Sebi has barred Allegro Capital and one of its senior executives from the securities market for one year in a case related to alleged insider trading activities in the shares of Biocon.
Besides, the market watchdog has directed them to disgorge wrongful gains along with interest.
The amount would be more than Rs 24 lakh.
Allegro Capital and its director as well as major shareholder Kunal Ashok Kashyap have been fined Rs 10 lakh each, according to an order by Sebi dated July 8.
They also have to jointly and severally disgorge Rs 24,68,751 along with an interest of 12 per cent per annum from January 19, 2018, till the date of actual payment.
The regulator noted that Allegro Capital was in a temporary business relationship with Biocon and that Kashyap also held directorship in Mazumdar Shaw Medical Foundation.
On January 18, 2018, Biocon had announced an exclusive global collaboration with Sandoz on next generation biosimilars.
Sebi had observed that shares of the company rose 5.6 per cent at close on the day after the announcement.
Later, the regulator initiated a probe to ascertain whether certain persons/entities have traded in the scrip of Biocon while they were in possession of Unpublished Price Sensitive Information (UPSI) and were in violation of Sebi norms.
Based on the chronology of events leading up to the corporate announcement, it was alleged that the UPSI period was from December 4, 2017, to January 18, 2018, the order said quoting the showcause notice sent to Allegro Capital and Kashyap.
Kashyap had submitted that by resorting to his independent directorship in Mazumdar Shaw Medical Foundation and by making reference to Allegro Capital where Arun Chandavarkar (then CEO and Joint MD) and Kiran Mazumdar Shaw, have their trading accounts, Sebi was clearly grasping at straws trying to conclude that he was a connected person.
"In this regard, it is observed that reliance on the aforesaid have been placed to show that the association of Noticee No. 1 (Kashyap) with senior management of the company is not merely in the capacity of an advisor on specific set of projects, but it goes beyond that where he not only serves on the board of the charitable foundation of the promoter of Biocon but also provides broking services to the promoter and the then CEO and joint MD," Sebi said in the order.
This shows that Kashyap is in frequent communication with the key managerial personnel of Biocon outside his contractual relationship with Biocon and also shows his proximity to the management of Biocon.
"The same makes Noticee No. 1 stand on a different footing as compared to other advisors, if any, contracted by Biocon.
"Therefore, Noticee no. 1 association with M/s Mazumdar Shaw Medical Foundation and Allegro Capital Advisors Ltd., where he is the majority shareholder are relevant factors as it establishes his relationship / connection with Biocon and/ or its management.
"Hence, the submission of the Noticee No. 1 is untenable," the order said.
Passing the order, Sebi Whole Time Member Madhabi Puri Buch said that even if, the noticees (Kashyap and Allegro Capital) were bullish with respect to Biocon's scrip in the long term, the sudden spurt/ jump in volume shown by them during UPSI period has not been justified by them.
"To put it differently, noticees may have been bullish about Biocon but because of the UPSI, their purchases in the scrip of Biocon were advanced as they wanted to buy it before the price starts to increase after the publication of the announcement.
"Thus, the trigger for buying irrespective of the long term bullish view was on the basis of UPSI.
"Therefore, it is held that the noticees have dealt in the scrip of Biocon on the basis of UPSI and hence have violated Section 15G(i) of Sebi Act," the order noted.
Section 15G pertains to insider trading.