Nestle chief quits, BSE issues show-cause

According to a BSE official, Nestle did not inform the exchange about the company’s board meeting on Wednesday, acceptance of the managing director’s resignation, and the decision to choose another person to take his place. “The information was selectively leaked on Thursday and may have put those in the dark about theresignation at a disadvantage while trading in the scrip,” he said.

“Nestle informed BSE about the resignation of Ardeshir between 15:30 and 15:45 hours only after the exchange took up the matter with it at about 13:30 hours,” the BSE official said. Nestle shares ended the day down nine per cent, or Rs 40.75, at Rs 410.

Asked what action could be taken against Nestle, the BSE official said as far as BSE was concerned, trading in Nestle scrip could be suspended. “When it comes to SEBI, prosecution for insider trading could be launched. The information was held back and selectively released and it could amount to insider trading,” he said, adding that the company was under obligation to inform BSE about the board meeting and the market sensitive decisions taken therein.

The Nestle scrip was falling for quite sometime from the past few days after a meteoric rise in the last few months. An investigation by the market regulatory body, Sebi, into the company for insider trading charges was the mainreason for the fall, brokers said.

Even before its yearly results were made public, the scrip started going up and crossed the Rs 300 mark in February. The Nestle scrip was quoting at Rs 248 in mid-December 1997. It shot up to Rs 290 on January 5 and, subsequently, to Rs 332 on February 19. The volumes moved up from around 20,000 shares on the BSE in December 1997, to around 3.6 lakh in February. Moreover, the lack of tallying in the carry-forward and delivery-based trades in the scrip attracted the attention of the BSE, which started its own probe into the matter some weeks ago.

The Sebi had last week launched a probe into the spurt in share prices and volumes of the company before the announcement of the company’s results. The probe was conducted against some Nestle India employees who allegedly have links with a fund-manager level employee of a leading foreign institutional investor. This individual is said to be a former employee of the company.The spurt in volumes of Nestle, accompanied by a 33 percent price jump, was also not reflecting in the carry forward positions for the settlement ended March 20. Sources said that the deliveries have not increased proportionately and neither have the squared-off transactions and carry-forward positions.

The company has said that they have not received any official communication from the Sebi about the investigation. It, however, promised full co-operation to the Sebi for conducting its probe.