SEBI exonerates Piramal Pharma of listing and disclosure violations

The Securities and Exchange Board of India (SEBI) on November 8 cleared Piramal Pharma Limited (PPL) of allegations concerning violations of the SEBI Listing Obligations and Disclosure Requirements (LODR) Regulations. .The LODR Regulations were introduced by SEBI to enhance transparency of listed companies. Under these Regulations, a listed entity must reveal any event that would have an effect on its shares listed in the market. This is aimed at protecting investors.PPL is a part of the conglomerate Piramal Group and a subsidiary of Piramal Enterprises Limited (PEL).SEBI’s proceedings against PPL transpired in two rounds. In the first round, an Adjudicating Officer (AO) of the SEBI closed the investigation. However, SEBI decided to review the same and initiate the second round, which was also decided in PPL's favour..The case pertained to the alleged non-disclosure by PEL of a ₹8.32 crore penalty imposed on it by the National Green Tribunal (NGT) for failing to comply with environmental standards due to water pollution from its pharmaceutical unit. It was further alleged that PEL failed to disclose the closure of its Digwal plant in Telangana in 2018-19 due to water pollution, as ordered by the Telangana State Pollution Control Board (TSPCB) on November 29, 2018. It was SEBI’s contention that by not disclosing these incidents, PEL misrepresented facts in its Business Responsibility Reports (BRR) for the financial years 2018-19 and 2019-20, violating additional provisions of the LODR Regulations.Furthermore, the Digwal plant was transferred to PPL in 2020. PPL was established in March 2020 and listed on October 19, 2022. A composite scheme of arrangement allowed the demerger of PEL's domestic pharmaceutical operations to PPL, meaning any ongoing legal issues related to this business could now be pursued against PPL..The AO initially closed the investigation, concluding that PPL could not be held responsible for PEL's past actions, as PPL was not in existence at the time of the incidents. The officer noted that the disclosure obligations under the LODR Regulations apply only to listed entities, and since PPL was not a listed company when the events occurred, it could not have made the required disclosures.SEBI reviewed AO’s order and sent a fresh show cause notice (SCN) to PPL. After perusing PPL’s response and hearing the arguments by the company, SEBI’s Whole Time Member (WTM) Amarjit Singh found that the AO was wrong in closing the investigation on the ground that PPL could not be held accountable for PEL’s actions. The order said, “Accepting the said approach, i.e., not holding the resultant / transferee company liable for the acts of transferor company, despite the presence of express provisions in the scheme of merger/ demerger/ amalgamation approved by the National Company Law Tribunal (hereinafter referred to as “NCLT”) would lead to an anomalous situation where the provisions of a scheme duly sanctioned by NCLT / other authority are not given effect, and the resultant company (despite inheriting all the assets and liabilities) escapes the rigors of law citing that the original violation was committed by the transferor company.”Furthermore, the WTM found that such an approach was erroneous and not in the interest of the securities market. The WTM thus decided to adjudicate on two broad issues:Whether PPL is liable for violation of LODR regulationsQuantum of penalty to be imposed upon PPL, if any. .Upon examination of the case, SEBI found that the events in question did not meet the criteria for materiality set forth in the LODR regulations. Specifically, the rules require listed entities to disclose information that could significantly impact market perception or alter existing public knowledge. However, the review indicated that the closure of the Digwal unit was brief, lasted only 44 days, and did not have a notable impact on revenue. Additionally, the financial implications of the NGT penalty were deemed non-material under PEL's internal policies.It was found that PPL had included information regarding these incidents in its BRR for 2023, which did not trigger any significant market reaction upon public disclosure. The order said, “It is noted from the submissions of the Noticee that the information about the said events was in-fact included in the Business Responsibility Report of PPL for the year 2023. 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.”Furthermore, the WTM found that the closure of the Digwal plant did not have a significant impact on the revenue of the company and PEL in fact had sufficient buffer stocks of manufactured goods to meet its commitments.Thus, the investigation against PPL was closed owing for the second time around as well. PPL was represented by Senior Advocate Pesi Modi, along with Advocates Sumit Agrawal, Rushin Kapadia, Kavish Garach and Anushka Fuke..[Read order]