Order in the matter of KLG Capital Services Limited

WTM/PS/24/ISD/JULY/2014 BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI CORAM: PRASHANT SARAN, WHOLE TIME MEMBER ORDER Under Sections 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992, read with Regulation 11 of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 IN THE MATTER OF KLG CAPITAL SERVICES LIMITED In respect of Mr. Hemant R. Patel, Mr. Praveen Mohnot, Mr. N. Ravichandran, Ms. Priyanka Singhvi and Ms. Anita Ravichandran Date of Hearing: August 13, 2013 Appearances: For the Noticees: Mr. Dinesh Purandare, Counsel Mr. Manik Joshi, Advocate Mr. Amrita Nandgaonkar, Advocate Mr. Hemant Patel Mr. Praveen Mohnot Mr. N. Ravichandran For SEBI: Mr. Debashis Bandyopadhyay, Deputy General Manager Ms. Anitha Anoop, Deputy Legal Adviser Ms. Manaswini Mahapatra, Assistant General Manager Mr. Pradeep Kumar, Assistant Legal Adviser Ms. Kritika Rastogi, Officer Grade A (Legal) 1. Securities and Exchange Board of India (hereinafter referred to as ‘SEBI’) had passed an Order dated September 22, 2009, under Section 11, 11B and 11(4) of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as 'SEBI Act') in respect of Mr. Hemant R. Patel, Mr. Praveen Mohnot, Mr. N. Ravichandran, Ms. Priyanka Singhvi and Ms. Anita Ravichandran (hereinafter all collectively referred to as the ‘noticees’) in the matter of KLG Capital Services Limited (hereinafter referred to as 'KLG'). Vide this order the noticees namely Mr. Hemant R. Patel, Hemant Patel (HUF) and Mr. Praveen Mohnot were restrained from buying, selling or dealing in the securities market in any manner whatsoever or accessing the securities market, directly or indirectly and from holding position of director in the board of directors in any listed company for a period of five years.

The noticee Mr. N. Ravichandran was restrained from buying, selling or dealing in the securities market in any manner whatsoever or accessing the securities market, directly or indirectly and from holding the position of director in the board of directors in any listed company for a period of two years.

The noticees namely Ms. Priyanka Singhvi and Ms. Anita Ravichandran were restrained from buying, selling or dealing in the securities market in any manner whatsoever or accessing the securities market, directly or indirectly for a period of five years.

In addition to the above, the noticees namely Mr. Hemant R. Patel, Ms. Priyanka Singhvi and Ms. Anita Ravichandran were also directed to disgorge the unjust enrichment of ₹47,69,131, ₹4,36,79,348 and ₹61,16,320 respectively including interest at the rate of 12% within 45 days from the date of the order. The Order further stated that if the said amount is not paid within the specified time, the said noticees shall be restrained for a further period of seven years from buying, selling or dealing in the securities market in any manner whatsoever, or accessing the securities market, directly or indirectly, without prejudice to SEBI's right to enforce the disgorgement.

2. The noticees challenged the above order of SEBI dated September 22, 2009, before the Hon'ble Securities Appellate Tribunal (hereinafter referred to as 'SAT'). The appeals were disposed off vide a common order dated October 21, 2010, wherein, the Hon'ble SAT remanded the matter back to SEBI, while making the following observations: "... ..., the cases be remanded to the whole time member for issuing a fresh/ supplementary show cause notice to the appellants laying therein a specific charge that they being connected/ deemed to be connected persons were "insiders" within the meaning of the Regulations in addition to the allegations already made and thereafter decide all the issues afresh in accordance with law after affording an opportunity of hearing to the appellants. In this view of the matter, we set aside the impugned order, remand the cases to the whole time member with the aforesaid directions. It is made clear that all the contentions raised on both sides shall remain open. ..." 3. Therefore, in compliance with the order of Hon’ble SAT, the current proceedings were initiated by issuing fresh separate show cause notices (hereinafter referred to as 'SCNs') all dated December 27, 2012, to the noticees laying therein the charge that they being connected/ deemed to be connected person had access to the unpublished price sensitive information (hereinafter referred to as 'UPSI') about the impending acquisition of KLG and were 'insiders'. The noticees replied to the SCNs vide their respective letters. Pursuant to this, an opportunity of personal hearing was afforded to the noticees on August 13, 2013. On the date fixed Mr. Hemant Patel, Mr. Praveen Mohnot and Mr. N. Ravichandran appeared along with Mr. Dinesh Purandare, Counsel; Mr. Manik Joshi, Advocate and Ms. Amrita Nandgaonkar, Advocate for the personal hearing and made oral submissions on behalf of all the noticees. Further, they sought two weeks' time to file the written submissions, which was duly granted to them. The noticees have submitted the written submissions on October 01, 2013. Having duly complied with the principles of natural justice, I proceed with the matter taking into consideration the material available on record.

4. Before proceeding further, it will be appropriate to recapitulate the facts of the case.

SEBI upon receipt of alerts in its IMSS system in the scrip of KLG had conducted an analysis of the trading activity in the scrip. From the same, it was revealed that during February 22, 2008 to February 27, 2008, one Awaita Properties Pvt. Limited (hereinafter referred to as 'APPL') had acquired 17,11,287 equity shares of KLG through market transactions. Such acquisition had increased the shareholding of APPL in KLG to 60.46% and the same was disclosed by KLG to Bombay Stock Exchange Limited (hereinafter referred to as 'BSE') on February 28, 2008. Thereafter, APPL made a public announcement dated March 03, 2008 to acquire another 20% shares of KLG. The investigation also revealed that the clients namely Hemant Patel (HUF) (whose karta is Mr. Hemant R. Patel), Ms. Priyanka Singhvi and Ms. Anita Ravichandran had bought substantial number of equity shares of KLG, based on the UPSI, relating to the impending acquisition of KLG by APPL.

On completion of the investigation, SEBI issued SCNs dated December 02, 2008 against Mr. Hemant R. Patel. Separate SCNs all dated December 18, 2008 were also issued against Mr. Praveen Mohnot, Mr. N. Ravichandran and their relatives namely Ms. Priyanka Singhvi (daughter of Mr. Praveen Mohnot) and Ms. Anita Ravichandran (wife of Mr. N. Ravichandran). The noticees filed their replies to the SCNs. Upon hearing the noticees, SEBI vide order dated September 22, 2009, passed directions as detailed in the paragraph 1 above.

5. Pursuant to the order of Hon'ble SAT dated October 21, 2010, SEBI issued SCNs to the noticees all dated December 27, 2012, alleging threin as under: - the noticee namely Mr. Hemant R. Patel being an insider, had dealt in the shares of KLG on behalf of Hemant R. Patel (HUF) and made an unjust enrichment of ₹42.58 lakh. It was alleged that Hemant R. Patel communicated UPSI to Mr. Praveen Mohnot and Mr. N.

Ravichandran who subsequently communicated the information to Ms. Priyanka Singhvi and Ms. Anita Ravichandran respectively, who dealt in the scrip of KLG when in possession of the information. - the noticee namely Mr. Praveen Mohnot being an insider communicated the UPSI to his daughter Ms. Priyanka Singhvi, who has dealt in the scrip of KLG while in possession of such information and got unjustly enriched. - the noticee namely Ms. Priyanka Singhvi being an insider dealt in the scrip of KLG while in possession of such information and made an unjust enrichment of ₹73.84 lakh against part selling of 81,237 shares of KLG till June 08, 2012 and held 28,673 shares of KLG as on June 08, 2012. - the noticee namely Mr. N. Ravichandran being an insider communicated the UPSI to his wife Ms. Anita Ravichandran, who has dealt in the scrip of KLG while in possession of such information and got unjustly enriched. - the noticee namely Ms. Anita Ravichandran being an insider dealt in the scrip of KLG while in possession of such information and made an unjust enrichment of ₹54.61 lakh.

Such acts of the noticees were alleged to be in violation of Section 12A(d) and (e) of the SEBI Act, Regulation 3(i) and (ii) and Regulation 4 of the SEBI (Prohibition of Insider Trading) Regulations, 1992 (hereinafter referred to as 'PIT Regulations'). The SCNs therefore called upon the noticees to show cause as to why suitable directions under Sections 11, 11B and 11(4) of the SEBI Act, 1992 read with Regulations 11 of PIT Regulations should not be issued against them.

6. Hemant R. Patel, Praveen Mohnot, Ms. Priyanka Singhvi, N. Ravichandran and Ms. Anita Ravichandran have replied to the SCNs issued on December 27, 2012 vide their letters dated May 10, 2013, May 08, 2013, May 08, 2013, May 10, 2013 and May 10, 2013 respectively. The noticees vide their respective written submissions all dated October 01, 2013 made submissions which were more or less on similar lines. These are: - The issuance of the SCN dated December 27, 2012 is vague and barred by res judicata. Further, the SCN is contrary to the order of Hon'ble SAT and amounts to double jeopardy. The SCN dated December 27, 2012, alleges that the noticees have received the UPSI and had access to UPSI relating to the acquisition of KLG by APPL before the said information became public and hence they are 'insider'. Such allegation is barred by the principle of res judicata as the previous SCN was also based on the same allegation which according to SEBI is non est. - SEBI has issued the SCN dated December 27, 2012 after a lapse of 26 months from the date of Hon'ble SAT order and the same does not refer to the previous SCN and/or the SAT order.

During the course of personal hearing held on August 13, 2013, SEBI has clarified that the previous SCN was to be treated as non est and the present SCN be treated as a fresh show cause notice in accordance with the directions issued by the Hon'ble SAT order. - The SCN dated December 27, 2012 has failed to establish that the noticees occupy the position as an officer/ employee of KLG or holds a position involving a professional/ business relationship between themselves and KLG whether temporary or permanent, who may reasonably be expected to have access to UPSI in relation to KLG. The allegation of SEBI to bring the noticees under the definition of 'insider' of the PIT Regulations by alleging that the noticees belong to/ are connected to SKIL Infrastructure Limited (hereinafter referred to as 'SKIL')/ APPL and had the UPSI of KLG is vague and contrary to the intent of the legislature. - The SCN dated December 27, 2012 has failed to appreciate that the PIT Regulations would have applied only to persons who are connected with KLG (the target company) and could not apply to persons who are connected to APPL (the acquirer company).

Further, such a person has to have access to UPSI in relation to the very company (KLG) and with whom the person is in a position of employment/ professional/ business relationship and that he received such information in such capacity. Hence, the noticees are not a 'connected person' as defined under Regulation 2(c) of the PIT Regulations. - As per Regulation 2(k) of the PIT Regulations, the unpublished information has to emanate from the company in whose share transactions have taken place. - The noticee namely Praveen Mohnot also submitted that certain senior executives of group companies of SKIL had a general discussion where the fact that KLG was looking for prospective investors was discussed. However, on the dates when the shares were purchased by Ms. Priyanka Singhvi, she did not have any UPSI about the impending takeover of KLG by APPL.

7. I have carefully considered the SCN, the replies, the written submissions filed by the noticees and the material available on record. A summary of the trading of these noticees in the scrip of KLG during such time when APPL also traded in KLG has been discussed in the table below:

TABLE - A Hemant R. Patel Ms. Priyanka Singhvi Ms. Anita RavichandranAPPL Order quantity (date) 80,000 (22/02/2008) 80,000 (22/02/2008) 80,000 (22/02/2008) 1,80,000 (22/02/2008) 30,000 (27/02/2008) 1,50,000 (25/02/2008) 17,11,287 (27/02/2008) First Trade Time 15:07:14 15:02:57 (22/02/2008) 15:05:43 (22/02/2008) 15:22:44 (22/02/2008) (date) (22/02/2008) 10:21:10 (27/02/2008) 09:55:09(25/02/2008) 10:36:39 (27/02/2008) Buy Price (₹) (date) 32.70 (22/02/2008) 32.70 (22/02/2008) 32.70 (22/02/2008) 33.00 (22/02/2008)* Purchases 37.00 (27/02/2008) 34.30 (25/02/2008)* 37.00 (27/02/2008)* No. of shares bought4 9,444 (22/02/2008) 80,000 (22/02/2008) 80,000 (22/02/2008) 95,015 (22/02/2008) (date) 30,000 (27/02/2008) 1,29,773 (25/02/2008) 17,11,287 (27/02/2008) Purchase amount (₹) 16,16,819 37,25,950 26,16,000 7,09,83,153 No. of shares sold 49,444 81,327 80,000 Date of sale 06/06/08, 09/06/08, 11/6/08, 16/6/08, 17/6/08,2 9/05/2008, 30/05/2008 Sales 10/06/2008, 11/06/08, 19/6/08, 20/6/08 02/06/2008, 03/06/2008, 05/6/09, 08/6/09, 09/6/09,0 4/06/2008, 05/06/2008 10/6/09, 11/6/09 04/11/10, 08/11/10 Sale amount (₹) 5875001 1,01,38,847 80,77,127 Unjust enrichment (₹) 42,58,183 73,84,117 54,61,127 28,034 (unrealized)# Funds Cheque no. (date) 71190 (23/02/2008) 71191 (25/02/2008) 71189 (23/02/2008) provided by Cheque Amount (₹) 16,50,000 26,30,000 26,50,000 Starwort Fund Transfer 11,20,000 Engineers P. Ltd.(SEPL), associate of Horizon Infrastructure Ltd. (HIL) * First buy price of APPL # Calculation based on the closing price of the shares of KLG as on June 08, 2012 for the residual 28,673 shares

Having considered the above and the fact that there is no dispute regarding the trading by Hemant Patel (HUF), Ms. Priyanka Singhvi and Ms. Anita Ravichandran in the scrip of KLG, now I proceed with the preliminary arguments made by the noticees that the SCN dated December 27, 2012 is barred by res judicata and that the same amounts to double jeopardy. In this regard, I note that Hon'ble SAT vide its order dated October 21, 2010 had remanded the matter back to SEBI for issuing fresh/ supplementary SCNs to the noticees. Accordingly, SEBI has issued fresh separate SCNs dated December 27, 2012 to all the noticees, in compliance with the order of Hon'ble SAT. It was also clarified to the noticees during the personal hearing that the previous SCN has to be treated as non est. Therefore, the instant proceedings are separate and independent. Considering the same, the objections of noticees find no merits. Thus, having addressed the preliminary objection raised by the noticees, I now proceed to discuss the issue for my consideration: Whether the noticees fall within the ambit of 'insiders' and had dealt in the shares of KLG, when in possession of UPSI?

8. Whether the noticees fall within the ambit of 'insiders' and had dealt in the shares of KLG, when in possession of UPSI?

a. The noticees namely Mr. Hemant R. Patel, Mr. Praveen Mohnot (father of Ms. Priyanka Singhvi) and Mr. N. Ravichandran (husband of Ms. Anita Ravichandran) are the President - Business Development, Executive Director and Deputy Chairman respectively in SKIL, a group company of APPL i.e. the acquirer. More specifically, APPL (the acquirer), the companies namely SKIL, Horizon Infrastructure Limited (hereinafter referred to as 'HIL') and Starwort Engineers Pvt. Limited (hereinafter referred to as 'SEPL') belonged to one SKIL group and shared the common address at the time of impending acquisition of KLG.

I note that the email addresses of APPL and SKIL contains reference of the domain name of SKIL group i.e. skil@skilgroup.co.in and company.secretary@skilgroup.co.in respectively. Further, Mr. Nikhil P. Gandhi and Mr. Bhavesh P. Gandhi are promoters/ directors in APPL and SKIL. In APPL and SKIL, Mr. Nikhil P. Gandhi, Mr. Bhavesh P. Gandhi and Mr. Prataprai Gandhi together have majority shareholding of 100% and 60.09% respectively. The above discussed facts suggest that APPL and SKIL were under the same management and were closely related to each other.

I also note that Mr. Nikhil P. Gandhi, Mr. Bhavesh P. Gandhi and Mr. Prataprai Gandhi together have shareholding of 13.04% in HIL and these are also the promoters of HIL along with Mr. Sanjay M. Doshi. Also one Neptune Industries (through Mr. Sanjay M. Doshi) held 99.80% shareholding in SEPL. Further, persons namely Mr. Manoj Mehta and Mr. Chetan Kothari, the directors in SEPL are directors in APPL and HIL respectively. These facts show that APPL, SKIL HIL and SEPL had common promoters/ directors.

b. Having considered the above discussed relationship between APPL and SKIL, now it is relevant to consider whether the noticees namely Mr. Hemant R. Patel, Mr. Praveen Mohnot and Mr. N. Ravichandran fall within the ambit of 'insiders'. The term 'insider' as per Regulation 2(e) of the PIT Regulations is applicable to two set of persons i.e., - a person who is connected or deemed to be connected with the company and is reasonably expected to have access to UPSI in respect of securities of a company. - a person who has received or has had access to such UPSI.

In order to call a person as an 'insider', the test is to check whether he/ she is either 'connected' or 'deemed to be connected' to the company, in terms of the PIT Regulations and reasonably expected to have access/ to the UPSI in relation to the company. A 'connected person' in terms of Regulations 2(c)(ii) of the PIT Regulations is the one who: - occupies the position as an officer or an employee of the company, or; - holds a position involving a professional or business relationship between himself and the company whether temporary or permanent and who may reasonably be expected to have an access to unpublished prise sensitive information in relation to the company.

c. Now, the above discussed test needs to be applied to the noticees in order to ascertain whether they fall within the purview of 'insider' or not.

d. Hemant Patel: I note from the SCN that Mr. Hemant R. Patel has played an important role in the acquisition process of KLG. Let me apply the test as discussed in the earlier paragraphs with regard to the definition of 'insider' vis-a-vis Mr. Hemant R. Patel. I note that: i. he figures as the contact person in the KYC ('know your client') details of APPL (the acquirer) with Networth Stock Broking Limited (the broker of APPL and the lead manager to the open offer by APPL). ii. the report 'The financial due diligence review of KLG Capital Services Limited' dated January 31, 2008, containing the profile of the company, capital structure, shareholding pattern, ROC matters etc. by M/s Batra Sapra & Co. was addressed to him. iii. he was in touch with Mr. K.L. Garg, the erstwhile promoter of KLG on his landline number on February 22, 2008 at 15:19:49 hours, the day on which the first tranche of shares from Mr. K.L. Garg and other promoters were purchased by APPL. In addition to such calls three 'messages' ('sms') were also sent on February 28, 2008. iv. he was a party to the discussions held between Mr. Praveen Mohnot and Mr. N. Ravichandran wherein the UPSI was communicated. v. he was also in constant touch with Networth Stock Broking Limited (the lead manager to the open offer and broker of APPL) and its employees namely Mr. Amit Singh, Vice President, Risk Management and Surveillance and Mr. Ganesh Hadvale, Manager, Investment Banking Division. As seen from the telephonic records, - he made about 21 phone calls on the land line numbers of Networth Stock Broking Limited during February 20, 2008 to April 02, 2008.

- he exchanged about 60 calls/ sms with Mr. Amit Singh during the period of January 15, 2008 to June 15, 2008. Majority of such calls were concentrated between February 22, 2008 to February 27, 2008. In his statement before SEBI, Mr. Patel has not denied of having spoken to Mr. Amit Singh of Networth Stock Broking Limited. - he exchanged about 132 calls with Mr. Ganesh Hadvale during the period of January 15, 2008 to June 15, 2008. Of these 33 calls were made during the period of January 15, 2008 to February 27, 2008.

I have seen the statement of Mr. Hemant R. Patel dated August 13, 2008, made before SEBI wherein he has admitted of having information about the impending sale of stake in KLG and knowing Mr. Praveen Mohnot since December, 2007. He has also admitted of speaking to Mr. K.L. Garg of KLG and getting such information. In the said statement, he has also admitted of making purchases together with Mr. Praveen Mohnot and Mr. N. Ravichandran in the scrip of KLG based on the information received from Mr. K.L. Garg.

From the discussed facts, it is clear that Mr. Hemant R. Patel had acted as a representative of APPL and was one of the key figures in the acquisition process of KLG by APPL. I note that one Mr. Amit Singh (an officer of Networth Stock Broking Limited) in his statement recorded by SEBI, submitted that “we were in touch with only Mr. Hemant Patel and Mr. Devichand Nimbade about the acquisition of the shares of KLG Capital Services Ltd. by APPL” and they had also contacted Mr. Patel regarding pay in obligations. The statement further states that Mr. Hemant R. Patel and Mr. Devichand Nimbade (the compliance officer at APPL) were present at the time of account opening procedures of APPL with Networth Stock Broking Limited.

Further, the fact that Mr. Hemant R. Patel has been appointed as director in the Board of KLG from June 20, 2008 i.e. post the acquisition of KLG by APPL reinforces the inference that he was the key figure in the acquisition process of KLG by APPL. Therefore, it can be said that Hemant Patel had the temporary professional or business relationship between himself and KLG and that he had the specific information about the proposed acquisition by APPL and hence a 'connected person', in terms of the Regulation 2(c)(ii) of the PIT Regulations. Further, it is an admitted fact that Hemant Patel had the UPSI about the impending acquisition of KLG by APPL. Thus, for the reasons that Hemant Patel had a temporary professional or business relationship with KLG and that he was in possession of the UPSI relating to the acquisition of KLG by APPL, Hemant Patel can be termed as an insider within the very definition under Regulation 2(e) of the PIT Regulations.

From the trading details as available on record as discussed in table A above, I note that Mr. Hemant R. Patel had dealt in the shares of KLG on behalf of Hemant Patel (HUF) had placed two orders for the purchase of 80,000 shares of KLG on February 22, 2008, for a value amounting to ₹26.16 lakh. These orders resulted in the trade for 49,444 shares with first trade at 15:07:14 i.e. just before the first trade of APPL. I note that all such shares were sold in June 2008.

An analysis of the trading pattern of the client id's of Mr. Hemant R. Patel and Hemant Patel (HUF) has revealed that the average purchase and sell value of their trades was below ₹1 lakh barring six instances during the period between October 01, 2007 to June 30, 2008. Further, the buy orders placed by Hemant Patel (HUF) in the scrip of KLG were in contrast with its trading pattern in the scrips other than KLG. I note that the average daily volume in the scrip of KLG was only 2,585 shares per trading day during the period of October 01, 2007 to February 21, 2008 (i.e. the period prior to the acquisition of shares of KLG by APPL), inspite of the same Mr. Hemant R. Patel while trading in the name of Hemant R. Patel (HUF) had entered orders for the purchase of 80,000 shares on February 22, 2008, which coincided with the first trade of APPL. This does not match with the normal trading pattern of Mr. Patel and points towards the trading while in the possession of UPSI. For such purchase of shares of KLG, he in his statement before SEBI has admitted of borrowing of ₹16.50 lakh from SEPL (a group company of SKIL), and has confirmed that no interest has been paid for such amount, till the date of giving statement.

e. Mr. Praveen Mohnot and Ms. Priyanka Singhvi: As regards Mr. Praveen Mohnot, I note that in addition to the post of Executive Director at SKIL, he had also held the position of Director (Finance), HIL (SKIL and APPL are group companies of HIL). I now proceed with the examination of the role of Mr. Praveen Mohnot in the acquisition process of KLG and note that: i. he had signed the Memorandum of Understanding ('MoU') with Networth Stock Broking Limited (the lead manager to the open offer) on behalf of APPL on February 08, 2008 i.e. before the acquisition of KLG by APPL. The CEO of Networth Stock Broking Limited in his statement has said that Mr. Praveen Mohnot had brought the KLG acquisition deal to them.

ii. he was in constant touch with Mr. Hemant R. Patel and about 63 calls/ sms were exchanged during the period of January 15, 2008 to June 15, 2008. Most of these calls were found concentrated around the dates of acquisition of KLG by APPL. iii. he was in touch with Mr. Girish Dev, the Chief Executive Officer of Networth Stock Broking Limited on February 22, 2008 at 15:23:55 hours i.e. the first day of trades by APPL. This call had lasted for 104 seconds and was strikingly at the same time when the first trade of APPL for the acquisition of the shares of KLG at 15:22:44 hours was executed. Further, the first trade of his daughter (Ms. Priyanka Singhvi) in the scrip of KLG was on February 22, 2008 at 15:02:57 hours through broker Bonanza Portfolio Limited. iv. he was in touch with one Mr. Devichand Nimbade, the designated authorised person by APPL in its KYC documents filed with Networth Stock Broking Limited. Mr. Devichand Nimbade was also present during the execution of orders by Networth Stock Broking Limited on behalf of APPL as confirmed by Mr. Girish Dev its CEO. v. he was also a party to the discussions held between Mr. Hemant R. Patel and Mr. N. Ravichandran wherein the UPSI was communicated.

From the above discussed facts, it is clear that Mr. Praveen Mohnot had acted as a representative of APPL (the acquirer) and that he was one of the key figures in the acquisition process of KLG by APPL. I note that the said Mr. Girish Dev, the Chief Executive Officer of Networth Stock Broking Limited in his statement recorded by SEBI, has submitted that the mandate for client, APPL came to them through Mr. Mohnot. Further, the fact that Mr. Praveen Mohnot has been appointed as director in the Board of KLG from June 20, 2008, i.e. post the acquisition of KLG by APPL reinforces the inference that he was the key figure in the acquisition process of KLG by APPL. Therefore, it can be said that he had the temporary professional or business relationship between himself and KLG and had the specific information about the proposed acquisition by APPL as he had acted on behalf of the acquirer (APPL) in various formalities relating to the acquisition process. I have seen the statement of Mr. Praveen Mohnot dated August 13, 2008, made before SEBI wherein he has admitted that a discussion of senior executives of SKIL group was going on with respect to KLG looking for prospective investors, where Mr. Hemant R. Patel and Mr. N. Ravichandran were also present. It has also been confirmed by him that such discussion was held prior to February 22, 2008. Having considered the above discussion, it is clear that Mr. Praveen Mohnot is a connected person' in terms of the Regulation 2(c)(ii) of the PIT Regulations and that he had the UPSI, and thus falling within the ambit of 'insider' in terms of the Regulation 2(e) of the PIT Regulations.

The SCN further alleges that he communicated/ counselled the UPSI to his relatives. In this regard, I refer to the statement of Ms. Priyanka Singhvi, the daughter of Mr. Praveen Mohnot dated August 13, 2008, that before deciding on the purchase of the shares of KLG, she had discussed with her father. I note that Ms. Priyanka Singhvi had purchased 1,10,000 shares of KLG while trading on two days i.e. February 22, 2008 and February 27, 2008 (as can be seen from the table A above) for ₹37.25 lakh. Out of these, she sold 81,327 shares, later on and has retained 28,673 shares, as on June 08, 2012.

An analysis of the trading pattern of Ms. Priyanka Singhvi reveals that she had not done any significant trading in the securities market prior to her purchases of KLG. I note that during the period of October 26, 2007 to June 30, 2008, her maximum purchase value in BSE was ₹2,44,049 in the scrip of Shipping Corporation of India Limited, which is in contrast with the amount of ₹37.25 lakh in the scrip of KLG (a not-so-frequently traded scrip during the relevant period). Further, subsequent to the trading in the scrip of KLG, she has not traded in any other scrip. From the same, it can be said that her trading pattern was in clear deviation from her established trading pattern. It is seen that the buy orders of Ms. Priyanka Singhvi were limit orders and were updated in tandem with the buy orders of APPL. It is also seen that the first trade by Ms. Priyanka Singhvi was executed on February 22, 2008 at 15:02:57, i.e. just few minutes before the first order of APPL as seen from the Table A above.

Ms. Priyanka Singhvi in her statement dated August 13, 2008 to SEBI has said that the loan for the transactions in the shares of KLG was arranged by her father, Mr. Mohnot. Her first trade in the scrip of KLG was executed on February 22, 2008 at 15:02:57 and the last trade on February 27, 2008 at 10:25:57, which matches with the dates of acquisition of shares of KLG by APPL. She has also admitted that all her dealings were overseen by her father, Mr. Praveen Mohnot who also used to oversee the entire process of her dealing in the shares. She has admitted that her father interacts with the broker for payment and settlement of shares after the orders are placed by her. From the available records, I note that calls were made through the number of Mr. Praveen Mohnot to her broker, Bonanza

Portfolio Limited around the same time when the buy orders were placed to buy shares in her account. Such facts clearly show that Ms. Priyanka Singhvi's father Mr. Praveen Mohnot had taken care of all her dealings and she had received the UPSI from him.

From the circumstantial evidences available on record such as her being daughter of Mr. Praveen Mohnot, her discussion for purchase of the shares of KLG, her KYC details with the Bonanza Portfolio Limited (broker) containing the phone number and email address of Mr. Praveen Mohnot, her trading pattern, the loan arranged from SEPL for trading in the scrip of KLG, etc. hints that the trading by Ms. Priyanka Singhvi was while in the possession of UPSI. I note that Ms. Priyanka Singhvi (daughter of Mr. Praveen Mohnot) being the relative of the connected person is a 'deemed connected person' in terms of the provisions of Regulation 2(h)(viii) of the PIT Regulations. Hence, she falls under the definition of 'insider' as stated under Regulation 2(e) of the PIT Regulations.

f. Mr. N. Ravichandran and Ms. Anita Ravichandran: Having considered the role of Mr. Hemant Patel, Mr. Praveen Mohnot and Ms. Priyanka Singhvi, I now examine the role of Mr. N. Ravichandran and Ms. Anita Ravichandran. I note that Mr. N. Ravichandran was also part of the discussion wherein KLG was looking for prospective investors and where Mr. Hemant R. Patel and Mr. Praveen Mohnot were also present. I note that Mr. N. Ravichandran was in touch with Mr. Praveen Mohnot and about 50 calls/ sms were exchanged between these two during the period of January 15, 2008 to June 15, 2008. Further, Mr. N. Ravichandran had contacted Mr. Hemant Patel on 4 occasions during the said period. He had also contacted Mr. Devichand Nimbade, the designated authorised person by APPL. All these facts establish that he had the access to the UPSI about the impending acquisition of KLG.

Mr. N. Ravichandran in his statement recorded by SEBI on August 14, 2008, has admitted that he was part of the discussion with the senior executives of SKIL group about KLG, wherein Mr. Hemant R. Patel and Mr. Praveen Mohnot were also present. It has been confirmed by him that such discussion was held around January/ February 2008. Mr. N. Ravichandran in his statement has also admitted of arranging loan from SEPL for his wife, Ms. Anita Ravichandran, towards the purchase of shares of KLG. The placement of orders by Ms. Anita Ravichandran, for buying the shares of KLG were around the same time, when APPL had placed orders for the purchase of shares. Ms. Anita Ravichandran while trading in the scrip of KLG had bought 80,000 shares of KLG and sold these subsequent to the acquisition of KLG by APPL.

An analysis of the trading pattern of Ms. Anita Ravichandran reveals that she had not done any significant trading in the securities market prior to her purchase of shares of KLG. I note that during the period of October 01, 2007 to June 30, 2008 her maximum purchase value in BSE was ₹12,11,692 in the scrip of Videocon Industries Limited, of which she sold most of the shares on the same day avoiding thereby the pay-in obligation. The consideration of ₹26,16,000 in respect of 80,000 shares of KLG is in contrast from her set trading pattern and points towards the trading while in possession of UPSI. It is seen from the findings of investigation that she had declared her income to be less than ₹1 lakh per annum to her broker, Kaynet Capital Limited.

I note that for trading in the scrip of KLG, the loan was admittedly arranged by Mr. N. Ravichandran from SEPL, the very same entity from whom Mr. Hemant Patel and Mr. Praveen Mohnot had also arranged the funds for trading in the scrip of KLG. Ms. Anita Ravichandran, in her statement before SEBI dated August 14, 2008, has admitted that it was not her, but her husband Mr. N. Ravichandran who was doing monetary transactions with her broker. The order of Ms. Anita Ravichandran for the purchase of shares had resulted in the trade for 80,000 shares with first trade at 15:05:43 i.e. just before the first trade of APPL (as can be seen from the table A above). I note that all such purchased shares were sold in June 2008.

I note that Mr. N. Ravichandran was the Deputy Chairman of SKIL (a group company of APPL) at the relevant point of time and had knowledge about KLG through discussions with senior executives of SKIL group. A reading of such facts and the preponderance of probabilities suggest that Mr. N. Ravichandran was in possession of the UPSI, which was communicated to his wife, Ms. Anita Ravichandran. Mr. N. Ravichandran also arranged for loans to the tune of ₹26.50 lakh (from SEPL, a group company of SKIL) for his wife and his wife's transactions in the shares of KLG. As stated in Table A above, Ms. Anita Ravichandran had made profit to the tune of ₹54.61 lakh through her trades in the scrip of KLG aided by the UPSI. The circumstantial evidences available on record including arranging of loan from SEPL for his wife for trading in the scrip of KLG, contacting the designated authorised person of APPL, etc., clearly indicates that Mr. N. Ravichandran is a 'connected person' in terms of the Regulation 2(c)(ii) of the PIT Regulations and that he was aware of the UPSI (thus falling within the ambit of 'insider' in terms of the Regulation

2(e) of the PIT Regulations), which he had communicated to his wife, Ms. Anita Ravichandran.

At this stage, I, also refer to the findings of Hon'ble SAT in the matter of Dr. Anjali Beke Vs. SEBI (Appeal no. 148 of 2005) wherein it is said that once a person receives UPSI, he becomes an insider, even when he is not connected to the company.

Thus, from the facts and the circumstantial evidences available on record for his wife, Ms. Anita Ravichandran, her trading pattern, the loan arranged from SEPL for the trading in the scrip of KLG, etc. an inference can be drawn that she had received the UPSI from her husband, Mr. N. Ravichandran. In the light of the above, it can be concluded that Ms. Anita Ravichandran being the wife of Mr. N. Ravichandran is a 'deemed connected person' in terms of the provisions of Regulation 2(h)(viii) of the PIT Regulations. Hence, she also falls under the definition of 'insider' as stated under Regulation 2(e) of the PIT Regulations.

g. From the above paragraphs, I note that Mr. Hemant R. Patel, Mr. Praveen Mohnot and Mr. N. Ravichandran had remained in contact with each other and other entities/ persons such as Networth Stock Broking Limited (the broker and lead manager of APPL), Mr. Devichand Nimbade, etc. Curiously enough, the email addresses of the noticees namely Hemant R. Patel, Praveen Mohnot, N. Ravichandran are hemant.patel@skilgroup.co.in, praveen.mohnot@skilgroup.co.in and n.ravichandran@skilgroup.co.in respectively. None of these three have denied being employees of SKIL, the group company of APPL.

From the above discussed trading behaviour of Mr. Hemant R. Patel, Ms. Priyanka Singhvi and Ms. Anita Ravichandran in the scrip of KLG, I note certain striking similarities, these are: - all three had entered orders for 80,000 shares on February 22, 2008 i.e. the first day of trading by APPL, when, the average daily volume in the scrip of KLG was only 2,585 shares per trading day during the period of October 01, 2007 to February 21, 2008. From the same it is reasonably expected that these had access to UPSI on the basis of which they had traded in the scrip of KLG - all three had placed buy orders prior to the placement of the sell orders of the erstwhile promoter group of KLG. - they all placed and revised orders in tandem and in sync with that of APPL as can be seen from the table A above.

- all three had received finance from the same source i.e. SEPL (Starwort Engineers Private Pvt. Limited). In case of Ms. Priyanka Singhvi the loan was arranged by her father Mr. Praveen Mohnot. As regards, Ms. Anita Ravichandran the loan was arranged by her husband Mr. N. Ravichandran. - all three while trading in the scrip of KLG have deviated from their usual pattern of trading.

h. Having considered the above, I refer to the observation of Hon'ble SAT in matter of Rajiv B. Gandhi and Others Vs. SEBI (Appeal no. 50 of 2007) (supra), wherein the Hon’ble SAT had held that: "We are of the considered opinion that if an insider trades or deals in securities of a listed company, it would be presumed that he traded on the basis of the unpublished price sensitive information in his possession unless he establishes to the contrary. Facts necessary to establish the contrary being especially within the knowledge of the insider, the burden of proving those facts is upon him. The presumption that arises is rebuttable and the onus would be on the insider to show that he did not trade on the basis of the unpublished price sensitive information and that he traded on some other basis. He shall have to furnish some reasonable or plausible explanation of the basis on which he traded. If he can do that, the onus shall stand discharged or else the charge shall stand established." (emphasis supplied) The above finding of Hon'ble SAT, thus confirms the inference that the trading by Mr. Hemant R. Patel, Ms. Priyanka Singhvi and Ms. Anita Ravichandran happened while in the possession of UPSI.

i. The noticees have argued that the definition of 'insider' has to be read along with the definition of 'connected person'. On a combined reading of Regulation 2(e) and Regulation 2(c) of the PIT Regulation, it is apparent that a person is said to be an insider if such a person is connected with or is deemed to be connected with 'the company'.

While considering the argument of the noticees, I place my reliance on the order of Hon'ble SAT in the matter of V.K. Kaul Vs. Securities and Exchange Board of India (Appeal No. 55 of 2012), wherein the Hon'ble SAT has elaborately examined the use of word 'the company' in the context of PIT Regulations, which is also relevant for our present discussion. The observation of Hon'ble SAT in this context was as under: "Regulation 2(e) defines ‘insider’ to mean any person who, (i) is or was connected with the company or is deemed to have been connected with the company and who is reasonably expected to have access to unpublished price sensitive information in respect of securities of a company or; (ii) has received or has had access to such unpublished price sensitive information. It needs to be appreciated that the clause makes a distinction between ‘the company’ and ‘a company’. When it refers to ‘the company, the references is to the company whose Board of Directors is taking a decision and when it refers to ‘a company’, the reference is to a company to which the decision pertains. This has been explained even by the adjudicating officer by way of an illustration in para 30 of his order dated January 4, 2012, in the case of Mr. V. K. Kaul as under:- “30.

To illustrate, if noticee’s submission is accepted then a situation will arise wherein a Director of the company X cannot be held guilty of insider trading if he trades in the scrip of company Y based on the UPSI, that company X is going to make a strategic investment / placing a huge purchase order for plant and machineries in company Y. Such a scenario will defeat the purpose of PIT Regulations.” We are, therefore, of the view that the term price sensitive information used in regulation 2(ha) is wide enough to include information relating directly or indirectly to ‘a company’. The Solrex had decided to purchase shares of the target company. Here, Solrex is ‘the company’ and target company is ‘a company’. The decision of Solrex to purchase shares of the target company is likely to materially affect the price of securities of the target company. Only the insiders of Solrex are aware about this decision of the company. If the insiders of Solrex are allowed to trade in the shares of the target company ahead of purchase of shares by Solrex, surely the trading will be on the basis of insider information.

The decision of Solrex to purchase shares of the target company is, therefore, UPSI for the insiders of Solrex and they are prohibited from dealing in the shares of the target company till such information becomes public. It is not obligatory under the regulations that the UPSI must be in the possession or knowledge of ‘a company’ in whose securities an insider of ‘the company’ deals. As long as, an insider of ‘the company’ deals in the securities of ‘a company’ listed on any stock exchange while in possession of UPSI relating to that company, the provisions of Regulation 3(i) of the regulations will get attracted." (emphasis supplied) The observation of Hon'ble SAT makes it clear that the use of words 'the company' at one place and 'a company' at another place is in order to bring more clarity on the issue that the shares need not be of the same company with which the person is connected/ deemed to be connected.

j. It is clear from the above discussion that the noticees namely Mr. Hemant R. Patel, Mr. Praveen Mohnot, Mr. N. Ravichandran, Ms. Priyanka Singhvi and Ms. Anita Ravichandran had the knowledge of the impending acquisition of KLG by APPL and squarely falls in the definition of 'insider' as per the provisions of PIT Regulations. Mr. Hemant R. Patel and Mr. Praveen Mohnot had facilitated the transactions for the acquisition by APPL. The timings and pattern of the trades of Mr. Hemant R. Patel, Ms. Priyanka Singhvi and Ms. Anita Ravichandran gives a clear indication that these had traded on specific information. While concluding, I again place my reliance on the order of Hon'ble SAT in the matter of V.K. Kaul Vs. Securities and Exchange Board of India (supra) the relevant extract of the same has been brought out below: "the adjudicating officer has rightly relied on the observations of U. S. Court in Rajaratnam case (supra) on the relevance of circumstantial evidence in para 38 of the impugned order which reads as under :- “38. Regarding the issue of relevance of circumstantial evidence, the Hon’ble District Court Southern District of New York in the matter of United States of America V Raj Rajaratnam 09 Cr. 1184 (RJH) deided on 11.08.2011 has observed as follows: “…Moreover, several other Courts of Appeals have sustained insider trading convictions based on circumstantial evidence in considering such factors as “(1) access to information; (2) relationship between the tipper and the tippee; (3) timing of contact between the tipper and the tippee; (4) timing of the trades; (5) pattern of the trades; and (6) attempts to conceal either the trades or the relationship between the tipper and the tippee.” United States v. Larrabee, 240 F.3d 18, 21-22 (1st Cir. 2001)…” The above principles are not in conflict with the regulatory framework prescribed by the Board and can be looked into while deciding case of insider trading under the Indian regulatory framework."

From the above analysis, I note that Mr. Hemant R. Patel, Mr. Praveen Mohnot and Mr. N. Ravichandran had taken advantage by having access to the unpublished price sensitive information and arranged the purchase of the shares through Hemant R. Patel (HUF), Ms. Priyanka Singhvi and Ms. Anita Ravichandran. The loan for such purchase of shares was arranged from SEPL, a SKIL group company of which APPL was also a part. Therefore, it is concluded that: - Mr. Hemant R. Patel being an insider had dealt in the scrip of KLG, while in possession of the UPSI and communicated/ counselled the UPSI to others in violation of the Sections 12A (d) and (e) of the SEBI Act, Regulations 3(i) and (ii) and Regulation 4 of the PIT Regulations; - Mr. Praveen Mohnot being an insider, communicated/ counselled the UPSI to others and his relative in violation of Section 12A(e) of the SEBI Act and Regulations 3 (ii) and 4 of the PIT Regulations; - Mr. N. Ravichandran being an insider, communicated/ counselled the UPSI to his relative in violation of Section 12A(e) of the SEBI Act and Regulations 3 (ii) and 4 of the PIT Regulations and - Ms. Priyanka Singhvi and Ms. Anita Ravichandran being insiders dealt in the shares of KLG while in possession of the UPSI in violation of Section 12A (d) of the SEBI Act and Regulations 3(i) and 4 of the PIT Regulations.

k. Mr. Hemant R. Patel, Hemant R. Patel (HUF), Ms. Priyanka Singhvi and Ms. Anita Ravichandran while dealing in the scrip of KLG in the described manner made unlawful gains as detailed in the table A above. Such entities cannot be allowed to unjustly enrich themselves at the cost of innocent investors.

9. In view of the discussions above, the argument of the noticees that as per Regulation 2(k) of the PIT Regulations, the unpublished information has to emanate from the company in whose shares the transactions have taken place and the publication has to be made by the company that is to be taken over, finds no merit.

10. As regards the submission of the noticees regarding delay in the proceedings, I note that the delay cannot justify an exoneration.

11. The interest of the market and of the investors requires that such entities are not allowed to participate in the market and unjustly enrich themselves at the cost of investors. Such acts of serious irregularities threaten the market integrity and orderly development of the market and calls for regulatory intervention to protect the interest of investors. Accordingly, in exercise of the powers conferred upon me under Section 19, read with Sections 11, 11(4) and 11B of the Securities and Exchange Board of India Act, 1992 read with Regulation 11 of the SEBI (Prohibition of Insider Trading) Regulations, 1992, I hereby issue the following directions:

i. Mr. Hemant R. Patel [PAN: ADYPP4929N and DIN: 01947509], Hemant Patel (HUF) [PAN: AAAHH2660D], Mr. Praveen Mohnot [PAN: AAFPM3430K and DIN: 01895171] and Mr. N. Ravichandran [PAN: AABPN7069H and DIN: 00081026] shall not: a. buy, sell or deal in the securities market in any manner whatsoever, or access the securities market, directly or indirectly for a period of ten (10) years from the date of this order. b. hold position of Director in the Board of Directors of any listed company for a period of ten (10) years from the date of this order.

ii. Ms. Priyanka Singhvi [PAN: AJPPM7139N] and Ms. Anita Ravichandran [PAN: AAHPR0973N] shall not buy, sell or deal in the securities market in any manner whatsoever, or access the securities market, directly or indirectly for a period of ten (10) years from the date of this order.

iii. Mr. Hemant R. Patel and Hemant Patel (HUF) shall disgorge the unlawful gain of ₹42,58,183. He shall also pay ₹ 31,29,816, being the simple interest at the rate of 12% per annum for 6 years (2008-14) on the unlawful gain of ₹73,87,999. Thus, he shall pay a total amount of ₹73,87,999 (Rupees Seventy Three Lakh Eighty Seven Thousand Nine Hundred Ninety Nine only);

iv. Ms. Priyanka Singhvi shall disgorge the unlawful gain of ₹73,84,117 (the amount excludes the unrealised profits). She shall also pay ₹47,86,615, being the simple interest at the rate of 12% per annum for 6 years (2008-14) on the unlawful gain of ₹73,84,117. Thus, she shall pay a total amount of ₹1,21,70,732 (Rupees One Crore Twenty One Lakh Seventy Thousand Seven Hundred Thirty Two only); v. Ms. Anita Ravichandran shall disgorge the unlawful gain of ₹54,61,127. She shall also pay ₹40,22,855 being the simple interest at the rate of 12% per annum for 6 years (2008-14) on the unlawful gain of ₹54,61,127. Thus, she shall pay a total amount of ₹94,83,982 (Rupees Ninety Four Lakh Eighty Three Thousand Nine Hundred Eighty Two only);

vi. The noticees shall pay the above amount within 45 (forty five) days from the date of this order by way of crossed demand draft drawn in favour of 'Securities and Exchange Board of India', payable at Mumbai.

vii. In case the aforesaid directions for disgorgement and payment of interest is not complied within the stipulated time, Mr. Hemant R. Patel, Hemant Patel (HUF), Ms. Priyanka Singhvi and Ms. Anita Ravichandran shall be restrained from accessing or buying, selling or otherwise dealing in the securities market in any manner whatsoever, for a further period of 5 years, over and above that mentioned at sub-paragraph (i) and (ii) above, without prejudice to any action for recovery of such amounts that may be initiated by SEBI against them.

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

13. This Order shall be served on all recognized stock exchanges and depositories to ensure necessary compliance.

DATE: JULY 24th, 2014 PRASHANT SARAN PLACE: MUMBAI WHOLE TIME MEMBER SECURITIES AND EXCHANGE BOARD OF INDIA