[Opinion] Contra Trade Restrictions – Traversing Out of PAN to Common Control

Anushka Vohra – [2023] 156 taxmann.com 408 (Article)

Introduction

The SEBI (Prohibition of Insider Trading) Regulations, 2015 (‘PIT Regulations’) impose certain restrictions and obligations on the DPs, one of which is contra-trade restriction.

The DPs and their immediate relatives are restricted from entering into contra trade which refers to opposite trades executed viz. buy/sale within a shorter period of time usually within a period of 6 months with an intent to book short term profits. Where contra-trade is executed in violation of the restriction, the profit earned is to be disgorged for remittance to the IPEF.

In case of an individual DP (promoters/directors/etc. as recognized by the listed company), the immediate relatives also have certain obligations under the Regulations as their trades may be said to be influenced by the DPs. Similarly, in case of non-individual DPs (promoters), there may be other promoters and persons belonging to the promoter group who may act in concert with a particular non-individual promoter.

Having said that, it is important to understand the intent of contra trade, whether the same would apply individually on DPs based on trades executed against their PAN or the same would apply jointly on DPs and their immediate relatives or the entire promoter group inter-se. The same has been a matter of discussion in various Informal Guidance (‘IG’) of SEBI. We discuss the same briefly along with other illustrations.

Informal Guidance

Generally, the concept of Persons Acting in Concert (‘PACs’) is used in the Takeover Code and under the PIT Regulations, the perspective so far has been PAN based. In the recent IG in the matter of Deccan Gold Mines Ltd1, SEBI in its interpretative letter has given the view that contra trade restrictions would apply on the promoter group jointly, given the case in hand.

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