commercially sensitive information, including price-sensitive information," Mistry said in the NCLT petition

Sebi's observations will have market-wide implications, said JN Gupta, former executive director at the regulator.

"There has to an institutionalized mechanism where majority shareholders can be involved in the planning of company operations as ultimate objective of governance is to increase shareholders value," said Gupta. "However, it has to be ensured that such price-sensitive information should not be used by such shareholders for trading. Therefore if there is any need for amending insider trading regulations, the same should be done," he said.