Securities Exchange Board of India: The proceedings were initiated to examine compliance by Piramal Pharma Limited (PPL) with key disclosure obligations under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, commonly known as the LODR Regulations due to alleged violations concerning PPL’s disclosure practices, particularly regarding material events involving its subsidiary, Piramal Enterprises Limited (PEL), that were said to impact market transparency and investor interests. Amarjeet Singh, Whole Time Member, held that there is a lack of sufficient evidence to establish the allegation of misrepresentation of facts in the BRR and since no violation has been established on part of PEL, the question of devolvement of any liability on the Noticee does not arise.
SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations, 2015 are designed to uphold transparency in listed companies, mandating that companies disclose material events which may impact investor interests and market perception. PPL, a subsidiary of Piramal Enterprises Limited (PEL) and part of the broader Piramal Group conglomerate was under scrutiny for non-disclosure of specific events related to its business operations, a move which SEBI argued may have impacted the market’s understanding of PEL’s environmental compliance status and the business’s continuity.
The proceedings were initiated to examine whether Piramal Pharma Limited (PPL) had adhered to its obligations under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (LODR Regulations), following allegations of non-disclosure related to key events involving Piramal Enterprises Limited (PEL). The two significant events were a penalty of ₹8.32 crore imposed by the National Green Tribunal (NGT) for non-compliance with environmental standards, and the closure of PEL’s Digwal pharmaceutical plant in Telangana due to pollution issues, as directed by the Telangana State Pollution Control Board (TSPCB).
These incidents were alleged to have impacted PEL’s operations in 2018-2019, and SEBI argued that their non-disclosure in PEL’s Business Responsibility Reports (BRR) for the relevant financial years violated the LODR regulations. Subsequently, SEBI noted that when PPL was created in 2020 through a demerger of PEL’s pharmaceutical operations, this subsidiary inherited PEL’s obligations, including liabilities arising from ongoing environmental and compliance issues. PPL’s listing on 19-10-2022, thus led SEBI to determine that PPL was responsible for disclosing any material impacts of its business activities to the market under LODR.
Initially, SEBI’s Adjudicating Officer (AO) reviewed the allegations but concluded that PPL could not be held liable for events that predated its establishment. The AO determined that since PPL was not yet a listed entity at the time these incidents occurred, it was not bound by the disclosure obligations under the LODR regulations. However, SEBI revisited the matter, issuing a fresh show cause notice to PPL, asserting that as the legal transferee of PEL’s pharmaceutical operations, PPL inherited the regulatory obligations related to past material events.
During SEBI’s subsequent review, PPL contended that the events in question were not materially significant to warrant disclosure, as they did not fundamentally impact the company’s financial position or business continuity. PPL emphasized that the Digwal plant’s closure was temporary, lasting only 44 days, and PEL had maintained adequate inventory to fulfill its commitments without disruption. PPL also argued that the NGT penalty’s financial impact was not substantial according to PEL’s internal policies and standards. Moreover, PPL pointed out that it had disclosed information about these incidents in its BRR for the year 2023, and that these disclosures did not provoke any significant market response, further supporting its argument that the events were non-material.
The Board observed that while the AO’s initial closure of the investigation was based on the premise that PPL was not liable for PEL’s past actions, this approach was flawed. The Board emphasized that under a composite scheme of arrangement approved by the National Company Law Tribunal (NCLT), PPL, as the resultant entity, was to inherit all obligations and liabilities related to PEL’s demerged pharmaceutical division, including regulatory compliance requirements. The Board clarified that dismissing PPL’s liability on the grounds that the events took place before its listing would create a regulatory loophole where successor entities could evade accountability for inherited liabilities.
Despite affirming that PPL bore inherited responsibilities under the LODR regulations, the Board ultimately found that the specific events SEBI flagged did not satisfy the materiality threshold required for mandatory disclosure under the LODR. The Board’s analysis underscored that material events must have a significant effect on the listed entity’s stock value or public perception. Here, the limited duration of the Digwal plant closure, alongside the penalty’s negligible financial impact, indicated that these incidents did not meet SEBI’s criteria for materiality. The Board noted that the market remained unaffected by these disclosures when they eventually appeared in PPL’s 2023 BRR, thereby supporting the conclusion that earlier disclosure would not have significantly impacted investors or market perception.
The Court remarked that “the show cause notice issued to the Noticee has levelled a generic allegation that failure to disclose the alleged ‘material’ events had resulted in violation of regulation 30(3), 30(4) read with clauses 2 and 8 of Para B of Part A of Schedule III of the LODR Regulations. As regards 30(4)(i)(a), the SCN or other material on record has not established as to what was the event/ information already available in public which would have discontinued if the disclosures were made by PEL. Similarly, the material available on record, including the SCN issued to the noticee, does not discuss any material to substantiate that the omission on the part of PEL would have resulted in significant market reaction if made public at a later stage.”
The Court further remarked that “The alleged ‘material’ events were subsequently made public by PPL and such disclosure did not cause any significant market reaction and I am therefore of the view that PEL was not under an obligation to disclose the said events, in terms of regulation 30(4)(i). Additionally, comments were sought from NSE as regards the requirement of disclosure on the part of PEL and it is noted from the response of NSE that based on PEL’s confirmations and the available financial figures, the events were not material and therefore, the requirement of mandatory disclosure did not arise.”
Thus, the Board reaffirmed the AO’s decision to close the investigation, ruling that PPL’s non-disclosure of the Digwal plant’s temporary closure and the NGT penalty did not constitute a breach of the LODR Regulations. This marked the second time that SEBI’s inquiry into PPL’s disclosure practices concluded without imposing any penalties, ultimately absolving PPL of liability on the grounds that the alleged violations lacked material significance in terms of regulatory disclosure requirements.
[In the matter of Piramal Pharma Limited, 2024 SCC OnLine SEBI 545, decided on 08-11-2024]
