In a blow to Future Group’s Kishore Biyani, market regulator SEBI has barred Future Group CEO Kishore Biyani and his brother Anil Biyani for one year from accessing the securities market.
This after SEBI found irregularities, alleged insider trading between March and April 2017.
Both Kishore Biyani and his brother in order to push the share price of Future Retail had indulged in irregularities before it decided to demerger some of the Future Retail businesses.
Kishore Biyani, who was once called the “King of Indian Retail,” today has been charged with irregularities and price manipulation; his fall is inevitable and embarrassing.
While he is also struggling with a four-month-long legal battle with Amazon, he has been banned from accessing the securities market for a year.
The course of events would surely provide a breather for Amazon, which had approached SEBI over the issue of the deal between Future Group and Reliance.
The Delhi High Court had recently also put the deal with Reliance on hold, and the High Court had upheld the emergency arbitrator award from Singapore that came in Amazon’s favor and ordered a status quo.
However, Future Group has moved to High Court to challenge the status quo.
What is insider trading?
Insider trading is an act of dealing with a company’s securities based on confidential information relating to a company that is not published or made public and used to make profit or loss.
It is regarded as a breach of fiduciary duties of officers of a company or others connected to the shareholders.
In India, SEBI looks very keenly to discourage insider trading and is an important function of securities regulation to promote fair trading in the stock market for the benefit of the common investor.
Steps taken by SEBI towards Future Group
1. SEBI has also barred Kishore Biyani from buying, selling, or dealing in Future Group securities for a period of 2 years.
2. In addition, the two brothers and Future Corporate Resources will each have to pay a penalty of Rs. 1 Crore within 45 days.
3. SEBI has imposed a penalty on Rajesh Pathak and Rajkumar Pande, who took the decision of trading through the company – FCRL Employee Welfare Trust to purchase FRL shares, as per the order and made unlawful notional gains of up to Rs 2.75 Crore
According to SEBI, the decision to action is based on a probe into the 2017 case, use of unpublished price sensitive information to trade in Future Retail shares.
SEBI’s investigation disclosed that the duo traded in Future retail shares through a group of company based on unpublished price sensitive information, this before the demerger of certain Future Retail businesses that resulted in its share price higher.
How Kishore Biyani and Future Group manipulated the System
1. For this purpose, the two brothers opened a trading account for an entity named Future Corporate Resources Private Ltd, which, before the demerger decision was made public, traded in Future Group’s shares.
2. In April 2017, Future Group made a corporate announcement to the stock exchanges regarding the decision of its board meeting, wherein the board had approved the segregation of specific business of FRL. This was through a merged scheme of arrangement between FRL, Bluerock eServices Pvt Ltd, and Praxis Home Retail Pvt Ltd and their respective shareholders.
3.This arrangement had resulted in the demerger of certain businesses of FRL.
4. Both the Biyanis took the decision to trade through Future Corporate Resource, which traded in shares during the period of Unpublished Price Sensitive Information and made notional unlawful gains of Rs. 17.78 crore.
5. Both the brothers had opened the trading account of Future Corporate Resources just before the questioned trades.
6. Anil Biyani placed an order on behalf of Future Corporate resources. Then both the Biyani brothers authorized funds to be transferred to Indiabulls to purchase FRL shares in the name of Future Corporate Resources.
7. Rajesh Pathak and Rajkumar Pande, through FCRL Employee Welfare Trust, purchased FRL shares made notional unlawful gains to the tune of Rs. 2.75 crore during the UPSI period.
Kishore Biyani: Ban by SEBI won’t stop Future Group’s Deal with Reliance
In a statement, Kishore Biyani has asserted that the ban from SEBI will not impact the Rs. 25000 crore deal with Reliance.
“Debarment/restraint/freeze imposed under this order shall not apply to those existing holding of securities of such debarred entities, in respect of which any scheme of arrangement under Section 230-232 of the Companies Act, 2013, is approved by NCLT, requiring extinguishment of such securities and/or receipt of other securities in lieu of such securities,” said the company.
The company has also asserted that Future Retail will be exercising its statutory rights to challenge SEBI’s decision.
Future Group’s shares plunge
The shares of Future Group have shown a sharp fall after the ban from SEBI.
Shares of Future Consumer was down 4.75% at Rs. 7.82, while Future Lifestyle share fell 4.98% to Rs 83.95 on BSE.
Will SEBI’s move impact Future Groups deal?
While SEBI’s order may not directly affect the ongoing dispute with Amazon, however, there could be a possibility that Reliance may choose a different course of action because of the recent events.
In conclusion, one can only say that a lot happens than just mere business decisions in the boardroom. Price manipulation and insider trading can happen through Corporate Officers, Employees of law, banking, brokerage, printing forms, and Government employees.
It is an important obligation of any capital market regulatory system to prevent such transactions since it undermines investor confidence.
The strictness in insider trading is also of significant importance since the overseas regulators attempt to boost both the confidence of domestic investors as well attract international investors.
Special courts should be set up for faster and efficient handling and disposal of cases, while SEBI should only take the regulator’s role.