𝐈𝐬 𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐚𝐛𝐨𝐮𝐭 𝐒𝐭𝐨𝐜𝐤 𝐒𝐩𝐥𝐢𝐭 𝐂𝐨𝐧𝐬𝐢𝐝𝐞𝐫𝐞𝐝 𝐚𝐬 𝐔𝐏𝐒𝐈?

Recently, in the case of Affluence Fincon Service Pvt. Ltd. v SEBI, the Hon’ble SAT addressed whether information about a company’s stock split qualifies as Unpublished Price Sensitive Information (UPSI).

Facts:
One Dhiren Shah Group invested ₹49.99 crore in preferential shares of Infibeam Avenues Limited (IAL), part of the Mehta Group, prior to its listing. They also provided share-broking services to Infinium Motors (IMGPL), another Mehta Group company. SEBI investigated potential insider trading related to IAL and concluded that the Dhiren Shah Group had access to UPSI regarding a stock split discussed in a board meeting on 24.06.2017. SEBI asserted that UPSI began on 22.11.2016, when the CFO presented the concept of a stock split.

Based on the above, SEBI issued an interim order asserting that the Dhiren Shah Group entities had connections to the promoters and directors of IAL, allowing them to access UPSI while trading, resulting in unlawful gains of ₹2.61 crore. This interim order was subsequently set aside by SAT and directed appellants to file reply before SEBI. After further hearings, SEBI passed the impugned order.

𝐊𝐞𝐲 𝐈𝐬𝐬𝐮𝐞𝐬: Whether information about the stock split constituted UPSI and when UPSI commenced.

The appellants argued that information about stock split should not be considered UPSI since:
(a) No money was raised nor assets acquired or was there any change in capital structure through stock split and only the Face Value of existing shares was sub-divided.
(b) The announcement had minimal impact on IAL’s share price, which rose by only 1.46% on BSEIndia and 1.25% on NSE India, with trading volumes fluctuating moderately.

𝐅𝐢𝐧𝐝𝐢𝐧𝐠𝐬:
1. The tribunal held that stock splits are price-sensitive as they require shareholder approval (under Section 61 of the Companies Act, 2013) and can affect stock liquidity and market prices.
2. A stock split increases accessibility by lowering the share’s face value, potentially raising demand and liquidity, which can influence price trends.
3. The likelihood of the information affecting the price is more relevant than the actual price change itself.
4. SAT noted that the 22.11.2016 meeting only provided a general overview of stock splits, without specific reference to IAL’s securities.
5. SAT ruled that an undefined relationship between the company and preferential allottees cannot be considered a “connection” under Regulation 2(1)(d).

Readers are welcome to share their views to Regstreet Law Advisors at info@regstreetlaw.com.

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