The Case of insider trading (HLL-BBLIL Merger)

According to HLL, though it was deemed to be connected to BBLIL, and though it knew about the merger before it bought BBLIL's shares, it received the information only because it was one of the parties to the merger itself and not merely because of its connection to BBLIL. According to HLL this distinction was important because, to be considered an insider, HLL should have received the information "by virtue of such connection" to the other company. HLL's defense revolved around the fact that as an initiator and also the transferee, it was the 'primary party' to the merger. M.K Sharma, Legal director, HLL, said, "Nowhere in the world is the primary party to a merger considered to be an insider from the point of view of insider-trading." (Refer Box)...

In this regard, HLL argued that only the information about the swap ratio could be deemed to be price-sensitive and that this ratio was not known to HLL or its directors when the BBLIL shares were purchased in March, 1996. HLL pointed out that the two audit firms who valued the merger, S.S. Billimoria & Co. and M.N. Raiji & Co., recommended the ratio to the HLL board only in mid-April, 1996, which was only after the UTI transaction, i.e. after HLL's purchase of shares from UTI. HLL further argued that the news of the merger was not price-sensitive as it had been announced by the media before the official announcement...