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Hind Lever denies SEBI's charge of insider trading

Hindustan Lever Limited on Tuesday denied the allegation of insider trading in certain purchase transactions by HLL and one of its directors, R Gopalakrishnan, in respect of shares of the erstwhile Brooke Bond Lipton India Ltd.

The company was responding to the notice served on it by the Securities and Exchange Board of India recently. According to a SEBI inquiry, HLL brought 800,000 shares BBLIL in one single spot deal in March 1996, prior to the merger announcement on April 19, 1996.

A HLL-spokesperson in Bombay clarified that the purchase transactions by HLL and Gopalakrishnan were made in an open and transparent manner and after strictly observing self-discipline and professional ethics in dealing with group companies shares.

The company had purchased a block of 800,000 shares from the Unit Trust of India, a leading public financial institution, under a private negotiation by paying 10 per cent premium on the then prevailing market price. These shares were eventually cancelled on the merger of the erstwhile BBLIL with HLL. These shares were purchased after the results for the two companies for the year ending December 1995 were announced and made public in March 1996.

The spokesperson clarified that the UTI did not make any grievance of the sale of shares to HLL before the merger announcement but in fact further sold 550,000 shares to HLL following the announcement of the merger at the then prevailing market price and a premium of 5 per cent.

The shares were sold by the UTI after the half-yearly results for the relevant year were made public and there was no price-sensitive information available at the time of the purchase of the shares. The deal was concluded much before the announcement of the merger and much before the company became aware of the recommended swap ratio in mid-April 1996. The purchase of this large block of shares by HLL from the UTI in fact prevented disturbance of the market price of the erstwhile BBLIL shares.

The HLL official, therefore, failed to understand as to how the company can be accused the indulging in insider trading by purchasing shares of its associate companies. No advantage of benefit accrued to any individual in the purchase of shares. The advantage, if any, accrued to all the shareholders of the company. In any case, the company cannot be an insider in itself. HLL came to possess information on the amalgamation as a party to the proposed transaction and not as an associate company of the erstwhile BBLIL.

Further, the purchase of shares by HLL was disclosed in the explanatory statement to the court-convened meeting much before the SEBI-initiated inquiry. It was also clarified in the explanatory statement that the holdings of HLL in the erstwhile BBLIL shall stand cancelled on BBLIL's merger with HLL, as indeed they have following the amalgamation in March 1997.

The official said the entire purchase transaction was therefore made after full disclosure in an open and transparent manner after following the best business practice of not acquiring shares in group companies for trading. Any allegation against purchase of shares by HLL is therefore devoid of any merit, he added.

As regards the purchase of 2,500 shares by Gopalakrishnan, a Lever release clarified that he purchased the shares almost eight months before the valuation report was available and the decision of the board of directors for announcing the merger was taken and in line with well-accepted practice of holding shares by senior manager.

He purchased the shares out of his personal savings as an expression of his commitment to the erstwhile BBLIL, after he assumed the role of managing director of the company. This is reflected in the fact the these shares are held by him even today. Further, these shares were purchased as per the internal guidelines laid down as a matter of self-discipline for managers for buying shares of the company or group companies, the release said.

In accordance with the guidelines, these shares were purchased during the open period, that is after the publication of the half-yearly results of the relevant year and at the time when no price-sensitive information was available even to the directors. The fact of the constitution of the core group for the consideration of the merger was more an exploratory and evaluative exercise, which is normally carried on from time to time by the company.

Gopalakrishnan's decision to buy the shares during the open period and as per the guidelines after obtaining the permission of the then chairman was not influenced by any price-sensitive information but more in the nature of his commitment to his new assignment, the release added.

HLL's profit after tax jumps 40%; Rs 7.50 interim dividend

UNI