Order in the matter of ADF Foods Limited

WTM/GM/IVD/93/2018–19 SECURITIES AND EXCHANGE BOARD OF INDIA IMPOUNDING ORDER UNDER SECTION 19 READ WITH SECTIONS 11(1), 11(4)(d) AND SECTION 11B OF THE SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH REGULATION 10 OF THE INSIDER TRADING REGULATIONS, 2015 – IN THE MATTER OF ADF FOODS LIMITED. ENTITY PAN 1. PALLAVI NAVINCHANDRA MEHTA AAHPM5896P 2. SHEFALI BHUPENDRA MEHTA ACAPM7034N 3. BHAVESH R. THAKKAR AABPT2787J 4. NAVIN MANSUKHLAL MEHTA AAVPM5354Q 5. ABHISHEK MEHTA CLJPM2392B 6. PRIYANKA THAKKAR AAVPM5355R

BACKGROUND –

1. Securities and Exchange Board of India (“SEBI”) had conducted an investigation in the scrip of ADF Foods Limited (“ADF Foods”) to ascertain whether or not suspected entities had traded in the aforesaid scrip during the period from May 21–July 27, 2016 (“Investigation Period”) on the basis of unpublished price sensitive information (“UPSI”), in contravention of the provisions of the SEBI Act, 1992 (“SEBI Act”) read with the SEBI (Prohibition of Insider Trading) Regulations, 2015 (“Insider Trading Regulations, 2015”).

2. ADF Foods was incorporated under the Companies Act, 1956 on August 27, 1990. The Registered Office of the Company is at 83/86 GIDC Industrial Area, Nadiad, Gujarat– 387001, India. The shares of ADF Foods are listed on BSE Limited (“BSE”) and the National Stock Exchange of India Limited (“NSE”).

Order in the matter of ADF Foods Limited

3. The Promoters of ADF Foods during the Investigation Period were as under –

TABLE I [SOURCE: BSE WEBSITE] NAME BIMAL RAMESH THAKKAR MAHALAXMI RAMESH THAKKAR BHAVESH RAMESH THAKKAR (“BHAVESH THAKKAR”) BIMAL THAKKAR HUF PARUL BIMAL THAKKAR PRIYANKA BHAVESH THAKKAR H J THAKKAR PROPERTY INVESTMENT LIMITED MISHAL ASHOK THAKKAR ASHOK H. THAKKAR BHAVESH RAMESH THAKKAR HUF 4. The Board of Directors of ADF Foods during the Investigation Period was as under – TABLE II [SOURCE: BSE WEBSITE/ ANNUAL REPORT FOR ADF FOODS FOR F. Y. 2016–17] NAME DESIGNATION ASHOK H. THAKKAR CHAIRMAN BIMAL R. THAKKAR MANAGING DIRECTOR, CEO BHAVESH THAKKAR EXECUTIVE DIRECTOR, CFO NIPUN C. SHAH DIRECTOR YASIR J. VARAWALA DIRECTOR JAY M. MEHTA DIRECTOR VIREN A. MERCHANT DIRECTOR RAVINDER K. JAIN DIRECTOR ANJALI K. SETH DIRECTOR 5. The shareholding pattern of ADF Foods for various Quarters prior to, during and subsequent to the Investigation Period is provided below –

TABLE III [SOURCE: BSE WEBSITE] QUARTERLY % SHAREHOLDINGS FOR QUARTER ENDINGS SHAREHOLDINGS→ Q U A R T ER ENDING QUARTER ENDING QUARTER ENDING QUARTER ENDING / CATEGORIES ↓ MARCH 2016 JUNE 2016 SEPTEMBER 2016 DECEMBER 2016 NO. OF % NO. OF % NO. OF % NO. OF % SHARES SHARES SHARES SHARES SHAREHOLDING OF PROMOTER AND 1,15,16,650 52.35 1,15,16,650 52.35 1,15,16,650 54.04 1,15,16,650 54.32 PROMOTER GROUP NON – PROMOTER 1,04,83,350 47.65 1,04,83,350 47.65 97,96,279 45.96 96,84,811 45.68 SHAREHOLDING TOTAL 2,20,00,000 100.00 2,20,00,000 100.00 2,13,12,929 100.00 2,12,01,461 100.00 THE PROMOTER SHAREHOLDING INCREASED FROM 52.35% DURING THE Q. E. JUNE 2016 TO 54.04% DURING THE Q. E. SEPTEMBER 2016 AND TO 54.32% DURING Q. E. DECEMBER 2016. THE CHANGE IN PROMOTER SHAREHOLDING IS BECAUSE OF THE BUYBACK OF EQUITY SHARES. THE TOTAL PROMOTER SHAREHOLDING IN TERMS OF NO. OF SHARES REMAINED THE SAME DURING THE INVESTIGATION PERIOD.

6. The consolidated Quarterly Financial Results of ADF Foods prior to, during and subsequent to the Investigation Period is provided below –

TABLE IV [AMOUNT IN ₹ CRORES] [SOURCE: BSE WEBSITE] DESCRIPTION QUARTER ENDING QUARTER ENDING QUARTER ENDING QUARTER ENDING MARCH 2016 JUNE 2016 SEPTEMBER 2016 DECEMBER 2016 [AUDITED] [UNAUDITED] [UNAUDITED] [UNAUDITED] NET SALES 56.15 47.98 50.34 50.38 OTHER OPERATING 2.58 2.06 1.83 1.56 INCOME NET SALES/INCOME FROM OPERATIONS 53.56 45.92 48.50 48.81 [NET OF EXCISE DUTY] NET PROFIT 1.79 2.63 1.98 3.39

7. On July 27, 2016, ADF Foods informed BSE and NSE that the Board of Directors in its meeting held on that date had approved a buyback of equity shares at a price not exceeding ₹125 per equity share of ₹10 each for an aggregate amount not exceeding ₹18 Crores. The chronology of events relating to the announcement of the aforementioned buyback is as under –

TABLE V DATE PARTICULARS/EVENT 1. 21.05.2016 DISCUSSION OF IDEA TO UNDERTAKE BUYBACK OR PAYMENT OF DIVIDEND WAS FIRST TABLED AT A MEETING. 2. 22.05.2016 MOTILAL OSWAL INVESTMENTS ADVISOR PRIVATE LIMITED (“MOTILAL OSWAL”) GAVE A PRESENTATION ON THE BUYBACK OF SHARES, HIGHLIGHTING THE PROS AND CONS OF BUYBACK OF SHARES, AS A MERCHANT BANKER. 3. 23.05.2016 THE COMPANY SECRETARY OF ADF FOODS WAS ADVISED THROUGH AN E–MAIL TO INITIATE PREPARATIONS FOR THE PROPOSAL TO UNDERTAKE BUYBACK OF SHARES. THE STOCK EXCHANGES WERE INTIMATED THAT THE BOARD OF DIRECTORS OF ADF FOODS WILL CONSIDER PROPOSALS FOR ANNOUNCEMENT OF DIVIDEND OR BUYBACK OF SHARES, OR A COMBINATION THEREOF, IN A BOARD MEETING TO BE HELD ON 27.05.2016. THE AGENDA PAPERS PERTAINING TO THE PROPOSALS FOR ANNOUNCEMENT OF DIVIDEND OR BUYBACK OF SHARES, OR A COMBINATION THEREOF, TO BE DISCUSSED AT THE BOARD MEETING TO BE HELD ON 27.05.2016 WERE SENT TO THE DIRECTORS. 4. 27.05.2016 THE BOARD OF DIRECTORS OF ADF FOODS DEFERRED THE DECISION ON PROPOSALS FOR ANNOUNCEMENT OF DIVIDEND OR BUYBACK OF SHARES TILL THE NEXT BOARD MEETING. 5. 14.07.2016 IN PREPARATION FOR THE MEETING OF THE BOARD OF DIRECTORS OF ADF FOODS ON 27.07.2016, MOTILAL OSWAL WAS APPROACHED IN ORDER TO RECONSIDER THE PROPOSED BUYBACK OF SHARES. 6. 15.07.2016 MOTILAL OSWAL GAVE FINANCIAL DETAILS OF BUYBACK INCLUDING THE PRICING OF THE ISSUE TO THE COMPANY SECRETARY. 7. 19.07.2016 THE AGENDA PAPERS PERTAINING TO THE PROPOSALS FOR ANNOUNCEMENT OF DIVIDEND OR BUYBACK OF SHARES, OR A COMBINATION THEREOF, TO BE DISCUSSED AT THE BOARD MEETING TO BE HELD ON 27.07.2016 WERE SENT TO THE DIRECTORS. 8. 21.07.2016 THE STOCK EXCHANGES WERE INTIMATED THAT THE BOARD OF DIRECTORS OF ADF FOODS WILL CONSIDER PROPOSALS FOR ANNOUNCEMENT OF DIVIDEND OR BUYBACK OF SHARES, OR A COMBINATION THEREOF, IN A BOARD MEETING TO BE HELD ON 27.07.2016. 9. 27.07.2016 THE BOARD OF DIRECTORS OF ADF FOODS APPROVED THE BUYBACK OF SHARES.

8. Vide a letter dated March 17, 2018, ADF Foods, in response to a query regarding the mooting of the idea to undertake buyback, informed SEBI that “…the idea to undertake the buyback of equity shares was first discussed on May 21, 2016 amongst Girish Nadkarni (representative of Motilal Oswal), Bhavesh R. Thakkar (Executive Director of the Company) and Mishal A. Thakkar (Senior Manager of the Company). Thereafter, it was decided to refer the proposal of buyback or dividend or both to the Board of Directors for their approval. Further, the option of dividend declaration was in line with the company’s previous practice of dividend payment every year over 12 consecutive years. Accordingly, the relevant papers with the agenda to consider buyback or dividend or both were circulated to the Board members on May 23, 2016 for the purpose of consideration in the Board Meeting scheduled on May 27, 2016. Simultaneously, the intimation of the same was given to both the stock exchanges where the company’s shares are listed i.e. BSE and NSE vide letter dated May 23, 2016.”

9. Further, vide a letter dated September 28, 2018, ADF Foods informed SEBI that there were no event(s)/development(s) related to the buyback of equity shares prior to May 21, 2016 and also during the period from May 27–July 14, 2016. Similarly, vide a letter dated September 28, 2018, Motilal Oswal informed SEBI that there were no event(s)/development(s) related to the buyback of equity shares prior to May 21, 2016 and also during the period from May 27–July 14, 2016.

10. As per the provisions of the Insider Trading Regulations, 2015, – i. Regulation 2(1)(d)(i) defines ‘Connected person’ as ‘Any person who is or has during the last six months prior to the concerned act been associated with a company, directly or indirectly, in any capacity including by reason of frequent communication with its officers or by being in any contractual, fiduciary or employment relationship or by being a director, officer or an employee of the company or holds any position including a professional or business relationship between himself and the company whether temporary or permanent that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access.’

Regulation 2(1)(d)(ii) – Without prejudice to the generality of the foregoing, the persons falling with the following categories shall be deemed to be connected persons unless the contrary is established – (a) an immediate relative of connected persons specified in clause (i);

ii. Regulation 2(1)(f) defines ‘Immediate relative’ to mean ‘a spouse of a person, and includes parent, sibling, and child of such person or of the spouse, any of whom is either dependent financially on such person, or consults such person in taking decision relating to trading in securities.’ Note: It is intended that the immediate relatives of a ‘Connected person’ too become connected persons for the purposes of these Regulations.

iii. Regulation 2(1)(g) defines an ‘Insider’ to mean any person who is a connected person or in possession of or having access to UPSI. The Note to the aforementioned Regulation 2(1)(g) states that “Since ‘generally available information’ is defined, it is intended that anyone in possession of or having access to UPSI should be considered as ‘insider’ regardless of how one came in possession of or had access to such information.”

iv. Regulation 2(1)(l) defines ‘trading’ to mean and include ‘subscribing, buying, selling, dealing, or agreeing to subscribe, buy, sell, deal in any securities, and ‘trade’ shall be construed accordingly. Note: Under the parliamentary mandate, since the Section 12A (e) and Section 15G of the Act employs the term ‘dealing in securities’, it is intended to widely define the term ‘trading’ to include dealing. Such a construction is intended to curb the activities based on unpublished price sensitive information which are strictly not buying, selling or subscribing, such as pledging, etc. when in possession of UPSI.

v. Regulation 2(1)(n)(iii) defines ‘UPSI’ as ‘any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities and shall, ordinarily including but not restricted to, information relating to … change in capital structure’.

vi. Regulation 3(1) states: ‘No insider shall communicate, provide, or allow access to any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.’

vii. Regulation 4(1) states: ‘No insider shall trade in securities that are listed or proposed to be listed on a stock exchange when in possession of unpublished price sensitive information …’ Regulation 4(2) states: ‘In the case of connected persons the onus of establishing, that they were not in possession of unpublished price sensitive information, shall be on such connected persons and in other cases, the onus would be on the Board.’

11. SEBI had sought information from ADF Foods and Motilal Oswal (Merchant Banker for the buyback of ADF Foods) regarding details of persons including Promoters/Directors/Employees and/or any other persons who were having access to and/or in possession of the information pertaining to the buyback of equity shares. On the basis of information received from the aforementioned entities and having regard to the provisions of the Insider Trading Regulations, 2015, it is observed that the Executive

Director of ADF Foods i.e. Bhavesh Thakkar, qualified as an ‘Insider’ under Regulation 2(1)(g) of the Insider Trading Regulations, 2015.

12. In the instant proceedings, it is noted that the suspected entities viz. Pallavi Navinchandra Mehta (“Pallavi Mehta”) (mother–in–law of Bhavesh Thakkar) and Shefali Bhupendra Mehta (“Shefali Mehta”) (paternal cousin of Priyanka Thakkar, who was the Promoters of ADF Foods during the Investigation period and also the wife of Bhavesh Thakkar) had traded in the scrip of ADF Foods through Lalkar Securities, a Stock Broker. In this context, SEBI had sought trading details of the suspected entities which inter alia included order placement details, etc. Vide various replies/letters, Lalkar Securities informed SEBI that orders used to be received on behalf of the suspected entities from Navin Mehta, Abhishek Mehta and Bhavesh Thakkar from mobile phone numbers +91–9820710000, +91–9820417842 and +91–9323524675. Further, from the authorization letters related to the trading account of Pallavi Mehta and Shefali Mehta (as received by SEBI from Lalkar Securities vide letter dated January 5, 2018), it is observed that while Navin Mehta and Bhavesh Thakkar were authorized to place orders on behalf of Pallavi Mehta, Abhishek Mehta and Navin Mehta were authorized to place orders on behalf of Shefali Mehta. In addition, the bank account of Priyanka Thakkar was also used for transferring funds to Pallavi Mehta and Shefali Mehta for their trades in the scrip of ADF Foods.

13. The bank account statements of Bhavesh Thakkar, Priyanka Thakkar, Pallavi Mehta, Shefali Mehta, etc. were analysed and the fund trail for trading in the scrip of ADF Foods was traced to the account of Bhavesh Thakkar. A diagrammatic representation of certain such transactions are reproduced below – i. Fund transfer amongst the entities on May 31, 2016 and June 1, 2016.

ii. Fund transfer amongst the entities on June 14, 2016 and June 16, 2016.

iii. Fund transfer amongst the entities on June 14, 2016 and June 28, 2016.

14. Similarly, some instances of fund transfer from Shefali Mehta to Bhavesh Thakkar are reproduced below – i. Fund transfer amongst the entities on August 1, 2016 and August 2, 2016.

ii. Fund transfer amongst the entities on September 14, 2016 and September 15, 2016.

From the above, it is prima facie observed that the funds for trading in the scrip of ADF Foods were provided to Pallavi Mehta and Shefali Mehta by Bhavesh Thakkar.

15. Relationship of the Insider i.e. Bhavesh Thakkar, with entities suspected of insider trading – i. Priyanka Bhavesh Thakkar (“Priyanka Thakkar”), the wife of Bhavesh Thakkar is also a Promoter along with her husband. Pallavi Mehta is the mother of Priyanka Thakkar and therefore, is an immediate relative of a connected person and thus, falls in the category of deemed to be a connected person in terms of Regulation 2(1)(d)(ii) and Regulation 2(1)(f) of the Insider Trading Regulations, 2015 and hence, an Insider herself in terms of Regulation 2(1)(g) of the aforesaid Regulations.

ii. Similarly, Navin Mansukhlal Mehta (“Navin Mehta”) who is the father of Priyanka Thakkar is also deemed to be a connected person in terms of Regulation 2(1)(d)(ii) and Regulation 2(1)(f) of the Insider Trading Regulations, 2015 and hence, an ‘Insider’ himself in terms of Regulation 2(1)(g) of the aforesaid Regulations.

iii. As brought out at paragraphs 13 and 14, Bhavesh Thakkar had made fund transfers to Shefali Mehta for trading in the scrip of ADF Foods. In addition, besides her son i.e. Abhishek Mehta, Shefali Mehta had authorized Navin Mehta to trade on her behalf from her trading account. Bhavesh Thakkar who was in possession of the UPSI had transferred funds to Shefali Mehta whose trading account was handled by Priyanka Thakkar’s father. The nature of relationship that existed between Shefali and Priyanka Thakkar/Bhavesh Thakkar would prima facie appear to allow her to have access directly/indirectly to such UPSI. In light of the aforementioned, Shefali Mehta is a connected person as per Regulation 2 (1)(d)(i) of the Insider Trading Regulations, 2015 i.e. Any person who is or has during the last six months prior to the concerned act been associated with a company, directly or indirectly, in any capacity including by reason of frequent communication with its officers … that allows such person, directly or indirectly, access to unpublished price sensitive information or is reasonably expected to allow such access. Hence, Shefali Mehta is an Insider in terms of Regulation 2(1)(g) of the Insider Trading Regulations, 2015.

iv. Abhishek Mehta is the son of Shefali Mehta and he was (along with Navin Mehta) authorized to trade on her behalf from her trading account. Hence, he is a connected person as per Regulation 2 (1)(d)(i) of the Insider Trading Regulations, 2015. Hence, Abhishek Mehta is an Insider in terms of Regulation 2(1)(g) of the aforesaid Regulations.

v. The diagrammatic representation of the aforementioned relationship is provided below – vi. As Insiders, the aforementioned entities had possession of or access to UPSI concerning the buyback of equity shares of ADF Foods.

16. As per the Agenda papers of the Board Meeting of ADF Foods (held on May 27, 2016), the proposed range of buyback was ₹10–₹15 Crores, which was only known to the ‘Insider(s)’ and was not generally available. Therefore, the proposed range of buyback was considered as UPSI in terms of Regulation 2(1)(n)(iii) of the Insider Trading Regulations, 2015.

FINDINGS –

Accordingly, in view of the facts brought out in the preceding paragraphs, the issues for consideration are as under –

A. Alleged violation of Insider Trading Regulations, 2015 –

I. Whether Pallavi Mehta and Shefali Mehta, being ‘insiders’ have traded in the shares of the Company, when in possession of UPSI in violation of Section 12A(d) and (e) of the SEBI Act and have allegedly committed the offence of “Insider Trading” in terms of Regulation 4(1) of the Insider Trading Regulations, 2015? II. Whether Bhavesh R. Thakkar communicated the UPSI to Ms. Pallavi Mehta, Ms. Shefali Mehta, Shri Navin Mehta, Ms. Priyanka Thakkar and Shri Abhishek Mehta in violation of Section 12A(d) and (e) of the SEBI Act and Regulation 3(1) and Regulation 4(1) of the Insider Trading Regulations, 2015?

Issue I – Whether Pallavi Mehta and Shefali Mehta, being ‘insiders’ have traded in the shares of the Company, when in possession of UPSI in violation of Section 12A(d) and (e) of the SEBI Act and have allegedly committed the offence of “Insider Trading” in terms of Regulation 4(1) of the Insider Trading Regulations, 2015?

17. During the UPSI period (May 21–July 27, 2016) [“Pre–announcement (of Buy Back) period”] (when the price sensitive information remain undisclosed), Pallavi Mehta bought 1,54,857 shares of ADF Foods while Shefali Mehta bought 3,07,368 shares and sold 2515 shares of the aforesaid Company. Having regard to the aforementioned facts, I find that Pallavi Mehta and Shefali Mehta being ‘insiders’, have traded in the shares of ADF Foods when in possession of UPSI in violation of Section 12A(d) and (e) of the SEBI Act and therefore, have prima facie committed the offence of ‘Insider Trading’ in terms of Regulation 4(1) of the Insider Trading Regulations, 2015, which prohibits trading in securities by an ‘Insider’ when in possession of UPSI.

18. As the alleged gains were made during May 21–July 27, 2016, it becomes reasonable and necessary to levy an interest at the rate of 12% simple interest per annum. The gains along with the interest are calculated as follows –

PARTICULARS PALLAVI MEHTA SHEFALI MEHTA (AMOUNT IN ₹) (AMOUNT IN ₹) NO. OF SHARES BOUGHT WHILE IN POSSESSION OF UPSI 154857 307368 X CLOSING PRICE ON THE DAY OF UPSI BECOMING PUBLIC 112.70 112.70 SUBTOTAL (I) 1,74,52,383.90 3,46,40,373.60 (-) LESS NO. OF SHARES BOUGHT WHILE IN POSSESSION OF UPSI 154857 307368 X WEIGHTED AVERAGE PURCHASE PRICE 88.25 99.89 SUBTOTAL (II) 1,36,66,130.25 3,07,02,989.52 UNLAWFUL GAINS MADE (APPROX.) [(I)-(II)] 37,86,253.65 39,37,384.08

Note: Method adopted to compute unlawful gains under various scenarios is: Unlawful gains made(in case of positive news) = No. of shares bought while in possession of UPSI X Closing price on the day of UPSI becoming public – No. of shares bought while in possession of UPSI X weighted average purchase price. The lower of closing prices of the shares of ADF Foods on the day of unpublished price sensitive information becoming public i.e. July 27, 2016, on BSE and NSE have been considered as closing price for computation of unlawful gains.

19. The summary of gains made by Pallavi Mehta and Shefali Mehta in aggregate including interest through trading in the scrip of ADF Foods amounted to ₹1,02,63,169.81 as under–

TABLE V ENTITY NAME GAIN INTEREST 12% PER TOTAL (AMOUNT IN ₹) ANNUM* (AMOUNT IN ₹) PALLAVI MEHTA 37,86,253.65 12,44,920.20 50,31,173.85 SHEFALI MEHTA 39,37,384.08 12,94,611.88 52,31,995.96 TOTAL 77,23,637.73 25,39,532.08 1,02,63,169.81 *INTEREST CALCULATED ON UNLAWFUL GAINS FROM (FROM MAY 21, 2016 TO FEBRUARY 15, 2019) ALLEGED UNLAWFUL GAINS MADE DURING MAY – JULY 2016 I.E. DURING THE INVESTIGATION PERIOD

Issue II – Whether Bhavesh R. Thakkar communicated the UPSI to Ms. Pallavi Mehta, Ms. Shefali Mehta, Shri Navin Mehta, Ms. Priyanka Thakkar and Shri Abhishek Mehta in violation of Section 12A(d) and (e) of the SEBI Act and Regulation 3(1) and Regulation 4(1) of the Insider Trading Regulations, 2015?

20. As stated earlier, Pallavi Mehta and Shefali Mehta had traded in the scrip of ADF Foods through Lalkar Securities. Lalkar Securities had informed SEBI that orders used to be received on behalf of the aforementioned entities from Navin Mehta, Abhishek Mehta and Bhavesh Thakkar from mobile phone numbers +91–9820710000, +91–9820417842 and +91–9323524675. Further, from the authorization letters related to the trading account of Pallavi Mehta and Shefali Mehta (as received by SEBI from Lalkar Securities), it is observed that while Navin Mehta and Bhavesh Thakkar were authorized to place orders on behalf of Pallavi Mehta, Abhishek Mehta and Navin Mehta were authorized to place orders on behalf of Shefali Mehta. In addition, the bank account of Priyanka Thakkar was also used for transferring funds to Pallavi Mehta and Shefali Mehta for their trades in the scrip of ADF Foods. As stated in the preceding paragraphs, the entities who qualify as ‘Insiders’ in accordance with Regulations 2(1)(d)(i) and (ii); 2(1)(f) and 2(1)(g) are all family members of Bhavesh Thakkar (Executive Director of ADF, who was in possession of the UPSI). The aforementioned facts would indicate that Bhavesh Thakkar and the Insiders’ were communicating frequently and would therefore, lead me to believe that the UPSI was communicated to such ‘Insiders’ by Bhavesh Thakkar. Accordingly, I prima facie find that Bhavesh Thakkar communicated the UPSI to Pallavi Mehta, Shefali Mehta, Priyanka Thakkar, Navin Mehta and Abhishek Mehta in violation of Section 12A(e) of the SEBI Act and Regulation 3(1) of the Insider Trading Regulations, 2015, which prohibits communication of UPSI by an ‘Insider’ to other ‘Insiders’ except where such communication is in furtherance of legitimate purposes, performance of duties or discharge of legal obligations.

21. As per the Note to Regulation 2(1)(l) of the Insider Trading Regulations, 2015, – “Under the parliamentary mandate, since Section 12A(e) and Section 15G of the (SEBI) Act employs the term ‘dealing in securities’, it is intended to widely define the term “trading” to include dealing. Such a construction is intended to curb the activities based on UPSI which are strictly not buying, selling or subscribing, such as pledging etc. when in possession of UPSI.” Having regard to the aforementioned, Priyanka Thakkar, wife of Bhavesh Thakkar and also a Promoter of ADF Foods, was involved in the fund transfer from her husband to the suspected entities and vice–versa. The aforementioned activities of Priyanka Thakkar, who is an ‘Insider’, is in violation of Section 12A(d) of the SEBI Act and therefore, she has prima facie committed the offence of ‘Insider Trading’ in terms of Regulation 4(1) read with Regulation 2(1)(l) of the Insider Trading Regulations, 2015.

22. Further, considering the information provided by Lalkar Securities, I prima facie find that Navin Mehta, Bhavesh Thakkar and Abhishek Mehta, being ‘Insiders’ have traded in the shares of ADF Foods through the trading accounts of Pallavi Mehta and Shefali Mehta when the price sensitive information remained undisclosed in violation of Section 12A(d) and (e) of the SEBI Act and therefore, have prima facie committed the offence of ‘Insider Trading’ in terms of Regulation 4(1) of the Insider Trading Regulations, 2015.

23. With the initiation of quasi–judicial proceedings, it is possible that the Noticees may divert the unlawful gains (subject to the adjudication of the allegation on the merits in the final order), which may result in defeating the effective implementation of the direction of disgorgement, if any, to be passed after adjudication on merits. Non–interference by the Regulator at this stage would therefore result in irreparable injury to interests of the securities market and the investors. It therefore becomes necessary for SEBI to take urgent steps of impounding and retaining the proceeds (unlawful gains) allegedly made by Pallavi Mehta and Shefali Mehta, by way of an interim measure. Considering the facts and circumstances of the case, the balance of convenience lies in favour of SEBI.

24. Accordingly, as an interim measure, an Ad–Interim Ex–Parte Order for impounding such alleged profits under Section 11(1) read with 11(4)(d) and Section 11B of the SEBI Act read with Regulation 10 of the Insider Trading Regulations, 2015 needs to be issued against Pallavi Mehta, Shefali Mehta, Navin Mehta, Abhishek Mehta, Priyanka Thakkar and Bhavesh Thakkar

ORDER –

25. In view of the foregoing, I, in exercise of the powers conferred upon me in terms of Section 19 read with Sections 11(1), 11(4)(d) and Section 11B of the SEBI Act read with Regulation 10 of the Insider Trading Regulations, 2015, hereby impound the alleged unlawful gains of a sum of ₹1,02,63,169.81 (alleged gains of ₹77,23,637.73 + interest of ₹25,39,532.08 (from May 21, 2016 to February 15, 2019), jointly and severally from the following persons/entities –

ENTITY 1. PALLAVI NAVINCHANDRA MEHTA 2. SHEFALI BHUPENDRA MEHTA 3. BHAVESH R. THAKKAR 4. NAVIN MANSUKHLAL MEHTA 5. ABHISHEK MEHTA 6. PRIYANKA THAKKAR

26. The Banks are directed that no debits shall be made, without permission of SEBI, in respect of the bank accounts held by all the persons/entities tabulated in paragraph 25 above. Further, the Depositories are also directed that no debit shall be made, without permission of SEBI, in respect of the demat accounts held by the above said persons. However, credits, if any, into the accounts maybe allowed. The Banks and the Depositories are directed to ensure that all the above directions are strictly enforced. Further, debits may also be allowed for amounts available in the account in excess of the amount to be impounded. Banks are allowed to debit the accounts for the purpose of complying with this Order.

27. The persons/ entities tabulated in paragraph 25 above are also directed not to dispose of or alienate any of their assets/properties/securities, till such time the amounts mentioned in paragraph 25 are credited to an Escrow Account [“Escrow Account in Compliance with SEBI Order dated February 22, 2019 – A/c (in the name of the respective persons/entities)”] created specifically for the purpose in a Nationalized Bank. The Escrow Account/s shall create a lien in favour of SEBI and the monies kept therein shall not be released without permission from SEBI. On production of proof by any of the persons mentioned in paragraph 25 that the said money is deposited in the Escrow Account, SEBI shall communicate to the Banks and Depositories to defreeze the accounts.

28. Further, the persons/entities tabulated in paragraph 25 above are directed to provide, within 7 days of this Order, a full inventory of all their assets and properties and details of all their bank accounts, demat accounts and holdings of shares/securities, if held in physical form and details of companies in which they hold substantial or controlling interest.

29. The persons/ entities against whom this Order has been passed may file their replies to SEBI within 21 days from the date of receipt of this order, if they so desire. They may also indicate in their replies whether they wish to avail an opportunity of personal hearing in the matter.

30. This Order is without prejudice to any other action that SEBI may initiate under securities laws, as deemed appropriate.

31. This Order shall come into force with immediate effect.

32. A copy of this Order shall be forwarded to the Stock Exchanges, Depositories and Registrar and Share Transfer Agents of all Mutual Funds for their information and necessary compliance.

Place: Mumbai G. MAHALINGAM Date: February 22, 2019 WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA