Cyrus Mistry's insider charges against Ratan Tata fails Sebi scrutiny

Market regulator Securities and Exchange Board of India (Sebi) has found no merit in ousted chairman Cyrus Mistry's charges of insider trading against the Tata Group, reports quoting Sebi sources said.

According to a report in The Economic Times, the information provided by Mistry does not substantiate the charge of insider trading by the firm or its officals and is insufficient to start an investigation by the regulator.

Sebi is of the view that the information provided to Ratan Tata about Tata group companies was what companies do in the normal course of business and was fully in conformity with rules on insider trading.

"When a person is appointed as chairman emeritus by the board of a company, the board may discuss the corporate performance, information pertaining to mergers, acquisitions, divestments and other sensitive information with a view to benefit from the experience of that person," the report quoted from the minutes of Sebi meeting.

"Though such a person has left the company, the benefit of his expertise would be invaluable to the company. Sometimes agenda items and other sensitive papers pertaining to board and committee meeting could be circulated to him. Therefore, such communication appears to be in normal course of business."

The rules allow communication of unpublished information that influence stock price in select cases, according to the minutes.

Mistry and his investment firms, in a petition filed before the National Company Law Tribunal (NCLT) on 20 December, had alleged that Ratan Tata influenced key decisions in the functioning of the conglomerate at a time when he did not have any managerial role and had sought price-sensitive information from the group's companies. It said Tata acted as the "super controller" of the group, giving direction to the trustees and the nominee directors of Tata Trusts, which has a two-thirds stake in holding company Tata Sons.

While Sebi's observations will have implications on the Tata-Mistry row, the regulator proposes to make it tougher for companies to remove independent directors on their management boards.

A CNBC-TV18 report quoting Sebi sources said the regulator is planing to tighten norms pertaining to the removal and appointment of directors from companies' boards. The plan comes amid the boardroom battle going on at Tata Sons over the removal of Cyrus Mistry as chairman last year.

The regulator feels that current procedure makes removal of a director less stringent than appointment, sources said, adding that Sebi has observed that an independent director can  be removed via an ordinary resolution.