HUL- formerly known as HLL is India’s largest consumer products company with an annual turn over of Rs. 13,000 Crores(2007) Brooke Bond- is a brand-name of tea owned Company by Unilever,formerly an independent manufacturer in the United Kingdom, known for its PG Tips brand and its Brooke Bond tea cards
Insider trading is buying and selling of securities by the insider of a company who has price sensitive information about the company. It can be both legal as well as illegal. Having special knowledge is unfair to other investors who are oblivious to any such information
Case analyzes the charges of insider trading by SEBI against the merger of HLL and BBLIL Controversy - Illegal purchase of BBLIL‟s 8 Lakhs shares by HLL, prior to public announcement of their merger. SEBI: suspected insider trading and conducted enquiries. SEBI issued a show cause notice to HLL
HLL purchased 0.8 million shares of BBLIL from UTI at Rs.350.35 per share. Transaction took place on March 25, 1996. On 19 April 1996, HLL notified the stock exchange of its proposal to merge with BBLIL. A day after the announcement of the merger, BBLIL scrip quoted@ Rs. 405 leading to a gain of 4.35 Crores for HLL.
August 4, 1997, SEBI issued a show cause notice to HLL claiming that there was prima facie evidence of the company indulging in insider trading. Alleged HLL of using price sensitive information prior to its merger with BBLIL
HLL(primary party) did not played an insider- trading role because it was one of the parties to the merger itself & not merely because of its connection to BBLIL. HLL said before transaction, the merger was the subject of wide market & media speculation. And after the formal announcement, press reports highlighted the fact that the merger was no surprise.
HLL didn’t had any intension to make profit or loss by merging they just wanted to strengthen Unilivers shareholdings. So after the merger the company cancelled its BBLIL shareholding
SEBI unable to justify prosecutions of applicants. There is no reply from SEBI when ministry asked court to define clearly whether SEBI has the claimed powers to adjudicate a matter for prosecution. SEBI’S RULING SUFFERED FROM “PROCEDURAL LAPSES” and that it used powers beyond its juridistiction
Generally it is difficult to determine whether there exists a case of insider trading. Merger definitely price sensitive information. HLL depleted its reserves for one specific shareholder at the expense of other share holders- violation of corporate governance After these mergers, it was clear that HLL wanted to follow in the footsteps of Unilever, its global parent, in India. As a result of the relaxation of controls after liberalization, the HLL group could operate in India in much the same way as Unilever did globally.