Case Analysis: Hindustan Lever Limited v.

SEBI

The facts of the case concerned the purchase by HLL of 8 lakh shares of BBLIL from the
Unit Trust of India (UTI) on March 25, 1996. This purchase was made barely two weeks
prior to a public announcement for a proposed merger of HLL with BBLIL.

Upon investigation, SEBI by its Order dated March 11, 1998 (Order) found that, at the time
of the purchase of shares of BBLIL from UTI, HLL was an “insider” as under Section 2(e) of
the 1992 Regulations, the relevant extract of which describes an insider as any person who:

“(i) is or was connected with the company or is deemed to have been connected with the
company and is reasonably expected to have access by virtue of such connection to
unpublished price sensitive information in respect of securities of the company, or

  (ii) has received or has had access to such unpublished price sensitive information.”

SEBI held that, since, HLL and BBLIL were subsidiaries of the same London based
Unilever, and were effectively under the same management, HLL and its directors had prior
knowledge of the merger. Thus HLL was covered under the definition of an insider as above
defined.

SEBI also held that HLL was in possession of UPSI as defined under Section 2(k) of the
1992 Regulations which includes any information in relation to amalgamation, merges and
takeovers that “is not generally known or published by such company for general
information, but which if published or known, is likely to materially affect the price of
securities of that company in the market”. As per SEBI, the fact that the information about
the merger was available with HLL was enough to satisfy the requirement of Section 2(k)
above.

An appeal was filed by HLL against the said SEBI Order before the Securities Appellate
Authority. On the question of whether HLL could be termed as an insider, the Appellate
Authority agreed with the SEBI Order to hold that, the information available with HLL in
relation to the merger was beyond merely self-generated information, i.e., information arising
out of its own decision making. Further, with respect to the merger, the Appellate Authority
noted that the existence of directors common to both HLL and BBLIL, and a common parent
company in Unilever meant that they (i.e., HLL and BBLIL) were in effect under the same
management. Consequently, HLL could be termed as an insider under the 1992 Regulations
and it could reasonably be presumed that HLL was privy to decision making on the merger
issue in the BBLIL board.

On the question of whether the information available with HLL constituted UPSI, the
Appellate Authority agreed with the contentions of HLL that, for information to be
considered as UPSI, it must meet the dual requirements envisaged under Section 2(k) of the
1992 Regulations, i.e.:

1. The information must not be generally known or published by the company; and

2. If published or known, is likely to materially affect the prices of securities of that

The Appellate Authority held that for information to be generally known, it is not required to
be confirmed or authenticated by the company as it would otherwise fall under the category
of information “published by the company”. The Appellate Authority appreciated the
evidence produced by HLL, including various news articles covering the merger, and
concluded that the information of the merger was generally widely known to the public, and
thus failed the first test to qualify as UPSI as per the abovementioned Section 2(k) of the
1992 Regulations.

HLL also argued that, the information of the merger of two healthy, profit – making
companies is per se not price sensitive, as price sensitivity would arise in case of merger
between a strong company and a weak company, which impacts the share price of the
companies. The Appellate Authority however noted that even in the merger of two healthy
companies there are synergistic possibilities which could lead to price sensitivity for either
company. Thus, the Appellate Authority agreed with SEBI’s conclusion that information of
the merger was price sensitive (though not ‘unpublished’). The matter is currently pending
before the Supreme Court.

Aftermath and consequences of the decision of the Appellate Authority

Subsequently, SEBI by the SEBI (Insider Trading) Amendment Regulations, 2002 amended
the definition under Section 2(k) to the following:
““unpublished” means information which is not published by the company or its agents and
is not specific in nature.

Explanation.—Speculative reports in print or electronic media shall not be considered as

Consequently, under the revised definition speculative reports in print media, as was the case
in relation to the HLL and BBLIL merger, would not be considered as published information,
and HLL’s knowledge in relation to the merger would be considered as unpublished
information. By the same Amendment Act, SEBI also introduced a new provision, Section
2(ha) which defined “price sensitive information” to include any information relating to an
amalgamation, merger or takeover as deemed price sensitive information, regardless of
whether such information actually has any affect the price of the securities in the market.

However, the amendments did not definitively and expressly define “generally available
information”,

Regime under the 2015 Regulations

The 2015 Regulations finally set out what constitutes UPSI by defining “generally available
information” under Section 2(1)(e) as follows:

“generally available information” means information that is accessible to the  public on a

The term “non-discriminatory access”, however, was left undefined and deliberately open-
ended. Instead, several instances were provided for what would constitute non-discriminatory
access. The illustrative (non-exhaustive) list included instances of information provided on
the website of a stock exchange. A rule of thumb would to be see if the information is
capable of being accessed by any person without breaching any law.

Sometime in early 2017, the SEBI provided Kirloskar Chillers Private Limited (KCPL) with
an informal guidance on broad issues. Significantly, one of the questions addressed to SEBI
was whether a KCPL, as a promoter group entity of Kirloskar Brothers Limited (a listed
company), requires a pre-clearance from such listed company even though it has no role in
the management of that company or have any access whatsoever to UPSI. SEBI referred to
the 2015 Regulations, and the listed company’s internal code of conduct, to broadly state that:

 Unless a promoter is designated as a “Designated Person” by the Board of Directors

 There exists an assumption that the actions of compliance officers, Board of Directors
and other entities entrusted with ensuring adherence to Insider Trading Regulations,
should be to ensure compliance with the regulatory framework and not for an “ulterior
motive”.

 An action of a compliance officer, whether it is extraneous to his or her powers, is to

 The 2015 Regulations by nature are prohibitive and the applicability of its provisions
is with respect to insiders and such concerned securities to which a UPSI might pertain.
This is to avoid any undue advantage accrued to classes of investors on account of their
access to UPSI.

This development may encourage companies to devise their own code of conduct such as to
limit the persons who may be considered insider, and privy to UPSI and clearly identify the
universe of “Designated Persons”. That said, SEBI may nonetheless review the scope of
“Designated Person” to evaluate if it has been formulated in accordance with applicable
regulations.

Conclusion

The test for UPSI laid down under the 2015 Regulations grants SEBI the ability to analyse,
on a case by case basis, whether certain information is available on a non-discriminatory
basis, thus achieving the balance of regulation.