Nilesh Kapadia vs Sebi

Order Reserved on: 05.12.2017

Date of Decision : 21.12.2017

Appeal No. 327 of 2014

Rajiv R. Sanghvi Neelam, Plot #5, 1st Lane, Hindu Colony, Dadar (E), Mumbai - 400 014. ..... Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...... Respondent

Mr. P.N. Modi, Senior Advocate with Mr. Neville Lashkari and Mr. Deepak Dhane, Advocates i/b Joby Mathew & Associates for the Appellant.

Mr. Kevic Setalvad, Senior Advocate with Mr. Mihir Mody and Mr. Nirav Parmar, Advocates i/b. K. Ashar & Co. for the Respondent.

WITH Appeal No. 329 of 2014 Nilesh Kapadia Kapadia Baug, S.V. Road, Opp. Vijay Sales, Borivali (W), Mumbai - 400 092. ..... Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...... Respondent

Mr. Zal Andhyarujina, Advocate with Mr. Deepak Dhane and Ms. Harshada Nagare, Advocates i/b Joby Mathew & Associates for the Appellant.

Mr. Kevic Setalvad, Senior Advocate with Mr. Mihir Mody and Mr. Nirav Parmar, Advocates i/b. K. Ashar & Co. for the Respondent. 2

WITH

Appeal No. 337 of 2014

Chandrakant P. Mehta Pal Residency, Plot No. 358, Bhandarkar Road, ..... Appellant Above HDFC Bank, Matunga, Mumbai - 400 019.

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...... Respondent

Mr. Naushad Engineer, Advocate i/b Ajay Khandhar & Co. for the Appellant.

Mr. Kevic Setalvad, Senior Advocate with Mr. Mihir Mody and Mr. Nirav Parmar, Advocates i/b. K. Ashar & Co. for the Respondent.

WITH

Appeal No. 338 of 2014

Dipti Paras Mehta Pal Residency, Plot No. 358, Bhandarkar Road, Above HDFC Bank, Matunga, Mumbai - 400 019. ..... Appellant

Versus

Securities and Exchange Board of India, SEBI Bhavan, Plot No. C-4A, G-Block, Bandra-Kurla Complex, Bandra (East), Mumbai - 400 051. ...... Respondent

Mr. Naushad Engineer, Advocate i/b Ajay Khandhar & Co. for the Appellant.

Mr. Kevic Setalvad, Senior Advocate with Mr. Mihir Mody and Mr. Nirav Parmar, Advocates i/b. K. Ashar & Co. for the Respondent.

CORAM : Justice J.P. Devadhar, Presiding Officer Dr. C.K.G. Nair, Member

Per : Dr. C.K.G. Nair 3

1. These four appeals have been filed challenging the order passed by

the Whole Time Member ('WTM' for short) of Securities and Exchange

Board of India ('SEBI' for short) on July 24, 2014. By the said order

appellants in these appeals have been prohibited from buying, selling or

otherwise dealing in securities for a period of 10 years from the date of the

interim order dated June 17, 2010. Further, appellants, excluding appellant

in Appeal No. 329 of 2014, have been directed to disgorge the amounts of

illegal profits made by them along with interest as indicated in the order.

Appellant in Appeal No. 329 of 2014 has been also debarred from

associating himself with any intermediary / entity listed with SEBI for a

period of 10 years. Since the impugned order is common and the basic facts

and issues arising in these appeals are admitted to be common all appeals

are heard together by taking Appeal No. 327 of 2014 as the lead matter and

disposed of by this common decision.

2. Basic facts relevant to the matter are the following:-

(a) Appellants in Appeal No. 327 of 2014, 337 of 2014 and 338 of

2014 are traders in the securities market while appellant in

Appeal No. 329 of 2014 was employed as a Dealer by HDFC

Asset Management Company ('HDFC AMC' for short). SEBI,

based on a preliminary investigation covering the period from

01.04.2007 to 31.07.2007 found that Nilesh Kapadia

(appellant in Appeal No. 329 of 2014) used to tip Rajiv

Sanghvi (appellant in Appeal No. 327 of 2014) before placing

of the orders of the HDFC AMC and Rajiv Sanghvi traded

using those tips ahead of the HDFC orders and the trading

accounts of Chandrakant Mehta and Dipti Mehta (appellants 4

in Appeal Nos. 337 and 338 respectively were also used for

trading based on the tips received by Rajiv Sanghvi from

Nilesh Kapadia. Accordingly, these four persons were prima-

facie found to be in violation of regulations 3 and 4(1) of

SEBI (Prohibition of Fraudulent and Unfair Trade Practices

Relating to Securities Market) Regulations, 2003 ('PFUTP

Regulations' for short) and various directions were passed by

SEBI under sections 11(1), 11(4)(b) and 11B of Securities and

Exchange Board of India Act, 1992 ('SEBI Act' for short)

read with regulation 11 of PFUTP Regulations.

(b) Subsequently, on completion of the investigation, SEBI issued

Show Cause Notices ('SCN' for short) dated February 11,

2011 to Nilesh Kapadia and Rajiv Sanghvi and a common

SCN dated March 4, 2011 to Chandrakant Mehta and Dipti

Mehta under sections 11, 11(4) and 11B of the SEBI Act. The

SCNs had also stated that all allegations, averments and

evidences referred to and relied upon in the interim order shall

also be read and treated as part of the SCNs. Based on their

replies to the SCNs, statements made during the personal

hearing and other records available, the impugned order was

passed on July 24, 2014.

3. Shri. P.N. Modi, Learned Senior Counsel appearing on behalf of the

appellant made his submission in Appeal No. 327 of 2014 before us in great

detail on various dates. Though initially he argued that non-intermediary

'front running' is not an offence under PFUTP Regulations as Regulation

4(2)(q) makes only "an intermediary buying or selling securities in advance 5

of a substantial client order or whereby a futures or option position is taken

about an impending transaction in the same or related futures or options

contract" is considered a fraudulent and an unfair trade practice in securities.

Since the appellant (as well as appellants in other appeals) are not

intermediaries trading on the basis of tips received by them is not 'front

running' and hence not violative of PFUTP Regulations. Traders using

various tips in a common market practice and the appellant did not 'front-

run'. Various orders of this Appellate Tribunal, particularly, that in the

matter of Dipak Patel vs Securities and Exchange Board of India (Appeal

No. 216 of 2011 decided on 09.11.2012) were relied on by the appellant to

substantiate the position in law.

4. However, when hearing on the matter was resumed on November 29,

2017, Learned Senior Counsel for the appellant placed reliance on the order

of the Hon'ble Supreme Court in various Civil Appeals including that of

Securities and Exchange Board of India vs Kanaiyalal Baldevbhai Patel

(Civil Appeal No. 2595 of 2013) with Securities and Exchange Board of

India vs Dipak Patel (Civil Appeal No. 2596 of 2013) etc. decided on

September 20, 2017. He would now like to change his submissions, since

the said order the Apex Court has held that non-intermediary 'front running'

is also a violation of PFUTP Regulations subject to certain conditions laid

down in the said order itself. According to him no conditions specified in

the said order by the Apex Court has been satisfied in the present appeal.

Moreover, he argued that neither the SCN nor the impugned order dealt with

these conditions and as such the impugned order should be set aside or

remanded to SEBI. 6

5. The Learned Senior Counsel Shri P.N. Modi also walked us through

the relevant parts of the SCN as well as the impugned order and submitted

that various conditions as specified in the order of the Hon'ble Supreme

Court in the matter of Dipak Patel etc. (supra) are not satisfied in this matter.

Quoting relevant paras of the said order of the Apex Court, the Learned

Senior Counsel for the appellant argued that confidentiality on sharing the

information by the tipper, the HDFC AMC employee Nilesh Kapadia has to

be proved; which is not done in this case. Further, whether the appellant

(tippee) induced the tipper to part with such confidential information has to

be established; which is also not done in the impugned order. Furthermore,

the appellant did not 'front run' the HDFC AMC orders in most of the

instances both because the trading was done in several tranches and just

because in one tranche on some days appellant's order was placed before the

first order of the HDFC AMC does not prove that the appellant was 'front

running' the HDFC AMC orders. On the contrary, on 7 occasions of

appellant's trading in ICRA Ltd. on April 13, 2007 the appellant traded

subsequent to the trading by the HDFC AMC. The telephone call timing

recorded from the HDFC AMC system and the Exchange trading system are

not matching on several occasions. As such, at best it can be stated that the

appellant's trading are parallel to that of the trading by HDFC AMC. It is

definitely not 'front running'. Even if it is finally held that in some trades

the appellant had 'front-run', for purposes of disgorgement those 'front-run'

trades have to be separated and the unlawful gains therein need to be

recalculated / reconsidered. Further, it was argued that when the first order

of the HDFC AMC was placed on the trading terminal the information that

HDFC AMC is entering the market has become public and any trade done

by anybody thereafter cannot be termed as 'front running' on the basis of

private tips. Accordingly, none of the ingredients of the Supreme Court 7

order (supra) has been established in the impugned order to hold the

appellants liable for any violation of the PFUTP Regulations. It is also

pertinent to note that all the orders placed by the appellant did not match

with the orders placed by the HDFC AMC. It ranges from 100% to Nil. As

such, the disgorgement has to be recalculated on this ground also.

6. Learned Counsel Shri. Naushad Engineer appearing on behalf of the

appellant in Appeal No. 337 of 2014 and Appeal No. 338 of 2014 adopted

the arguments of the Learned Senior Counsel in Appeal No. 327 of 2014.

However, Shri Engineer further emphasized that the appellants in these two

appeals never got any tip from the HDFC AMC employee nor traded on the

basis of any tips. Since they were sharing the same office with Rajiv

Sanghvi (appellant in Appeal No. 327 of 2014) and they knew that Rajiv

Sanghvi is an informed trader, appellants used to trade by looking at the

trading of Sanghvi. Interestingly, however, the Learned Counsel further

added that the appellants in these two appeals did not know Sanghvi and

they had no relationship whatsoever except that they were sharing the same

office. Learned Counsel also emphasized that the appellants did not trade in

advance to be called 'front running' as required under the Regulations

4(2)(q) of PFUTP Regulations and also that nobody was impacted adversely

as bulk order placed by the HDFC AMC was known to others, when their

first order was placed on the trading screen.

7. Learned Counsel Shri. Zal Andhyarujina, appearing for appellant in

Appeal No. 329 of 2014 submitted that the Supreme Court order clarifying

the legal provision that 'front running' is applicable to non-intermediaries as

well was issued only on September 20, 2017, whereas, the events in the

impugned order took place in the year 2007 when this legal position was not 8

clear and the position that non-intermediary 'front running' is not a PFUTP

violations was upheld by this Appellate Tribunal also in 2012-13. So the

legal position was not clear and the appellant did not benefit monetarily.

Based on the SEBI interim order the appellant was removed from the job by

HDFC AMC and he is without any job and he has already suffered a ban on

trading and ban on job for more than 7 years and therefore leniency may be

shown to the appellant.

8. It was also argued that trade must be in advance to the actual trade

placed by HDFC AMC to prove that others traded on the basis of tips. Once

HDFC AMC trades were placed on the terminal they became public

information. Para 43 of the Supreme Court order (supra) lays down the

conditions for the tippee, not for the tipper. As such, the tipper is not liable

as there is no obligation of confidentiality cast upon him and many of the

trades by the appellants in other appeals were placed before the telephone

calls between the appellant herein and appellants in the related appeals.

9. Shri Kevic Setalvad, Learned Senior Counsel for the respondent

stated that a reading of the impugned order in totality and the SCN would

indicate that conditions laid down in the order of the Hon'ble Supreme

Court in the matter of Dipak Patel etc. (supra) are fully met. The admitted

fact that the appellant in Appeal No. 327 of 2014 did receive tips from the

HDFC AMC Dealer in most of the days before the trading orders were

placed by the HDFC AMC, the pattern of trade of the appellant, the

magnitude of trade by the appellant and the explicit statements by the HDFC

AMC Dealer and the appellant in Appeal No. 327 of 2014 that they knew

each other from college days onwards and that tips have been provided in

the past as well and they used to talk even during late hours (well beyond 9

the sample of the telecons transcript produced on record) and the admission

that other two appellants (in Appeal No. 337 of 2014 and 338 of 2014) were

trading following the trading by the appellant in Appeal No. 327 of 2014 all

indicate that all these three appellants were trading in a large number of

scrips on several trading days during the investigation period based on the

tips provided by HDFC AMC Dealer. The mismatch between call timing

and trade timing sometimes is because of the inbuilt difference between

time set in the system in the HDFC AMC office and the Exchange trading

system.

10. We have perused the SCN, the impugned order, submissions made by

the Learned Counsel appearing on behalf of the appellants and the

respondent as well as the detailed trade-logs etc. placed before us.

11. We do not find any merit in the arguments made by the Learned

Counsel for the appellants. Since, the entire argument hinges heavily on the

order dated September 20, 2017 of the Apex Court in Civil Appeals No.

2595 of 2013, 2596 of 2013 etc. cited above, we reproduce the relevant

paragraphs of both the concurring orders but recorded independently by the

Learned Justices:-

"N.V. Ramana J.

41. Now we come back to the regulations 3 and 4 (1) which

bars persons from dealing in securities in a fraudulent manner or

indulging in unfair trade practice. Fairness in financial markets is

often expressed in terms of level playing field. A playing field may

be uneven because of varied reasons such as inequalities in

information etc. Possession of different information, which is a

pervasive feature of markets, may not always be objectionable. 10

Indeed, investors who invest resources in acquiring superior

information are entitled to exploit this advantage, thereby making

markets more efficient. The unequal possession of information is

fraudulent only when the information has been acquired in bad

faith and thereby inducing an inequitable result for others.

42. The law of confidentiality has a bearing on this case

instant. "Confidential information acquired or compiled by a

corporation in the course and conduct of its business is a species

of property to which the corporation has the exclusive right and

benefit, and which a court of equity will protect through the

injunctive process or other appropriate remedy." The information

of possible trades that the company is going to undertake is the

confidential information of the company concerned, which it has

absolute liberty to deal with. Therefore, a person conveying

confidential information to another person (tippee) breaches his

duty prescribed by law and if the recipient of such information

knows of the breach and trades, and there is an inducement to

bring about an inequitable result, then the recipient tippee may be

said to have committed the fraud.

43. Accordingly, non-intermediary front running may be

brought under the prohibition prescribed under regulations 3 and

4 (1), for being fraudulent or unfair trade practice, provided that

the ingredients under those heads are satisfied as discussed above.

From the above analysis, it is clear that in order to establish

charges against tippee, under regulations 3 (a), (b), (c) and (d)

and 4 (1) of FUTP 2003, one needs to prove that a person who had

provided the tip was under a duty to keep the non-public

information under confidence, further such breach of duty was

known to the tippee and he still trades thereby defrauding the 11

person, whose orders were front-runned, by inducing him to deal

at the price he did.

44. Taking into consideration the facts and circumstances of

the case before us and the law laid down herein above and SEBI v.

Kishore R. Ajmera (Supra) can only lead to one conclusion that

concerned parties to the transaction were involved in an apparent

fraudulent practice violating market integrity. The parting of

information with regard to an imminent bulk purchase and the

subsequent transaction thereto are so intrinsically connected that

no other conclusion but one of joint liability of both the initiator of

the fraudulent practice and the other party who had knowingly

aided in the same is possible. Consequently, Civil Appeal Nos.

2595, 2596 and 2666 of 2013 are allowed. At the same time, for

the same reason, Civil Appeal Nos. 5829 of 2014 and 11195-11196

of 2014 are dismissed.

RANJAN GOGOI, J.

3. The gravamen of the allegations which can be culled out

from the facts in Civil Appeal No.2595 of 2013 is that one Dipak

Patel (respondent in Civil Appeal No.2596 of 2013), who was

holding a position of trust and confidence in one M/s Passport

India Investment (Mauritius) Limited (hereinafter referred to as

"M/s Passport India"), was privy to privileged/confidential

information that M/s Passport India would be making substantial

investments in particular scrips through the stock exchanges.

Dipak Patel is alleged to have parted the said information to his

cousins Kanaiyalal Baldevbhai Patel [respondent in Civil Appeal

No.2595 of 2013] and Anandkumar Baldevbhai Patel [respondent

in Civil Appeal No.2594 of 2013 (disposed of on 5th April, 2017)] 12

who on various dates placed orders for purchase of scrips a few

minutes before the bulk orders in respect of the same scrips were

placed on behalf of M/s Passport India by Dipak Patel. The bulk

order/orders, because of the sheer volume, naturally had the effect

of pushing up the prices of the particular scrips and no sooner the

prices had increased, Kanaiyalal Baldevhai Patel and

Anandkumar Baldevbhai Patel had traded the said scrips thereby

earning substantial profits. The large volume of the shares traded

in the above manner; the several number of days on which such

trading took place; and the close proximity of time between the

sale and purchase of the shares i.e. before and after the bulk

purchases, were alleged by the appellant - Securities and

Exchange Board of India ("SEBI" for short) to be amounting to

fraudulent or unfair trade practice warranting imposition of

penalty and visiting the offending individuals with other penal

consequences.

4. The adjudicating authority held the respondents liable. The

Securities Appellate Tribunal ("Appellate Tribunal" for short)

before whom appeals were filed by the aggrieved persons

(respondents herein) interfered with the orders passed by the

adjudicating authority primarily on the ground that on a reading

of Regulation 2(c),(3) and Regulation(4) of the 2003 Regulations it

does not transpire that the acts attributable amount to fraudulent

or unfair trade practice warranting the findings recorded by the

Adjudicating authority and the imposition of penalty in question on

that basis.

5. If Regulation 2(c) of the 2003 was to be dissected and

analyzed it is clear that any act, expression, omission or

concealment committed, whether in a deceitful manner or not, by 13

any person while dealing in securities to induce another person to

deal in securities would amount to a fraudulent act. The emphasis

in the definition in Regulation 2(c) of the 2003 Regulations is not,

therefore, of whether the act, expression, omission or concealment

has been committed in a deceitful manner but whether such act,

expression, omission or concealment has/had the effect of inducing

another person to deal in securities.

6. The definition of 'fraud', which is an inclusive definition

and, therefore, has to be understood to be broad and expansive,

contemplates even an action or omission, as may be committed,

even without any deceit if such act or omission has the effect of

inducing another person to deal in securities. Certainly, the

definition expands beyond what can be normally understood to be

a 'fraudulent act' or a conduct amounting to 'fraud'. The emphasis

is on the act of inducement and the scrutiny must, therefore, be on

the meaning that must be attributed to the word "induce".

7. The dictionary meaning of the word "induced" may now be

taken note of.

BLACK'S LAW DICTIONARY, EIGHTH

EDITION, defines 'inducement' as "the act or

process of enticing or persuading another person to

take a certain course of action."

Merriam-Webster Dictionary defines

'inducement' as "a motive or consideration that

leads one to action or to additional or more

effective actions."

14

8. A person can be said to have induced another person to act

in a particular way or not to act in a particular way if on the basis

of facts and statements made by the first person the second person

commits an act or omits to perform any particular act. The test to

determine whether the second person had been induced to act in

the manner he did or not to act in the manner that he proposed, is

whether but for the representation of the facts made by the first

person, the latter would not have acted in the manner he did. This

is also how the word inducement is understood in criminal law.

The difference between inducement in criminal law and the wider

meaning thereof as in the present case, is that to make inducement

an offence the intention behind the representation or

misrepresentation of facts must be dishonest whereas in the latter

category of cases like the present the element of dishonesty need

not be present or proved and established to be present. In the latter

category of cases, a mere inference, rather than proof, that the

person induced would not have acted in the manner that he did but

for the inducement is sufficient. No element of dishonesty or bad

faith in the making of the inducement would be required.

9. While Regulation 3(a) of the 2003 Regulations prohibits a

person to buy, sell or otherwise deal in securities in a fraudulent

manner, Regulation 4 declares that no person shall indulge in a

fraudulent or an unfair trade practice in securities. Sub-regulation

(2) of Regulation 4 enumerates different situations in which

dealing in securities can be deemed to be a fraudulent or an unfair

trade practice. Regulation 4 being without prejudice to the

provisions of Regulation 3 of the 2003 Regulations would operate

on its own without being circumscribed in any manner by what is

contained in Regulation 3.

15

10. Adverting to the facts of the present case, if the information

with regard to acquisition of shares by M/s Passport India was

parted with by Dipak Patel to Kanaiyalal Baldevbhai Patel and

Anandkumar Baldevbhai Patel and the latter had transacted in

huge volume of shares of the particular company/scrip mentioned

by Dipak Patel a little while before the bulk order was placed by

M/s. Passport India and the said persons had sold the same a

short-while later at an increased price, such increase being a

natural consequence of a huge investment made in the particular

scrip by M/s Passport India, surely, it can be held that by the

conduct of Dipak Patel, Kanaiyalal Baldevbhai Patel and

Anandkumar Baldevbhai Patel were induced to deal in securities.

A natural and logical inference that would follow is that the

aforesaid two latter persons would not have entered into the

transactions in question, had it not been for the information parted

with by Dipak Patel. The track record of earlier trading of the

concerned two persons does not indicate trading in such huge

volumes in their normal course of business. Such an inference

would be a permissible mode of arriving at a conclusion with

regard to the liability, as held by this Court in Securities and

Exchange Board of India Vs. Kishore R. Ajmera1 referred to by my

learned brother Ramana, J. The volume; the nature of the trading

and the timing of the transactions in question can leave no manner

of doubt that Kanaiyalal Baldevbhai Patel and Anandkumar

Baldevbhai Patel had acted in connivance with Dipak Patel to

encash the benefit of the information parted with by Dipak Patel to

them and, therefore, they are parties to the 'fraud' committed by

Dipak Patel having aided and abetted the same.

16

14. To attract the rigor of Regulations 3 and 4 of the 2003

Regulations, mens rea is not an indispensable requirement and the

correct test is one of preponderance of probabilities. Merely

because the operation of the aforesaid two provisions of the 2003

Regulations invite penal consequences on the defaulters, proof

beyond reasonable doubt as held by this Court in Securities and

Exchange Board of India Vs. Kishore R. Ajmera(supra) is not an

indispensable requirement. The inferential conclusion from the

proved and admitted facts, so long the same are reasonable and

can be legitimately arrived at on a consideration of the totality of

the materials, would be permissible and legally justified. Having

regard to the facts of the present cases i.e. the volume of shares

sold and purchased; the proximity of time between the transactions

of sale and purchase and the repeated nature of transactions on

different dates, in my considered view, would irresistibly lead to an

inference that the conduct of the respondents in Appeal Nos.2595

of 2013, 2596 of 2013 and 2666 of 2013 and appellants in Appeal

Nos.5829 of 2014 and 11195-11196 of 2014 were in breach of the

code of business integrity in the securities market. The

consequences for such breach including penal consequences under

the provisions of Section 15HA of the SEBI Act must visit the

concerned defaulters for which reason the orders passed by the

Appellate Tribunal impugned in Civil Appeal Nos.2595 of 2013,

2596 of 2013 and 2666 of 2013 are set aside and the findings

recorded and the penalty imposed by the Adjudicating Officer are

restored."

It is not in dispute that appellants indulged in large quantities of

trading in various scrips from 13.04.2007 to 31.07.2007, the quantities in

many instances were more than 50% of the total volume of trade of HDFC 17

AMC. The matching of trade between the appellants and HDFC AMC in

several instances was 100% or near 100% though it is also noted that in a

few cases matching was negligible. It is also on record that the prices of

ICRA moved from Rs. 580 in the morning at 09:56:10 on April 13, 2007 at

NSE which went upto to Rs. 675 by 11:14:38 on the same day. Similarly in

the case of other scrips also prices moved substantially. Undoubtedly, such a

huge increase in the price happened because of the multiple orders placed by

the appellants mostly before the orders of the HDFC AMC. Given the facts

of the case-high volumes, multiple trading days, large number of trades,

very proximate trade timing coupled with the admitted fact of receiving tips

from the HDFC AMC Dealer which is also evidenced by the call records

available in the impugned order-we have no doubt in concluding that the

three appellants were 'front-running' the HDFC AMC orders. The

additional arguments advanced by the Counsel for appellants in Appeal No.

337 of 2014 and 338 of 2014 that they did not receive any tips from the

HDFC AMC employee has no merit since their own admission is that they

traded "looking at the trading by Rajiv Sanghvi" (appellant in Appeal No.

327 of 2014). Since it is an admitted fact that Sanghvi traded based on tips

trading looking at such trades is also based on such tips only. Given the

magnitude of this trade it led to substantial increase in the prices of the

scrips thereby affecting the securities market both in terms of its volatility

and integrity. The argument that once the HDFC AMC order is placed on

the trading system it becomes public information is a fallacious argument

since on-line trading system is anonymous. Accordingly, Appeal Nos. 327,

337 and 338 of 2014 has no merit.

12. The argument that there was no confidentiality obligation on the part

of HDFC AMC employee (tippee) (appellant in Appeal No. 329 of 2014) is 18

completely devoid of truth as it is clearly stated in the SCN issued to

appellant in Appeal No. 329 of 2014, dated February 11, 2011. Para 17 of

the SCN reads "the noticee has violated the provisions of section 12A of

SEBI Act read with Regulations 3 and 4(1) of SEBI (PFUTP) Regulations,

2003 further read with Circular no MFD/CirNo. 4/216/2001 dated May 08,

2001 and Regulations 25(16) read with para 8 & 9 of fifth schedule (Code of

Conduct) of SEBI (Mutual Funds) Regulations 1996. The said Circular

states that "no employee shall pass on information to anybody inducing him

to buy/sell securities which are being bought / sold by the mutual fund of

which the AMC is the investment manager". Further, the same Circular at

para 2.2.4.6 states that "Any transaction of front running by any employee

directly or indirectly is strictly prohibited. For this purpose, 'front running'

means any transaction of purchase/sale of a security carried by any

employee whether for self or for any other person, knowing fully well that

the AMC also intends to purchase/sell the same security for its mutual fund

operations. For the purpose of ascertaining that the employee had no prior

knowledge of the Mutual Fund's intended transactions, the Compliance

Officer may take a declaration in this regard from the employee. Such

declaration may be included in the application form itself." The very fact

that as laid down in these guidelines, the employee had to give an

undertaking to that effect and the fact that the employee was removed from

the job of HDFC AMC subsequent to the SEBI interim order clearly

establish that the appellant in Appeal No. 329 of 2014 was aware of the

confidential nature of his task while working as a Dealer of HDFC AMC.

As such Appeal No. 329 of 2014 also fails.

13. In the light of the above, we hold that the conditions laid down by the

order dated September 20, 2017 of the Hon'ble Supreme Court in the matter 19

of Dipak Patel etc. (supra) is fully applicable in all four appeals before us.

Therefore, we do not find any reason to interfere with the impugned order of

the WTM of SEBI dated July 24, 2014.

14. Accordingly, all four appeals are dismissed with no order as to costs.

Sd/-

Justice J.P. Devadhar Presiding Officer

Sd/-

Dr. C.K.G. Nair Member

21.12.2017 Prepared and compared by: msb