Murugappa Group chairman A Vellayan steps aside as Sebi slaps insider trading charges

Murugappa Group chairman A Vellayan has "stepped aside", a day after market regulator Securities and Exchange Board of India (Sebi) charged him with insider trading during the 2011 acquisition of a Gujarat-based company, but said he will contest the regulator's finding.

In a statement, the Chennai-headquartered group described Thursday's order by Sebi as "based merely on suspicion" and "far-fetched".

"In keeping with family values and tradition, he has stepped aside from the chairmanship of the Murugappa Group corporate board and of Coromandel International and EID Parry India until this matter is resolved," the statement said.

Sebi charged Vellayan, 62, and three others - C Gopalkrishanan, V Karuppiah and A R Murugappan - with insider trading in connection with the purchase of Sabero Organics by Coromandel International.

Prashant Saran, the wholetime director, wrote in his order that Vellayan "in all possibilities" share unpublished price-sensitive information about the impending acquisition of Sabero with a relative, AR Murugappan.

Sebi also ordered Vellayan to return Rs2.15 crore made on the transaction.

Sebi probed the share transactions following complaints that confidential information was leaked to certain persons between 15 May 2011 and 15 June 2011. Sabero's stock price had increased from Rs58 (ie the opening price on 16 May 2011) to Rs127 on 9 June 2011 after touching Rs130.50 (intraday high on 6 June 2011).

Sebi's investigation analysed the trading pattern, KYC documents and bank account statement of the suspected entities which revealed that Gopalkrishanan had traded in the stock.

According to Sebi, Gopalakrishnan had bought 3,19,500 shares for Rs2.72 crore and this was the only stock he traded in for the last two years. Bank statements revealed Gopalakrishnan received Rs1 crore from Subramaniam (son of Murugappan) and utilised the same for the trade. Subarmaniam had received the funds on the same day (28 May 2011) from Murugappan. Gopalakrishnan had paid Rs1.02 crore to Subramaniam on 21 June 2011, 24 days from the date of receipt of amount. Gopalakrishnan made a profit of Rs1.30 crore through this trade.

Out of the gains, Rs1 crore was invested by him in fixed deposits with City Union Bank Chennai for a maturity period of 1 year.

V Karuppiah, Murugappan's son-in-law traded the Sabero stock on NSE. While Karuppiah's trade included five stocks, Sabero accounted for 64.15 per cent of those. He made a gain of about Rs15.93 lakh on the sale of the stocks after the news of the acquisition became public.

Sebi said the trading pattern of Gopalkrishanan and Karuppiah was unusual compared to their regular pattern, thereby giving a clear indication that they had traded based on unpublished price sensitive information (UPSI).

In his defence, Gopalakrishnan said the Rs1 crore he had received from Subramaniam M was towards the sale of his flat in Chennai, which did not materialise. Murugappan explained that the payment of Rs1 crore to Vellayan was an advance for the purchase of property, however, as the same did not materialise, the money was returned back to him.

The Sebi said its probe revealed that Murugappa chairman Vellayan was privy to the UPSI about the impending acquisition of Sabero by Coromandel. Sebi traced the prima facie financial links among Gopalakrishnan, Murugappan and Vellayan.

Murugappan's statement revealed that Vellayan's grandfather is the brother of Murugappan's mother and Vellayan through a letter submitted that Murugappan would have been related to him, distantly.

"The same confirms that Vellayan and Murugappan were sharing personal relationship and in all possibilities communicated the unpublished price sensitive information to Murugappan, which was shared to Gopalkrishanan," said the Sebi report.