WTM/SM/ISD/15646/2021-22 S E B I C O U 11 (1), 11 (4) A 11B (1) S E B I A, 1992 in Respect Of: Sr. No. Name of The Entity PAN

WTM/SM/ISD/15646/2021-22
SECURITIES AND EXCHANGE BOARD OF INDIA
CONFIRMATORY ORDER
UNDER SECTION 11(1), 11(4) AND 11B (1) OF SECURITIES AND EXCHANGE
BOARD OF INDIA ACT, 1992
In respect of:
Sr. No. Name of the Entity PAN
1 Abhay Bhutada AMIPB8540L
2 Saumil Shah AAGPS6395E
3 Surabhi Kishore Shah APQPS7611L
4 Amit Agrawal AEZPA0831J
5 Murlidhar Bajaranglal Agrawal AAYPA2130K
6 Rakesh Rajendra Bhojgadhiya AKRPB5208J
7 Rakesh Rajendra Bhojgadhiya HUF AARHR3479R
8 Abhijit Pawar AFPPP7465L
(The aforesaid entities are hereinafter individually referred to by their respective names/Entity
nos. and collectively as “Entities”, unless the context specifies otherwise)
In the matter of Insider Trading in the scrip of Magma Fincorp Limited (now
known as Poonawalla Fincorp Limited)
Background
1. Magma Fincorp Limited (now known as Poonawalla Fincorp Limited)

(hereinafter referred to as ‘Magma’/ ‘Company’) is a company listed on the National
Stock Exchange of India Limited (hereinafter referred to as ‘NSE’) and the BSE India
Confirmatory Order in the matter of insider trading in shares of Magma Fincorp Limited (now known as
Poonawalla Fincorp Limited)
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Limited (hereinafter referred to as ‘BSE’) and the above mentioned two stock
exchanges are hereinafter collectively referred to as ‘the exchanges’.
2. In the backdrop of a corporate announcement made by the Company on

February 10, 2021 regarding acquisition of controlling stake in Magma by Rising Sun
Holding Private Limited (hereinafter referred to as “RSHPL”) and raising of fresh
capital of ₹3,456 crores through a preferential allotment (hereinafter referred as
“Acquisition Deal”), it was noticed that certain Entities enjoying connection through
phone calls and fund transactions have traded in the scrip of the Company. The
aforesaid corporate announcement of Acquisition Deal was prima-facie observed to be
satisfying the characteristics of Unpublished Price Sensitive Information (hereinafter
referred to as ‘UPSI’) in terms of provisions of Regulation 2 (1) (n) of Securities and
Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015
(hereinafter referred to as ‘PIT Regulations, 2015’). In terms of the information
furnished by the Company, the discussion and negotiation for the Acquisition Deal
commenced on January 11, 2021 and finally came to be disclosed on February10,
2021. Consequently, the above period commencing from January 11, 2021 to February
10, 2021 has been viewed as an Unpublished Price Sensitive Information Period
(hereinafter referred to as ‘UPSI Period’), the period during which the price sensitive
information (PSI) remained as unpublished insider information of the Company and
was not generally available to public.
3. Based on the information gathered and examination thereof by the Securities

and Exchange Board of India (hereinafter referred to as ‘SEBI’) in respect of trading
activities of certain entities, it has been observed prima facie that certain entities
enjoying connection with the person having access to the UPSI have traded in the
scrip of the Company during the UPSI period. The abnormal and unusual trading
pattern exhibited by certain entities coupled with the connections enjoyed by them
as seen through their phone calls and funds transfers have led to the prima facie
observations that the trades in the scrip of Magma were executed by them while in
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possession of the UPSI. In this regard, it was noticed during SEBI’s examination that
Mrs. Surabhi Kishore Shah (hereinafter referred to as “Surabhi / Entity no. 3”), Mr.
Amit Agrawal (hereinafter referred to as “Amit / Entity no. 4”), Mr. Murlidhar
Bajranglal Agrawal (hereinafter referred to as “Murli / Entity no. 5”), Mr. Rakesh
Rajendra Bhojgadhiya (hereinafter referred to as “Rakesh / Entity no. 6”) and
Rakesh Rajendra Bhojgadhiya HUF (hereinafter referred to as “Rakesh HUF / Entity
no. 7”) have executed trades in the scrip of the Company during the period of UPSI
and around the time when corporate announcement about the Acquisition Deal was
made by the Company.
4. It was observed during the course of examination that Mr. Abhay Bhutada
(hereinafter referred to as “Abhay /Entity no. 1”) working as Managing Director and
CEO of Poonawalla Finance Pvt Ltd (hereinafter referred to as “PFPL”), a subsidiary
company of RSHPL, was part of the discussions on the proposed Acquisition Deal
from the very beginning and was involved in the matter throughout the UPSI Period.
By virtue of being involved in the discussion of the Acquisition Deal, Abhay was
reasonably expected to have an access to and be in possession of the UPSI, thereby
rendering him to be called as an insider in terms of regulation 2(1) (g) of the PIT
Regulations, 2015.
5. It was further noticed during examination that Mr. Saumil Shah (hereinafter
referred to as “Saumil / Entity no. 2”), Rakesh and Mr. Abhijit Pawar (hereinafter
referred to as “Abhijit / Entity no. 8”) were in contact with Abhay through telephonic
communication during the UPSI period and were also having financial dealings with
him (Abhay), which gave rise to a strong preponderance of probability of receipt of
UPSI or reasonable access to the UPSI through Abhay, hence, were prima facie
observed to be insiders as well, as far as the UPSI is concerned.
6. It was further noticed during examination that the Entities were connected to
each other through blood relationship, financial transactions, etc., as illustrated
below: -
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a) Saumil (Entity no. 2) is the son of Surabhi (Entity no. 3). Further, Entity no. 2
is a nominee in the trading account (Kotak Securities) of Entity no. 3 from
where the trading in the scrip of Magma during the UPSI period was
executed. Similarly, the savings bank account 801XXXX966 (Kotak
Mahindra Bank) which was linked to aforementioned trading account is a
joint bank account in the names of the Entities no. 2, 3 and wife of the Entity
no. 2.
b) Rakesh (Entity no. 6) was Additional Director of BAT Digital Media Private
Limited (hereinafter referred to as “BAT”) during the period from March
23, 2018 to November 14, 2019 in which Abhay (Entity no. 1) was earlier
having a stake of 99.99%. From the report MGT-7 available on MCA portal,
the email ID of the BAT for the year 2017-18 was found to be
bhojgXXXXXX@gmail.com which belonged to Rakesh as well. The
examination further revealed that one M/s Newgen Fintech Advisors
(hereinafter referred to as “Newgen”), of which Entity no. 6 is a proprietor,
received ₹4.97 crore on 12-Oct-2020 from PFPL (where Entity no. 1 is MD &
CEO). Further, Entity no. 6 is Karta in Entity no. 7 (Rakesh HUF)
c) Preliminary examination has also revealed that a company, namely Neo

Star Infra Projects Pvt Ltd, wherein the Abhijeet (Entity no. 8) is the
significant beneficial owner (SBO) and one of the Directors, had transferred
a sum of ₹55 crores to the bank account of Entity no. 1 on April 03, 2021, out
of which an amount of ₹6.95 crores was transferred by Entity no. 1 to his
another personal account in IDBI Bank. Additionally, a sum of ₹15 crores
were transferred by Entity no. 8 and his family members to Newgen
(proprietorship firm of Entity no. 6) and such funds were subsequently
transferred onward by Newgen to the personal accounts of Entities no. 6 and
7 and utilised those funds in executing trades in the scrip of Magma during
the UPSI Period.
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d) Amit (Entity no. 4) is son of Murli (Entity no. 5). It was observed during the
examination that Entities no. 4 and 5, while trading in the scrip of Magma
has utilised the funds received from the Entity no. 6 and subsequent to the
sale of shares (which were purchased during the UPSI Period), they have
returned the sale proceeds to Entity no. 6.
7. It was observed from the trade data that Surabhi / Entity no. 3, Amit / Entity
no. 4, Murli / Entity no. 5, Rakesh / Entity no. 6 and Rakesh HUF / Entity no. 7 had
purchased the scrip of Magma during the UPSI Period i.e. prior to the corporate
announcement of Acquisition Deal and soon after the said corporate announcement,
they have subsequently sold the shares of Magma in the market and have earned
profits from such trades. It was prima facie observed that the trades in the scrip of
Magma executed from the trading accounts of Entities no. 3 to 7 were not executed in
the normal course of dealing in securities.
8. Having considered the information unearthed during the course of initial

examination into the trading activity of the Entities in the scrip of Magma, an ex-parte
ad Interim Order dated September 15, 2021 (hereinafter referred to as ‘Interim Order’)
was passed in respect of the aforementioned Entities wherein it was observed that
said Entities have prima-facie acted in violation of the provisions of SEBI Act, 1992 and
PIT Regulations, 2015.
9. In the light of the aforesaid prima-facie observations and for the reasons
recorded in the Interim Order, the Entities were inter alia directed to deposit jointly
and severally, the unlawful gains made by them through their engagement in the
trading in the scrip of Magma during the UPSI period and were further restrained
from buying, selling or dealing in securities, either directly or indirectly, in any
manner whatsoever until further orders. The inter-se connections amongst Entities no.
1 to 8 with each other on the basis of call records, commercial relations, financial
relations, blood relations, etc. have been elaborately illustrated in details in the
Interim Order with the help of diagrams (Figure 1 and 2) and through factual
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narrations in paragraphs no. 57-60 on pages no. 32-38 therein. Therefore, for the sake
of brevity, the same are not being reproduced in this Order.
10. As the above Interim Order was passed ex parte, the Entities were asked to
submit their respective replies/objections, if any, with respect to various
observations and directions made in the Interim Order.
Servicing of Interim Order, replies of Entities and hearing
11. It is noted that the Interim Order was served upon all the Entities, and the
directions issued therein with regard to the opening of the escrow accounts and
depositing the alleged wrongful gains therein have been duly complied with by the
Entities. Accordingly, SEBI has also issued the directions to the banks to de-freeze the
accounts (other than the escrow accounts) of the Entities. I further note that the
Entities / their Authorized Representatives (AR) had sought inspection of the
documents and the same have been provided to the Entities / AR as indicated in the
table below:
Entity Date of completion of Inspection
Entity no. 1 October 14, 2021
Entities no. 2 and 3 October 11, 2021
Entities no. 4, 5, 6 and 7 October 08, 2021
Entity no. 8 October 08, 2021
12. I note that the Entities have submitted written replies to the Interim Order,
pursuant to which an opportunity of personal hearing was granted to all the Entities
on December 23, 2021 during which, Entity no. 1 and 8 were represented by their
separate AR’s, Entities no. 2 and 3 appeared through a common AR, while Entity no.
4 argued on behalf of himself and Entity no. 5. Similarly, Entity no. 6 represented
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himself and the Entity no. 7. During the course of personal hearing, wherein Entities
have been heard together, the ARs and the Entities reiterated their contentions made
in the written submissions filed with SEBI, I note that all the Entities have reiterated
their prayers for withdrawal of the directions issued in the Interim Order. Pursuant to
the above hearing, vide email dated January 07, 2022, certain additional details were
sought from Entities and Entities were asked to make their post-hearing submissions,
if they wished. In this regard, Entities have submitted replies to the queries asked
from them and also have made their post-hearing written submissions. The
explanations offered and arguments advanced by Entities in their written and oral
submissions are highlighted in the following paragraphs of this Order.
Submissions of Entities
Entity no. 1
13. Entity no. 1/Abhay in his replies dated October 06, 2021, December 23, 2021
and January 17, 2022 to the Interim Order and through oral arguments during the
personal hearing has made the following assertions: -
13.1. At the time of discussions of Acquisition Deal, Entity no. 1 was acting as MD
and CEO in PFPL and had participated in some meetings along with various
other senior officers of PFPL and had kept the details of the negotiations
confidential from everyone. He has submitted that the discussions regarding
the Acquisition Deal were initiated by Mr. Atul Tibrewal, the treasury head of
Magma and the finding in the Interim Order that the discussions regarding the
Acquisition Deal were initiated on January 11, 2021, with a call between the
Entity no. 1 and Mr. Kailash Baheti, is not correct. He has further submitted
that his role in the Acquisition Deal was minor and peripheral as he was the
MD and CEO of the subsidiary (PFPL) and not the Acquirer entity, i.e. RSHPL
and it was Mr. Amar Deshpande (for short “Mr. Deshpande”), the chief
operating officer of PFPL (currently director in Poonawalla Fincorp Limited
and Poonawalla Housing Finance Limited), and Mr. Saurabh Prabhudesai (for
short “Mr. Prabhudesai”) a director of RSHPL (and also director of PFPL and
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a few other Poonawalla Group companies) who were the key officials
involved in the negotiations and the execution of the Acquisition Deal.
13.2. The information regarding the Acquisition Deal was published at various
stages and was in public domain and therefore cannot be considered as
unpublished information. It is an uncontroverted fact that the information
concerning raising of capital by Magma was shared with the stock exchanges
on February 05, 2021. He has further submitted that from January 19, 2021 to
January 29, 2021 (i.e. 8 trading sessions), the price of the scrip of Magma merely
moved from ₹44 to ₹44.7 and the daily average volume (on NSE) was around
7 lakh shares. However, in the 8 trading sessions after that, i.e. from February
01, 2021 to February 10, 2021 (immediately prior to the stock exchange
disclosure about the Acquisition Deal), the price of the scrip of Magma jumped
around 80% and the daily average volume (on NSE) also increased to around
38.5 lakh shares. With no other price sensitive announcement made around
that time, the reason for such a huge increase in volume and price can only be
explained by the fact that many traders were aware of the impending
acquisition.
13.3. Regarding the allegation that Entity no. 1 had spoken to other Entities for
thousands of minute, he has argued that a tipper would not speak for such
long periods to simply communicate information which was otherwise widely
available with the Entities or widely available in the media and would require
just a few seconds to pass that information.
13.4. Regarding the allegation that Entity no. 1 has communicated the UPSI to Entity
no. 2, he has submitted that Entity no. 2 was integrally involved in the
discussions and actions pertaining to the Acquisition Deal and Entity no. 2 was
privy to the same UPSI as Entity no. 1. He has also stated that Entity no. 2, on
behalf of Economic Law Practice (ELP), was acting as an advisor to the
Acquisition Deal and therefore Entity no. 2 was closely working with the RSHPL
team and the senior management of the Poonawalla Group, such as Mr.
Deshpande and Mr. Prabhudesai, who were leading the entire execution of
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the transaction and Entity no. 2 was also present in meeting dated February
05, 2021.
13.5. Since, Entity no. 8 had attended meeting in person and also part of various zoom
meetings including meeting dated January 20, 2021 (with Entity no. 8 and Mr.
Sanjay Chamria- VP and MD of Company), zoom meetings dated January 21,
2021, January 26, 2021 and January 28, 2021 and meeting dated February 05,
2021, the observation of communication of UPSI does not arise.
13.6. Though he has admitted that he shares a professional relationship with Entity
no. 6, he has denied the allegation of communication of UPSI to Entity no. 6.
He has further submitted that that Entity no. 6 was also independently
connected to the group entities of the Poonawalla group, i.e. the entities of the
Acquirer in respect of various transactions. For instance, Entity no. 6 on behalf
of ABP & Co., a CA firm, had issued a letter to ICICI Bank about the utilization
of the term loan by PFPL in August 2020. Similarly, in January 2021, i.e. during
the UPSI Period, Bhojgadhiya and Associates, Entity no. 6’s firm, had issued a
letter to Kotak Mahindra Investments Pvt. Ltd. certifying that the outstanding
number of PTCs in the books of PFPL was around ₹218.25 crores. While
vehemently denying the observation of communication of UPSI to the Entity
no. 6, the Entity no.1 has emphasized upon that the Entity no. 6 had several
other sources to independently acquire the UPSI, being an entity closely
connected to the Poonawalla group and its officials.
13.7. The Interim Order has failed to appreciate that the UPSI could have flown to
the Entities who have traded during the period from any of the multiple
persons involved in the deal, including the senior management of the Magma
or RSHPL or Poonawalla Group or PFPL, Axis Capital, Deloitte, Khaitan &
Co., Wadia Ghandy, ELP, Vinod Kothari and co. or any other employee /
advisors involved in the execution of the deal. To further support his
argument, the Entity no. 1 has referred to SEBI Adjudication Order (“AO”)
(Order no. WTM/SR/SEBI/EFD/26/05/2016) in the matter of A. Vellayan
and Ors dated May 12, 2016. He has further submitted that the Interim Order
has not considered that Entities no. 6 and 8 also shared a business relationship
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with Entity no. 2, who was himself privy to the UPSI, at the time of discussions
pertaining to ‘Sakal Money’ and ‘Udchalo’, which were ongoing even during
and after the UPSI Period. Therefore, there is a possibility that Entity no. 2 who
also had direct knowledge of the UPSI and was also in touch with Entities no.
6 and 8, had communicated the UPSI to Entities no. 6 and 8 or vice versa, the
communication of the UPSI might have gone from the Entity no. 8, when the
facts show that he had participated in several meetings since January 20, 2021,
hence the said possibility of communication of UPSI from other sources may
not be ruled out.
13.8. Regarding various calls with Entity no. 2, 6 and 8, Entity no. 1 has submitted
that that Entity no. 2 was serving as an advisor to the Poonawalla Group at the
time of negotiations pertaining to transaction between PFPL and TAB Capital,
which was owned by Entity no. 1 till March 2019 and later on was controlled
by the Poonawalla Group. He has further stated that from February 2019
onwards, Entities no. 1 and 2 were also involved in discussions pertaining to
various ventures, including that of Entity no. 8, such as ‘Sakal Money’ and
‘Udchalo’, etc. and Entity no. 2 had also acted in an advisory capacity in respect
of a transaction between Entities no. 6 and 8 in relation to the ‘Sakal Money’
venture, wherein Entity no. 2 was acting in a guiding role in such discussions.
In furtherance of this, Entities no. 1, 2, 6 and 8 had also attended a joint physical
meeting with Ebix Group on December 16, 2020 in relation to the ‘Sakal
Money’ and ‘Udchalo’ ventures. He has therefore contended that in light of
the various ventures mentioned above, it is obvious for such Entities to be in
frequent communication with each other in furtherance of legitimate business
purposes and therefore, in the absence of any cogent evidence, it may not be
apposite to draw adverse observation of serious in nature like communication
of UPSI.
13.9. Regarding his connection with Entity no. 6, it is submitted that Entity no. 1
established TAB Corporate Advisors Private Limited (hereinafter referred to
as “TAB Corporate”) in F.Y. 2012-13, with a specialized focus on the areas of
management advisory and loan consultancy. In the year 2018, with an intent
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to further his focus on the business of TAB Capital, he sold TAB Corporate to
Entity no. 6, who then renamed TAB Corporate as BAT Digital Media Private
Limited (hereinafter referred to as “BAT”).
13.10. He has submitted that in F.Y. 2015-16, he acquired TAB Capital Private
Limited (hereinafter referred to as “TAB Capital”), a non-banking financial
company working in the retail loan sector offering products such as business
loans, machinery loans, two-wheeler loan, and personal loans. He met Entity
no. 8 for the first time at Sakal school Olympic event and had a discussion on
the NBFC sector, fintech and start-ups. Later, in February 2019, Entity no. 8
arranged a meeting between Entity no. 1 and Mr. Adar Poonawalla to explore
the possibility of business sale of TAB Capital to the Poonawalla group, and
in furtherance of which, it was decided to continue the lending activity in the
name of PFPL, a subsidiary of RSHPL. Accordingly, from April 2019, the
technology, employees, and majority of the loan book of TAB Capital were
transferred to PFPL from TAB Capital (and from that TAB capital was
technically fully controlled by Poonawalla group). Pursuant to this
transaction, Entity no.1 was appointed as a director of PFPL on March 19, 2019,
and was promoted to be the MD of PFPL on December 09, 2019.
13.11. Entity no. 1 has also stated that while alleging communication of UPSI, it is
imperative that SEBI should provide cogent evidence to support that there
was communication of UPSI. He has further referred to and relied upon the
judicial decisions in the following matters:
 Hon’ble Securities Appellate Tribunal (“SAT”) in the matter of Manoj Gaur

v. SEBI (Appeal No. 64 of 2012, DoD: October 03, 2012);
 Securities and Exchange Commission v. Ladislav Larry Schvacho (991 F. Supp.

2d 1284, N.D. Ga. 2014);
 SEBI Order in the matter of Sanjay D. Gala & Ors (Order no.
NP/SJ/AO/10/2016 dated December 02, 2016);
 SEBI Order in the matter of Emami Limited (Order no. EAD/BJD/VS/21-

27/2018 dated May 18, 2018);
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 SEBI Order in the matter of Reliance Securities
(WTM/MB/ISD/ISD_ISD/12408/2021-22, dated June 30, 2021)
 Hon’ble Supreme Court the matter of SEBI v. Kishore R. Ajmera (2016) 6

SCC 368);
13.12. Entity no. 1 has contended that the Interim Order has failed to appreciate that
the ₹54 lakhs paid to TAB Capital was made by Entity no. 6 on behalf of
Newgen in furtherance of the Service Agreement dated March 01, 2021 for the
purchase of data and were not proceeds of illegal gains. He has further
contended that in terms of the aforesaid Service Agreement, Newgen was to
purchase data enrichment services for a total consideration of ₹75 lakhs. In
this regard, an advance payment of ₹54 lacs was made by Entity no. 6, the
proprietor of Newgen, on behalf of Newgen, to TAB Capital on March 16,
2021. However, as the said transaction could not be completed due to technical
reasons, the Service Agreement was cancelled, consequently, an amount of
₹57.47 lacs was refunded to Entity no. 6 in June 2021 which was inclusive of
the advance amount earlier paid by Entity no. 6 and a penalty amount of ₹3.47
lakhs in terms of the Service Agreement for non-fulfilment of obligation. The
Interim Order did not consider the above facts and also failed to appreciate that
the said amount was returned with penalty as per the terms of the Service
Agreement, in June 2021, much before the passing of the Interim Order and
therefore drawing any adverse observation on such transaction is unjustified.
13.13. With respect to the allegation of amount of ₹55 Crore received by Entity no. 1
from Neo Star (a company controlled by the Entity no. 8), he has submitted
that the said transaction was pursuant to a loan provided by Neo Star to him
and had no connection with the alleged trades referred to in the Interim Order.
He has further submitted the following bifurcation of the utilization of the
said loan.:
 Repayment of an existing share pledge loan of ₹42.37 Crore to Serum

Institute of India Private Limited which was availed by Entity no. 1 in
September 2019.
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 Repayment of an existing loan of ₹5.5 Crore which was availed by Entity
no. 1 from Entity no. 8 in September 2020.
 Balance amount of ₹6.95 Crore was kept in Entity no. 1’s bank account
towards payment of interest for the first year towards the loan availed
from Neo Star, as per the terms of the loan agreement.
13.14. He has also argued that the Interim Order has failed to appreciate that the loan
received from Neo Star could not have been viewed as a part of unlawful
profits as that loan amount was received by Entity no. 1 from Neo Star (Entity
No. 8) on 3rd April 2021, whereas the majority of the alleged illegal profits were
transferred to Entity no. 8 by Entity no. 6 only on May 12, 2021.
13.15. He has submitted the Interim Order has wrongly observed that he has acted in
violation of regulation 4(1) of the PIT Regulations, 2015 even though no trades
were executed by him in the scrip of Magma during the UPSI Period. In this
regard he has referred to the observations in the SEBI Order in the matter of
Biocon Ltd (WTM/MB/IVD/ID3/12407/2021-22, dated June 30, 2021).
13.16. Entity no. 1 has taken a plea that the Interim Order has failed to satisfy the test
of preponderance of probability against him in the matter. In this regard, he
has relied upon the observations in the following matters:
 Hon’ble SAT in the matter of VK Kaul v. SEBI (Appeal No. 55 of 2012,

decided on October 08, 2012);
 SEBI Order in the matter of Palred Technologies (Order no.

WTM/GM/EFD/29/2019-20 dated August 13, 2019)
 SEBI Order in the matter of Sanjay D. Gala & Ors (supra)
Entities no. 2 and 3

14. I note that the Entities no. 2 and 3 have submitted common replies dated
November 09, 2021, January 17, 2022 and March 14, 2022. Their written as well as oral
submissions are summarized as below: -
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14.1. Entity no. 3 is a housewife and mother of Entity no. 2. She has been an investor
in the market from past 30 years and her portfolio is being managed by her
son i.e. Entity no. 2.
14.2. They have submitted that an order of disgorgement can only be passed during
the pendency of the proceedings and it cannot be passed at the time of
initiation of proceedings. He has further contended that in the instant matter,
SEBI has provided no evidence to show and justify the directions in the Interim
Order. AR of the Entities no. 2 and 3 has further referred to “Order 38 Rule 5 to
13 of the Civil Procedure, 1908” while stating the laid down parameters for
attachment before judgement. He has further referred to judicial observations
of the Hon’ble SAT in the matter of Dr. Udayant Malhoutra vs. SEBI (Appeal no.
145 of 2020, decided on June 27, 2020).
14.3. AR of the Entities no. 2 and 3 has vehemently argued that there was no UPSI
when the Entity no. 3 traded in the scrip of Magma. In this regard, he has stated
that as per regulation 3(5) of the PIT Regulations, 2015, a listed entity is
required to maintain structural digital database containing the nature of
unpublished price sensitive information and names of such persons who
have access to such information. He has contended that despite the
availability of such a detailed and reliable source of evidence, SEBI has not
used the same and has merely relied upon the sequence of events provided
by the Company to levy allegations against the Entities in the instant matter.
Such approach of SEBI reveals that incomplete facts have been presented
before the learned Whole Time Member while passing the Interim Order in
the matter.
14.4. AR has further argued that as the discussions that took place between Magma
and PFPL on January 11, 2021 were at very nascent stage and no further
discussions took place between the necessary parties till January 20, 2021,
which too was a meeting between certain representatives of the Company. The
preliminary discussions regarding the Acquisition Deal started between the
parties only after January 25, 2021 and merely on the basis of the existence of
some preliminary discussions, the said UPSI cannot have started from
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January 25, 2021. He has further submitted that the UPSI period must be
ascertained from the time when the deal becomes concrete and not from the
preliminary discussions and in the instant matter, the initial and preliminary
discussions were finally crystallized on an evening zoom call dated February
03, 2021. Therefore, before February 03, 2021, the entire Acquisition Deal was
in its initial and preliminary discussion stage, which cannot be included in
the UPSI Period. He has further submitted that the UPSI Period should start
from February 03, 2021 (after the market hours). Entity no. 2 got the
information of the Acquisition Deal on February 03, 2021 and by that time; he
had already executed trades in the scrip of Magma from the account of Entity
no. 3.
14.5. The AR has further referred to various corporate announcements (January 28,
2020, November 12, 2020, December 01, 2020, January 29, 2021) of the
Company stating that Magma was looking for potential investors to the tune
of ₹3000 crores and during the said period of one year, multiple talks with
various investors were held. Therefore, Entity no. 2 was never an insider
when the trades in the scrip of Magma were executed by the Entity no. 3.
Therefore, the trades executed by Entity no. 2 from the account of Entity no. 3
were not motivated by any insider information or the purported UPSI, but on
the basis of an independent assessment of the market movement. They have
referred to press release dated November 07, 2020 issued by Company, news
article dated December 10, 2020 regarding improvement of financial profile
of the Company, news article dated January 06, 2021 regarding scrip of Magma
trading below its 5 –year Price-to-earnings (P/E) ratio, corporate
announcement of Magma dated January 29, 2021 regarding its meeting dated
February 06, 2021 to discuss the issue of raising of funds, news article dated
January 29, 2021, etc. to strengthen their argument of independent research
and publicly available information about the Company.
14.6. Regarding connection of Entity no. 2 with Entity no. 1, he has submitted that
he was acting as an Advisor to the Acquisition Deal on behalf of ELP. He has
further submitted that out of the 53 calls between Entity no. 2 and Entity no. 1
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during the UPSI Period, only one call (on January 28, 2021) was there before
February 03. 2021 (the day on which Entity no. 2 got the information about the
Acquisition Deal). Further, the said call on January 28, 2021 with Entity no. 1
was also for less than one-minute duration for scheduling an appointment to
meet in the afternoon on February 03, 2021. He has also furnished an affidavit
by one of his colleague Mr. Mitesh stating that Entity no. 2 was travelling with
Mitesh for a meeting with Entity no. 1 on February 03, 2021.
14.7. Entities no. 2 and 3 have submitted that the allegation of insider trading
requires a high level of proof and establishment of mens rea, however, SEBI
has not provided any proof against them for wrongdoings in the Interim order.
Entities have relied upon the judicial observations in the following matters:
 Hon’ble Supreme Court in the matter Union of India vs. Chaturbhai M. Patel
(AIR 1976 SC 712);
 Hon’ble SAT in the of Sterlite Industries vs. SEBI (Appeal no. 20 of 2001,
decided October 22, 2001);
 Hon’ble SAT in the of Dilip S. Pendse vs. SEBI (Appeal no. 80 of 2009, decided
November 19, 2009);
 Hon’ble SAT in the matter of VK Kaul v. SEBI (supra);
 Hon’ble Supreme Court in the matter Union of India vs. H.C. Goel (AIR 1964
SC 364);
 Hon’ble Supreme Court in the matter Seth Gulabchand vs. Seth Kudilal (AIR
1966 SC 1734)
14.8. Vide additional submission dated March 14, 2022, AR has referred to the
observations of Hon’ble SAT in the matter of the Bijal Shah vs. SEBI (Appeal no.
651 of 2021) and decision of the Hon’ble Supreme Court in the matter of Bijal
Shah vs. SEBI (Civil Appeal no. 1488-1490 of 2022) and has submitted that as the
Entities have deposited the alleged ill-gotten gains as calculated in the Interim
Order, restraint on the Entities may be lifted as the Entity no. 2 has no other
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source of income presently and the restriction on trading is hampering his
livelihood.
14.9. Additionally, Entities no. 2 and 3 have referred to the judicial decisions of the
Hon’ble SAT in the matter of Ms. Chandrakala vs. SEBI (Appeal no. 209 of 2011,
decided January 31, 2021).
15. I note that Entity no. 4 has submitted joint replies on his as well as on behalf of
his father (Entity no. 5) vide replies dated October 19, 2021 and January 28, 2022. Their
oral as well as written arguments are summarized below:
15.1. They have submitted that the trades in the scrip of Magma executed by them
were in usual course of business based on generally available information.
15.2. Entity no. 4 has submitted that Entity no. 6 is his brother-in-law and they both
are partners in a Limited Liability Partnership, however he has denied the
receipt of UPSI from Entity no. 6. Regarding calls between Entities no. 4 and 6,
it has been submitted that the same were for business and personal work.
15.3. They have requested that their demat accounts and mutual funds accounts
may be unfrozen as the same is causing financial difficulties to them in
survival and to meet day to day need.
16. Vide Letter dated October 20, 2021, Entity no. 6 has filed joint submissions for
himself and for his HUF (Entity no. 7). Details of written and oral submissions of
Entities no. 6 and 7 are summarized below:
16.1. He is a regular trader in the securities market since 2007-2008. He invested in

the scrip of Magma on the basis of: - (a) positive corporate announcements
made by the Company since January 29, 2021; (b) the constant rise in the price
and traded volumes of the shares of the Company; (c) positive declarations in
the financial results for quarter ended December 31, 2020 released by Company
on February 06, 2021; (d) relaxations granted to NBFCs vide Union Budget
announced on February 07, 2021; and (e) newspaper articles, etc. Since all the
aforesaid information were available in public domain, there is no
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wrongdoing in the trades executed by him. He has further denied receipt or
communication of UPSI.
16.2. He had also purchased the shares of Magma even after February 10, 2021, (after
UPSI Period) and has continued doing the same till March 2021. Even if it is
assumed that he was in possession of UPSI, he could have purchased the
shares of the Company much earlier, when the price of the scrip was much
lower and could have garnered more profits. However, no trades were
executed by him in the scrip till February 09, 2021.
16.3. Entity no. 6 shares a commercial relationship with Entity no. 1 from many
years and they have entered into few commercial transactions. He has argued
that even before UPSI Period, there are various phone calls between them;
however, SEBI has arbitrarily chosen the telephone calls of UPSI Period. Since,
the two know each other over a sufficient period of time and used to talk
frequently, hence, calls during the UPSI period are not unique and solitary
ones to be viewed as source and mode of communication of UPSI.
16.4. He has submitted that he knows Entity no. 8 since 2019. While referring to the
allegations of receipt of funds from Entity no. 8 to trade in the scrip of Magma,
Entity no. 6 has submitted that the amount of ₹15 crores received from Entity
no. 8 were short term hand loans availed from Entity no. 8 and his family
member. He has further submitted that the said loans were repaid to Entity
no. 8 and his family member on May 11, 2021 and March 16, 2021 respectively.
Further, he has submitted that the payment of ₹8.6 crores to DCF BFR
Consulting Pvt. Ltd. (hereinafter referred to as “DCF”) was an investment for
purchase of preference shares in DCF.
16.5. Regarding transactions of Newgen (proprietorship concern of Entity no. 6)

with PFPL and TAB Capital, Entity no. 6 has submitted that it was a legitimate
commercial transaction. Newgen has further paid ₹4,86,20,000 to TAB Capital
on October 12, 2020 for data transaction, which was enriched and then sold to
PFPL for which PFPL had paid ₹4,97,25,000 to Newgen on October 12, 2020
for data and data enrichment services. He has given similar explanation that
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has been submitted by Entity no. 1, with regard to fund transactions of ₹54
lakhs between Newgen and Entity no. 1.
16.6. Regarding the allegation of funds transferred by Entity no. 6 to Entity no. 4, it
has been submitted that the said funds transferred by him pertained to a
property buy-sell transaction, wherein he intended to purchase a property of
Entity no. 4. However, as the said transaction could not be fructified, the said
funds were returned in March 2021. Entity no. 6 has also submitted that even
if it is assumed that he was in possession of UPSI and same was
communicated to Entity no. 4, it is irrational for him to purchase shares of
Magma from February 09, 2021 at higher prices as compared to Entity no. 4
who started purchasing the shares of Magma much before him i.e. from
February 03, 2021.
17. I note that Entity no. 8 vide letters dated October 19, 2021 and March 11, 2022
has, inter alia, submitted his reply to the allegations in the Interim Order. I note that
some of his arguments are similar to what have been submitted by other Entities and
have already been highlighted in the preceding paragraphs which for the sake of
brevity, need not be repeated, however, those arguments shall be dealt with in this
Order. The rest of the explanations offered and the arguments advanced by the Entity
no. 8 that are unique are summarized as below:
17.1. Entity no. 8 has contended that the direction to freeze the bank account is
illegal and without jurisdiction. Section 11(4) (e) of the SEBI Act, 1992 permits
SEBI to attach the bank account(s) only after securing the permission of
Judicial Magistrate, however, in the instant matter no such permission has
been taken by SEBI and therefore, such a draconian order is wholly arbitrary
and unwarranted.
17.2. He has submitted that he knows Entity no. 1, 2 and 6 and had interacted with
them for business transactions over the period. Therefore, there are various
telephonic conversations between them.
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17.3. Entity no. 8 has also contended that reliance of SEBI on call data records
without providing the details of the content discussed on such calls is in
defiance of the settled principles established by Supreme Court of India in the
case of SEBI vs. Pricewaterhouse and Hon’ble SAT in the matter of Smitaben Shah
vs. SEBI (DoD: July 30, 2010), wherein it has been held that all documents and
evidence relied upon in the proceedings are required to be shared with the
noticee.
18. Entities have also argued that there was no urgency for issuance of the Interim
Order and while passing an ex-parte Interim Order, an authority must apply its judicial
mind and satisfy itself that the balance of convenience lies in favour of the party on
whose instance the ad interim directions / relief are to be granted. The Interim Order
fails to record specific averments as to how the actions of the Entities will cause an
impending danger to the investors for which urgent directions were issued. To
further buttress their arguments, they have relied upon the observations in the
following judicial decisions:
 Hon’ble Supreme Court in the matter of SEBI vs. Udayant Malhoutra (Civil
Appeal Nos. 2981-2982 of 2020, decided on November 18, 2020);
 Hon’ble SAT in the matter of North End Foods Marketing Pvt. Ltd. vs. SEBI
(Appeal No. 80 of 2019, decided on March 12, 2019);
 Hon’ble SAT in the matter of Zenith Infotech Limited vs. Securities and
Exchange Board of India (Appeal No. 59 of 2013, decided on July 23, 2013)
 Hon’ble SAT in the matter of Pancard Clubs Limited vs. Securities and
Exchange Board of India (Appeal No. 254 of 2014 with M.A. No. 104 of 2014);
 Hon’ble SAT in the matter of Tree House Education vs. SEBI (Appeal No. 78
of 2019, decided on November 07, 2019)
 Hon’ble SAT in the matter of Bhoruka Financial Services Ltd. vs. SEBI (Appeal
No. 18 of 2006, decided on May 10, 2010);
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 Hon’ble SAT in the matter of Cameo Corporate Services Limited vs. SEBI
(Appeal No. 566 of 2019, decided on November 26, 2019);
 Hon’ble Supreme Court in the matter of Punit Mercantile Pvt. Ltd. Ors. vs.
Union of India & Ors. (2010 SCC Online Raj 3814)
Consideration of Issues
19. In the light of the preliminary observations made in the Interim Order, various
submissions made by the Entities and materials available on record, it is relevant here
to first set the facts and context straight by observing that the present proceedings
are in the nature of confirmatory or revocation proceeding. Accordingly, my remit in
the instant proceedings will be limited to the extent of assessing as to whether the
Entities are successful in conclusively refuting the prima-facie findings about the
insider trading as recorded in the Interim Order or whether the Entities are successful
in carving out a case for them warranting modification, if any, to the directions so
issued against them in the Interim Order. Before dwelling upon the submissions made
by the Entities to rebut the prima facie observations made against them in the Interim
Order, I would like to remind myself that the main premise which became the basis
for passing the Interim Order comes from the backdrop of the Acquisition Deal,
wherein RSHPL (a Poonawalla group company) was acquiring a majority stake in
Magma. Based on the information furnished by the Company to NSE, detailing therein
the chronology of events and persons who participated/attended the meetings
relating to the said Acquisition Deal and who were having access to the UPSI relating
to the said Deal, it was observed that Entity no. 1 being a connected person / insider
in terms of the PIT regulations, 2015, was having frequent phone calls with some of
the other Entities (Entities no. 2, 6 and 8) and these Entities were observed to have
engaged in the alleged insider trading in the scrip of Magma either directly or
indirectly through their connected Entities (Entities no. 3, 4, 5 and 7) during the UPSI
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period and have made ill-gotten gains in this process. In addition to the above, there
were also fund transactions noticed amongst these Entities which provided further
strength to the said prima facie observations about their indulgence in insider trading
activities in the scrip of Magma.
20. The aforesaid preliminary facts have been observed to have demonstrated
prima facie that the trades executed by the Entities in the scrip of Magma were executed
while in possession of UPSI received by the respective Entities. Before I proceed to
examine as to whether or not, the Entities have been successful in demolishing the
above stated prima facie observations and have made out a clinching case in their
favour warranting their exoneration from the observations so recorded in the Interim
Order or have been successful in dispelling the said observations so as to deserve any
relief from the directions already issued to them the Interim Order , I find it relevant
to record certain admitted facts that emerge from the submissions made by the
Entities:
20.1. I find that none of the Entities has disputed the inter se connections shared with
each other, as alluded to in the Interim Order. Rather, all the Entities have
admitted to the existence of their respective connections with other Entities for
a long period of time. For instance, Entity no. 1 has admitted that he has known
Entities no. 2, 6 and 8 for more than 2 years and shares professional / business
relationship with them. Similarly, Entity no. 4 and 6 have submitted that they
are brothers-in law and also share business relationship. Additionally, it has
been noticed that Entities no. 2, 6 and 8 are also known to each other for a
sufficient period of time and were connected through phone calls or other
modes as they share commercial relationship with each other.
20.2. There is no dispute with regard to the various phone calls exchanged between
various Entities as recorded in the Interim Order. Further, none of the Entities
has denied the fund transfers effected by him/it as narrated in the Interim
Order. In fact, some of the Entities have brought to my attention additional
fund transactions to demonstrate that the funds transfer amongst them as
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highlighted in the Interim Order were not unique and selective one but part of
their normal business transactions hence, ought not to be viewed with
suspicion. Nonetheless, from the above, it clearly emerges that the Entities are
by no means strangers and were closely knowing each other. Therefore, the
prima facie observations made in the Interim Order related to inter se
connections amongst the Entities are not found to be in dispute at all.
20.3. Additionally, it is noted from the submissions of Entities that apart from the
Entity no. 1 who has been held to be actively participating in the Acquisition
Deal as per the Interim Order, it is now brought on record that Entity nos. 2 and
8 were also involved in the discussions pertaining to the Acquisition Deal. It is
further demonstrated that Entity no. 6, apart from having close connections
with Entities no. 1, 2 and 8, was also having close connection with other top
management officials of the Poonawalla group who were involved in the
discussions pertaining to the Acquisition Deal.
21. In the above background, now I proceed to deliberate and determine in the
subsequent paragraphs of this Order, as to whether on the basis of the submissions
made by the Entities before me during the present proceedings and other materials
available on record, the Entities have been successful in dispelling the prima facie
observations made in the Interim Order conclusively or whether the facts and
circumstances of the matter now call for interfering with the directions already issued
in the Interim Order.
22. With regard to the prima facie observations pertaining to Entity no. 1, I note that
the Interim Order has stated that the Entity no. 1 was a connected person and was
aware about the Acquisition Deal (UPSI), and had telephonic conversations with
Entities no. 2, 6 and 8 during the UPSI period, out of whom Entities no. 2 and 6 were
noticed to have traded directly and indirectly through their connected Entities, in the
scrip of Magma during the said UPSI period. It was also noticed that Entity no. 1 was
having fund transactions with Entities no. 6 and 8. The above facts have
commutatively become a strong basis to observe prima facie that the Entity no. 1 had
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communicated the UPSI to Entities no. 2, 6 and 8 and after having received the UPSI,
these Entities (viz. Entities no. 2 and 6) have traded in the scrips of Magma, in violation
of PIT Regulations, 2015. In this regard, while denying the aforesaid observations
recorded in the Interim Order, Entity no. 1 has advanced various arguments to
controvert the said prima facie observations which can be broadly split into 4
categories viz. (a) That he was not the sole decision making authority for the
Acquisition Deal and was not even the key official for the said deal; (b) That Entities
no. 2 and 8 were independently having access to the said UPSI and Entity no. 6 was
also having separate sources to have access to the UPSI independently on account of
his association with Poonawalla Group of Companies as well as with the Entities no.
2 and 8; (c) That the observation relating to communication of UPSI by Entity no. 1 to
other Entities is not based on cogent evidence but on surmises and conjecture; (d)
That his fund transactions with other Entities were bonafide and were made for
legitimate purposes having no relation with the alleged unlawful gains.
23. The Entity no. 1 has not denied his involvement in the discussions and
participation in the meetings pertaining to the Acquisition Deal, thereby prima facie
accepting the fact that he was a connected person and was having access to the UPSI.
He has however submitted that as he had joined PFPL in the 2019 and was the MD
and CEO of a subsidiary company and not of the Acquirer entity (RSHPL) itself.
Further he was a minor and peripheral entity as far as decision pertaining to the
Acquisition Deal was concerned. He has further submitted that it was Mr. Amar
Deshpande and Mr. Saurabh Prabhudesai, who were the key officials and involved
in the negotiation and execution of the Acquisition Deal. In support of the above, he
has submitted certain emails exchanged between Mr. Deshpande and Mr.
Prabhudesai with law firms and the merchant banker in pursuance of the said
Acquisition Deal. However, it is to be noted that the issue at hand is whether the Entity
no. 1 was a connected person and insider of the Company and not whether he played
a central or peripheral role in the Acquisition Deal. In view of the above admitted
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position, I see no reason to deviate from the observation made in the Interim Order
that the Entity no. 1 was a connected person and was an insider and was having access
to the UPSI relating to the Acquisition Deal.
24. As regards the submission that the Entities no. 2 and 8 were independently
having access to UPSI and Entity no. 6 was also having sources other than the Entity
no. 1 to have access to the UPSI independently on account of his association with
Poonawalla Group of Companies as well as with the Entities no. 2 and 8, I note that
the Entity no. 1 has made a vehement plea that there was no reason and occasion for
him to communicate the UPSI to any of the above named Entities. To augment his
claim, he submits that the Entities no. 2 and 8 were part of the Acquisition Deal and had
access to the UPSI by themselves, before it was disclosed on February 10, 2021.
According to him, Entity no. 8 was instrumental in materializing the Acquisition Deal
as he was also part of various discussions and meetings in this regard. Similarly,
Entity no. 2, was an advisor in the Acquisition Deal and was also connected with Entity
no. 8. With respect to his connection and phone calls with the Entity no. 6, without
denying the same, Entity no. 1 has submitted that they were professionally connected
to each other and the phone calls that were exchanged between them were in the
course of their business relationship. While denying the fact relating to
communication of UPSI to the Entity no. 6, Entity no. 1 has submitted that the Entity
no. 6 was also independently connected to certain persons of the Poonawalla Group
and was otherwise capable of having an access to UPSI, if he wanted. To provide
support to his submissions, he has relied upon the reply of Mr. Deshpande dated
December 07, 2021 addressed to SEBI wherein it was stated by Mr. Deshpande that
Entity no. 6 has issued letters to ICICI Bank Limited and other financial institutions
on the end use of term loan given to the PFPL. The aforesaid reply also states that
Entity no. 6 was involved in a few securitization transactions with PFPL during the
period between January 2020 to February 2021.
Page 25 of 62
25. Entity no. 1 has also submitted that Entity no. 6 was enjoying association with
Entities no. 2 and 8 (who were associated with the Acquisition Deal) as well and was
involved in various business ventures together with them viz: Sakal Money and
Udchalo etc. and had several rounds of discussions with them in connection with
these ventures. He has also submitted that Entity no. 6 is the CEO of Sakal Money
Advisory Pvt. Ltd, wherein Entity no. 8 is a director as evident from the visiting card
of the Entity no. 6 that was placed on record by him. Under the circumstances, merely
on the ground of having association and based on phone calls with these Entities,
recording a serious observation of transmission of UPSI qua him is unjustified and
uncalled for and the same has caused irreparable loss, injury and harm to his
reputation, profession and future career.
26. Having gone through the aforesaid submissions and materials brought on
record, I note that the Entity no. 1 has asserted certain facts before me, which cannot
be denied at threshold. He has submitted copies of emails and other records that
indicate that besides him, Entity no. 8 was also present in various meetings wherein
the matter relating to the Acquisition Deal was discussed. As stated earlier, in this case,
the Entities have not denied their associations with each other that have already been
underlined in the Interim Order. The contention of Entity no. 1 that the Entity no. 2 had
acted as an advisor in the Acquisition Deal has further been confirmed by Entity no. 2
in his reply as well. Similarly, with respect to his association with Entity no. 6, without
denying his relations, the Entity no. 1 has rather emphasized on the connection which
the Entity no. 6 was independently enjoying with the other Entities and also on the
separate business ties that the Entity no. 6 was having with the other insiders of
Poonawalla Group. In support of his submission that the Entity no. 6 is closely related
to Entity no. 8 and has old business relation with him, Entity no. 1 has submitted a
visiting card of the Entity no. 6 to demonstrate his connection with Entity no 8.
Further, the facts that Entities no. 6 and 8 are closely associated and had phone calls
and fund transactions between them have not been disputed by these two Entities
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(Entities no. 6 and 8) either in their respective replies or even in their post hearing
submissions, despite the fact that all the Entities were heard together during which
the relationship between them was exposed by Entity no. 1. In view of the above
undisputed facts, from which the Entity no. 8 is observed to have attended meetings
relating to the Acquisition Deal and the Entity no. 2 is seen to have acted as an advisor
to the said Acquisition Deal and the fact that Entities no. 2, 6 and 8 are known to each
other and had exchanged phone calls amongst them during the UPSI period, I can
appreciate the point that the Entity no. 1 wants to make that the above noted three
Entities were their having independent access to the UPSI and were not dependent
upon Entity no. 1 to receive the UPSI. However, at this stage it cannot be stated with
same impunity that the Entity no. 1, being an insider and having close nexus with the
above noted entities with whom he also had exchanged phone calls during the UPSI
period was not at all the source of communication of UPSI to them.
27. To deny the prima facie observation pertaining to the communication of UPSI
by him, the Entity no. 1 has submitted that even the Interim Order records that he had
phone calls with Entities no. 2, 6 and 8 prior to as well as subsequent to the UPSI
period and his phone calls were not confined to the relevant period only. Since, he
has been known to the above Entities for a sufficient period of time and has been
enjoying professional/commercial relations with them, in the absence of any cogent
evidence, merely on the basis of phone calls, it would not be appropriate to draw any
adverse inference with respect to indulgence in insider trading. He has further
argued that even from a common business prudence perspective, it is not based on
plausible evidence as to why a tipper intending to communicate information like
UPSI, would speak for such long periods as the same would require just a few
seconds to pass on that information. Further, under the present scenario, it is highly
improbable to even conceive of communicating an UPSI (being serious in nature,
character and consequences) through a normal audio call, when the technology
provides number of such other options that ensures secrecy and anonymity. Under
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the circumstances, making calls on a frequent basis to connected and known persons
ought not be taken as sole basis to come to a finding, which have serious repercussion
and consequences, as in the instant matter, to show and prove his innocence, he had
to offer resignation from the Company immediately after the Interim Order, resulting
not only in monetary but also reputational loss, more so when balance of convenience
was favoring him.
28. In this regard, I find that the submission of the Entity no. 1 has proceeded on a
mistaken and misconceived assumption about the implication of the phone calls that
have been attributed to him in the Interim Order. There is no quarrel that in today’s
age of communication technology and emergence of sophisticated encrypted
medium of communication through social media channels like WhatsApp, Telegram,
Instagram, etc., which ensure secrecy and anonymity, transmission of UPSI does not
have to depend on regular phone calls. However, that should not be a deterrent factor
nor the law expects it to be so, to allege transmission of UPSI and the test is the
appreciation of cogent facts and material events that are good enough to give rise to
a preponderance of possibility of transmission of UPSI so as to justify the urgency of
issuance of interim directions. In this regard, I note that the Interim Order has not
identified any specific phone call as the call through which the UPSI was transferred
nor is it possible to do so from call data records. What the Interim Order has sought
to bring to the fore is that the afore-noted strong factors including his close
connections and the phone calls exchanged by him with other Entities, provided an
overwhelming basis to prima facie suggest that Entity no. 1 has passed on the UPSI to
other Entities who have, apparently based on the possession of the said UPSI, traded
in the scrip of Magma during the UPSI period.
29. The Entity no. 1 has also submitted that probably the above suspicion arose out
of the incomplete and incorrect information furnished by the Company (Magma)
during the course of preliminary examination. In this regard, I find that while
responding to the information sought by NSE including a chronology of events and
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details of persons, who were aware of the transaction (Acquisition Deal) prior to the
public disclosure of the said transaction on February 10, 2021, the Company has
submitted various details to NSE vide letter dated April 06, 2021. The aforesaid letter
however, did not contain the information that Entities no. 2 and 8 along with Mr.
Amar Deshpande were also present in person in the meetings held on February 05,
2021, when the Acquisition Deal was discussed. The aforesaid letter also did not
disclose that Entity no. 2 participated as an advisor to the Acquisition Deal. During the
proceedings, another significant event which was brought to my attention was
pertaining to the meeting held on January 20, 2021, which was attended by Entity no.
1, Mr. Sanjay Chamria (then VP and MD of Magma) and the Entity no. 8. This is
evident from a letter dated December 07, 2021 addressed by Mr. Deshpande to SEBI
wherein Mr. Deshpande has acknowledged the presence of Entities no. 2 and 8 in the
meeting held on February 05, 2021. Certain other emails of Mr. Deshpande have also
been furnished to exhibit the Zoom call invitees, to show that Zoom calls made on
January 22, 2021, January 26, 2021 and January 28, 2021 by Mr. Chamria to discuss
the Acquisition Deal, were also marked to and attended by Entity no. 8. Citing the
aforesaid information, it has been canvassed by Entity no. 1 that perhaps the non-
inclusion of the above names in the earlier letter submitted to SEBI by the Company
during the stage of preliminary examination and absence of the above facts in SEBI’s
records have tilted the needle of suspicion towards Entity no. 1 as the only source of
communication of UPSI to several persons.
30. In the light of the above submissions, Entity no. 1 has argued that the Interim
Order had no occasion to appreciate that he was not the only person to have access to
UPSI and the said UPSI could have flown to the Entities, who have traded in the scrip
of Magma during the relevant period, from any of the multiple persons involved and
associated with the Acquisition Deal in various capacities, including the senior
management of the Magma or RSHPL or Poonawalla Group or PFPL or any other
employee / advisors and law firms involved in the execution of the Acquisition Deal.
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It is the absence of above facts that have become the genesis of generating the
suspicion fastening Entity no. 1 as the sole source for the communication of UPSI.
Keeping in view the aforesaid and to contend that the directions issued under the
Interim Order were not having adequate support of evidences and rather were based
more on surmises and conjectures, reference and reliance has been placed on SEBI’s
Order in the matter of A. Vellayan and Ors. in the scrip of Sabero Organics (supra).
Additionally, Entity no. 1 has also placed reliance on judicial decisions in matters viz;
Manoj Gaur vs. SEBI (supra), Sanjay D. Gala & Ors. (supra), Emami Limited (supra), etc.
to argue that while alleging communication of UPSI, it is imperative for SEBI to
provide cogent evidence to support that there was communication of UPSI.
31. With regard to the contentions of the Entity no. 1 that the prima facie findings in
the Interim Order relating to communication of UPSI are not based on cogent evidence
but on surmises and conjecture, as pointed out in the preceding paragraph, the
Interim Order was passed based on the combination of various unassailable facts and
materials viz; Entity no. 1 was a connected person and was having access to UPSI, his
phone calls exchanges amongst different Entities during the UPSI period, fund
transactions noticed among Entities coupled with abnormal and unusual trading in
the shares of Magma by different Entities, etc. which strongly indicated that it was
pursuant to receipt of the communication of UPSI from the Entity no. 1, that the other
Entities have executed trades in the scrip of Magma during the UPSI period. In my
view, considering the facts and materials available at the time of passing of the
Interim Order, I find that the Entities have not brought evidence to assail the
appreciation of facts and prima facie findings made in the Interim Order and I find that
the directions issued therein still hold their fort on their own merit even till date,
when no evidence has been presented before me either to dispute the existence of
UPSI, or access to UPSI, or the status of connected persons, or their inter-se
relationships, phone calls, funds transactions noticed amongst different Entities that
have been demonstrated so clearly in the Interim Order before issuing such directions.
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It is only by way of furnishing certain additional facts and evidences that the Entities
are now trying to build a defense to give another perspective to those prima facie
observations made in the Interim Order which otherwise remain undisputed till date.
Nevertheless, so far as the contentions of the Entity no. 1 are concerned, I cannot close
my eyes to certain specific facts now brought on record by him with evidence to
demonstrate that it was not only he (Entity no. 1) who had access to the UPSI but also
the other three Entities (Entity no. 2, 6 and 8) had their independent access to the same
UPSI of the Company. Under the circumstances, when evidences have now been
brought on record to suggest that Entities no. 2 and 8 had also participated in the
meeting held on February 05, 2021 and Entity no. 8 was also involved in the
discussions pertaining to the Acquisition Deal since beginning (January 20, 2021 at
least), I find some force in the submissions of Entity no. 1 that, had these additional
information been made available at the time of preliminary examination, the Interim
Order would not have held the Entity no. 1 as the sole source of communication of
UPSI. Further, considering the additional undisputed facts that Entity no. 6 enjoys
close business connection with Entities no. 2 and 8 as demonstrated with illustrations
by Entity no. 1 during this proceedings, I can’t ignore the submissions advanced by
him that had these additional facts been available on record, the possibility of
communication of UPSI to Entity no. 6 from other sources including the Entities no. 2
and 8 would not have been ruled out and the Interim Order might not have observed
that the Entity no. 1 was the sole source of communication of UPSI to other Entities.
32. With regard to the fund transactions noticed with other Entities, the Entity no.
1 has fervently denied that the same has any relation with the alleged unlawful gains
made by certain other entities by trading in the shares of Magma during the UPSI
period. As regards to the fund transfer of ₹55 Crore from the Neo Star (an entity
controlled by Entity no. 8) to him, it has been submitted that in the Interim Order,
adverse inferences about this transaction were drawn based on wrong assumption
due to limited information available with SEBI pertaining to the same. It has been
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stated that the he used to hold 75 lakhs shares in PFPL, which he decided to sell after
the Acquisition Deal, but since the above shares were pledged with Serum Instituted
of India Pvt. Ltd (hereinafter referred to as SII) against a loan, before effecting the
sale, he was required to clear the dues and the above loan was obtained on April 03,
2021 from Entity no. 8 to repay the outstanding loan to SII to the extent of ₹42.37
Crores. To give credence to the above submission, he has submitted his Bank
Statement to show the utilization of funds of ₹55 crores towards repayment of the
above stated outstanding loan. He has also submitted that subsequently, the pledged
shares were sold to RSHPL for a consideration of ₹150 Crore and to support the same,
a copy of Bank Statement has been annexed as an evidence. After paying the
outstanding amount to SII to de-pledge the shares, balance amount was credited in
another account of his to service the loan availed from Neo Star and the same was
done in adherence to the terms as agreed between the parties. Thus, there is no reason
to see the above transaction with suspicion or as not being bonafide, since the same
was undertaken with a specific purpose and it has no connection in any manner with
the trades executed by the Entities in the scrip of Magma during the relevant period.
33. Similarly, in respect of fund transaction of ₹4.86 Crore, it has been submitted
that same was related to a commercial transaction pertaining to data transfer by Tab
Capital to PFPL, where Newgen has acted as an intermediary. Further, in respect of
receipt of ₹54 lakhs from the Entity no. 6, it has been submitted that the same is related
to a data service agreement for a total consideration of ₹75 lakh and in terms of the
agreement, 75% of total consideration was required to be paid in advance. However,
since, the same did not work out, the amount was returned with penalty in June, 2021
itself i.e. much before the passing of the Interim Order. Entity no. 1 has submitted ITRs
for the assessment years 2019-20, 2020-21 and 2021-22 to contend that the above noted
transactions have been executed between the parties as per agreement (oral as well
as written, since parties are known) and have no connection with the alleged
unlawful gains made out of trades in the scrip of Magma during the relevant period.
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It has been submitted that some of the transactions were carried out prior to the
observed acts and the amounts involved are disproportionate to the alleged unlawful
gains as arrived at in the Interim Order and therefore, the same should not be seen as
a profit arising out the share trades made by certain persons during the UPSI period.
34. It has also been submitted that the inferences drawn in the Interim Order were
more on conjectures and not based on evidences, consequently have caused immense
reputational loss to the Entity no. 1. He has submitted that he is a reputed chartered
accountant and has led an impeccable professional career. Even by considering the
facts as narrated in the Interim Order, it is improbable to draw an adverse inference
that ₹6.95 Crores credited in another account of him was deposited from the profit
made out of the unlawful gains, when the Interim Order records that the total amount
gained unlawfully by the Entities no. 1, 6, 7 and 8 were ₹8.30 Crore, more so when in
comparison to his annual emoluments, the alleged unlawful profit does not stand to
be a reason for him to put in stake his rising career. However, on account of Interim
Order, having suffered a grave loss of reputation, he tendered his resignation from
the post of MD of the Company resulting a loss of approximately ₹5.00 Crore
remuneration per annum, apart other stock options and share in annual profit.
35. After carefully considering the arguments advanced by the Entity no. 1, I note
that in respect of fund transactions, none of the other Entities have made any
adversarial or contradictory submission to what the Entity no. 1 has explained in his
defense. At the outset, the fact remains that the Entities have admitted that there were
fund transactions between/amongst them as pointed out in the Interim Order. Before
I advert to the specific contentions of Entity no. 1 about his funds transactions, I must
clarify that under the instant proceedings, it would not be appropriate to make
observation which could have impact on the investigation, however at the same time,
I must observe that it is not a pre-condition/ requirement under the PIT Regulations,
2015 to bring evidence of fund transactions as a matter of financing the insider
trading or sharing of unlawful gains earned out of insider trading, so as to prove
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existence of insider trading or transmission of UPSI under PIT Regulations, 2015. The
factum of transmission of UPSI and execution of insider trades would stand on the
basis of its own supporting evidence and need not be further corroborated by funds
transactions. Therefore, even if it is revealed that the fund transactions indulged in
by Entity no. 1 were entered into for bonafide business transactions, that would not be
sufficient to seek an exoneration from the allegation of insider trading per se; when
the other compelling factors viz; being an insider, having access to UPSI, having
connections with persons/entities who have traded in the scrip and the trades
themselves prima facie demonstrate to have been influenced by an information that
was not generally available to public, etc. have not been disputed or dispelled
conclusively. Similarly, in the instant matter, the undisputed facts of Entity no. 1
being an insider, having access to UPSI, his phone call with the persons some of
whom are observed to have traded in the scrip of Magma directly and some of them
indirectly through their relative’s account, can’t be overlooked merely for the reason
that the connected persons were having frequent phone calls and supposedly
genuine fund transactions amongst themselves. In view of the above, I reiterate that
no error has crept into while passing of the Interim Order, based on the forceful
strength of the materials available on record at that point in time, pending further
investigation. Therefore, I find no merit in the submission that materials on record
were not sufficient or there were no cogent evidences to justify the passing of the
Interim Order. It would be altogether a different consideration as to whether having
brought any additional material facts with supportive evidences now in the present
proceedings by any Entity, the directions issued under the Interim Order require any
modification or not.
36. Moving ahead to the specific contentions made by the Entity no. 1 about his
funds transactions, in my view, his submission that some of the transactions were
done prior to the UPSI period, and in one case, the amount received was returned to
the Entity no. 6 even before the passing of the Interim Order etc. are worthy of
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consideration. While vehemently contesting the allegation of receipt of funds as a
part of his alleged share of unlawful gains, Entity no. 1 has submitted that the amount
alleged to be unlawfully gained and the total amounts involved in his fund
transactions are apparently disproportionate to each other and that the fund
transactions undertaken by him with Entities no. 6 and 8 for bonafide business
purposes are explained by him with justification and supporting evidences. I find
that the Entity no. 1 has submitted copy of the agreement and Bank Statement to
justify that the said transactions were for bonafide and legitimate purposes. Having
gone through the evidences submitted by him in support of his explanations, I find
that the same cannot be ignored and deserves consideration. However, considering
the fact that the detailed investigation in the matter is in progress, during which the
veracity and authenticity of such transactions can be tested, making any conclusive
remarks on such evidences would not be appropriate at this stage.
37. Having observed that there are no disputes to the facts already recorded in the
Interim Order, one cannot turn a blind eye to some of the submissions made by Entity
no. 1 to refute certain prima facie observations made in the Interim Order qua him. The
additional information with supporting facts provided by him about Entities no. 2, 6
and 8 to demonstrate that he can’t be held as the sole person to have access to or
communicated the UPSI and that there were several other possibilities of their
independent access to UPSI by virtue of their respective business association with
the Company and his explanation about the bonafide nature of his funds transactions
with other Entities deserve to be accorded due cognizance in the present proceedings.
The Entity no. 1 has submitted evidences to demonstrate how Entity no. 8 was having
direct access to UPSI and that the Entity no. 2 also participated in the meeting held
on February 05, 2021 before the UPSI got disclosed on February 10, 2021. He has also
endeavored to show as to how Entities no 2, 6 and 8 were not only enjoying inter se
connections amongst themselves but also were connected to the Poonawalla group
in their individual capacities, so as to rebut the prima facie observations made in the
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Interim Order about communication of UPSI allegedly made by him to these 3 Entities.
Under the circumstances, the observation made in the Interim Order stating that the
UPSI was communicated only through him, in my view gets diluted substantially.
Having perused the records and his submissions, there is no dispute as on date, that
Entity no. 1 was an insider and was having access to the UPSI pertaining to the
Acquisition Deal. It is also not in dispute that he knows Entities no. 2, 6 and 8 very well
and had phone calls and funds transactions with them as have been already recorded
in the Interim Order. However, at the same time, considering the aforesaid additional
facts so brought forth before me with sufficient prima facie evidences, authenticity of
which cannot be discarded on its face, it appears that Entity no. 1 has put up certain
cogent and concrete arguments against the restrictions imposed qua him vide the
Interim Order.
38. With regard to the prima facie findings pertaining to the Entities no. 2 and 3, I
note that the Interim Order has recorded that the trades executed from the trading
account of Entity no. 3 were based on the possession of UPSI by Entity no. 2. In this
regard, Entity no. 2 has admitted that he has executed trades in the scrip of Magma
from the account of his mother i.e. Entity no. 3. With regard to the communication of
UPSI to Entity no. 2, I have noted above that Entity no. 1 has denied the same and has
submitted that Entity no. 2 was himself involved in the Acquisition Deal on behalf of
ELP and was independently having access to UPSI. Similarly, Entity no. 2 has also
denied receipt of UPSI in any form from Entity no. 1. In this regard, from the
submissions of Entity no. 2, I note that though he has not denied that he was having
the information regarding the Acquisition Deal before the public disclosure of the
same on February 05, 2021, he however has claimed that he was not in possession of
UPSI at the time of execution of trades in the scrip of Magma. It has been submitted
that he was formally engaged as an advisor to the Acquisition Deal on February 05,
2021, however, he came to know about the possible deal on February 03, 2021
(evening) and by that time, he had already executed trades in the scrip of Magma
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from the account of Entity no. 3. He has further submitted that the impugned trades
executed by him in the scrip of Magma were based on the information available in
the public domain and were not under the influence of any specific information
pertaining to the Acquisition Deal received from Entity no. 1. It has also been submitted
that the only call between him and Entity no. 1 before February 03, 2021 was on
January 28, 2021, which was pertaining to the scheduling of an appointment for a
meeting proposed to be held on February 03, 2021 afternoon to discuss a potential
transaction.
39. From a conjoint reading of the submissions made by the Entity no. 1 and 2, there
appears to be no dispute that the Entity no. 2 was also involved as an advisor in the
discussions pertaining to the Acquisition Deal during the UPSI period. Entity no. 2 has
claimed that he became aware about the Acquisition Deal only on February 03, 2021
and before that the date trades in the scrip of Magma were already executed by him.
As per his own submission, his discussions with Entity no. 1 held on January 28, 2021
was for less than a minute, during which, it was only decided to arrange a meeting
on February 03, 2021 afternoon to discuss a potential transaction and it was probably
in this background, the Interim Order prima facie proceeded to observe the possibility
of communication of UPSI by Entity no. 1 to Entity no. 2. The CDRs also show that
there were various phone calls between Entities no. 2 and 8 between February 01-03,
2021 (period when the impugned insider trades were executed by Entity no. 2 from
the account of Entity no. 3). Considering the unusual and abnormal trading in the
scrip of Magma indulged in by him and the admitted position of his close ties not
only with Entities no. 1 and 8 but also with the Entity no. 6, I find it difficult to be
persuaded that the trades in the scrip of Magma executed by Entity no. 2 from the
account of Entity no. 3 were conducted in the normal course of dealing in securities
so as to absolve him conclusively from the prima facie observations made in the
Interim Order. Since, there is no dispute that trades in the account of Entity no. 3 were
executed by the Entity no. 2, after having considered the materials on record
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alongwith the submissions by the Entities before me during the present proceedings,
I do not find that the Entities no. 2 and 3 have brought before me any fresh evidence
or material which can call for dispelling those prima facie observations made in the
Interim Order. Under the circumstances, I am of the view that the prima facie
observations made in the Interim Order stating that the trades of Entity no. 3 were
apparently influenced by the possession of UPSI remains intact un-refuted by the
Entity no. 2 or 3. Therefore, when a detailed fact finding exercise (investigation) is
ongoing, during which it will get unraveled as to whether or not, the trades executed
by the Entity no. 2 from the account of his mother (Entity no. 3) were transacted in
normal course of trading without any influence of possession of UPSI or otherwise,
it will be premature for me to fit in judgement over the bonafide of the trades executed
by the Entity no. 2 in the absence of any tangible fact or evidence produced by him to
controvert the facts and prima facie evidences already recorded in the Interim Order.
40. Moving further, it is noted that the Interim Order records that the Entity no. 6
was having phone calls with Entity no. 1 and had executed trades from his trading
account as well as from the trading account of his HUF i.e. Entity no. 7. Hence the
Interim Order has recorded a prima facie finding about communication of UPSI from
Entity no. 1 to Entity no. 6. In this respect, from the oral as well as the written
submissions made before me, it is noted that Entity no. 6 has not disputed the
aforesaid trades executed by him in the shares of Magma, nor has he disputed his
phone calls and fund transfers with other Entities. In this regard as noted earlier, the
Entity no. 1 in his submissions has vehemently denied having communicated the
UPSI to Entity no. 6 and has submitted that various phone calls between him and
Entity no. 6 were exchanged in normal course of business. I find that similar
explanations have been offered by Entity no. 6 as well. I have also noted above that
Entity no. 1 has submitted that Entity no. 6 was also independently and professionally
connected to the group entities of the Acquirer i.e. Poonawalla group and had
business connections with Entities no. 2 and 8 as well. I note from the submissions of
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Entity no. 6 that he has also not disputed his connections with Entities no. 2 and 8 or
the Acquirer group. He has however, vehemently argued that his trades in the scrip
of Magma were based on the incentives to NBFCs announced in the Union Budget
2021-22 and other information available in public domain and not influenced by the
UPSI.
41. Having considered the afore-stated submissions made before me and other
materials on record, in my view the claim put forth by Entity no. 6 that his trades in
the scrip of Magma during the UPSI period were largely inspired by the incentives
announced in the Union Budget for the FY 2021-22, does not inspire confidence. The
Entity has not been successful in demonstrating with any supporting facts & relevant
statistics to suggest as to how exactly the said budget announcement cast a positive
influence on the scrip of NBFCs in general and on the scrip of Magma in particular.
Although, he claims that his trades were inspired by the announcement made in the
Union Budget, however, curiously enough his trades were confined to only a single
NBFC scrip (Magma) wherein, he enjoyed professional connection with the group
entities of the Acquirer or also undisputedly enjoyed connections with other entities
who were prima facie found to be in possession of UPSI. I also note that the Entity no.
6 did not find any other listed NBFC scrip attractive enough to invest so as to even
remotely suggest, that his trades were indeed influenced by the Union Budget
announcement. I also note that the Entity no. 6 had no recent history of trading in the
Indian securities market and as the Interim Order has rightly recorded, Entity no. 6 got
his trading account opened only on February 08, 2021, i.e. just one day prior to the
day he started trading in the scrip of Magma.
42. The Interim Order also records that Entity no. 6 had received funds from Entity
no. 8 and his relatives and has used those funds for trading in the scrip of Magma. In
this respect also, no evidence has been furnished to show that he (Entity no. 6) was
otherwise financially capable of purchasing those shares of Magma or that he has also
traded in such volume in other scrips as well during/around the same period so as
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to refute the observations made in the Interim Order. Under the circumstances when
records available before me sufficiently suggest that the Entity no. 6 was enjoying
close connections with persons who were prima facie having access to the UPSI, it is
well-nigh impossible to accept the contention of Entity no. 6 that the trades executed
in the scrip of Magma from his as well as from the trading account of Entity no. 7 were
based on the generally available information or were inspired by an announcement
made in the Union Budget.
43. While seeking the immunity from the observations made in the Interim Order,
the Entity no. 6 has also contended that his trades were executed subsequent to the
trades executed by the Entities no. 4 and 5 and therefore the observation in the Interim
Order that he communicated the UPSI to Entities no. 4 and 5, is without any supporting
evidence for the reason that, had he been in possession of UPSI, he would have traded
prior to the trades executed by the Entities nos. 4 and 5. I find that the above contention
is untenable and does not deserve any further consideration for the reason already
explained above, where it has been observed that he got his trading account opened
only on February 08, 2021 and thereafter started trading in the scrip of Magma hence,
obviously could not have traded earlier to the date of opening of trading account.
44. Regarding Entities no. 4 and 5, the Interim Order has recorded that both of these
Entities have traded in the scrip of Magma during UPSI period and there were
frequent phone calls between Entities no. 4 and 6. Interim Order has further recorded
that fund transfers were observed from Entity no. 6 to Entity no. 4 and such funds
were used by Entity no. 4 to trade in the scrip of Magma from his account as well as
from the account of his father i.e. Entity no. 5. I note that none of the above noted
Entities has denied the said phone calls, fund transfers and trading in the scrip of
Magma. Further, from the material available on record, it has now emerged that
Entities no. 4 and 6 are relatives and were connected to each other through business
relationships as well. Therefore, the prima facie observations regarding the Entities no.
4 and 5 as recorded in the Interim Order do not in any way get impacted at this stage.
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45. With regard to the observations made in the Interim Order pertaining to the
Entity no. 8, the Interim Order has recorded that he was having telephonic
conversations and funds transfers with Entities no. 1 and 6. Based on the call records
between the Entities no. 1 and 8, the Interim Order has recorded that Entity no. 8 was
having access to UPSI from Entity no. 1 and the fund transferred by him and his
family members were used by Entities no. 6 and 7 for purchasing shares of Magma
during the UPSI period. In this regard, the Entity no. 8 has not disputed his phone
calls and fund transactions with other Entities. He has also admitted that he knows
Entities no. 1, 2 and 6 for a long time. Regarding the phone calls, he has submitted that
these calls were made in regular course of business and the fund transfers were made
against the loans provided to such Entities, which were neither abnormal nor were
confined to the relevant period only, but there were series of fund transactions which
he and his related entities have had with the Entities no. 1, 3 (mother of the Entity no.
2) and 6 over the period. In this regard, I can observe that there is no denial by Entity
no. 8 to the prima facie findings made in the Interim Order about his connections and
telephone calls with Entities no. 1, and 6. as well as his fund transactions with other
Entities including the funds transfers made to the Entities no. 6 which were prima facie
used for purchasing shares of Magma by Entities no. 6 and 7 during the UPSI period.
Additionally, I also note that during the personal hearing, when Entity no. 1 made
submissions about the direct involvement of Entity no. 8 in the Acquisition Deal and
his connection with Entity no. 2, no contentions were raised by the AR of the Entity
no. 8. It has been canvassed that no trades were executed from his account and
therefore, the funds transferred by him to Entity no. 6, which were observed in the
Interim Order to have been used by Entities no. 6 and 7 for trading in the shares of
Magma, should not be adversely viewed to attribute those trades to him, when the
fund transactions were normal and frequent in nature between them.
46. I have noted above while dealing with the submissions of the Entity no. 1 that
the Entity no. 8 was independently having access to the UPSI as he had participated
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in various meeting related to the Acquisition Deal. Under the circumstances, his
contention that he and his connected entities have been extending loans to Entities
no. 1 and 6 on a regular basis in due course of business dealings, does not diminish
conclusively the prima facie adverse inference drawn against him in the Interim Order
pertaining to his observed role in the insider trading in the scrip of Magma. While the
phone calls and the funds transfer have been demonstrated in the Interim Order to
ascribe a close connection between him and the afore-noted Entities, it was the usage
of the funds by Entities no. 6 and 7 for purchase of shares of Magma immediately upon
receipt of such funds from the Entity no. 8 which had provided a strong basis to draw
adverse inferences in the Interim Order recording that the trades by Entities no. 6, do
not appear to be the trades executed in the normal course of trading, more so when
the materials now on record show that Entity no. 8 was himself also involved in the
discussions of the Acquisition Deal at various stages. Keeping in view the aforesaid
formidable factual position, the submission by the Entity no. 8 that his funds
transactions with the other Entities have been entered into in due course of business
or loans advanced to them etc., do not require any further consideration at this stage,
when a holistic and detailed investigation into the matter is underway.
47. I also note that the Entities have argued that since they were in constant
telephonic contact with each other in normal course of their association with each
other, such phone calls between them during the UPSI period ought not to be
considered as abnormal. Additionally, contention has been raised by Entity no. 8 that
reliance on call data records without providing the details of the contents of such
phone calls, is in defiance of the settled principles established by the Supreme Court
of India in the case of Pricewaterhouse (supra) and Hon’ble SAT in the matter of
Smitaben Shah (supra), wherein it has been held that all documents and evidence relied
upon in the proceedings is required to be shared with them (Entities).
48. With respect to the argument of the Entities regarding their phone calls, I have
already discussed at length earlier at earlier paragraphs of this Order about the
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implication of such phone calls to demonstrate and establish the evident connection
amongst the Entities and not to pin-point as to which specific phone call was made
to communicate the UPSI. The Interim Order also nowhere mentions in specific terms
or makes any reference to any phone call made on a specific date or time to attribute
that by making the said particular phone call, the UPSI was communicated by one
Entity to another Entity. The Interim Order rather proceeds on the basis of various
material available on record including the evidence available about the phone calls
especially the phone calls exchanged during the UPSI period, a holistic appreciation
of which lead to the preponderance of a strong prima facie possibility of
exchange/sharing of UPSI amongst different Entities and the said possibility further
gets reinforced from the peculiar trading pattern followed by the Entities during the
relevant period. After perusing the submissions-both oral and written- made by the
Entities during the present proceedings, I can now state with full satisfaction that the
facts and materials based on which the Interim Order was passed, continue to hold
their ground as materials sufficient enough to warrant an interim intervention by the
Regulator and the Entities have not been able to repudiate those facts & materials by
producing any clinching evidence to counter those facts and materials, which could
shake the foundation of those prima facie observations made against them in the
Interim Order, so as to disregard those observations irrefutably. The argument of the
Entities that such frequent calls exchanged between them only show that they were
regularly talking to each other hence, the inference pertaining to the possibility of
communication of the UPSI (through phone calls) is not based on concrete evidence,
is not a tenable defense so as to absolve them from the prima facie observations made
in the Interim Order. As stated above, the Interim Order was issued based on various
prima facie observations about the Acquisition Deal (UPSI), access to UPSI by certain
Entities, connections between different Entities that are further corroborated by phone
calls & funds transfers, unusual trading in the scrip of Magma by certain Entities
during UPSI period who were suspected to have received UPSI when they traded in
the shares of Magma, etc. In my view the test for the justification of issuing interim
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directions against the Entities lie in the answer to the question as to whether or not,
the facts and materials available on record lead to an inescapable prima facie inference
with a reasonable application of mind about the possible indulgence by the entities
in a serious offense like insider trading. In my considered view, the rationale for
passing the Interim Order can’t be explained through a straitjacket formula as it all
depends on the facts and material of a specific case that are available on records
which could be suo moto forceful enough to attract urgent regulatory intervention to
protect the interest of the securities market. Having considered those facts and
materials, a call is taken as to whether the facts and circumstances of the matter
requires intervention or not, which in the present matter were quite compelling at
the time of passing of Interim Order. I have already noted the premises that became
the basis of passing of the Interim Order and also find that the none of those premises
or factors has been refuted even partially in the instant proceedings, be it inter se
phone connection, or their inter se fund transaction. Under the circumstances, the
telephonic conversations between Entities as evidenced from the CDRs, more so with
one person (Entity no. 1) who was prima facie observed to an insider having access to
USPI, coupled with fund transactions followed by trading in scrip of Magma during
the UPSI period, sufficiently tilt the balance of preponderance of probabilities in
favour of communication of any UPSI and therefore, the materials on records and the
aforementioned attending circumstances justifiably warranted passing of an Interim
Order.
49. Regarding the reliance placed by the Entity no. 8 on judicial decision in the
matter of Pricewaterhouse (supra) and Smitaben Shah (supra), I note that all the
documents including the CDRs that were relied upon by SEBI have already been
provided to the Entity no. 8 / its AR during the inspection conducted on his behalf
on October 08, 2021, during which no such objection was raised by AR of the Entity
no. 8. Further, the arguments of the Entity no. 8 does not specify as to non-supply of
which specific document has caused a prejudice to him and what prejudice exactly
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has been caused which can be said to have impeded his ability to explain his case
better. In the absence of any such explanation, such general arguments taken by the
Entity no. 8 do not require any further consideration at this stage.
50. I also note that some of the Entities have vehemently argued that there was no
urgency on part of SEBI to pass an ex-parte Interim Order against them and that power
to pass ex-parte orders should be used sparingly and not in a casual way. Such Entities
have further stated that SEBI has not followed the procedures laid down under Order
38 Rule 5 to 13 of the Civil Procedure Code, 1908, while issuing directions under the
Interim Order. In this regard, Entities have further relied upon the judicial
observations made by the Hon’ble SAT in the various matters including North End
Foods Marketing Pvt. Ltd. (supra), Cameo Corporate Services Limited (supra), Zenith
Infotech Limited (supra), Bhoruka Financial Services Ltd. (supra), Pancard Clubs Limited
(supra), Tree House Education (supra), Dr. Udayant Malhoutra to further buttress their
contention.
51. In this regard, it is pertinent to note that the SEBI Act, 1992 confers various
powers on SEBI which can be exercised pending an investigation into a matter,
including power to impose restraint, power for impounding etc., to protect the
interests of the investors and the integrity of securities market. For instance, Section
11 (4) (d) of SEBI Act, 1992 specifically permits that proceeds of a transaction can be
impounded pending investigation. In the present matter I note that after considering
the prima facie acts of the Entities which strongly indicated probable contraventions
of securities law, especially that alleged acts of insider trading in violation of the PIT
Regulations, 2015 by certain entities, there was an urgent necessity of regulatory
intervention by way of taking preventive steps not only to prevent the Entities from
causing any further harm to the market / loss to investors/gain to themselves but
also to deter them from continuing with such acts. Hence, interim orders are
necessitated under the securities laws for taking appropriate measures as and when
warranted by the suspected foul plays and misconduct by market participants. I have
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already explained above that in the instant case for attending factors were sufficient
to justify the urgency of passing of the Interim Order. Consequently, having
considered the submissions of the Entities, I do not find any reason to hold that there
was no urgency for passing of the Interim Order. After perusing the case laws cited
by the Entities to support their contention regarding power of SEBI to pass the ex-
parte Interim Order, I find that none of the afore-stated cited cases, has facts and
circumstances similar to the facts & circumstances of the instant matter. Further,
except for the matter pertaining to Dr. Udayant Malhoutra (supra), all other afore-
stated case laws deal with matters pertaining to fraud and manipulation involving
violation of SEBI (Prohibition of Fraudulent and Unfair Trade Practices) Regulations,
2003. However, even though the decision in the case of Dr. Udayant Malhoutra
pertains to violations of provisions of insider trading regulations, on a perusal of the
decision of the Hon’ble SAT in the said matter, I find that the facts and circumstances
of the present matter are clearly distinguishable from the facts of Dr. Udayant
Malhoutra (supra).Therefore, the aforesaid decision in the case of Dr. Udayant
Malhoutra (supra) would not help the Entities, wherein the Hon’ble Tribunal has set
aside the order of SEBI, inter alia, on the ground that the alleged insider trades were
pertaining to year 2016, while information from the appellant were called for the first
time on November 28, 2019 hence, the facts of the matter did not call for an ex-parte
order after three years of the alleged trades. In contrast to the aforesaid facts of Dr.
Udayant Malhoutra (supra), I find that in the instant matter, the impugned insider
trades pertain to the period of January, 2021 – March, 2021 and after a preliminary
examination of the activities of the Entities, it was considered urgent and apt to pass
interim directions against the Entities vide Interim Order dated September 15, 2021,
which was within six months from the observed acts of insider trading in the scrip of
Magma indulged in by the Entities. Therefore, the observations of Hon’ble SAT in the
matter of Dr. Udayant Malhoutra (supra) are not squarely applicable to the instant
matter.
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52. As regards the power of passing interim orders by SEBI, I can only remind the
Entities that the same has been recognized and upheld by the Hon’ble SAT time and
again. As an example, it can be seen that the Hon’ble Tribunal has held the following
in the matter of North End Foods Marketing Pvt. Ltd. vs. SEBI:
“Having heard the learned senior counsel at length, we find that it is no more res
integra that SEBI has power to pass ex-parte interim orders, pending investigation,
which power flows from Section 11 and 11B of the SEBI Act. A plain reading of Section
11 and 11B shows that SEBI has to protect the interests of the investors in securities
and to regulate the securities market by such measures as it thinks fit and such
measures may be for any or all of the matters provided in sub-section 2 of Section 11
of the Act. SEBI has power to pass interim orders and such interim orders can also be
passed exparte. Interim orders are passed in order to prevent further possible mischief
of tampering with the securities market. If during a preliminary enquiry, it is found
prima-facie, that the person is indulging in manipulation of the securities market, it
would be obligatory for SEBI to pass an interim order or for that matter an ex- 17 parte
interim order in order to safeguard the interests of the investors and to maintain the
integrity of the market. Normally, while passing an interim order, the principles of
natural justice has to be adhered to, namely, that an opportunity of hearing is required
to be given. Procedural fairness embodying natural justice is to be applied whenever
action is taken affecting the rights of the parties. At times, an opportunity of hearing
may not be pre-decisional and may necessarily have to be post-decisional especially
where the act to be prevented is imminent or where action to be taken brooks no delay.
Thus, pre-decisional hearing is not always necessary when ex-parte ad-interim orders
are made pending investigation or enquiry unless provided by the statute. In such
cases, rules of natural justice would be satisfied, if the affected party is given a post-
decisional hearing”.
53. The aforesaid findings have been reiterated in the decision of Dr. Udayant
Malhoutra as well hence, the contention of Entities questioning the power of SEBI to
pass an interim order is not sustainable. Moreover, I note that in Dr. Udayant
Malhoutra, the order of SEBI was issued in the form of show cause notice after
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completion of investigation, whereas in the instant matter, the investigation is in
progress and it was only on the basis of preliminary examination and various prima
facie observations, the afore-stated interim directions in the nature of restraining and
impounding were issued as a preventive measure without intending to hold any
person/entity conclusively guilty. Under these specific facts & circumstances, the
aforesaid contention of Entities is found to be devoid of any substance and not
tenable.
54. The submissions of the Entities pertaining to the interim direction asking them
to deposit the unlawful gains in an escrow account is also not tenable since the
findings of the Hon’ble Tribunal in the matter of Dr. Udayant Malhoutra was specific
to the facts of that matter only. Moreover, with respect to the findings of the Tribunal
relating to impounding of the unlawful gains in the aforesaid case of Dr. Udayant
Malhoutra, it is brought to my notice that SEBI, being aggrieved by the above findings
of the Hon’ble SAT, had preferred appeal before the Hon’ble Supreme Court of India
and the said appeal was disposed of by the Hon’ble Apex court vide order dated
November 18, 2020 in Civil Appeal no. 2981-2982 of 2020, inter alia, recording
following findings “Since we have come to the conclusion that the Tribunal was on the facts
of the case correct in setting aside the ex-parte order of the Whole Time Member on the ground
that no urgency has been made out to sustain such an order, it is necessary for this Court
to clarify that the interpretation which has been placed by the Tribunal on the
powers of SEBI, particularly in paragraph 9 of the impugned order, which has been
extracted above, shall not be cited as a precedent in any other case. The order passed
by the SEBI must necessarily be in accord with Section 11(4) of the SEBI Act.”
(emphasis supplied)
55. In view of the above cited observations of the Hon’ble Supreme Court of India
and considering that the facts and circumstances involved in the present matter are
distinguishable vis-a-vis the facts of the matter of Dr. Udayant Malhoutra (supra), I
find no substance in such contentions of the Entities objecting to the direction of
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impounding of unlawful gains and hence, such contention of the Entities deserves no
further deliberation at this stage of the proceedings.
56. I note that the some of the Entities have argued that the information regarding
the Acquisition Deal was publicly available. To further reinforce such a contention,
they have referred to various press release / corporate announcements (January 28,
2020, November 12, 2020, December 01, 2020, January 29, 2021) of the Company stating
that Magma was looking for potential investors to the tune of ₹3000 crores and during
the said period of one year, multiple talks with various investors had taken place. I
have perused the corporate announcements of the Company as referred to above and
find that all of the above noted 4 corporate announcements by the Company, were
pertaining to raising funds through issuance of Non-Convertible Debt Securities by
the Company. In fact, none of the above referred corporate announcements talks about
any proposed or potential acquisition of the Company by any other entity or about
issuance of preferential allotment of shares by the Company to any entity with a view
to transfer it controlling stake, which actually happened in the Acquisition Deal (UPSI)
made by the Company in the instant matter.
57. Similarly, some Entities have referred to press release of the Company dated
November 07, 2020 & news article dated December 10, 2020 regarding improvement
of financial profile of the Company, news article dated January 06, 2021 & corporate
announcement of Magma dated January 29, 2021 regarding its meeting dated
February 06, 2021 to discuss the issue of raising of funds, and also news article dated
January 29, 2021 etc., so as to strengthen their argument that their trades in the scrip
were a result of independent research and based on publicly available information
about the Company. After a careful perusal of the above referred news articles and
press releases, I find that first of all, such news reports and press releases primarily
dealt with the performance and financials of the Company, and are nowhere related
to the Acquisition Deal. Secondly, none of the Entities has demonstrated satisfactorily
to me that it has indeed traded in the scrip of Magma during declaration of such
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financial results and performance of the Company under influence of any such press
release or newspaper article. For instance, press release dated November 07, 2020 had
disclosed the Quarter 2 (FY 2020-2021) Profit after Tax of the Company amongst other
performance indicators. Further, news article dated December 10, 2020 was about
improvement in the rating of the Company by rating agencies and news article dated
January 06, 2021 mentions about scrip of Magma trading below its 5-year Price-to-
earnings (P/E) ratio.
58. Nonetheless, none of the Entities seems to have traded in the scrip of Magma
after the publication of aforesaid information were disclosed by the Company or after
newspaper articles reported about them in public domain. It is very unlikely on the
part of a prudent investor to invest in a Company 1-3 months after the publication of
aforesaid positive news about the Company (Magma). On the one hand, the Entities
are claiming that the information about the proposed Acquisition Deal was already
anticipated and discounted by the market participants while on the other hand, these
Entities claim that they have carried out their trading in the scrip of Magma on the
basis of certain positive news that were published 1-3 months ago, which exhibit a
glaring contradictions in their arguments making it difficult to accept such a
contention on its face value under the instant proceedings for granting exoneration,
more particularly when the issues surrounding the UPSI and the UPSI period have
been analyzed before making prima facie observations in the Interim Order based on
the information furnished by the Company itself and thereafter a detailed
investigation into the matter is already underway pursuant to passing of the Interim
Order. It is equally difficult to accept it as a mere coincidence that such Entities have
purchased the scrip of Magma during the UPSI Period on the basis of certain positive
news that were circulated in the public domain 1-3 months ago without being
influenced by the UPSI. Under the circumstances, in my view the veracity of such
claims pressed by the Entities before me to justify their trading in the shares of Magma
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during the UPSI period cannot be verified at this stage when the detailed
investigation into their conduct is in progress.
59. Moving on to the determination of UPSI period, as already mentioned in the

Interim Order, the discussions on the proposed Acquisition Deal started on January 11,
2021 which was finally disseminated to the public on February 10, 2021. Presently,
there is no material available on record which shows otherwise i.e. prima facie there
is no contrary material on record to suggest that the information regarding the
acquisition of controlling stake in Magma by RSHPL and/or the funds raising done
by Magma through preferential allotment of shares were generally available to the
public prior to February 10, 2021. In my opinion, Entities have not been able to exhibit
any logical explanations regarding the UPSI period and hence I find no reason to
deviate from the findings pertaining to start and end point of the UPSI period as
mentioned in the Interim Order. Therefore, the submissions of the Entities contesting
the determination of UPSI period require no further consideration.
60. Entity no. 2 has stated that as per the regulation 3(5) of the PIT Regulations, 2015,
a listed entity is required to maintain Structural Digital Database (hereinafter referred
to as “SDD”) however despite the availability of such a detailed and reliable source
of evidence, SEBI has not used the same and has merely relied upon the sequence of
events provided by the Company to make adverse observations against the Entities in
the instant matter. In this regard, it is important to note that under the PIT Regulations,
2015, a listed entity is required to maintain SDD containing the nature of unpublished
price sensitive information and names of such persons who have access to such
information. I find that the said database is required to contain the list of all the
persons who have handled the UPSI in any manner in the course of their duties in
the listed company. However, I find from the framework of the SDD that it captures
details of only those Designated Persons who have had direct access to the UPSI and
such SDD would not be of any help to disclose the names of those persons who might
have indirect access to the UPSI. Infact, such indirect access to UPSI is a greater
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menace to the market integrity, as it makes the task difficult both for the listed
companies as well as for SEBI as a regulator, to capture the information and track
down such persons who have had indirect or informal access to the UPSI.
Nonetheless, it is also important to mention here that the PIT Regulations, 2015
nowhere binds SEBI to mandatorily use the aforesaid SDD and look for violation of
PIT Regulations, 2015 only from the said SDD while examining / investigating into
matters pertaining to insider trading. In the instant matter, there is no dispute that
Entity no. 2 has traded in the scrip of Magma during the UPSI Period from the trading
account of Entity no. 3. Entity no. 2 has further admitted that he was part of the
discussions pertaining to the Acquisition Deal. Therefore, in my opinion, pending
investigation, the aforesaid argument is of no substance since, by not calling for SDD
or by placing reliance on other available material to ascertain possible insider trading,
would not ipso facto prove that trades in the account of Entity no. 3 executed by Entity
no. 2 in the scrip of Magma were executed in the normal course of trading and not
based on the UPSI.
61. I have observed in earlier paragraphs that some of the Entities have attempted
to justify their trading in the scrip of the Company attributing to certain incentives
announced for the NBFCs in the Union Budget on February 07, 2021. However, as
pointed out by me, none of the Entities who has traded in the scrip of Magma during
the UPSI period, has demonstrated that he has followed similar trading pattern in
the scrips of some other listed NBFCs as well. Such unusual trading activities in only
one specific NBFC scrip during the UPSI period rather expose the true intent of the
Entities behind their trades in the shares of Magma which deserve further
investigation to bring all the facts to the table before one can conclude with finality if
the trades of the Entities in the shares of Magma were indeed influenced by the
positive outlook about the NBFC Sector as claimed by them or were based on
possession of the UPSI.
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62. Some of the Entities including Entities no. 2 and 3 have submitted that the
allegation of insider trading requires a high level of proof and SEBI has not provided
any proof in the Interim Order regarding their involvement in the alleged insider
trading. Entities have relied upon the decisions of the Hon’ble Supreme Court of
India and of the Hon’ble SAT in matters such as Union of India vs. Chaturbhai M. Patel
(supra), Dilip S. Pendse (supra), VK Kaul (supra), Seth Gulabchand (supra), etc. With
respect to the aforesaid submission of the Entities that insider trading allegations can
be levelled against them only based on strong proof, it is important to note that as
the very name suggests, in the ‘insider trading’ cases particularly which involves
communication of UPSI by an insider to other entities, it is extremely difficult for an
investigator to lay his hands on any direct evidence of communication of UPSI which
often takes place in utmost privacy and secrecy. However, the absence of direct
evidence should not be considered as a handicap in proceedings against the
suspected entities, more so in such cases where the attending circumstances and
corroborating evidences are strongly indicating on the preponderance of probability
of execution of trades under the influence of possession of UPSI. Thus, even in the
absence of any direct evidence, such matters are to be tested on the basis of
circumstantial evidences including the conduct of the parties and the abnormality of
their trading practices which defy normal business prudence. What is needed in such
cases, is to appreciate in a factual matrix, the preponderance of probabilities of
happening of such an event which in the present matter, have been recorded in detail
in the Interim Order to hold that prima facie the Entities had / were in possession of
UPSI when they traded in the shares of Magma during the UPSI period.
63. Notwithstanding the above, I can observe that the above noted case laws cited
by the Entities relate to those cases where adjudication proceedings were initiated
after completion of the fact finding exercise (investigation), and based on the facts
and evidences collected during the investigation, the entities were asked to show
cause as to why suitable direction including imposition of monetary penalty be not
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issued, in case the allegations are found established. The instant matter before me is
however a confirmation/revocation proceedings pertaining to an Interim Order in
which interim directions were issued against the Entities based on various prima facie
factual observations which are subject to the outcome of an ongoing investigation
into the matter. As stated in the foregoing paragraph, the Interim Order was passed
after appreciating the facts and evidences available on record, appreciation of which
strongly indicated the possibility of indulgence in activities of insider trading by
certain entities and accordingly to prevent further misuse, it was thought proper to
issue directions on an urgent basis by passing an Interim Order. The above Interim
Order nowhere intents to conclusively hold any person guilty of violation of various
provisions of law as mentioned in the said order. Entities shall have opportunities
and rights to furnish sufficient evidence and justifications to rebut those observations
prima facie made against them in the Interim Order and adduce evidences to prove
their innocence before the fact finding authority during the investigation. Therefore,
the attempt made by the Entities to take shelter under the garb of requirement of
higher degree of evidence can be stated to be a premature plea taken by the Entities
when detailed investigation into their alleged misconduct is in progress. Keeping the
aforesaid in view, the contentions of the Entities regarding requirement of high level
of proof does not warrant any further consideration at this juncture.
64. I also note that the reliance placed by the Entities on the decision of Tree House
(supra) is not valid as the said case is factually distinguishable and will not be of help
to them in the instant proceedings, as in the said case (Tree House), the observations
of the Hon’ble SAT were related to fudging of books and misrepresentation about
the manipulation in books of the company. The Hon’ble SAT, having considered the
entire facts in that case has held that:
“In view of the aforesaid, we find that in the instant case no case of urgency was made
out in the first instance for grant of an ex parte interim order. There was no prima facie
finding of manipulation of the books of account or misrepresentation of financials or
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diversion / siphoning off the funds of the Company. The inference drawn was purely
based on presumption and not on the basis of any evidence. Till date no report has been
submitted by the independent auditor / audit firm. Thus continuation of an ex parte
interim order restraining the appellants cannot be sustained.”
In view of the aforesaid, the findings of the Hon’ble Tribunal in the above referred
matter is not applicable to the present matter.
65. The Entities have also contended that based on the evidence available, the
restrictions imposed on them vide the Interim Order do not deserve continuation. In
support of such a contention, the Entities have relied on various judicial decisions
including the findings of SEBI in the matter of Sabero Organics, Manoj Gaur, Sanjay D.
Gala & Ors, Emami Limited (supra). Citing the matter of Sabero Organics it has been
canvassed that SEBI has held that where it is not certain as to who amongst the
several insiders had communicated the UPSI, it is not proper to proceed and hold a
person guilty merely on the premise that he, besides being an insider had financial
dealing with a person who had traded in the scrip during the UPSI period. It has
further been argued that in the above matter (Sabero), considering the fact that several
persons including the advisors, merchant bankers, law firms and Key Managerial
Persons (KMPs) of the Company including Vice Chairman, Managing Director,
Directors, Senior Vice President, etc., were also aware of the deal/ UPSI, coupled
with the fact that several persons have also traded during the relevant time in higher
quantity and on a larger scale and such trading patterns indicated the possibility of
communication of UPSI by others as well, SEBI vide its order dated May 12, 2016
directed for re-investigation into the said matter. While directing reinvestigation in
that matter, it was observed that:
“on the basis of the findings of the investigation it is difficult to arrive at a conclusion
as to who exactly passed the information to Murugappan and thereby to
Gopalakrishnan and Karuppiah. As many as sixty–nine persons/entities had access to
the UPSI during the Investigation Period. In this backdrop, a pertinent question arises
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as to the channel of communication which resulted in passing the UPSI to the said
entities……………… In this maze of facts, it is not possible to conclusively determine
from where the information has flowed to the persons/entities who had traded and
benefited.”
66. Having gone through the afore-cited cases, I find that all such cases pertained
to proceedings which were initiated after the completion of investigation making
specific allegation asking as to why suitable direction/penalty be not issued. Thus,
the above noted observations recorded by the competent authority of SEBI related to
the quality of evidence that was brought out during an investigation so as to hold
certain persons/entities guilty of insider trading charges. However, such
observations would not be applicable in the instant matter, where the investigation
is still ongoing and is yet to be completed and the interim directions have been issued
based on the prima facie observations made in the Interim Order.
67. As regards the fund transactions noticed amongst the Entities in the Interim
Order, the Entities have, without disputing the said funds transactions amongst them,
offered various justifications behind such fund transactions. They have primarily
submitted that they are known to each other and are professionally connected, hence,
in the absence of any evidence to the contrary, the fund transactions should not be
viewed as abnormal and obnoxious but should be viewed as transactions entered in
the normal course of business. At this juncture, I find that when investigation is in
progress, it would not be fair and proper to make observation on the explanation or
justification offered by the Entities on their funds transactions, the authenticity of
which would be in any case tested during the investigation. Therefore, in my view it
would be proper to leave the veracity of the funds transactions to be properly
ascertained in the course of investigation that may necessitate taking into
consideration various other information such as net worth, business details of
entities, locating the original source of such funding, genuineness of such
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transactions, disclosure of such transactions before the tax authorities, etc. which
cannot be determined and ascertained under the instant proceedings.
68. I have considered the allegations made in the Interim Order against the Entities,
replies filed by the Entities, submissions made by them during the post decisional
hearing granted to them, and written submissions filed by the Entities after the
hearing. The case that was made out in the Interim Order is that the Entity no. 1 is an
insider of the Company by virtue of being a connected person as well as being a person
who had access to UPSI and Entity no. 1 was prima facie observed to have
communicated the UPSI to Entities no. 2, 6 and 8 and the said UPSI in turn got shared
with Entity no. 4 by the Entity no. 6, and thereafter, certain persons/entities have
traded in the scrip of the Company while in possession of the UPSI. Accordingly, all
the Entities have been observed to have acted prima facie against the provisions of the
PIT Regulations, 2015 by trading in the scrip of the Company (Magma). As can be
understood from the Interim Order, communication of UPSI by Entity no. 1 to other
Entities and possession of UPSI by other Entities, have been inferred on the basis of
the close connections and frequent telephonic conversations noticed between Entity
no. 1 and other Entities, as extracted from the CDRs of these Entities. Therefore, the
whole case of the insider trading against the Entities has been analysed around the
communication of UPSI directly or indirectly by Entity no. 1 to other set of Entities
based on which other Entities have indulged into trading in the shares of Magma
during the UPSI period.
69. Entity no. 1 in his submissions has contended that he was not the sole person
to have an access to the UPSI at the time when the impugned insider trades were
undertaken by some of the Entities and therefore, the observation about him having
communicated any UPSI to the other Entities is not based on sound evidence. In order
to dispel the prima facie observations, he has brought on record documents to show
that Entities nos. 2 and 8 were also in possession of the UPSI and therefore, based on
the materials, it would not be right to continue with the restraint imposed on him
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vide the Interim Order, as the aforesaid prima facie observation about his involvement
in communication of UPSI to Entities no. 2 and 8 would not sustain any more.
Similarly, considering the admitted proximity of Entity no. 6 with Entities no. 2 and 8
and his (Entity no. 6’s) own access to the persons involved with the Acquisition Deal
including the persons associated with the Acquirer group, the prima facie observation
about he being responsible for communication of UPSI to Entity no. 6 would also get
refuted. Under such changed facts, it has been vehemently submitted by the Entity
no. 1 that relief may be granted to him from the restraints that were imposed vide the
Interim Order. Keeping in view the aforesaid, it has been submitted by the Entity no.
1 that it is incorrect to continue with the aforesaid prima facie observation qua him, as
these Entities who have executed the impugned trades were either trading in their
individual capacities while in possession of UPSI or were capable to acquire the same
through other multiple sources as brought on record by him.
70. I find that certain credible facts have been submitted to suggest that apart from
him (Entity no. 1), Entities no. 2 and 8 were also having independently direct access to
the UPSI being part of the discussions pertaining to the Acquisition Deal, and that the
Entity no. 6 was also closely connected with Entities no. 2 and 8 as well as with other
group entities of Magma. Entity no. 2 from his end has submitted that the trades from
the trading account of Entity no. 3 were executed by him before he formally got
engaged as an advisor to the Acquisition Deal, hence, and in the absence of cogent and
specific evidence, it would not be fair to continue with the restraint imposed on him
vide the Interim Order, more particularly, when the alleged unlawful gain has already
been deposited in the escrow account. Entities no. 6 and 7 have tried to dispel the prima
facie observation made against them in the Interim Order by submitting that their
trades in the shares of Magma were not confined to the UPSI period only, but also
continued for a considerable period even beyond the UPSI period and in the process,
they have purchased shares of Magma at price higher than price at which shares were
purchased during UPSI period. Therefore, it may not be right to observe that their
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trades were executed under the influence of UPSI only and it is also not rightful to
continue with the restraints in respect of the securities purchased by them even after
the UPSI period. Entity no. 8 has opposed to the imposition and continuation of the
restraint order merely on the ground of fund transfer, when on the usage of such
funds transferred by him, he had no control and the funds were extended by him on
several occasions under normal course of dealing with different entities. Therefore,
when no trades were executed from his account, continuation of any restraint even
after 5 months of passing of the Interim Order is not warranted. In support of the
submissions of modifying the restraints imposed vide the Interim Order, reliance has
also been placed on the order dated November 09, 2021 passed by the Hon’ble
Tribunal in the matter of Bijal Shah vs SEBI. In my considered view, at this stage when
the investigation into the entire matter is going on, it would not be appropriate to
conclusively make any comments upon the aforesaid contentions of the Entities,
which may affect either the investigation or the Entities, or may even adversely affect
the final outcome of the case. The scope of the present proceedings before me is to
find out whether in the light of the replies of the Entities, the prima facie case made
out against them in the Interim Order continues/sustains or not and whether the
directions issued in the Interim Order require any interference by way of revocation
or modification at this stage.
71. From the submissions of Entity no. 1, it is noted that there is no denial to the
existence of frequent calls between him and others however, he has contended that
these calls were not made in relation to communication of UPSI and were made in
the ordinary course of his interactions with them as these Entities were his
acquaintances and he has been professionally associated with them over a long
period. In this regard, it can be appreciated that in the Interim Order, CDRs of Entities
have been relied upon to demonstrate frequent communication between the Entity
no. 1 and other Entities and to highlight preponderance of probabilities of
communication of UPSI by him. The fact remains that there had been frequent
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communications between Entities no. 1, 2, 6, and 8 at the time when those impugned
trades were being executed during the UPSI period, however at the same time the
submissions made by the Entity no. 1 with supporting evidences about certain other
Entities having independent access to UPSI cannot be ignored completely. Having
considered the same, I find at this stage that Entity no. 1 has succeeded to an extent
in dispelling the prima facie findings that he was alone having access to the UPSI by
demonstrating that besides him, Entities no. 2 and 8 were also having direct access to
the same UPSI (along with him). As regards the allegations of communication of
UPSI by him to Entity no. 6, Entity no. 1 has advanced a notable argument in his
submission albeit unsupported by any evidence, to indicate that Entity no. 6 was
himself closely connected with various other entities of Magma group and through
them he was capable of having access to UPSI independently without depending
upon any communication from him.
72. It is also noted that all the Entities have deposited the amount directed to be
impounded by the Interim Order into an escrow account, pursuant to which their
respective bank accounts were unfrozen. At present, Entities are under restraint from
dealing in securities, imposed vide the Interim Order and have so far remained under
the said restraint for more than 06 months. Further, I note that the UPSI, on the basis
of which the impugned insider trades were allegedly undertaken by the Entities had
already become generally available and the said UPSI has since ceased to exist. Entity
no. 5 has made a request that he is an old man aged 68 years and is not keeping good
health. He has also submitted that he himself is a doctor (MBBS) and at this age is
engaged in rendering medical services in the rural areas of Maharashtra. He has also
submitted that majority of his life time savings are invested in securities market and
on account of the ongoing restriction through the Interim Order, he is facing severe
hardship hence, has requested for lifting of the said restraint imposed on him. Similar
requests have also been made by some other Entities as noted above. Having regard
to all the facts and circumstances of the case and considering the aforesaid revelations
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made by the Entity no. 1 about the existence of multiple Entities having access to the
same UPSI during the relevant UPSI period thereby raising the possibilities of
multiple sources of communication of UPSI to other Entities , and taking into account
the fact that the Entities have already suffered restraint from the securities market for
more than 06 months and the observation of the Hon’ble Tribunal in Bijal Shah
(Supra), it would be in the fitness of things that pending completion of investigation,
the restriction imposed in the Interim Order thereby prohibiting the Entities to deal in
securities be modified and the said restraint be continued only with respect to dealing
in the scrip of Poonawalla Fincorp Limited (Magma).
73. In view of the foregoing discussions and my observations on various aspects

of the matter, pending conclusion of investigation, I, in exercise of the powers
conferred upon me in terms of Section 19 of the SEBI Act, 1992, read with Sections
11, 11(4) and 11B(1) thereof and after taking into account the specific facts and
circumstance of the present matter, hereby modify the directions issued vide ex-parte
ad-Interim Order dated September 15, 2021, as follows:
a) Entities no. 1 to 8 are restrained from buying, selling or dealing in securities

of PFL (Magma), either directly or indirectly, in any manner whatsoever until
further orders. Accordingly, the directions issued vide paragraph 67 (a) of
the Interim Order stand modified to the extent of allowing credit and debit of
securities in the accounts of above Entities except the securities of Magma.
b) It is clarified that restraint related to buying, selling or otherwise dealing in
securities in respect of PFL (Magma) would not prohibit the credit of shares
to be received on account of stock option, bonus etc. issued by the Company.
74. It is clarified here that the funds deposited by Entities in an interest bearing
escrow account will remain in the said account with lien in favour of SEBI until
further orders.
Page 61 of 62
75. It is further clarified that the observations made in the present order are
tentative in nature. The investigation shall be carried out without being influenced
by any of the directions passed or any observation made either in the Interim Order
or in the present order. Based on the outcome of the same, appropriate proceeding
will be initiated in accordance with law.
76. This Order shall come into force with immediate effect.
77. This Order is without prejudice to any other action that SEBI may initiate under
the securities laws, as deemed appropriate, against the above-mentioned Entities.
78. A copy of this Order shall be forwarded to the Entities, Stock Exchanges,
Depositories, Registrar and Share Transfer Agents and Banks to ensure necessary
compliance.
-Sd-
Date: March 28, 2022 S. K. Mohanty
Place: Mumbai Whole Time Member
Page 62 of 62

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WTM/SM/ISD/15646/2021-22

SECURITIES AND EXCHANGE BOARD OF INDIA

1. Magma Fincorp Limited (now known as Poonawalla Fincorp Limited)

2. In the backdrop of a corporate announcement made by the Company on

3. Based on the information gathered and examination thereof by the Securities

c) Preliminary examination has also revealed that a company, namely Neo

8. Having considered the information unearthed during the course of initial

Servicing of Interim Order, replies of Entities and hearing

Entity Date of completion of Inspection

Entity no. 1 October 14, 2021

Entities no. 2 and 3 October 11, 2021

Entities no. 4, 5, 6 and 7 October 08, 2021

Entity no. 8 October 08, 2021

 Hon’ble Securities Appellate Tribunal (“SAT”) in the matter of Manoj Gaur

 Securities and Exchange Commission v. Ladislav Larry Schvacho (991 F. Supp.

 SEBI Order in the matter of Emami Limited (Order no. EAD/BJD/VS/21-

 Hon’ble Supreme Court the matter of SEBI v. Kishore R. Ajmera (2016) 6

 Repayment of an existing share pledge loan of ₹42.37 Crore to Serum

 Hon’ble SAT in the matter of VK Kaul v. SEBI (Appeal No. 55 of 2012,

 SEBI Order in the matter of Palred Technologies (Order no.

 SEBI Order in the matter of Sanjay D. Gala & Ors (supra)

Entities no. 2 and 3

 Hon’ble SAT in the matter of VK Kaul v. SEBI (supra);

16.1. He is a regular trader in the securities market since 2007-2008. He invested in

16.5. Regarding transactions of Newgen (proprietorship concern of Entity no. 6)

59. Moving on to the determination of UPSI period, as already mentioned in the

73. In view of the foregoing discussions and my observations on various aspects

a) Entities no. 1 to 8 are restrained from buying, selling or dealing in securities

Date: March 28, 2022 S. K. Mohanty

Place: Mumbai Whole Time Member

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