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WTM/PS/26/IVD/ID-6/JULY/2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA
CORAM : PRASHANT SARAN, WHOLE TIME MEMBER

ORDER

Under sections 11(1), 11(4) and 11B of the Securities and Exchange Board of India Act,
1992 read with section 12A thereof and regulations 3 and 4(1) of the Securities and
Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices Relating
to Securities Market) Regulations, 2003

In the matter of the show cause notices dated February 11, 2011 issued to Mr. Nilesh
Kapadia and Mr. Rajiv R. Sanghvi and the common show cause notice dated March 04,
2011 issued to Mr. Chandrakant P. Mehta and Mrs. Dipti P. Mehta


1. Securities and Exchange Board of India (hereinafter referred to as "the SEBI") had, based
on the preliminary findings of an investigation conducted into the suspected instances of front
running of the orders of HDFC Mutual Fund by certain individuals namely, Mr. Rajiv Ramniklal
Sanghvi (hereinafter referred to as "Mr. Rajiv Sanghvi"), Mr. Chandrakant P. Mehta and Ms.
Dipti Mehta, issued an ad interim ex-parte Order dated June 17, 2010 (hereinafter referred to as
"the interim order"), wherein it was prima facie observed that -

(i) Mr. Nilesh Kapadia [a former equity dealer with HDFC Asset Management Company Limited
(HDFC AMC)] had tipped Mr. Rajiv Sanghvi before placing the orders for HDFC
AMC and that Mr. Rajiv Sanghvi traded based on such tips and instructions ; and

(ii) The trading accounts of Mr. Chandrakant Mehta and Ms. Dipti Mehta were also
operated based on the tips received by Mr. Rajiv Sanghvi from Mr. Nilesh Kapadia.

The conduct of the aforesaid 4 individuals were prima facie found to be in violation of
regulations 3 and 4(1) of the SEBI (Prohibition of Fraudulent and Unfair Trade Practices
Relating to Securities Market) Regulations, 2003 ("the PFUTP Regulations"). In view of the
circumstances mentioned in the interim order, the following directions were passed by SEBI,
under sections 11(1), 11(4)(b) and 11B of the SEBI Act, 1992 read with regulation 11 of the
PFUTP Regulations :

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"12. Under these circumstances, I, in exercise of the powers conferred upon me under Section 19 of the
Securities and Exchange Board of India Act 1992, read with Sections 11, 11B and 11(4)(b) thereof and
Regulation 11 of Securities and Exchange Board of India (Prohibition of Fraudulent and Unfair Trade Practices
Relating to Securities Market) Regulations, 2003, by way of this ad interim ex-parte order, hereby direct as
follows:

i. HDFC Asset Management Company Limited shall not utilize the services of Mr. Nilesh Kapadia
for the trading activities done on behalf of HDFC Asset Management Company Limited and shall
institute an internal inquiry to be conducted by the trustees of HDFC Mutual Fund in the matter.

ii. Mr. Nilesh Kapadia and HDFC Asset Management Company Limited shall jointly deposit the
estimated losses identified so far as per Annexure-A of this order, to the Trustees of HDFC Mutual
Fund. This amount shall be held by the Trustees in an account segregated for this purpose, till further
orders by Securities and Exchange Board of India in this matter.

iii. The Trustees of HDFC Mutual Fund shall also set up an investigation committee to examine all
transactions/dealings by Mr. Nilesh Kapadia, in his position as the dealer of HDFC Asset
Management Company Limited, to identify whether he had indulged in similar front running activities
on other occasions. The committee shall submit the final report to the Securities and Exchange Board
of India within six months of this order explaining any such instances.

iv. The Trustees of HDFC Mutual Fund shall, within a period of one month from the date of this order,
submit a plan to overhaul the internal control systems and the internal preventive measures of HDFC
Asset Management Company Limited, to avoid such instances in future.

v. Mr. Nilesh Kapadia (Permanent Account Number AABPK0356Q) is prohibited from buying,
selling or dealing in securities, directly or indirectly, or being associated with any intermediary or any
entity registered with the Securities and Exchange Board of India, till further orders.

vi. Mr. Rajiv Ramniklal Sanghvi (Permanent Account Number AAVPS8908E), Rajiv Ramniklal
Sanghvi HUF (Permanent Account Number AAAHR3188Q), Mr. Chandrakant P. Mehta
(Permanent Account Number AABPM4190Q) and Mrs. Dipti Paras Mehta (Permanent Account
Number AHKPM9167B) are prohibited from buying, selling or dealing in securities, directly or
indirectly, till further orders.

vii. Further, Mr. Rajiv Ramniklal Sanghvi, Mr. Chandrakant P. Mehta and Mrs. Dipti Paras Mehta
shall, within fifteen days of this order, deposit the illegitimate gain identified so far in the
investigations, as shown in the tables in paragraph 4 above, with the National Stock Exchange of
India Limited which shall hold the amount in an escrow account till further orders by the Securities
and Exchange Board of India in this matter. "
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2. Pursuant to the passing of the interim order, further investigation in the matter was
continued, which inter alia revealed that few trades were also executed in the account of one Mr.
Sanjay Ramniklal Sanghvi (who is the younger brother of Mr. Rajiv Sanghvi).

3. On completion of the investigation, SEBI had issued show cause notices ("SCNs") dated
February 11, 2011 to Mr. Nilesh Kapadia and Mr. Rajiv R. Sanghvi and a common SCN dated
March 04, 2011 to Mr. Chandrakant P. Mehta and Mrs. Dipti Mehta, under sections 11, 11(4) and
11B of the SEBI Act, 1992. The SCNs had mentioned that all allegations, averments and
evidences referred to and relied upon in the interim order shall be read and treated as part of the
SCNs. An SCN was also issued to Mr. Sanjay Sanghvi and the same was disposed vide a Consent
Order dated September 03, 2012.

4. The SCNs broadly alleges that Mr. Nilesh Kapadia [a former equity dealer with HDFC
AMC] had tipped Mr. Rajiv R. Sanghvi about the orders (trade orders) of HDFC AMC before
placing them. On receipt of such information, Mr. Rajiv R. Sanghvi indulged in front running and
traded in his account and through the accounts of Mr. Chandrakant P. Mehta, Mrs. Dipti Mehta
and Mr. Sanjay R. Sanghvi, and made substantial profits to the detriment of the investors.
Mr. Nilesh Kapadia was alleged to have made telephonic calls to Mr. Rajiv R. Sanghvi for
informing about the orders to be placed for HDFC AMC. The said conduct of the above four
noticees was inter alia found to be in alleged violation of the provisions of section 12A of the
Securities and Exchange Board of India Act, 1992 ("the SEBI Act") read with regulations 3 and
4(1) of the PFUTP Regulations.

5. The noticees filed their respective replies to the SCNs issued and also appeared in the
personal hearings afforded to them along with their Advocates and made submissions. The
scheme of this Order would be as follows : Firstly, the details of replies of the four noticees, the
summary of his/her submissions and the opportunities of personal hearings afforded and availed
by the noticees, are given. Secondly, I have dealt with the important aspects, the charges and the
analysis of the evidence on record to consider whether or not the four noticees have committed
the violations as alleged in the SCNs issued to them. Lastly, I have discussed about the directions
that need to be issued, if any, to the four noticees in the matter and the further course of action,
that may be necessitated in the matter.

6. For the sake of convenience, in this Order, Mr. Nilesh Kapadia shall also be referred to
as noticee no. 1, Mr. Rajiv Sanghvi shall also be referred to as noticee no. 2, Mr.
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Chandrakant Mehta shall also be referred to as noticee no. 3 and Ms. Dipti Mehta shall also
be referred to as noticee no. 4.

PART I DETAILS OF REPLIES/SUBMISSIONS FILED, SUMMARY OF
SUBMISSIONS AND PERSONAL HEARINGS AFFORDED TO THE FOUR
NOTICEES.

A. MR. NILESH KAPADIA NOTICEE NO. 1

7. Mr. Nilesh Kapadia (noticee no.1) filed his responses/submissions to the SCN dated
February 11, 2011 vide his letters dated October 08, 2011, November 03, 2011, November 20,
2012, January 21, 2013, April 17, 2013, April 24, 2013 and July 09, 2013. His submissions made
vide his reply dated October 08, 2011 are inter alia the following :

a) At the outset and without prejudice to any averment/statement, the allegations against
him were denied.
b) The statements made by Mr. Nilesh Kapadia on March 25, 2010 and May 19, 2010 were
made under coercion, duress and under threat that he would lose his job if he did not admit of
having given tips to certain persons. While retracting his statements, the noticee requested
SEBI not to rely upon such statements and to record fresh statements.
c) No internal enquiry was conducted by HDFC Asset management Company Limited
("HDFC AMC") to ascertain whether the noticee had acted in a manner alleged in the
proceedings. Such an order was clearly in violation of his fundamental right to life and liberty
guaranteed by Article 21 of the Constitution of India and his fundamental right to practice any
profession guaranteed by Article 19(1)(g) of the Constitution.
d) All the documents and records sought by him have not been provided and those
documents and statements provided to him by SEBI do not substantiate the allegation that he
had provided tips or facilitated front running. The statements clearly show that the persons who
are alleged to have traded based on the information provided by him (Mr. Nilesh Kapadia)
have categorically denied the same.
e) HDFC AMC has conducted an internal enquiry which has certain findings against him.
Despite a request for a copy of the said report, the same was not furnished to him by HDFC
AMC. Mr. Nilesh Kapadia has requested SEBI to direct HDFC AMC to provide him with a
copy of the Report and the documents/details relating to him.
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f) With respect to the averments/allegations made in paragraph 1 of the SCN, Mr. Nilesh
Kapadia inter alia made the following submissions :
(i) The ex-parte interim order dated June 17, 2010, which was the basis of the
present proceeding, was passed in a hasty manner when no circumstance
warranted the passing of the order.
(ii) His reply dated June 07, 2011 submitted with respect to the interim order may be
treated as part of his submissions.
(iii) He has not been granted an opportunity of cross-examination of those persons
who are said to have acted upon his 'tips' and the persons whose statements are
relied upon by SEBI.

g) With respect to paragraph 3 of the SCN, Mr. Nilesh Kapadia inter alia submitted that :
(i) He denied having tipped Mr. Rajiv R. Sanghvi before placing orders on behalf of
HDFC Mutual Fund during the period April 01, 2007 to July 31, 2007 or
otherwise.
(ii) The admission of Mr. Chandrakant P. Mehta that he used to trade on behalf of
his daughter-in-law Ms. Dipti Paras Mehta is not relevant to the allegation that he
was allegedly tipping Mr. Rajiv R. Sanghvi.
(iii) It is not shown as to how and in what manner, the trades of Mr. Chandrakant P.
Mehta and those of Mr. Rajiv R. Sanghvi and/or Mr. Sanjay R. Sanghvi were
connected/related. It is also not shown by SEBI that the trades by Mr.
Chandrakant P. Mehta and those of Mr. Rajiv R. Sanghvi and/or Mr. Sanjay R.
Sanghvi took place based on the alleged tips provided by him.
(iv) In the absence of an opportunity to cross-examine Mr. Uday Kulkarni (of Ohm
Enterprises which is a sub-broker of stock brokers, Jitendra Harjivandas Securities Private
Limited and ISS Securities and Services Limited), his statement regarding placing of
orders by Mr. Rajiv R. Sanghvi cannot be relied upon. Neither Mr. Rajiv R.
Sanghvi nor any of the other persons on behalf of whom the orders were
allegedly placed, have admitted or even confirmed that Mr. Rajiv R. Sanghvi
placed order on behalf of them with Om Enterprises.
(v) Therefore, it becomes clear that Mr. Rajiv R. Sanghvi did not place orders on
behalf of any other person and that his orders were not based on any tips given
by him as falsely alleged or otherwise.
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h) With reference to paragraph 4 of the SCN, Mr. Nilesh Kapadia inter alia stated as follows:
(i) The purported transcripts of the conversations that are alleged to have taken
place between himself and Mr. Rajiv R. Sanghvi, allegedly recorded on a Compact
Disc ("CD") cannot be taken on record and read into evidence.
(ii) The transcripts produced by SEBI does not reveal all the conversations that took
place between himself and Mr. Rajiv R. Sanghvi. All conversations in the dealing
room telephone have not been recorded.
(iii) SEBI has failed to identify the voice in the said CD with the procedure laid down
under the Indian Evidence Act.
(iv) At many places in the transcript, sentences are incomplete and therefore the CD
and/or transcript are tampered with and/or manipulated and are not reliable.
(v) As mentioned in the SCN, there are variations in the time indicated in the
"system" time and the actual call time. This indicates that the voice recordings
were not maintained in the manner prescribed under the Indian Evidence Act and
are therefore inadmissible in evidence.
(vi) The CD was provided to him only in February 2011 although the same was
available with SEBI since December 2009. He was not confronted with the voice
recordings/transcripts at the time his statement was recorded in March/May 2010
or thereafter.
(vii) The voice recordings were made at the instance of HDFC AMC but the same has
been transcribed by a third party i.e. Chorus Call Conferencing Services Private
Limited ("Chorus"). HDFC AMC has stated in their letters to SEBI that it
cannot vouch for the contents of the transcripts. Therefore, the CD and the
transcripts cannot be taken on record or relied upon.

i) With reference to paragraph 5 of the SCN, Mr. Nilesh Kapadia submitted as under :
(i) He denied all the conversations and extracts from the transcripts as set out in the
Annexure VI to the SCN.
(ii) He also denied that the said conversations that allegedly took place between
himself and Mr. Rajiv R. Sanghvi related to shares being traded by the latter. Mr.
Rajiv R. Sanghvi and himself were friends and would discuss matters other than
trading in shares. Though he could not remember the exact subject matter which
was discussed, it need not have related to the shares that were traded by Mr.
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Rajiv R. Sanghvi. SEBI has attempted to match conversations that allegedly took
place between himself and Mr. Rajiv R. Sanghvi to the trades placed by Mr. Rajiv
R. Sanghvi in the scrips to be traded by HDFC AMC. Such presumption is mere
conjecture and cannot be the basis to make a serious charge.
(iii) It is pertinent to note that Mr. Rajiv R. Sanghvi has not confirmed the
conversations or admitted that he traded based on the alleged tips given by
himself (i.e., Mr. Nilesh Kapadia).
(iv) He had not received any of the alleged profits made by Mr. Rajiv R. Sanghvi or
other persons who traded at his instance. It is not established from any
document or statement on record that Mr. Rajiv R. Sanghvi used to consult him
before trading in shares or that he advised Mr. Rajiv R. Sanghvi regarding the
same.
(v) Further, the alleged recording of telephone conversations between himself and
Mr. Rajiv R. Sanghvi on April 24, 2007 and other dates and the transcripts of the
same are not admissible in evidence as proper safeguards have not been taken to
ensure their authenticity.

j) With respect to paragraphs 6 to 8 of the SCN, the noticee inter alia made the following
submissions :
(i) He is familiar with the safeguards in the dealing room and the fact that the
conversations using the telephones in the dealing room were recorded.
Therefore, if he had intended to tip or indulge in front running of trades to be
executed by HDFC AMC, he would necessarily avoid using the telephones in the
dealing room which were being recorded. He is also not a reckless person prone
to taking unnecessary risks and the same is corroborated by his service record
with HDFC AMC and other organisations.
(ii) The logical conclusion that can be drawn from the above is that the conversations
that I had with Mr. Rajiv R. Sanghvi did not relate to the trades allegedly carried
out by him or persons allegedly acting at his behest.

k) With reference to paragraph 9 of the SCN, the noticee made the following submissions:
(i) Mr. Nilesh Kapadia denied that he had instructed Mr. Rajiv R. Sanghvi or any
other person to trade in any particular scrip and/or that Mr. Rajiv R. Sanghvi or
any person 'reported back' or 'explained the status of execution' to him as alleged.
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(ii) He had acknowledged in his statement under oath recorded on May 19, 2010 that
he knew Mr. Rajiv R. Sanghvi and that he did speak with him.
(iii) He is not aware of the trades being done by Mr. Chandrakant P. Mehta or Ms.
Dipti Mehta and denied that their trades were done at his instance.
(iv) SEBI has not brought on record any evidence, document or record to show that
his conversations with Mr. Rajiv R. Sanghvi on telephones other that the dealing
room phones had anything to do with the trades done by Mr. Rajiv R. Sanghvi.

l) With respect to paragraph 10 of the SCN, Mr. Nilesh Kapadia submitted as follows :
(i) The alleged transcript of telephone conversations on a single day i.e. April 24,
2007 does not substantiate the allegations made against him.
(ii) The source of the transcript of the alleged conversation recorded at 12:20 p.m. on
April 24, 2007 has not been disclosed and the same is not authenticated. HDFC
AMC which purportedly recorded the conversation has disclaimed all
responsibility for the voice recordings and the transcripts thereof.
(iii) The said recordings by themselves do not disclose any front running or abetment
of the same by him.
(iv) The alleged recording of telephone conversations between Mr. Rajiv R. Sanghvi
and himself on April 24, 2007 and the transcript of the same are not admissible in
evidence as proper safeguards have not been taken to ensure authenticity of the
same and he has every reason to believe that the same is not authentic or correct
or complete.

m) With respect to paragraph 11 of the SCN, the noticee made the following submissions :
(i) The voice recordings available with SEBI do not cover all the conversations he
had with Mr. Rajiv R. Sanghvi. SEBI has not been provided with voice recordings
and/or transcripts of alleged conversations between himself and Mr. Rajiv R.
Sanghvi.
(ii) SEBI has not considered all the relevant material while arriving at the allegations
and findings in the SCN.

n) With respect to paragraphs 12 to 14 of the SCN, Mr. Nilesh Kapadia submitted as under :
(i) He had never admitted to any front running in his statement. His statement is
that " . I gave him tips from the MF orders .". The same
cannot and would not mean that he front ran the MF order and at most he may
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have provided confidential information regarding the orders placed by the mutual
fund to Mr. Rajiv R. Sanghvi after the orders were placed.
(ii) With respect to the statements of Mr. Rajiv R. Sanghvi, Mr. Uday Kulkarni, Mr.
Chandrakant P. Mehta and Ms. Dipti Mehta, he has contended that an
opportunity to cross-examine them has not be provided and until then the
statements of Mr. Rajiv R. Sanghvi cannot be used against him or relied upon to
make allegations and findings against him.
(iii) Mr. Rajiv R. Sanghvi has not admitted that he front ran the orders of HDFC
AMC based on the information provided by him (i.e. Mr. Nilesh Kapadia). Mr.
Rajiv R. Sanghvi had only agreed that he acted on tips provided by him. Without
admitting the same, his statement and that of Mr. Rajiv R. Sanghvi could only
mean that he may have provided confidential information regarding the orders
placed by HDFC Mutual Fund and cannot be treated as an admission of the
alleged front running.
(iv) Mr. Uday Kulkarni, Mr. Chandrakant P. Mehta and Ms. Dipti Mehta have not
admitted or even suggested that they traded on the basis of alleged front running
by him.

o) With respect to paragraph 15 of the SCN ; Mr. Nilesh Kapadia denied that there was any
"premeditated plan" between himself, Mr. Rajiv R. Sanghvi, Mr. Uday Kulkarni, Mr.
Chandrakant P. Mehta and Ms. Dipti Mehta, as alleged.

p) With respect to paragraph 16 of the SCN, the following were submitted :
(i) It is not established from the record that he had deliberately delayed in placing
orders on behalf of HDFC AMC and therefore, the allegation that a loss was
caused to the Mutual Fund on account of delay in placing orders is false and
misleading.
(ii) The calculation of the purported losses by HDFC Mutual Fund is erroneous,
misleading and false. The basic premise of the said calculation is that orders for
sale or purchase placed by Mr. Rajiv R. Sanghvi, Mr. Uday Kulkarni, Mr.
Chandrakant P. Mehta or Ms. Dipti Mehta have matched with those of HDFC
Mutual Fund ; if the said persons had not traded, then the orders of the Mutual
Fund would have matched with orders placed by other persons in the market at
allegedly better rates and this would have resulted in better profits to the Mutual
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Fund. Thus, the alleged loss is in fact the purported lost opportunity to make
profits and not losses per se.
(iii) SEBI has not shown that the prices offered in the market were better than those
offered by the said persons. In fact no analysis of the intra-day price movement is
made in the SCN to arrive at such a conclusion.
(iv) He had not made any gains from the alleged trades of Mr. Rajiv R. Sanghvi, Mr.
Uday Kulkarni, Mr. Chandrakant P. Mehta and Ms. Dipti Mehta.

q) With respect to paragraphs 17 and 18 of the SCN, it was submitted that the alleged
violation of section 12A of the SEBI Act and regulations 3 and 4(1) of the PFUTP Regulations
are not established by the facts or by documents and records relied upon. The violation of the
provisions of the Circular dated May 08, 2001 and regulation 25(16) of the SEBI (Mutual Fund)
Regulations, 1996, as alleged in the SCN, is applicable to the HDFC AMC and not to him.

In view of his submissions, Mr. Nilesh Kapadia requested that the present proceedings
against him be terminated. He had also requested for an opportunity of personal hearing.

8. Mr. Nilesh Kapadia was afforded with an opportunity of personal hearing on October
11, 2011, when he was represented by his authorised representatives, Mr. Zal Andhyarujina, Mr.
Neerav Merchant and Mr. Joby Mathew, Advocates, who made submissions. Mr. Nilesh Kapadia
was also present in the hearing. He was granted liberty to file his written submissions. The
written submissions were filed vide letter dated November 03, 2011, wherein the said noticee
inter alia made the following submissions :

a) While referring to the definition of "fraud" under regulation 2(1)(c) of the PFUTP
Regulations, it was submitted that the 'fraud' contemplated is the fraud of inducement. Neither
the ex-parte order nor the SCN makes any such allegation of inducement. Therefore, no charge
under regulation 3 of the PFUTP Regulations can be confirmed against him.
b) Further, the ingredients of regulation 3 are not in any manner satisfied by the charges
levelled either in the ex-parte order or in the SCN. Similarly, no charge can be made out from
the facts and circumstances of the case under regulations 4(1) and/or 4(2)(e) and/or any part of
regulation 4.
c) The charge of front running a scrip can only be brought against an intermediary under
regulation 4(2)(q) of the PFUTP Regulations. This regulation necessarily requires that the person
charged must be an intermediary and that the trading by such intermediary is prior to a
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substantial order of a client. These ingredients are not present in this case. Further, there is no
charge of violation of regulation 4(2)(q) of the PFUTP Regulations against him. The very fact
that the said regulation expressly provides that such charge can only be levied against an
intermediary makes it abundantly clear that no such charge can be levied against persons other
than intermediaries.
d) The trades took place between April to June 2007 and the ex-parte order was passed on
June 17, 2010. There was no emergent situation which warranted the passing of the said order.
e) The direction in the ex-parte order that HDFC AMC should not employ himself as a
trader is penal in nature and in excess of the powers under the sections 11(4) and 11B of the
SEBI Act.
f) The ex-parte order and SCN relies entirely on two pieces of evidence to substantiate the
charge against him. The first is a CD of recorded telephone conversations allegedly between
himself and Mr. Rajiv R. Sanghvi. The second is the statement given by him during the course of
the investigation on March 25, 2010 and May 19, 2010.
g) With respect to the telephone conversations, it is submitted that it is well settled inter alia
by the Hon'ble Supreme Court that the following safeguards must necessarily be met before the
same can be considered as admissible evidence :
(i) The same must be shown to be reliable, that is, free of errors and contradictions;
(ii) The evidence should have been prepared and preserved in such a manner to ensure that
there was no possibility of any tampering / manipulation;
(iii) The voice/voices on such recordings must be clearly identified by persons who are
capable of identifying the same;
(iv) In the event of a party denying that it is his voice on such a recording, the person relying
upon such evidence has to prove that such denial is false.
(v) A transcript record of the conversations must be filed and proved by the person who
made it or in whose presence it was proved.
These principles have been set out in R.M. Malkani vs. State of Maharashtra, Ziyauddin
Burhanuddin Bukhari vs. Brijmohan Ramdass Mehra and State of Maharashtra vs. Prakash
Vishnurao Mane.
h) In the facts and circumstances of the case, none of the safeguards were met for the
following reasons :
(i) While referring to paragraph 4 of the SCN, the noticee submitted that the SCN itself inter
alia mentioned that "..As the data pertain to the year 2007 they are not in a position to
comment on the variance between the start time and the end time of actual conversations and the start time
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in time of the calls indicated by them". It is evident that the timings shown in the dealing
room call records and the transcripts of the dealing room calls have some discrepancies.
(ii) HDFC AMC while submitting the CDs have inter alia stated that they do not vouch for
the contents of the 'PFD file', its correctness and that there may be errors as the same
has not been validated/audited by their personnel. In the letters, HDFC AMC had stated
that the assignment for transcripting the equity dealing rooms' voice recording CD was
given by Chorus and that Chorus had independently transcripted the recording at their
premises. It is therefore evident that neither HDFC nor SEBI have independently
verified the contents of the transcript and confirmed that the same is a true transcript of
the contents of the CD.
(iii) There is no evidence whatsoever that HDFC AMC and/or Chorus and/or SEBI have
taken any measures to ensure that the recordings were not tampered with and/or
manipulated.
(iv) There is no identification by anyone who is familiar with his voice confirming that the
voice recorded in the CD was his.
(v) He does not admit that the conversations transcribed are his. It is mandatory for SEBI to
prove that the conversation attributed in the transcript is indeed that of the noticee and
that the relevant portion on the CD is indeed his voice.
(vi) Therefore, the CD is inadmissible in evidence and as such cannot be considered/taken
into account while seeking to confirm the charges levelled in the SCN.
(vii) Though the Indian Evidence Act does not apply to quasi-judicial proceedings in general
and in particular to this proceeding, the principles of natural justice and the principles of
the Indian Evidence Act will apply. The noticee referred to the observations made by the Hon'ble
Securities Appellate Tribunal in the matters of Sterlite Industries (India) Limited vs. SEBI.
(viii) With respect to his statement given during the investigation in the matter, the noticee
referred to his reply and submitted that as he had already retracted the statement, the
same ought not to be relied upon. It is well settled that a retracted confessional statement
may be relied upon but it must be treated with utmost caution. The noticee has relied on the
observations of the Hon'ble Supreme Court in the matter of K. I. Pavunny vs. Assistant Collector,
Central Excise Collectorate, Cochin [(1997) 3 SCC 721]
(ix) The ex-parte order has inter alia directed the noticee no.1 and HDFC AMC to jointly
deposit the estimated losses identified so far with the Trustees of HDFC Mutual Fund
for the purposes stated therein. The calculation of estimated losses (as mentioned in
Annexure A to the ex-parte order) is incomprehensible.
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In view of his submissions, Mr. Nilesh Kapadia requested that the present proceedings
may be terminated and he may be discharged from the same.

9. It is noted that HDFC MF vide letter dated September 04, 2012 has inter alia confirmed that
the call recordings submitted by it to SEBI vide letter dated December 31, 2009 were extracted from
the call logging server of its master voice recording (logger) system and are genuine. It was also
confirmed that the voice recordings were done during the normal course of business as per its policy
and in accordance with SEBI Circular dated September 30, 2002. Further, the aforesaid letter
contained four annexures, wherein four senior executives of HDFC MF have identified the voice of
the person who had interacted (with the person having mobile number 9322228959) from HDFC MF as
that of Mr. Nilesh Kapadia.

10. In view of such confirmation, SEBI vide letter dated November 05, 2012 forwarded the
documents received from HDFC MF to Mr. Nilesh Kapadia and had advised him to submit his reply,
if any, with respect to those documents. Mr. Nilesh Kapadia has replied (vide letter dated November 20,
2012 sent through his counsel) to the aforesaid SEBI letter. In the said letter, Mr. Nilesh Kapadia has
specifically requested for the following :
(i) Opportunity to cross-examine Mr. Yezdi Khariwala, Chief Compliance Officer, who
had confirmed on behalf of HDFC MF vide letter dated September 04, 2011 ;
(ii) Opportunities to cross-examine all the persons whose statements are relied upon in
the proceedings (as claimed to be requested in paragraphs 7(d), 9(e) and 16(e) of Mr. Nilesh
Kapadia's reply dated October 08, 2011) ;
(iii) Opportunity to cross-examine all the persons who have made the declarations (voice
identification by four executives of HDFC MF) ; and
(iv) Opportunity to inspect the logger system installed in the office of HDFC MF.

11. From the records, it is also noted that the authorised representative of Mr. Nilesh Kapadia
had inspected the letter dated September 04, 2012 (from HDFC MF) and its enclosures. The audio file
(marked as Annexure 6 to the aforesaid letter) was also played (through Windows Media Player) on a computer
to the representative. He was also provided with a copy of the letter dated December 05, 2012 of Mr.
Rajiv Sanghvi.

12. Mr. Nilesh Kapadia was afforded an opportunity to cross-examine Mr. Rajiv Sanghvi and the
officials of HDFC AMC on March 19 and 20, 2013. As he failed to appear for the same, another
opportunity was afforded on April 23 and 25, 2013 in the interest of justice. Mr. Nilesh Kapadia vide
letter dated April 17, 2013, while confirming his presence before SEBI on April 23, 2013, submitted
Page 14 of 59

that he declines the opportunity afforded for cross-examination and stated that the statements of Mr.
Rajiv Sanghvi and employees of the HDFC AMC are not being relied upon by SEBI while arriving at
allegations and charges against him.

13. On April 23, 2013, Mr. Nilesh Kapadia appeared before SEBI. Mr. Nilesh Kapadia
submitted that he would not be cross-examining Mr. Rajiv Sanghvi and the officials of HDFC
AMC. Similar stand was taken by Mr. Rajiv Sanghvi also. In view of the above stand taken by the
noticees, I had accordingly closed their request for cross-examination. The said noticees were
again informed that all the documents that are relied upon in the proceedings have already been
furnished to them.

14. It is also noted that Mr. Nilesh Kapadia was afforded an opportunity to inspect the logger
system of HDFC AMC, on his request. However, he failed to avail the same. Pursuant to his
refusal to cross-examine Mr. Rajiv Sanghvi and the officials of HDFC AMC, Mr. Nilesh Kapadia vide
letter dated April 24, 2013, reiterated that he had declined to cross-examine Mr. Rajiv Sanghvi and the
officials of HDFC AMC and confirmed and reiterated his submissions made vide letters/replies
dated October 08, 2011 and November 03, 2011. He further requested for one more opportunity of
personal hearing.

15. Accordingly, Mr. Nilesh Kapadia was afforded a personal hearing on June 06, 2013, when
Mr. Zal Andhyarujina, Advocate appeared on behalf of the noticee no.1 and made submissions. Mr.
Nilesh Kapadia and Mr. Joby Mathew, Advocate were also present in the hearing. Additional written
submissions were also filed vide letter dated July 09, 2013, wherein the following were submitted :

(i) The decisions dated November 09, 2012 (Dipak Patel vs. SEBI) and December 17, 2012 (Sujit
Karkera vs. SEBI) of the Hon'ble SAT were cited and relied upon.
(ii) In view of the above decisions, the charge of front running would not survive against noticee
no.1.
(iii) The ex-parte order passed in the matter is still in force. Noticee no.1 has therefore already
suffered irreparable loss and damage to reputation.
(iv) Requested that the present proceedings be terminated and the noticee be discharged.

B. MR. RAJIV SANGHVI NOTICEE NO. 2

16. Mr. Rajiv Sanghvi inter alia made the following submissions with respect to the SCN
dated February 11, 2011 issued to him :
Page 15 of 59


Submissions made vide letter dated March 18, 2011 :

(a) At the outset, denied the correctness and validity of the statements and allegations made
in the SCN except where specifically confirmed by him.
(b) He has already suffered considerably as a huge amount from his assets has been obtained
vide the Interim Order, without any basis in law or in fact. The amount obtained from
him as the alleged gross profit was before taxes and expenses and that he has paid huge
amounts as tax, expenses and interest.
(c) There has been a total and blanket ban on his purchase and sale of shares vide the interim
order.

(d) Submissions with respect to placing reliance on audio files :
(i) Nowhere in the SCN has there been any reference as to how the voice recordings
have been authenticated. In the absence of such reference, the conclusion would
be that no such authentication has been carried out. On this ground itself, the said
recording cannot be relied upon. The noticee has requested for authentication, if
done.
(ii) No recording of his voice was taken or any means otherwise taken to verify and
compare his voice with the voice in the said recordings. The allegations have been
made on the basis of such unverified conversations.
(iii) The voice recording in the present facts and circumstances are not evidence in
law. The principals of natural justice and due verification has not been followed
and such evidence is illegal and cannot be relied on in law.
(iv) He has not been provided with a copy of the original recording that would enable
him to verify objectively whether the said recording or any part of it represents
accurately and fairly his conversations with any person and in what exact words
and in what context. This is a denial of an opportunity to examine the alleged
evidence and to explain and refute the same.
(v) The parties with an adverse interest and conflicting interest with that of him are
being relied on to provide alleged evidence against him. HDFC AMC has direct
interest and reason to provide statements and alleged evidence that may be
beneficial to them but affect his interests adversely. Therefore, the reliance on the
statements, transcripts, etc., of such a party is unfair and arbitrary.
Page 16 of 59

(vi) HDFC has stated that there are many areas in which the recordings cannot be
held to be wholly reliable in terms of timing, conversations, etc. When the
originating party itself has placed certain reservations, such recordings cannot be
relied upon to make serious charges against him.
(vii) The noticee has requested for the cross-examination of HDFC and all persons
who have provided such recordings, transcripts, etc., as the same would will
enable him to refute the statements made by them and put them in proper
context.
(viii) Only selected recordings of various conversations have been relied on without
giving the context in which they appear. This amounts to distortion of
conversations and cannot be relied on without putting the evidence in proper
context. The noticee has requested for full and detailed conversations to help
determine what exactly the conversations were and in what context and sequence.
(ix) Without prejudice to the foregoing, at no place, do the alleged transcripts show
that any front running was planned or taken place. Even in the worst
situation, what would appear is that discussions regarding certain trades have
taken place.
(x) The alleged recordings, that clearly are the basis of the allegations against him
cannot be relied on in law as accurate, correct or fair representations of any
conversation that have been carried on between himself and any other person.
When serious allegations of fraudulent trades have been made against him, the
onus is on SEBI to prove such allegations beyond any reasonable doubt.

(e) No Intention to cause loss to investors in HDFC AMC:

(i) Without prejudice to his contention that there has been no front running as
alleged, he submitted that his trades cannot be held to cause any loss to any
investor of HDFC. He has no concern as to the basis of the tips given to him
and whether or not HDFC would also be trading in the shares of the same
companies. He receives tips from various sources and acting selectively on some
of such tips does not mean that his intention is to cause loss to any person. He
acts on such tips at his own risk of loss or profit putting his own capital at risk.
(ii) In the open market and discussions with participants in the market, the so called
'tips' which are often rumours are circulated in huge numbers. Obviously, they do
Page 17 of 59

not have basis in immediately verifiable facts since by that time the information
becomes widely known. It is for a trader to decide to rely or not on a tip,
depending on the subject, etc. Hence, receiving and even giving of such tips, with
such implicit warnings about the possible unreliability of it, is a normal market
practice and no malafide intention should be seen into it.
(iii) The scrips in which he had traded are 'blue chips' with huge volumes in the
markets. The relatively small quantity of shares that he had dealt in could not
possibly have caused any increase or decrease in the price of the shares of such
companies, as either way-purchase or sale, there was enough depth in the market
to absorb purchases or sales of such quantities without affecting the ruling market
price. Thus, his purchases or sales could not have possibly affected the market
price of the companies in such a manner that the investors in
HDFC AMC could have suffered any loss.

(f) Losses to Investors hypothetical and incorrect:
(i) The allegation that his trades could have caused losses to investors in HDFC
AMC, is based on incorrect assumptions based on the nature of price movements
in the capital markets. Firstly, his transactions were miniscule as compared to the
total market turnover and it is not explained as to how his transactions could have
moved the market prices. Secondly, his transactions were in blue chips and
particularly where there are large holdings by financial institutions, foreign
financial institutions and even the promoters of such companies. Any abnormal
price movement would immediately invite action by them by way of sales or
purchases. Thirdly, even on facts, the actual price movements, if at all, by his
transactions has not been established and simply selective loss calculations has
been made without relating the price movements to overall price movements in
the market.
(ii) Without his transactions, the transactions carried out by HDFC AMC would have
been at the same price at which he had traded. The calculation of alleged loses is
based on incorrect assumptions and SEBI has not discharged the onus of
establishing the loss caused by his transactions. If at all any loss is caused, then it
is to be shown as to what is the correct amount of such loss caused solely by his
actions.

Page 18 of 59

(g) Loss could also have been caused to him by his trades.
(i) The noticee has carried out trades in certain scrips at his risk. He could have
possibly suffered losses. His trades were relatively small as compared to overall
market volumes. It was possible that the price of the shares would have moved
upward or downwards and thus he would have also been exposed to profit or
loss. To allege that he made profits in some scrips and some trades is without
considering the fact that he had placed his capital at the risk of market forces and
could have suffered significant losses. To select some of his trades and to draw
conclusions from them would not be a fair assessment of his position in the
market.

(h) Financial loss and debarment suffered :

(i) Due to the ongoing proceedings and particularly on account of the interim order,
the noticee has suffered considerable financial losses, loss of reputation and has
also suffered morally. His whole net worth has been asked to be deposited by the
said interim order as alleged gross profits made by him.
(ii) Further, he has been debarred by the interim order without full investigation from
trading in any scrips. His sole business and earning activity consists of trading in
the capital markets and such a debarment has resulted in loss of income to him.
(iii) In view of the loss already sustained, any further action against him in the facts
and circumstances would be extremely harsh and unfair. He has requested that no
further punishments or adverse action be ordered against him.

(i) Incorrect allegation regarding front-running and intentional Loss to HDFC and its
customers:
(i) The noticee used to regularly receive from various persons and would also
provide tips to others. Often it is the sharing of tips received from one person.
The noticee decides whether to rely on a tip and the extent to which he should act
based on such tip.
(ii) Even for a moment if it is accepted that noticee no.1 may have sourced some of
his tips/proposed plans for purchase or sale by HDFC AMC, this noticee (i.e.
no.2) had had no knowledge whatsoever of the same and that there is no evidence
to prove that. He denies that he had knowingly carried out any front-running with
the intention of causing any loss to HDFC AMC or its investor.
Page 19 of 59


(j) Strict proof of fraudulent acts. :

(i) The allegation of having made such serious violation requires strict proof. In this
case, except for making allegations and providing circumstantial facts, the onus of
strict proof has not been discharged. These violations also involve mens rea, a
state of guilty mind, which SEBI has to establish. The violation of law, as alleged,
has not been established.
(ii) The noticee submits that he has not violated any of the provisions of law as
alleged in the SCN. He has not carried out any front running transactions. Even if
the worst is assumed, he merely exchanged tips with various persons in the
market and for some of his transactions; relied on some of tips received without
any malafide intentions. The noticee did not intend to cause any loss to any person
and that no loss has been caused to any person.
In view of the submissions, the noticee requested that the present proceedings against
him be dropped without any adverse action and the monies that he deposited pursuant to the
interim order may be returned to him. The noticee no.2 also requested for an opportunity of
personal hearing.

17. Mr. Rajiv Sanghvi was afforded an opportunity of personal hearing on June 28, 2011,
when he appeared in person along with Mr. Jayant Thakur and made submissions. Pursuant to
the personal hearing, he also filed written submissions vide letter dated June 29, 2011. The
following were inter alia submitted therein :
(i) For nearly three generations his family has been active in trading and investments in
the capital markets and none of them including himself have been alleged to have
committed any violation of any law.
(ii) The trades which he entered into were not with the intention of causing any loss to
any person.
(iii) He has fully cooperated with the proceedings without any delay at any time and have
given all the information and explanations as required from time to time. He has
deposited the monies, alleged as profits made by him, even though the sum was far
more than his net worth and his investments (shares) which were worth 52 lakhs
were frozen. The noticee borrowed approximately 1crore in addition to his
borrowings to duly comply with order in order to deposit 1 Crore with the NSE.
Page 20 of 59

(iv) The noticee has been restrained inter alia from carrying out any transactions in the
capital market.
(v) He had earned profits from the transactions arising out of tips from Mr. Nilesh
Kapadia but have incurred losses too in a few occasions. However, only the
transactions in which he made profits are taken into account. Further, the expenses
and taxes have also not been deducted while working out the said profits. Even the
basic expenses like brokerage and taxes have been not considered.
(vi) Considering his earlier submissions and also considering the above, and also the
debarment and freezing of account he has already suffered, he requested SEBI not to
take further action in law.

18. Mr. Rajiv Sanghvi vide letter dated November 20, 2012, referred to the order dated
November 09, 2012 passed by the Hon'ble SAT in the matter of Dipak Patel vs. SEBI and
submitted that decision is directly applicable to this case and requested SEBI to drop the
proceedings. He also requested for a time of one month for filing written submissions.

19. Mr. Rajiv Sanghvi also made the following submissions amongst others vide his letter
dated December 05, 2012 :

(a) Reasonable opportunity to inspect the records of the case which are relied on in the SCN
be granted.

(b) Cross-examination of Mr. Nilesh Kapadia and other officials of HDFC who have given
statements, directly or indirectly, concerning him, as those were relied in the SCN, be
afforded.

(c) HDFC MF is a large mutual fund and carries out trades generally in very large quantity.
It would be difficult for it to have access to liquidity in shares and large quantity of shares
at one stroke. Thus, it is necessary for it to have access to persons who have acquired
and still hold large quantity of shares which it seeks to buy and who are willing to bear the
risk of buying and holding them. Accordingly, to build up such stock of shares, it seems
to be advising people to acquire shares. The persons so advised would need to have
access to large funds to credit, ability to take risks and be willing to do so at very small
margins. This is clearly the role in which he was advised by HDFC MF generally and on
its behalf Mr. Nilesh Kapadia specifically to purchase or otherwise deal in certain scrips.
Page 21 of 59

Shares of specified companies were acquired at own risk, with own funds and knowing
well that the margins were quite thin. The margins so obtained were extremely thin
generally between 0.10% to a maximum of 2%.

(d) Reliance of unauthenticated, private and partial phone records is impermissible. Phone
records are easily tampered and quite amenable to be selectively provided by HDFC MF
to present a different picture. He sought for complete phone records duly authenticated
by an independent forensic agency and where all the conversations are placed on record.

(e) No harm was caused to the markets or to any specific persons on account of his trades,
as the scrips in which he had traded were highly liquid. There was no evidence to show
that HDFC would have paid a lesser price had they come directly in the market. There
was more than adequate depth in the market in terms of price movements. At even
marginally higher price, many investors and jobbers would have promptly acquired his
shares and hence there was neither any question of him making any unreasonable profits
or causing loss to investors.

(f) HDFC MF has not filed any complaint against him.

(g) Serious allegations have been levelled on the basis of partial information which too was
inadequately provided to him.

(h) The Hon'ble SAT vide order dated November 09, 2012 (Dipak Patel vs. SEBI) has clearly
held that front running by non-intermediaries is not a violation under any of the
provisions of the SEBI Act or the PFUTP Regulations.

(i) Trading and speculation on capital markets necessarily involves obtaining of information
from various sources and trading based on such information. He also speculated on
information of possible trades which may or may not happen in a specified time.

(j) The only provision in the PFUTP Regulations that concerns the concept of 'front
running' is regulation 4(2)(q). However, in the present case, the SCN does not allege
violation of the said provision.

(k) The allegations against him are violation of regulations 3 and 4(1) of the PFUTP
Regulations which involves fraud, and that SEBI has not established mens rea.
Page 22 of 59


(l) The proceedings and the interim order has imposed substantial punishment on him and
that he has deposited money which is more than his net-worth. Without going into the
merits of the case, assuming that he had violated the law, the punishment already
undergone is more than reasonable and further punishment would be extremely harsh.

20. With respect to the request of the noticee no.2 for inspection of documents, SEBI vide
letter dated February 12, 2013 advised the noticee no.2 to provide the list of documents for
inspection. In response, the noticee no.2 vide letter dated February 20, 2013, required inspection
of documents that were relied upon in the SCN and certain other documents (copies of which
were requested), including full reports of stock exchanges, the investigation report of SEBI, copy
of file noting approving adjudication and other action against him, details of synchronised trades
of 30 other parties, copies of CDs containing voice records and copies of trade and order logs of
the trades carried out by HDFC MF and other people in respect of the scrips specified in the
SCN and the volume of trades in those scrips on NSE and BSE. The noticee no.2 also requested
for cross-examination of Mr. Nilesh Kapadia and other officials of HDFC MF who had given
statement directly or indirectly concerning him.

21. The request for cross-examination of noticee no.2 was acceded to and accordingly, SEBI
vide letter dated February 25, 2013 informed him that he may cross-examine Mr. Nilesh Kapadia
on March 19, 2013 and the officials of HDFC MF on March 20, 2013. The said letter also
enclosed a list of documents relied upon in the matter and which were already furnished to him.

22. The noticee no.2 had vide letter dated March 11, 2013 again requested for inspection of
all documents, inspite of receiving the SEBI letter dated February 25, 2013 stating that all
documents that have been relied upon were furnished to him. However, in the interest of justice,
the inspection of documents which was originally scheduled on March 20, 2013 was pre-poned to
March 13, 2013. The same was informed to noticee no. 2 vide an e-mail by SEBI.

23. The noticee no. 2 failed to avail this opportunity granted for inspection of documents.
Despite not availing the opportunity for inspection of documents, noticee no.2 vide letter dated
March 13, 2013 reiterated its request for inspection of documents and to post-pone the cross-
examination. In response to the same, SEBI vide e-mail dated March 14, 2013 advised the
noticee no.2 to attend the cross-examination (of noticee no.1) scheduled on March 19, 2013. He
was also informed that if he failed to appear, the matter would be proceeded further. This e-mail
Page 23 of 59

also recorded that copies of all documents relied upon with respect to the charges levelled against
him have already been provided. The noticee no.2 thereafter sent a letter dated March 18, 2013,
wherein he has stated that he did not receive any letter informing him that he was supposed to
appear for cross-examination by Mr. Nilesh Kapadia in the matter.

24. Considering the principles of natural justice, SEBI afforded one more opportunity as a
final opportunity on April 23 and 26, 2013 to the noticees 1 and 2 to cross examine each other
and also to separately cross-examine the officials of HDFC AMC.

25. On April 23, 2013, Mr. Nilesh Kapadia and Mr. Rajiv Sanghvi appeared before SEBI.
Mr. Nilesh Kapadia submitted that he would not be cross-examining Mr. Rajiv Sanghvi and the
officials of HDFC AMC. Similar stand was taken by Mr. Rajiv Sanghvi also. In view of the
above stand taken by the noticees, I had closed their request for cross-examination. The said
noticees were again informed that all the documents that are relied upon in the proceedings have
already been furnished to them.

26. Thereafter, vide letter dated May 06, 2013, Mr. Rajiv Sanghvi while reiterating his
submission made on April 23, 2013, requested for an opportunity of personal hearing.
Accordingly, he appeared in a personal hearing held on June 17, 2013 in person along with his
authorised representatives, namely, Mr. Pesi Modi, Senior Advocate, Mr. Vinay Chauhan,
Advocate and others. Mr. Pesi Modi, Senior Advocate made submissions. Noticee no. 2 also
filed written submissions vide letter dated June 24, 2013, inter alia submitting the following :

(a) Referring to the case laws [Collector of Customs vs. Krishan Sales ; Vidarbha Vineer
Industries vs. Assistant Collector of Central Excise ; Baradakanta Mishra vs. Bhimsen
Dixit and Dwarikesh Sugar vs. Prem Heavy Engineering Works], it was submitted that
mere filing of an appeal does not operate as a stay or suspension of the order appealed
against and subordinate courts must follow the law as laid down by superior courts. This
submission was made in view of the orders of Hon'ble SAT in the matter of Dipak Patel and Sujit
Karkera and the appeals preferred by SEBI in the Hon'ble Supreme Court.
(b) Bulk of the trading is based on tips and flow of information and the PFUTP Regulations
[regulation 4(2)(q)] does not bar anybody from trading on such tips except an
intermediary.
Page 24 of 59

(c) It is common practice for brokers to inform others in advance about his intention of
placing large orders so that others get ready to take counter positions to stabilize price,
otherwise the market will show a sudden move, up or downwards.
(d) SEBI Circular dated 14.09.1999 on Negotiated Deals permits flow of advance
information by permitting the pre-negotiation of trades.
(e) In terms of illustration (d) to section 17 of the Indian Contracts Act, when two traders
enter into a contract, one is not required to disclose to the other any information about
expected change in prices.
(f) SCN does not allege synchronisation of trades, market manipulation or any profit sharing.
(g) Price differential in the alleged front running was only in the range 0.1% to 2%.
Impugned trades of this noticee had the tendency to stabilize prices as otherwise, the
price would have been more volatile. HDFC MF has benefitted by the said trades.
(h) Law must be clear before penalizing anyone. The noticee is eligible for a benefit of doubt.
(i) The SCN also alleges that the noticee in his statement at first wrongly denied knowing
Mr. Nilesh Kapadia. However, the question posed to the noticee was whether he knew a
Nilesh Kapadia who was allegedly an official of HDFC MF. The noticee rightfully
answered that he did not, as the noticee only knew Nilesh Kapadia who was with HDFC
AMC. The two entities are different and distinct. Once SEBI clarified, noticee at all times
admitted knowing Mr. Nilesh Kapadia and receiving tips from him.
(j) Mr. Uday Kulkarni has stated that noticee had placed orders in the accounts of
Chandrakant Mehta and Dipti (may be) on some occasions. In the absence of
opportunity to cross-examine this persons, the alleged statement should not be relied.
(k) Noticee has provided full cooperation to SEBI at every stage. The noticee has also
complied with the directions to make deposits by taking loans and without deducting any
legitimate costs and expenses he had incurred.

In view of his submissions, noticee no.2 requested SEBI to drop the present proceedings,
vacate the interim order and refund the amounts deposited by him with interest.

C. MR. CHANDRAKANT P. MEHTA AND MS. DIPTI MEHTA NOTICEES 3
AND 4.

27. The submissions inter alia made by Mr. Chandrakant Mehta and Ms. Dipti Mehta vide
letter dated July 20, 2010 are as follows :
Page 25 of 59

(i) Mr. Chandrakant Mehta filed the objections for himself and also on behalf of his
daughter-in-law Ms. Dipti Mehta.
(ii) His daughter-in-law Ms. Dipti Mehta does not have any personal knowledge in the above
matter and all the affairs on her behalf pertaining to the transactions covered under the
ex-parte order were handled by Mr. Chandrakant Mehta. Hence, he is filing letter of
objections on her behalf also.
(iii) He is a Senior Citizen aged about 70 years. He was carrying out transactions through Om
Enterprises/Jitendra Harjivandas Securities Pvt. Ltd, members of BSE.
(iv) He denies that there was any front-running by him or Mrs. Dipti Mehta as alleged or that
the same was linked to the case involving Mr.Rajiv Ramniklal Sanghvi as alleged.
(v) He does not know any person from HDFC AMC or Mr. Nilesh Kapadia.
(vi) He does not know Mr. Rajiv Ramniklal Sanghvi on personal basis, but know him as he
was also carrying out trades from the office of M/s. Om Enterprises / Jitendra
Harjivandas Securities Pvt. Ltd.
(vii) He had undertaken transactions in the scrips of ZEE News Ltd., ICRA, TV Today only
for a short time and did not know anybody from mid-cap opportunity fund of HDFC
Mutual Fund. He used to trade on the hunches and market information.
(viii) At times, he used to undertake trades following that of Mr. Rajiv Shanghvi.
(ix) Noticee no.3 used to visit the office of Om Enterprises and used to do his transactions
from there. He was not aware of his transactions being ahead of substantial buy / sale
orders of HDFC AMC as alleged. The terminals of the computers do not disclose the
names of the buyers and sellers.
(x) While passing order, SEBI has considered his transactions and the transactions of Mrs.
Dipti Mehta along with the transactions of Rajiv Shanghvi.
(xi) He is not aware nor concerned with what transpired between the said Mr. Nilesh Kapadia
or Mr. Rajiv Ramniklal Sanghvi. He is also not aware that his trades on BSE have been
reported by Mr. Rajiv Sanghvi to Mr. Nilesh Kapadia as alleged. He is also not aware
about the details of transactions of Mr. Rajiv Sanghvi on a day to day basis.
(xii) He denied that Mr. Rajiv Sanghvi used to place orders in his account or in the account of
Mrs. Dipti Mehta. He had not given any such authority to Mr. Rajiv Sanghvi. There was
Page 26 of 59

no question of Mrs. Dipti Paras Mehta giving any such authority as she was not even
aware of the transactions. He used to buy and sell stocks earlier and his trading covered
in the ex-parte order was mostly intra-day trades. He also submits that he had suffered
losses also.
(xiii) He denied that he was front-running the orders of HDFC AMC in Century Textile on
BSE in the account of Ms. Dipti Mehta as alleged. He is not provided with complete
records of the conversations between Mr. Rajiv Sanghvi and Mr. Nilesh Kapadia by
SEBI, but whatsoever extract has been produced in the orders that Mr. Rajiv Sanghvi
traded in the account of Mrs. Dipti Mehta on BSE as alleged. He is not aware whether
Mr. Nilesh Kapadia has passed any tips to Mr. Rajiv Sanghvi for the shares of Century
Textile Limited on about 24th April, 2007 as alleged.
(xiv) He denied that their trading accounts were operated based on the tips received by Mr.
Rajiv Sanghvi from Mr. Nilesh Kapadia, as alleged.
(xv) He denies violating regulations 3 (a) (b) and Regulations 4 (1) & Regualtion 4 (2) (e) of
the PFUTP Regulations as alleged.
(xvi) He denies that he or Mrs. Dipti Mehta are accomplices of Mr. Nilesh Kapadia as alleged
or even of Mr. Rajiv Sanghvi. He denies having caused any damage to the market.
Therefore, there was no question of him causing any further damage to the market. In
fact, he had not undertaken any transactions of intra-day trading post the period of
investigation and therefore there was no necessity to pass any ex-parte order against him
or Mrs. Dipti Mehta. There was no question of his accumulating shares before execution
of HDFC AMC transactions as he was not aware of any such order.
(xvii) He denies having earned any illegitimate gain as set out in paragraph 12 (VII) of the
order. He had paid income tax on the earned income. Therefore, after deducting losses
and Income Tax Paid, his net gain comes to only about 41 Lakhs in both accounts.
(xviii) The directions in the ex-parte order has created a hurdle in disposing off their shares held
in their demat accounts, which have no nexus whatsoever to the transaction covered
under the order and which are purchased even prior to the concerned transactions under
investigation. He requested permission to at least dispose off shares held by them in the
market.
Page 27 of 59

(xix) He further requested SEBI to consider the documents furnished by him, including Bank
statement, Balance sheet and other documents, which do not show any nexus with either
Mr. Nilesh Kapadia or with Mr. Rajiv Sanghvi.
(xx) He had not received any amount or shares from them nor had he paid or delivered any
amount or shares to them. Further, he had not undertaken any off market transactions
and has no contact with them. He has already deposited an aggregate amount of
50,00,000/- towards both the accounts.
28. Mr. Chandrakant Mehta and Ms. Dipti Mehta were afforded an opportunity of personal
hearing on June 28, 2011, when Mr. Ajay Khandhar, Advocate, appeared on their behalf and
made submissions. They were also afforded a fresh opportunity of personal hearing on June 05,
2014. However, the said noticees did not avail of the opportunity and instead filed written
submissions dated May 28, 2014, through their Advocate, Mr. Ajay Khandhar, inter alia
submitting the following :
(a) The noticees are innocent and did not involve in any front running.
(b) They have deposited an amount of 92,14,100/- with SEBI as per the directions.
(c) The noticees have vide reply dated July 25, 2010 submitted that all transactions
undertaken by Mr. Chandrakant P. Mehta and that Mrs. Dipti Mehta had no role
whatsoever in the transactions. The matter is almost seven years old.
(d) Various documents were submitted as per the directions of SEBI.
(e) The noticees requested that no action be taken against them and the amounts deposited
by them under protest be refunded to them.
It was also submitted that the contents of paragraph 17 of the consent applications filed by
noticees 3 and 4 may be considered. The consent applications were perused and the contents of
paragraph 17 thereof were a reiteration of the above submissions made by them. Mr.
Chandrakant Mehta has also stated that he used to follow the trades of Mr. Rajiv Sanghvi and
was not aware as to why his trades were reported to Mr. Nilesh Kapadia.

As noticees nos. 3 and 4 did not avail the opportunity of personal hearing, the said opportunity
was closed and the matter is proceeded further.

Page 28 of 59

PART II CONSIDERATION OF THE CHARGES WITH EVIDENCE AVAILABLE
ON RECORD

29. I have considered the SCNs issued to Mr. Nilesh Kapadia, Mr. Rajiv Sanghvi, Mr.
Chandrakant Mehta and Ms. Dipti Mehta, their replies and submissions, both oral and written
and the documents and material that are available on record.

30. The allegation in the SCNs is that Mr. Nilesh Kapadia [a former equity dealer with HDFC AMC]
had tipped Mr. Rajiv R. Sanghvi regarding the orders of HDFC AMC before placing them. On
receipt of such information, Mr. Rajiv R. Sanghvi indulged in front running along with Mr.
Chandrakant P. Mehta, Mrs. Dipti Mehta and Mr. Sanjay R. Sanghvi, and made substantial profits in
view of the consequential price rise, to the detriment of the investors. Mr. Nilesh Kapadia was alleged
to have made telephonic calls to Mr. Rajiv R. Sanghvi for informing about the orders to be placed for
HDFC AMC. The SCNs issued to the above noticees, allege that such conduct is in contravention
inter alia of the provisions of section 12A of the SEBI Act read with regulations 3 and 4(1) of the
PFUTP Regulations. Such provisions are reproduced below :

SECTION 12A OF THE SEBI ACT

"Prohibition of manipulative and deceptive devices, insider trading and substantial
acquisition of securities or control.
12A. No person shall directly or indirectly
(a) use or employ, in connection with the issue, purchase or sale of any securities listed or proposed to be listed on a
recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of
this Act or the rules or the regulations made thereunder;
(b) employ any device, scheme or artifice to defraud in connection with issue or dealing in securities which are listed
or proposed to be listed on a recognised stock exchange;
(c) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any
person, in connection with the issue, dealing in securities which are listed or proposed to be listed on a recognised
stock exchange, in contravention of the provisions of this Act or the rules or the regulations made thereunder;
(d) engage in insider trading;
(e) deal in securities while in possession of material or non-public information or communicate such material or
non-public information to any other person, in a manner which is in contravention of the provisions of this Act or
the rules or the regulations made thereunder;
Page 29 of 59

(f) acquire control of any company or securities more than the percentage of equity share capital of a company whose
securities are listed or proposed to be listed on a recognised stock exchange in contravention of the regulations made
under this Act. "

REGULATIONS 3 AND 4(1) OF THE PFUTP REGULATIONS:

"3. Prohibition of certain dealings in securities
No person shall directly or indirectly
(a) buy, sell or otherwise deal in securities in a fraudulent manner;
(b) use or employ, in connection with issue, purchase or sale of any security listed or proposed to be listed in a
recognized stock exchange, any manipulative or deceptive device or contrivance in contravention of the provisions of
the Act or the rules or the regulations made there under;
(c) employ any device, scheme or artifice to defraud in connection with dealing in or issue of securities which are
listed or proposed to be listed on a recognized stock exchange;
(d) engage in any act, practice, course of business which operates or would operate as fraud or deceit upon any
person in connection with any dealing in or issue of securities which are listed or proposed to be listed on a
recognized stock exchange in contravention of the provisions of the Act or the rules and the regulations made there
under.

4. Prohibition of manipulative, fraudulent and unfair trade practices
(1) Without prejudice to the provisions of regulation 3, no person shall indulge in a fraudulent or an unfair trade
practice in securities.
."

As the above provision deals with "fraudulent", it would be necessary to refer to the definition of
"fraud" and "fraudulent" as provided under regulation 2 of the PFUTP Regulations.

2. (1) In these regulations, unless the context otherwise requires,
.
(c) fraud includes any act, expression, omission or concealment committed whether in a deceitful manner or not
by a person or by any other person with his connivance or by his agent while dealing in securities in order to induce
another person or his agent to deal in securities, whether or not there is any wrongful gain or avoidance of any loss,
and shall also include -
(1) a knowing misrepresentation of the truth or concealment of material fact in order that another person may act
to his detriment;
Page 30 of 59

(2) a suggestion as to a fact which is not true by one who does not believe it to be true;
(3) an active concealment of a fact by a person having knowledge or belief of the fact;
(4) a promise made without any intention of performing it;
(5) a representation made in a reckless and careless manner whether it be true or false;
(6) any such act or omission as any other law specifically declares to be fraudulent,
(7) deceptive behaviour by a person depriving another of informed consent or full participation,
(8) a false statement made without reasonable ground for believing it to be true.
(9) the act of an issuer of securities giving out misinformation that affects the market price of the security, resulting
in investors being effectively misled even though they did not rely on the statement itself or anything derived from it
other than the market price.

And fraudulent shall be construed accordingly;
."

31. The SCNs have alleged that noticees 2, 3 and 4 had indulged in trades on the basis of the
tips received from noticee no.1 (who was a dealer of HDFC MF) in the scrips in which the trades
were to be placed on behalf of HDFC AMC. After purchasing shares of those scrips, and when
the mutual fund placed buy orders, the shares purchased earlier by the noticees 2,3 and 4, were
offered with respect to the buy orders (for HDFC MF) and the trades were executed. This
manner of trading indulged in by noticees 2, 3 and 4 is generally known as "front running". The
following portion, reproduced from the order dated 09.11.2012 of the Hon'ble SAT in the matter
of Dipak Patel vs. SEBI, would be relevant to be noted :

"

As per the Major Law Lexicon by P Ramanatha Aiyar (4th Edition 2010), front running is defined as under:
Front running. Buying or selling securities ahead of a large order so as to benefit from the subsequent price move.

This denotes persons dealing in the market, knowing that a large transaction will take place in the near future and
that parties are likely to move in their favour.

The illegal private trading by a broker or market-maker who has prior knowledge of a forthcoming large movement
in prices. (Investment)

The Blacks Law Dictionary (Ninth Edition) defines the term front running as under:

Page 31 of 59

front-running, n. Securities. A brokers or analysts use of nonpublic information to acquire securities or enter into
options or futures contracts for his or her own benefit, knowing that when the information becomes public, the price
of the securities will change in a predictable manner. This practice is illegal. Front-running can occur in many
ways. For example, a broker or analyst who works for a brokerage firm may buy shares in a company that the
firm is about to recommend as a strong buy or in which the firm is planning to buy a large block of shares.

It will thus be seen that if a person trades in stocks or other investments having knowledge of the upcoming
transaction by a third party which is likely to affect the market price of the investment, the person can be said to be
doing front running.

"

32. Before I proceed to consider the charges against the four noticees in the light of the
evidence available on record, it would be important to note the following:
(a) During the personal hearings afforded to Mr. Nilesh Kapadia and Mr. Rajiv R. Sanghvi
on June 06, 2013 and June 17, 2013 respectively, the learned counsels representing the
said noticees, drew my attention to the orders dated November 09, 2012 and December
17, 2012 respectively passed by the Hon'ble Securities Appellate Tribunal ("the Hon'ble
SAT") in the matters of Dipak Patel vs. SEBI (Appeal No. 216 of 2011) and Sujit Karkera vs.
SEBI (Appeal No. 167 of 2012) and submitted that the PFUTP Regulations prohibited
"front running" only for intermediaries. It is contended that Mr. Nilesh Kapadia and Mr.
Rajiv R. Sanghvi are not intermediaries and therefore the charge of front running cannot
survive against them. I have perused the afore-referred decisions of the Hon'ble SAT. In
the order passed in the matter of Dipak Patel vs. SEBI, the Hon'ble SAT has observed that
it is an admitted position that regulation 4(2)(q) of the PFUTP Regulations applies only to
intermediaries and not to other persons trading in the securities market. The Hon'ble
SAT has also observed that " In the absence of any specific provision in the Act, rules or
regulations prohibiting front running by a person other than an intermediary, we are of the view that the
appellants cannot be held guilty of the charges levelled against them.".

(b) While following its decision delivered in the matter of Dipak Patel vs. SEBI, the Hon'ble
SAT inter alia made the following observations while deciding the appeal filed by Sujit
Karkera and others : " .. So, following our decision in the case of Shri Dipak Patel supra, we hold
that the appellant cannot be held guilty of violating the provisions of regulations 3 and 4 of the FUTP
Regulations. We have taken note of the submissions of the learned senior counsel for the Board that the
Page 32 of 59

provisions of regulation 3 are wide in their sweep and application. However, the fact remains that
regulation 4(2)(q) of the FUTP Regulations has made a specific provision in respect of manipulative,
fraudulent and unfair trade practices indulged in by an intermediary. The legal position as regards the
provisions of section 4(2)(q) has been dealt with at length in the order of this Tribunal in the case of Shri
Dipak Patel mentioned above. When a specific provision is available in respect of violation of the
regulations it is necessary to apply the specific regulation. In the present case, the general provisions
contained in regulation 3 of the FUTP Regulations cannot be applied to the facts of the case since it is
squarely covered by specific provision contained in regulation 4(2)(q) of the FUTP Regulations. There is
no specific provision in the Act, rules or regulations prohibiting front running by a person other than an
intermediary. Since the appellants are not intermediaries they cannot be held to have violated the
provisions of regulations 3 and 4 by indulging in front running. In view of the discussion above, we set
aside the impugned order of the adjudicating officer and allow the appeal with no order as to costs."

(c) Aggrieved by the aforesaid observations of the Hon'ble SAT, SEBI had preferred
statutory appeals before the Hon'ble Supreme Court. Both the appeals filed by SEBI
have been admitted by the Hon'ble Court. I also note that in the appeal (Civil Appeal
No. 2666 of 2013) filed by SEBI with respect to the decision in the matter of Sujit
Karkera and others, the Hon'ble Supreme Court vide order dated April 22, 2013, has
directed that the appeal be tagged along with Civil Appeal D. No. 2454 of 2013 and other
connected appeals and to list the appeals for final disposal as soon as service is
completed.

(d) In the meanwhile, the Hon'ble SAT in an order dated September 04, 2013 (in the matter of
Vibha Sharma and another vs. SEBI Appeal No. 27 of 2013) has reversed its earlier findings
with respect to "front running" and observed as follows : "33. A minute perusal of the
judgment of Dipak Patel makes it evident that act of front running is always
considered injurious be it an intermediary or any other person for that reasons. We
would like to give a liberal interpretation to the concept of front running and
would hold that any person, who is connected with the capital market, and
indulges in front running is guilty of a fraudulent market practice as such liable to
be punished as per law by the respondent. The definition of front running,
therefore, cannot be put in a straight-jacket formula. "
[Emphasis supplied]

Page 33 of 59

Thus, the views of SEBI have been endorsed by the Hon'ble SAT. Therefore, it
becomes clear that when an offence of "front running" is committed by non-
intermediaries, like the noticees in this case, the general provisions of the PFUTP
Regulations would be applicable as prohibition for such acts of front running, and the
applicable provisions, viz, regulations 3 and 4 would be applicable. If such violations are
proved, the noticees would be liable for punishment/penalty as per law.

(e) Another issue which I would like to mention here, before proceeding further, would be
with respect to the request for cross-examination made by both noticee no. 1 and noticee no.2.
They requested to cross-examine each other with respect to their statements and also cross-
examine the officials of HDFC AMC, who had confirmed the voice in the recordings of the
conversations (alleged to be conversations wherein tips were passed on to noticee no. 2) between
noticee no. 1 and noticee no.2. Though they were afforded opportunities for such cross-
examination, they have, as mentioned above, declined to proceed with their cross-examination.
Therefore, their request was closed and the matter was proceeded further. SEBI, vide letters
dated February 25, 2013, informed Mr. Nilesh Kapadia and Mr. Rajiv Sanghvi about the cross-
examination. The letter also enclosed a list of documents that were relied upon by SEBI in the
proceedings against them. The letter specifically mentioned that such documents were already
furnished to them. The afore-mentioned list of documents, lists the statements of noticee 1,
noticee 2 and the declaration made by the officials of HDFC AMC. The denial by noticees 1 and
2 to cross-examine, was made after the said letter was issued to them. Therefore, from the above
conduct, I infer that the noticees have no reservation in SEBI relying upon them in these
proceedings.

33. I now proceed to consider the evidence on record, which have also been furnished to the
four noticees. The following are the documents that have been furnished to the noticees, either
by way of the SCNs or by way of subsequent notices, and that are being relied and considered in
these proceedings :
(i) Recordings of telephone calls (in soft form in CD) Annexure I of the SCNs issued
to all four noticees ;
(ii) Transcripts of the conversations as submitted by HDFC AMC vide letters dated
18.02.2010, 23.02.2010, 02.03.2010, 03.03.2010, 09.03.2010 and 18.03.2010 ;
Page 34 of 59

(iii) The e-mail from HDFC AMC providing clarification on the difference between the
dealing room call records as to the timing of calls (start and end time) and the timing
of the actual conversations Annexure III of the SCNs ;
(iv) Relevant extract of NSE trade log, and complete trades and order logs of NSE and
BSE Annexures IV and V to the SCNs ;
(v) Table with data (sample) that co-relates the trade time with the time of the
conversation along with quantity of shares Annexure VI of SCNs ;
(vi) Letter dated December 02, 2008 (from noticee 2 to his mobile service operator)
indicating that the mobile no. 9322228959 was his - Annexure VII to the SCNs;
(vii) Mobile bills of noticee 1 showing calls between him and noticee 2 Annexure VIII;
(viii) Analysis of calls made between noticee 1 and noticee 2 Annexure IX ;
(ix) Matched trades between HDFC AMC and noticees 2, 3 and 4 including one Sanjay
Sanghvi Annexure X ;
(x) 6 instances of trades (in these instances noticee no.1 was found to be using his mobile phone
instead of dealing room telephone) Annexure XI ;
(xi) Statement of noticee no. 1 given to SEBI on March 25, 2010 (Annexure XII) and
May 19, 2010 (Annexure XIII) ;
(xii) Statement of noticee no. 2 given to SEBI on May 19, 2010 - Annexure XIV ;
(xiii) Statement of Mr. Chandrakant Mehta dated May 21, 2010 Annexuire XVII ;
(xiv) Statement of Ms. Dipti Mehta dated May 26, 2010 Annexure XVIII ;
(xv) Calculation of loss sustained by HDFC MF Annexure XI ;
(xvi) Declaration by officials of HDFC AMC letter dated September 04, 2012 this
letter was forwarded to both noticee 1 and noticee 2 ;
(xvii) Letter dated December 05, 2010 from noticee no. 2 to SEBI (wherein noticee 2 has
admitted having received tips/information from noticee no. 1) was shared with
noticee no. 1 vide SEBI letter dated December 07, 2012. The same has been
acknowledged by the authorised representative of noticee no.1.

34. Firstly, I would proceed by referring to the statements given by the noticees to SEBI. In
this regard, the following questions and answers from their statements are important to be noted:

Statement of Mr. Nilesh Kapadia dated May 19, 2010 :

"Q.1. How do you know Mr. Rajiv Ramniklal Sanghvi ?
I know Rajiv Sanghvi from college days.
Page 35 of 59


Q.3. Were you in touch with him in 2007 ?
Yes. Met him at a college reunion in Feb 2007.

Q.4. Did you give him any investment tips in 2007 ?
Yes. But unfortunately he made losses on them.

Q.5. Did you give him any tips to trade based on the orders to be placed by you for HDFC MF ?
I am sorry to say but yes I gave him tips from MF orders as of that time I felt morally obliged to help him recover
his losses. I have given this statement without any treat or coercion.

Q.6. On how many occasions did you tip Mr. R.R. Sanghvi ?
I don't recall the exact number of times I spoke with him.

Q.7. Did you share any profits made by Mr. Sanghvi ?
No.

Q.9. Do you know Paras Mehta, Chandrakant Mehta, Dipti Mehta ?
I don't know them.

..
I request you to take a lenient view of the above. I assure you that I won't be doing this mistake again"

Statement dated May 19, 2010 of Mr. Rajiv Sanghvi:

"1. Do you know Mr. Nilesh Kapadia dealer from HDFC MF and how?
Yes/Since long time he is a friend.

2. Did you trade on the basis of tips from Mr. Nilesh Kapadia ?
Yes.

3. In which accounts did you put these trades ?
Rajiv Sanghvi.

4. Do you know Chandrakant P. Mehta, Paras Mehta and Dipti Mehta ?
Yes. I have met Mr. Chandrakant Mehta a few times.

5. Did you ever tip Mr. Chandrakant Mehta on investments ?
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No.

6. Did you ever observe Mr. Chandrakant Mehta giving similar orders as yours?
May be once/twice.

7. Why did you provide information/confirmation on trades by Chandrakant P Mehta and Dipti Mehta to
Nilesh Kapadia ?
There is no particular reason or logic regarding the information provided.

8. Were you placing trades in the account of Chandrakant P. Mehta and Dipti Mehta or had any
dealings/relationships with their accounts through Om Enterprises ?
No relationship ; I did not place any trade in their names. "

Statement dated May 21, 2010 of Mr. Chandrakant P. Mehta

Q.3. How do you know Rajiv Ramniklal Sanghvi ?
I don't know Mr Rajiv Sanghvi.
I had no contact or business with him.

Q.4. Did you meet him at Om Enterprises ?
Very Rarely.

Q.5. Do you know Nilesh Kapadia
No

Q.6. Did you place the orders in your account and Dipti Mehta's account (through Ohm Enterprises) by yourself?
Yes

Q.7. Did you take any tips on investments from Rajiv Ramniklal Sanghvi ?
At times I have traded looking his trades

Q.14. Did anyone help you in placing the orders during April July 2007, through Ohm Enterprises ?
No body

Q.15. Do you have any experience in trading in other markets esp. with large number of orders, very small
intervals and squaring off during the day?
No.
Page 37 of 59


During April to July 2007, at what time you used to go to Ohm Enterprises for trading ?
9 to 9:30 morning
At what time you would leave from there?
upto evening."

Statement dated May 26, 2010 of Ms. Dipti Mehta

"2. Were you trading in your account based on guidance from somebody?
My father-in-law Mr. Chandrakant P. Mehta arrange to open my A/c & he only was placing the order from my
A/c. I don't (have) any knowledge of the transactions. "

From the above statements of noticees 1 and 2, the following is deduced :
1. Both noticees 1 and 2, are acquainted with each other being college friends.
2. Noticee no. 1 had provided tips from MF orders as he felt obliged to help noticee no. 2
who had sustained losses after following earlier tips given by noticee no.1.
3. Noticee no. 2 has admitted to trading on the basis of tips received from noticee no.1.

Noticee 1 has admitted to have passed tips to noticee no. 2 and that noticee no. 2 has admitted of
executing trades on the basis of such tips received from noticee no.1.
I also note that noticee no. 1 has submitted during the course of the proceedings (vide his reply
dated October 08, 2011) that he retracts his statement mentioned above, as the same was taken
under duress, coercion and threat that he would lose his job. This manner of retraction,
according to me, would not be valid for the following reasons: It is to be noted that the said
noticee (Mr. Nilesh Kapadia) has merely made a submission about the retraction but has not
shown any reasonable ground / or cause and supporting evidence in support of the same. From
the records, I note that the said statement was taken by SEBI in the usual course of conducting
investigation in the matter. As per the statement (dated May 19, 2010), it can be noted that he
was explained fully the provisions of section 11 of the SEBI Act and that he understood the
same. He was also put to notice that giving a false statement is an offence and his statement can
be used against anybody including the noticee himself in any proceedings. Further, the noticee
no.1 himself has in his own hand written that "I have given this statement without any threat
or coercion". Another very important aspect which needs to be noted is that the retraction
should be made at the earliest. However, in this case, it can be seen that the noticee no.1 has
given his statement during March and May 2010 and his retraction comes in only after a long
Page 38 of 59

delay of more than a year vide his reply filed during October 2011. This is another reason, why I
would not take his retraction as valid in this case. Even if such statements of Mr. Nilesh Kapadia,
brought on record, can be considered to be retracted, there are other evidence and material which
are independent and cogent, that strongly corroborate the charges that are levelled against the
noticee no.1, which even without his confession statement would help one to infer against the
said noticee.

The following was observed by the Hon'ble Supreme Court in its Order dated 18.12.2008 in
Vinod Solanki vs. Union of India [Civil Appeal No. 7407 of 2008]
"With a view to arrive at a finding as regards the voluntary nature of statement or otherwise of a confession which
has since been retracted, the Court must bear in mind the attending circumstances which would include the time of
retraction, the nature thereof, the manner in which such retraction has been made and other relevant factors.
.

Whereas mere retraction of a confession may not be sufficient to make the confessional statement irrelevant for the
purpose of a proceeding in a criminal case or a quasi criminal case but there cannot be any doubt whatsoever that
the court is obligated to take into consideration the pros and cons of both the confession and retraction made by the
accused. It is one thing to say that a retracted confession is used as a corroborative piece of evidence to record a
finding of guilt but it is another thing to say that such a finding is arrived at only on the basis of such confession
although retracted at a later stage."

In this case, one cannot ignore the relevance of the admission made by the noticee no.1 in
tipping noticee no.2. Even though the statement was subsequently retracted, the significance of
admission in the first place cannot be under-mined. According to me, it appears that the noticee
1 has retracted his statement as an afterthought. His retraction can therefore not be taken into
account and in my view his statement would continue to be a valid piece of document in this
proceeding.

Further, noticee no.2 vide his letter dated December 05, 2012 stated that the persons so advised
would need to have access to large funds to credit, ability to take risks and be willing to do so at
very small margins. This is clearly the role in which he was advised by HDFC MF generally and
on its behalf Mr. Nilesh Kapadia specifically to purchase or otherwise deal in certain scrips". The
same would also make it clear that noticee no.2 was knowing noticee no.1.

Page 39 of 59

In addition to the above discussions, it is important to note that noticee no.2 in his written
submissions dated June 24, 2013 has again admitted "knowing Mr. Nilesh Kapadia and receiving
tips from him". Therefore, his earlier submission regarding retraction has no relevance now.

35. Notwithstanding such statements and admissions by the concerned noticees, I wish to
rely on the following evidences :
(a) Noticee no. 1, at the relevant point in time, was the dealer in the HDFC AMC. The SCN
has alleged that noticee no.1 was advising noticee no.2 to trade ahead of the orders of HDFC
AMC and that the noticee no.1 was using the dealing room telephone as well as his mobile phone
for making those calls (for passing on tips), while noticee no. 2 was using his mobile phone to
receive such calls. It is an admitted position that the mobile no. 9322228959 belonged to noticee
no. 2 (as admitted by noticee vide letter dated December 02, 2008 addressed to his mobile service
provider). Further, the mobile no. 9820221553 belongs to noticee no. 1. On a perusal of the
mobile phone bills pertaining to noticee no. 1 (Annexure VIII to the SCNs), it is noted that
noticee no.1 has been regular in his conversations with noticee no.2. It is contended that such
conversations were general and were not with respect to the alleged tipping. In this regard, I refer
to the 'Table with data (sample) that co-relates the trade time with the time of the conversation
along with quantity of shares Annexure VI of SCNs'. In that Table, the details such as Date,
Scrip in which trades were executed, Telephone Call timings, identity of the caller (noticee 1 or 2)
and receiver (noticee 2 or 1), transcript of the conversation and the stock (of shares) position as
per the trade-order logs, were mentioned. As per the details, it is noticed that the quantity of
shares that were discussed during the conversations between noticees 1 and 2 exactly matched
with the stock position in the accounts of the noticees 2, 3 and 4 as applicable.

Noticee no. 3 has also admitted that he knew noticee no. 2, as he was also carrying out trades
from the office of M/s. Om Enterprises / Jitendra Harjivandas Securities Pvt. Ltd. Though,
noticee no. 2 and noticee no. 3 denied knowing each other, the manner of their trading, reporting
of such stock position to the noticee no.1 who was passing on tips to noticee no.2 , would lead to
an inference that noticees 3 and 4 were acting in tandem as per the instructions of noticee no. 2,
who in turn was executing his trades on the basis of tips passed on by noticee no.1.
(b) Recording of calls made from the dealing room :

(i) I note that HDFC Mutual Fund vide letter dated December 31, 2009 (which is part of
the material enclosed with the SCN) has forwarded a CD containing the dealer room
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conversations (equity dealing desk for placing/confirming orders with brokers) for
the specified dates 13.04.2007, 19.04.2007, 24.04.2007, 03.05.2007, 07.05.2007,
08.05.2007, 09.05.2007, 10.05.2007, 11.05.2007, 12.06.2007, 15.06.2007, 26.06.2007,
16.07.2007, 17.07.2007, 18.07.2007, 19.07.2007, 23.07.2007, 24.07.2007 and
31.07.2007. The HDFC Mutual Fund has also submitted vide letter dated September
04, 2012 that the call recordings submitted by it vide letter dated December 31, 2009
were extracted from the call logging server its master voice recording (logger)
system and are genuine. It was further stated that those voice recordings were done
during the normal course of business, as per its extant policy and in accordance with
the SEBI Circular dated September 30, 2002 dealing with risk management practices.
HDFC MF had also identified the voice of the person (calling from the dealing room)
who made call to the mobile no. 9322228959 as that of Mr. Nilesh Kapadia. The
identification of voice has been done by 4 officials of the said mutual fund. It was
also submitted that Mr. Nilesh Kapadia (through dealing room telephone) and Mr.
Rajiv Sanghvi were conversing with each other for 320 times during the 19 days
(dates as mentioned above) when the information was shared (tipping). It is also seen
that Mr. Nilesh Kapadia (mobile no. 9820221553) and Mr. Rajiv Sanghvi (mobile no.
9322228959) were conversing with each other for 333 times during the period
March 07, 2009 to August 06, 2007. As mentioned above, Annexure XI provides 6
trades wherein noticee no. 1 was using his mobile phone instead of the dealing room
telephone for conversing with noticee no.2.

(ii) In view of the same, the submission that the voice was not identified by the HDFC
AMC is not correct. The documents with respect to the identification of the voice of
noticee no.1 have been forwarded to both noticee 1 and 2. Though, initially they
desired to cross-examine such officials, they declined to do so, later on, as discussed
earlier in this order.

(iii) From the above, two important points emerge. Firstly, the recordings were done in a
routine manner by the HDFC Mutual Fund as the dealer room conversations were
mandated by SEBI. Secondly, the voice of Mr. Nilesh Kapadia speaking from the
dealer's room has been identified by his colleagues i.e. the officials of the HDFC
Mutual Fund. Further, the noticees 1 and 2 have declined to cross-examine the
Page 41 of 59

officials of HDFC Mutual Fund on such statements. Therefore, in view the above, I
find that there would be no reason not to rely on such recordings.

(c) Transcripts of the telephonic conversations :

The transcript of the telephonic conversations were made by an agency engaged by the HDFC
Mutual Fund. The same forms part of the material relied as evidence. The noticees have
contended that even as per the letter of HDFC Mutual Fund, the accuracy of the transcription
has not been vouched by HDFC Mutual Fund, and therefore reliance should not be placed by
SEBI on such documents. In this regard, I note that as per Annexure VI to the SCN (table co-
relating the telephone call timings with the trade timings), the number of shares mentioned in the
conversations do match with the stock position. Moreover, when the transcription is seen
against the actual conduct of the noticees 2, 3 and 4 in placing trades, they do match. The
noticees have made a general contention as regards the disclaimer clause of HDFC and have not
brought out any single instance of inaccuracy. It is important to note that noticee no. 2 has
admitted having received tips from noticee no.1. The conversations (i.e., transcriptions of those)
and the trading pattern do match. In such circumstances, it would not be prudent to dismiss this
transcription of calls made between noticees 1 and 2.

(d) Trading by the noticees 2, 3 and 4 and then subsequently matching trades with
HDFC MF :
The SCNs has alleged that the noticees 2, 3 and 4 (including one Sanjay Sanghvi) had traded in
the scrips on the basis of the tips received by noticee 2 from noticee 1. As mentioned above,
such trades happened on 19 trading days. As an example, the following may be noted with
respect to the trades executed on 13.04.2007 :

On 13.04.2007, the following calls were made to/from between noticee 1 (from dealing room)
and noticee-2 ( his mobile phone).

Date Line
Ext.
Line
Call
Type
Start
Time
End
Time Duration DTMF Display
Transcript
file no.
04/13/2007 7 810 Out 09:54:19 09:54:46 00:00:27 9322228959 09322228959Enquiry? 435659
04/13/2007 7 810 Out 09:58:49 09:59:00 00:00:11 9322228959 09322228959Enquiry? 435667
04/13/2007 7 810 Out 09:59:05 09:59:45 00:00:40 9322228959 09322228959Enquiry? 435668
04/13/2007 7 810 Out 10:00:05 10:00:38 00:00:33
67069999
9322228959 Call: 0 HUGHES 435670
04/13/2007 7 810 Out 10:01:46 10:02:56 00:01:10
9322228959
67069999 067069999Enquiry? 435673
04/13/2007 7 810 In 10:04:42 10:05:30 00:00:48 9322228959 From: 002267069929 435682
04/13/2007 7 810 Out 10:15:40 10:15:56 00:00:16 9322228959
From:
002266679738Enquiry? 435698
04/13/2007 7 810 In 10:16:41 10:17:12 00:00:31 9322228959 From: 002240021605 435702
04/13/2007 7 810 Out 10:17:50 10:19:06 00:01:16 9322228959 MTNLEnquiry? 435705
Page 42 of 59

04/13/2007 7 810 In 10:19:23 10:20:04 00:00:41
9322228959
67069999 From: 002267069909 435707
04/13/2007 7 810 Out 10:20:22 10:20:39 00:00:17 9322228959 09322228959Enquiry? 435708
04/13/2007 7 810 Out 10:21:30 10:22:02 00:00:32 9322228959 09322228959Enquiry? 435710
04/13/2007 7 810 Out 10:27:00 10:27:39 00:00:39 9322228959 002266360134Enquiry? 435723
04/13/2007 7 810 Out 11:10:56 11:11:12 00:00:16 9322228959 09322228959Enquiry? 435814
04/13/2007 7 810 In 11:12:37 11:13:23 00:00:46 9322228959 From: 002267069909 435820
04/13/2007 7 810 Out 11:14:38 11:15:01 00:00:23 9322228959 09322228959Enquiry? 435829
04/13/2007 7 810 Out 11:15:01 11:16:45 00:01:44
67069999
9322228959 002224904868Enquiry? 435832
04/13/2007 7 810 Out 11:17:15 11:17:51 00:00:36 9322228959 09322228959Enquiry? 435835

a) As per the call recording

Conversation Start Time 09:54:19 End time 09:54:46 (transcript file no. 435659)

Noticee-2: Hello.
Noticee-1 : Okay you buy 100,000 ICRA
Noticee-2: Okay ya.
.

b) Immediately ICRA shares were bought on the same day in the trading accounts of
noticees 2, 3 and 4.

46,000 shares @ 613.13 were bought in the trading account of noticee-2
between 09:59:42 and 10:00:55 at NSE

22,000 shares @ 625.93 were bought in the trading account of noticee-3
between 10:14:39 and 10:15:58 at BSE

34,000 shares @ 622.199 were bought in the trading account of noticee-4
between 09:56:46 and 10:00:55 at BSE

c) In total, 1,02,000 shares of ICRA were purchased by noticees 2, 3 & 4 on April
13, 2007..
d) The confirmation of the trades - bought quantity and the buy average rate have
been communicated by the noticee-2 to noticee-1 including the shares bought in
the trading account of noticees 3 and 4. The following are the conversation
between the Noticee-2 to Noticee-1.

Start time 10:01:46 End Time 10:02:56 (transcript file no. 435673) on
13.04.2007 :
Noticee-2: Hello.
Noticee-1: Ya.
Noticee-2: 45,000 hua hai NSE pe, 34 hua hai BSE pe 622.19 me.
Noticee-1: Kahan pe?(where)
Noticee-2: BSE me .(In BSE)
Noticee-1: 22.
Noticee-2: 622.19 and 611.17 on NSE.
Noticee-1: Okay, bus?
Noticee-2: Haan .(yes)
Noticee-1: Kya hai abhi?(how much is the rate right now)
Noticee-2: 24-25.
Page 43 of 59

Noticee-1: 34.75.
Noticee-2: Daal du dono baju?.
Noticee-1: Haan.(yes)

34,000 shares @ 634.75 were sold in the trading account of noticee-4 between
10:02:47 and 10:02:55 at BSE

46,000 shares @ 634.75 were sold in the trading account of noticee-2 between
10:02:43 and 10:02:51 at NSE

e) These details have been communicated by noticee-2 to noticee-1. The following
are the conversation between the Noticee-2 to Noticee-1

Start Time 10:04:42 End time 10:05:30 (transcript file no. 435682)

Noticee-1: Hello.
Noticee-2: Completed both sides.
Noticee-1: Haan boliye. (yes)
Noticee-2: 46,000 on NSE at 613.13 and selling 634.75 BSE 34,000 at 622.20
and selling 634.75.
Noticee-1: Okay.


Start Time 10:15:40 End time 10:15:56 (transcript file no. 435698)
Noticee-2: Hello.
Noticee-1: You buy 50,000.
Noticee-2: Likra? (ICRA)
Noticee-1: Ya.
Noticee-2: ya.

f) Additional shares were purchased in the trading account of noticee 3 and 4.
Subsequently, the shares were sold from the trading accounts of noticees 2, 3 & 4.

g) In total at BSE, 86,600 shares @ 633.27 were bought and sold 86,600 shares @
650.56

h) In total at NSE, 46,600 shares @ 613.13 were bought and sold 46,600 shares @
634.75

i) These details have been communicated by Noticee-2 to Noticee-1. The following
are the conversation between the Noticee-2 to Noticee-1 in this regard.

435835 Start time 11:17:15 -- end time 11:17:51 (on 13.04.2007) :
Noticee-2: Ya complete both side.
Noticee-1: Bholiye. (Tell me.)
Noticee-2: 86,600 BSE.
Noticee-1: 86,000?
Noticee-2: 600.
Noticee-1: Haan. (Yes.)
Noticee-2: 633.27 buying.
Page 44 of 59

Noticee-1: Haan. (Yes.)
Noticee-2: Selling 650.56.

j) The summary of the trades executed in the scrip ICRA by the noticees are given
below.
Entity Trade Date Symbol
Buy
Qty
Sell Qty
Buy Avg.
Rate
Sell Avg.
Rate
Profit
(lakhs)
Excha
nge
Noticee-2 13-Apr-07 ICRA 46000 46000 613.13 634.75 9.94 NSE
Noticee-3 13-Apr-07 ICRA 36000 36000 637.00 654.44 6.28 BSE
Noticee-4 13-Apr-07 ICRA 50600 50600 630.61 647.79 8.70 BSE

HDFC AMC had started buying ICRA shares, when the noticees have started selling the ICRA
shares and their orders matched with the buy orders placed for HDFC AMC as follows :
a) Noticee-2s sell trades were matched 66.44% of the buy trades of HDFC AMC.
b) Noticee-3s sell trades were matched 47.93% of the buy trades of HDFC AMC.
c) Noticee-4s sell trades were matched 51.20% of the buy trades of HDFC AMC.

The pattern of trades mentioned above would indicate that noticees 2, 3 and 4 first 'front ran' the
orders of HDFC AMC and then later on sold the shares indicated above. Similar modus-
operandi i.e., front-running of HDFC AMC buy trades i.e, Buy-Buy-Sell pattern (BBS) as well as
front-running of HDFC AMC sell trades i.e., Sell-Sell-Buy pattern (SSB) were observed with
respect to trading in other scrips on various other trading days. The aforesaid trade pattern is
described below :

Buy-Buy-Sell (BBS) pattern : As a dealer of HDFC AMC, Nilesh had the information of HDFCs
buy order details viz., scrip, quantity and price range. Based on this, Nilesh had given instructions
from Dealer room telephone to Rajiv Sanghvis mobile phone to buy the shares of the same scrip
immediately i.e., before HDFC started buying in the same scrip. The shares were bought in the
trading accounts of either Rajiv Sanghvi, Chandrakant Mehta or Dipti Metha. Once the shares
were bought in the trading accounts either of Rajiv Sanghvi, Chandrakant Mehta or Dipti Metha,
the equal quantities of the shares were sold in the same trading accounts to square-off the trades.
In the meantime, HDFC AMC starts buying shares (orders being placed on its behalf by Mr.
Nilesh Kapadia) in the same scrip through various brokers. It is pertinent to mention that most
of the sell trades of Rajiv Sanghvi, Chandrakant Mehta or Dipti Metha were matched with
HDFCs buy trades. In some instances, it had matched 100%. After execution of the trades in the
trading accounts either of Rajiv Sanghvi, Chandrakant Mehta or Dipti Metha, their trade details
viz., traded quantity and average traded price were confirmed by Rajiv Sanghvi to Nilesh.

Page 45 of 59

Sell-Sell-Buy (SSB) pattern : Like above, Mr. Nilesh Kapadia had given instructions from Dealer
room telephone to Mr. Rajiv Sanghvis mobile phone to sell the shares of a particular scrip
(which HDFC AMC would be selling). The shares were sold in the trading accounts either of
Rajiv Sanghvi, Chandrakant Mehta or Dipti Metha i.e., before HDFC started selling the shares of
the scrip. Once the shares were sold in the trading accounts either of Rajiv Sanghvi, Chandrakant
Mehta or Dipti Metha, the equal quantities of the shares were bought in the same trading
accounts to square-off the trades. In the meantime, HDFC AMC starts selling shares (orders
being placed on its behalf by Mr. Nilesh Kapadia) in the same scrip through various brokers. It is
pertinent to mention that most of the buy trades of Rajiv Sanghvi, Chandrakant Mehta or Dipti
Metha were matched with HDFCs sell trades. In some instances, it had matched 100%. After
execution of the trades in the trading accounts of Rajiv Sanghvi, Chandrakant Mehta or Dipti
Metha, their trade details viz., traded quantity and average traded price were confirmed by Rajiv
Sanghvi to Nilesh.

The details of trades in other scrips by the noticees 2, 3 and 4 is given in the table below.
S. N. Date Scrip
Timing of the first
call between
Noticee-1 and
NOTICEE-2
Timing of the first ORDER
by SRS/Noticees
Quantity
bought and
sold by
SRS/noticees
Qty in Lakh
Buy /
Sell
volume
by HDFC
AMC
Qty in
lakh
Timing
of the
first
ORDER
by HDFC
% of matched trades
between HDFC AMC
and Noticees/SRS Profits
made by
SRS/Not
icees Rs.
in lakh
Number of
times calls
between
Noticee-1
and
NOTICEE-2
(dealing
room,
mobile)
Patt
ern
NSE BSE
1
13-
Apr-
07
ICRA
09:54:19,
11:52:47(M)
9:55:58(Noticee-2);
9:56:38(Noticee-4)
B-1.23, S-
1.23
2.65
09:56:1
0
66.44
51.20(NOT
ICEE-4),
47.93(NOT
ICEE-3)
24.92 19, 5(M)
BBS
2
19-
Apr-
07
ZEEL
11:10:48,
12:16:07(M)
11:10:03(Noticee-4);
11:10:07(Noticee-2)
B-3.73, S-
3.02
4.25
12:05:0
7
99.63 99.76 21.54 11, 3(M)
SSB
3
24-
Apr-
07
Century
Textiles
12:07:35,
11:52:07(M)
12:06:53(notice
4);12:07:01(Noticee-2)
B-2.15, S-
2.15
7.00
12:14:2
9
94.65 97.60 21.84 20, 4(M)
BBS
4
03-
May-
07
Dish TV
11:03:00,
13:54:16(M)
11:04:53(Noticee-4);
11:05:22(Noticee-2)
B-3.20, S-
3.20
7.55
12:09:5
7
87.43 98.00 14.49
48, 4(M)
BBS
5
03-
May-
07
ICICI
Bank
10:17:54
10:17:40(Noticee-
4);10:17:43(Noticee-2)
B-1.68, S-
1.68
3.57
10:46:3
7
87.31 54.17 10.02
SSB
6
07-
May-
07
Dish TV
10:48:23,
12:25:31(M)
10:48:24(Noticee-2)
10:48:16(Noticee-4)
B-2.16, S-
2.16
8.50
11:13:1
8
83.04 93.09 6.38 2, 2(M)
BBS
7
08-
May-
07
Bharti
Airtel
10:52:51,
12:08:13(M)
10:52:43(Noticee-2);
10:52:46(Noticee-4)
B-1.27, S-
1.27
0.65
11:00:3
1
96.00 99.85 5.44
24, 4(M)
SSB
8
08-
May-
07
Century
Textile
12:08:13(M)
10:59:17 (Noticee-2);
10:59:19 (Noticee-4)
B-1.20, S-
1.20
2.42
11:03:2
0
91.92 98.28 7.55
SSB
9
09-
May-
07
HT
Media
10:16:00,
9:43:03(M)
10:16:14(Noticee-2);
10:16:14(Noticee-4)
B-4.4, S-4.4 7.05
11:33:5
7
99.26 99.47 13.46 25, 7(M)
BBS
10
10-
May-
07
United
Phosph
orus
10:21:35,
12:26:09(M)
10:21:54 (Noticee-2)
B-1.76, S-
1.76
3.01
12:00:2
1
95.43 96.98 4.14
43, 5(M)
SSB
10:21:50 (Noticee-4)
11
10-
May-
07
Tata
Elxsi
12:19:39,
12:26:09(M)
12:20:24 (Noticee-
4,Noticee-2)
B-0.61, S-
0.61
1.00
13:59:3
0
99.47 100.00 5.21
SSB
12 11- Relianc 10:46:49, 11:10:43(Noticee-2), B-0.53, S- 4.30 10:54:3 49.73 47.37 2.25 32, 4(M) BBS
Page 46 of 59

May-
07
e
Industri
es Ltd.
(RIL)
11:45:57(M) 11:10:45(Noticee-3) 0.53 0
13
12-
Jun-07
Dishma
n
Pharma
11:44:06,
11:58:13(M)
11:44:57(srs),
11:45:00(Noticee-3)
B-0.822, S-
0.822
3.81
11:55:3
3
100.0
0
97.38 4.70
14, 4(M)
BBS
14
12-
Jun-07
United
Phosph
orus
13:14:20(M)
13:24:55 (srs), 13:24:55
(Noticee-3)
B-0.537, S-
0.537
1.00
14:25:5
5
99.99 100.00 1.24
BBS
15
12-
Jun-07
Amtek
Auto
13:14:20(M)
13:27:14(srs),
13:27:15(Noticee-3)
B-0.90, S-
0.90
1.00
14:39:3
3
100.0
0
99.34 5.61
BBS
16
15-
Jun-07
United
Phosph
orus
09:55:44,
12:11:37(M)
09:58:01(Noticee-2);
9:57:36(Noticee-4)
B-1.40, S-
1.40
3.70
12:43:1
6
99.85 99.83 5.82 20, 3(M)
BBS
17
26-
Jun-07
Relianc
e
Petrole
um Ltd.
14:26:35,
16:06:32(M)
14:27:46(Noticee-4),
14:27:51(Noticee-2)
B-5.28, S-
4.99
49.00
14:28:4
4
90.10 100.00 12.20 3, 3(M)
BBS
18
16-Jul-
07
State
Bank of
India
14:42:15,
15:50:02(M)
14:42:08(Noticee-2),
14:42:11(Noticee-3)
B-0.413, S-
0.413
1.35
14:09:3
1
100.0
0
0.00 1.03
1, 4(M)
BBS
19
16-Jul-
07
Bajaj
Auto
-15:50:02(M)
13:29:05 (Noticee-2);
13:29:22 (Noticee-4)
B-0.362, S-
0.362
1.00
13:40:5
0
99.96 100.00 5.37
BBS
20
16-Jul-
07
Dish TV 15:50:02(M)
13:11:46 (Noticee-3),
13:11:49(Noticee-2)
B-2.88, S-
2.88
10.00
14:07:5
1
100.0
0
100.00 6.06
SSB
21
17-Jul-
07
Zee
News
10:10:27,
12:12:24(M)
10:12:53(Noticee-2),
10:12:38(Noticee-3)
B-1.45, S-
1.45
21.00
10:11:5
9
96.43 88.28 9.98
26, 4(M)
BBS
22
17-Jul-
07
Dish TV
14:28:36,
13:36:04(M)
14:30:12(Noticee-3,
Noticee-2)
B-0.68, S-
0.68
6.00
14:45:4
2
96.43 100.00 1.44
SSB
23
17-Jul-
07
RIL
13:56:47,
13:36:04(M)
13:55:55(Noticee-3),
13:56:23(Noticee-2)
B-0.32, S-
0.32
1.50
14:02:1
3
53.77 88.65 3.41
BBS
24
17-Jul-
07
Birla
3M
12:37:09, 12:12:24
12:39:18(Noticee-
3),12:39:30 (Noticee-2)
B-0.034, S-
0.034
0.06
13:17:4
8
100.0
0
100.00 3.31
BBS
25
18-Jul-
07
Zee
News
10:06:59,
9:57:14(M)
9:58:16(Noticee-2),
9:58:18(Noticee-3)
B-12.45, S-
12.45
38.40 9.59:03 49.76 99.79 33.00 25, 6(M)
BBS
26
19-Jul-
07
Zee
News
13:11:48(M)
12:58:40(Noticee-3),
12:58:47 (Noticee-2)
B-1.734, S-
1.734
6.25
11:40:2
3
96.70 100.00 8.41 3(M)
BBS
27
23-Jul-
07
Zee
News
14:50:54,
13:48:28(M)
14:52:41(srs),
14:53:11(Noticee-3)
B-0.91, S-
0.91
7.50
13:08:2
9
78.38 100.00 1.90 12, 2(M)
BBS
28
24-Jul-
07
SPARC
10:56:14,
12:30:45(M)
10:59:02 (Noticee-2) B-1.01, S-
1.01
4.20
11:21:4
4
72.64 98.34 3.90 10, 4(M)
SSB
10:58:20 (Noticee-3)
29
31-Jul-
07
TV
Today
11:09:19,
14:00:00(M)
11:11:37(srs),
11:11:44(Noticee-3)
B-2.20, S-
2.20
2.05
11:29:1
4
80.83 91.79 17.69 16, 2(M)
BBS
M- Stands for number of mobile calls made by Noticee-1 to Noticee-2
(the table also contains data with respect to matching of trades of Sanjay R. Sanghvi)

The above table clearly demonstrates the following :
(i) the trades of the said noticees had matched 100% with that of HDFC AMC in 5
instances at NSE and 10 instances at BSE ;
(ii) In 24 instances at NSE and 25 instances at BSE, the matching of orders of the
noticees and that of HDFC AMC was above 80%.
This manner of matching cannot be a mere coincidence. The same only corroborates the
allegation of front running and thereafter by benefitting from the large orders of HDFC AMC. It
is observed in some instances that the trade time preceded by a few seconds from the
instruction/conversation start time. The time difference may be attributed to two different
system times at HDFC AMC dealer room and the Stock exchange trading system. However, the
confirmation given by the noticee-2 to noticee-1 after execution of the trades was matching
perfectly.

Page 47 of 59

Annexure X of the SCNs provides information with respect to the buy-sell quantities of the
concerned noticees and also that of HDFC Mutual Fund along with the percentage of matched
trades between HDFC MF and the noticees (as applicable). This document also provides the
day-wise transactions of the noticees in the identified scrips along with the price range.

(e) I also note that Mr. Rajiv Sanghvi, in his submissions, has stated that he received tips but
does not know that Mr. Nilesh Kapadia was giving tips before placing orders for the HDFC
AMC. Thereafter, in his submissions made in the letter dated December 05, 2012, Mr. Rajiv
Sanghvi submits that in order to have stock of shares, the mutual fund was advising him through
Mr. Nilesh Kapadia for building the stock of shares. These are contrary submissions made by Mr.
Rajiv Sanghvi. In view of the same, such submissions lose their merit.

(f) In the light of the frequency of the calls, the timings and the traded volumes, it is
established that the trades were carried out by the noticees 2, 3 and 4 on the basis of the tips of
noticee 1. It would be pertinent to note that in all these trading days, there was extremely high
percentage of the matching trades of the trades by the Noticee-2, Noticee-3 and Noticee-4
against the orders of HDFC AMC. This kind of matching trades of the trading can never be a
sheer coincidence and it is alleged that this was the result of the pre-meditated plan of the
noticees. Even assuming for a moment that the transcripts are not to be taken as evidence, the
pattern of telephonic call on the said 19 trading days, the manner of orders that were placed and
the trades that were executed by the noticees concerned, the high degree of matching the orders
of HDFC AMC by the noticees 2, 3 and 4, as discussed above, would lead to preponderance of a
high degree of probability of tipping by noticee no.1 and the subsequent trades executed by the
other noticees based on such tips and thereby profiteering. The noticees 2, 3 and 4 were aware
of the impending large transactions by the mutual fund.

(g) In view of the foregoing, it could be observed that the statements referred above in this
Order are not the only pieces of evidence available in the matter. Recordings of phone calls
between noticees 1 and 2, the manner of placing orders in the scrips corresponding to their
conversations, etc. are all available on record. Therefore, such statements could also be said to
corroborative evidences only.

(h) Conclusions and finding on violations :

(i) Based on the foregoing, it can be concluded that :
Page 48 of 59

(a) Noticee no. 1, as the dealer of HDFC Mutual Fund, had passed on the
information/tips to noticee no.2 prior to placing orders for the mutual fund ;
(b) Noticee no. 2 had indulged in front running and placed orders ahead of the large
orders of the HDFC MF. Noticee 3 and 4 were also involved in such manner of
trading ;
(c) In view of such trading pattern, noticees 2, 3 and 4 made substantial profits ;
(d) These profits would not have ensued if such noticees did not have the
information of the impending large orders of HDFC MF ;
(e) By indulging in such transactions, the noticees 1, 2, 3 and 4 have played a fraud
upon the securities market and the investors at large and have indulged in
fraudulent and unfair transactions prohibited under the PFUTP Regulations.
(f) These trades were executed in a fraudulent manner by the noticees 2, 3 and 4 on
the basis of the tips/advice of notice no.1, which is a fraud on HDFC AMC, its
investors and other investors in the market. These trades had disturbed the
market equilibrium and normal price discovery mechanism of stock exchanges.

(ii) In terms of section 12A(e) of the SEBI Act, no person shall directly or indirectly deal
in securities while in possession of material or non-public information or
communicate such material or non-public information to any other person in a
manner which is in contravention of the provisions of the Act or the rules or
regulations made thereunder. Further, in terms of section 12A (a), (b) and (c) of the
SEBI Act read with regulation 3 of the PFUTP Regulations, no person shall employ
any manipulative scheme or device to defraud or operate as a fraud with respect to
dealing in securities which is in contravention of provisions of Act, rule or
regulations. Also, in terms of regulation 4(1) of the PFUTP Regulations, no person
shall indulge in a fraudulent or an unfair trade practice in securities.

(iii) In view of the above findings/conclusions and observations, I do not have any
hesitation in holding that the noticees 1, 2, 3 and 4 have contravened the provisions
of section 12A of the SEBI Act read with regulations 3 and 4(1) of the PFUTP
Regulations, as alleged against them in the respective SCNs issued to them in the
matter.

(i) Profits earned by the noticees :
Page 49 of 59

(i) Annexure XX of the SCNs mentions the profits made by noticees 2, 3 and 4. The day-
wise, scrip-wise, trade details of noticees 2, 3 and 4 and the profits made by them are
given below in the tables :
Noticee-2 - Rajiv Ramaniklal Sanghvi (Qty in lakh)
S.N. Trade Date Symbol
Buy
Qty
Sell
Qty
Net
Qty
Buy Avg.
Rate in
Sell Avg.
Rate in
Profit in
lakh
1 13-Apr-07 ICRA 0.46 0.46 0 613.13 634.75 9.94
2 19-Apr-07 Zee Enterprises Ltd. 2.18 2.172 0.008 263.11 270.24 15.5
3 24-Apr-07 Century Textiles 1.25 1.25 0 596.96 606.68 12.15
4 03-May-07 ICICI Bank 0.98 0.98 0 867.60 873.30 5.58
5 03-May-07 Dish TV 2.05 2.05 0 110.30 114.74 9.09
6 08-May-07 Bharti Airtel 0.92 0.92 0 821.26 825.68 4.07
7 09-May-07 HT Media 3.12 3.12 0 200.06 203.30 10.12
8 10-May-07 TATA Elxsi 0.38 0.38 0 316.00 324.89 3.38
9 10-May-07 United Phosphorus 0.96 0.96 0 295.47 297.75 2.19
10 15-Jun-07 United Phosphorus 0.65 0.65 0 296.02 300.38 2.84
11 26-Jun-07
Reliance Petroleum
Ltd.
3.28 3.28 0
104.71 107.04
7.64
12 16-Jul-07 State Bank of India 0.25 0.25 0 1,554.24 1,558.32 1.03
13 17-Jul-07 Zee News 2.56 2.56 0 49.54 52.07 6.47
14 17-Jul-07 Dish TV 0.68 0.68 0 95.79 97.91 1.44
15 18-Jul-07 Zee News 7.16 7.16 0 56.21 58.80 18.57
16 24-Jul-07 SPARC (Sun Pharma) 0.61 0.61 0 96.51 99.92 2.08
17 7-May,07 Dish TV 1.85 1.85 0 79.7 81.72 2.02
18 8-May,07 Century Textiles 0.7 0.7 0 592.16 597.93 4.04
19 11-May-07
Reliance Industries
Ltd.
0.34 0.34 0
159.90 160.87
0.33
20 16-Jul-07 Dish TV 1.85 1.85 0 98.31 100.38 3.83
21 16-Jul-07 Bajaj Auto 0.28 0.28 0 2,255.07 2,269.89 4.15
22 17-Jul-07
Reliance Industries
Ltd.
0.15 0.15 0
1,839.17 1,848.09
1.34
23 17-Jul-07 Birla 3m 0.01 0.01 0 1,389.00 1,456.00 0.67
24 19-Jul-07 Zee News 1.21 1.21 0 66.19 70.97 5.78
25 31-Jul-07 TV Today 1.42 1.42 0 146.43 154.44 11.38
Total 145.63

Noticee-3 -Chandrakant Pitamber Mehta (Qty in lakh)
S.N. Trade Date Symbol
Buy
Qty
Sell
Qty
Net
Qty
Buy
Avg.
Rate in

Sell Avg.
Rate in
Profit in
lakh
1 13-Apr-07 ICRA 0.36 0.36 0 637.00 654.44 6.28
2 11-May-07
Reliance Industries
Ltd.
0.19 0.19 0
1,585.37 1,595.47
1.92
3 12-Jun-07 Dishman Pharma 0.372 0.372 0 301.48 306.96 2.04
4 12-Jun-07 United Phosphorus 0.267 0.267 0 269.88 272.10 0.59
5 12-Jun-07 Amtek Auto 0.29 0.29 0 422.97 429.14 1.79
6 16-Jul-07 Dish TV 1.03 1.03 0 98.15 100.31 2.23
7 16-Jul-07 Bajaj Auto 0.082 0.082 0 2,255.00 2,269.88 1.22
8 17-Jul-07
Reliance Industries
Ltd.
0.17 0.17 0
1,819.29 1,831.47
2.07
9 17-Jul-07 Birla 3M 0.024 0.024 0 1,959.17 2,069.17 2.64
10 17-Jul-07 Zee News 1.45 1.45 0 49.58 52.00 3.51
11 18-Jul-07 Zee News 5.29 5.29 0 56.00 58.73 14.42
12 19-Jul-07 Zee News 0.524 0.524 0 65.83 70.85 2.63
Page 50 of 59

13 23-Jul-07 Zee News 0.19 0.19 0 67.11 68.84 0.33
14 24-Jul-07 SPARC 0.40 0.40 0 96.10 100.65 1.82
15 31-Jul-07 TV Today 0.78 0.78 0 145.23 153.32 6.31

Total 49.80

Noticee-4 -Dipti P. Mehta (Qty in lakh)
S.N. Trade Date Symbol
Buy
Qty
Sell
Qty
Net
Qty
Buy Avg.
Rate in
Sell Avg.
Rate in
Profit in
lakh
1 13-Apr-07 ICRA 0.51 0.51 0 630.61 647.79 8.70
2 19-Apr-07 Zee Enterprises Ltd. 0.85 0.85 0 263.06 270.16 6.04
3 24-Apr-07 Century Textiles 0.9 0.9 0 595.94 606.71 9.69
4 03-May-07 Dish TV 1.15 1.15 0 109.90 114.60 5.40
5 03-May-07 ICICI Bank 0.70 0.70 0 869.97 876.33 4.45
6 07-May-07 Dish TV 1.47 1.47 0 115.52 118.50 4.38
7 08-May-07 Century Textiles 0.50 0.50 0 592.04 599.06 3.51
8 08-May-07 Bharti Airtel 0.35 0.35 0 821.06 824.97 1.37
9 09-May-07 HT Media 1.28 1.28 0 201.72 204.33 3.34
10 10-May-07 United Phosphorus 0.80 0.80 0 296.00 298.44 1.95
11 10-May-07 TATA Elxsi 0.23 0.23 0 316.00 323.94 1.83
12 15-Jun-07 United Phosphorus 0.75 0.75 0 295.97 299.95 2.98
13 26-Jun-07
Reliance Petroleum
ltd.
2.00 1.71 0.29
104.72 107.38
4.56

Total 58.20

(ii) As per the said annexure, noticee no. 2 has made a profit of 145.63 lakhs ; noticee no. 3
has made a profit of 49.80 lakhs ; and noticee no. 4 has made profits to the tune of
58.20 lakhs. Noticee no.2 has contended that SEBI has calculated only the profits made
but has not discounted the taxes, brokerage etc paid by him with respect to such
transactions.

(iii) As it is noted that such profits were made by his trades on the basis of the information
provided by noticee no.1 of the HDFC MF trades, such trades become unfair. The
above profits earned by the said noticees are "unlawful" as the same have been earned
through fraudulent and unfair transactions, as observed above. Therefore, the said
noticee would not be eligible for any rebate in the form of taxes paid, brokerage paid etc,
while calculating the profits made.

(iv) The profits made by the noticees 2, 3 and 4 has been calculated by taking the average buy
and sell prices, as per the tables above.

(j) Loss to the mutual fund :
The SCNs have also alleged that because of the tips provided by noticee-1, the noticees had
directly caused huge losses to unsuspecting and gullible investors of the fund. The investigation
Page 51 of 59

has observed that the losses caused due to delay in execution of HDFC orders and leaking of
information of the order-flow is calculated at 258.622 lakhs (as per the interim order the amount was
238.40211 lakhs which, after final calculation on completion of investigation, increased to 258.622 lakhs).
The details are given below :
Losses to HDFC Mutual Fund (Amounts in lac)
S. N.
Trade
Date Scrip
Exc
han
ge
Front-running
pattern
Total vol
by
HDFC
in lakh
Traded
value
Traded value
for the same
volume if there
was no front-
run by the
notices
Estimate
d loss to
the Fund
1 13-Apr-07 ICRA NSE BBS 2.65 1708.295 1678.41 29.885
2 19-Apr-07 ZEEL NSE SSB 2.9 764.7 779.744 15.044
3 19-Apr-07 ZEEL BSE SSB 1.35 356.25 361.71 5.46
4 24-Apr-07
CENTURYTE
X NSE BBS 5.3 3214.68 3193.17 21.51
5 24-Apr-07
CENTURYTE
X BSE BBS 1.7 1030.66 1019.31 11.35
6 3-May-07 DISHTV NSE BBS 4.9 556.42 546.62 9.8
7 3-May-07 DISHTV BSE BBS 2.65 300.89 295.48 5.41
8 3-May-07 ICICI BANK NSE SSB 2.575 2233.864 2235.44 1.576
9 3-May-07 ICICIBANK BSE SSB 1 866.19 868.38 2.19
10 7-May-07 Dish TV NSE BBS 4.35 512.73 511.48 1.25
11 7-May-07 Dish Tv BSE BBS 3.15 371.63 368.24 3.39
12 8-May-07 BHARTIARTL BSE SSB 0.65 533.79 535.162 1.372
13 8-May-07 Century textile NSE SSB 1.52 900.59 905.44 4.85
14 8-May-07
Century
Textiles BSE SSB 0.90 533.09 537.12 4.03
15 9-May-07 HTMEDIA NSE BBS 4.7 955.462 946.25 9.212
16 9-May-07 HTMEDIA BSE BBS 2.35 476.82 474.85 1.97
17 10-May-07 TATAELXSI NSE SSB 0.57 180.58 183.96 3.38
18 10-May-07 UNIPHOS NSE SSB 1.19 352.27 354.48 2.21
19 10-May-07 UNIPHOS BSE SSB 0.96 284.21 286.13 1.82
20 10-May-07 TATAELXSI BSE SSB 0.43 136.29 138.12 1.83
21 11-May-07 RIL NSE BBS 3.05 4846.13 4846.34 -
22 11-May-07 RIL BSE BBS 1.25 1984.66 1984.76 -
23 12-Jun-07 Dishman NSE BBS 1.89 570.35 568.56 1.79
24 12-Jun-07 Dishman BSE BBS 1.92 579.04 578.398 0.642
25 12-Jun-07 Uniphos NSE BBS 0.55 150.25 149.42 0.83
26 12-Jun-07 UniPhos BSE BBS 0.45 122.91 122.218 0.692
27 12-Jun-07 Amtek Auto NSE BBS 0.65 277.47 273.72 3.75
28 12-Jun-07 Amtek Auto BSE BBS 0.35 149.336 147.025 2.311
29 15-Jun-07 UNIPHOS NSE BBS 1.47 441.66 438.08 3.58
30 15-Jun-07 UNIPHOS BSE BBS 2.23 669.89 663.51 6.38
31 26-Jun-07 RPL NSE BBS 34 3602.389 3594.834 7.555
32 26-Jun-07 RPL BSE BBS 15 1589.86 1585.29 4.57
33 16-Jul-07 Bajaj Auto NSE BBS 0.89 2012.97 2012.54 0.43
34 16-Jul-07 Bajaj Auto BSE BBS 0.11 249.48 248.37 1.11
35 16-Jul-07 SBIN NSE BBS 0.92 1457.79 1454.27 3.52
36 16-Jul-07 Dish TV NSE SSB 6.5 644.16 646.24 2.08
37 16-Jul-07 DISHTV BSE SSB 3.5 346.8 348.095 1.295
38 17-Jul-07 ZEENEWS NSE BBS 13 658.103 657.799 0.304
39 17-Jul-07 DISHTV NSE SSB 4.75 458.56 459.747 1.187
40 17-Jul-07 RIL NSE BBS 0.8 1461.47 1460.68 0.79
41 17-Jul-07 RIL BSE BBS 0.7 1279.73 1278.21 1.52
42 17-Jul-07 Birla 3M NSE BBS 0.012 24.84 24.31 0.53
43 17-Jul-07 Birla 3M BSE BBS 0.052 105.378 103.608 1.77
44 17-Jul-07 ZEENEWS BSE BBS 8 402.808 402.849 -
45 18-Jul-07 ZEENEWS NSE BBS 22.12 1269.51 1250.45 19.06
46 18-Jul-07 ZEENEWS BSE BBS 16.277 936.962 920.703 16.259
47 19-Jul-07 Zee News NSE BBS 6.25 430.04 424.17 5.87
48 23-Jul-07 Zee News NSE BBS 5.65 387.83 385.9 1.93
49 23-Jul-07 ZEENEWS BSE BBS 1.85 127.194 126.861 0.333
50 24-Jul-07 SPARC NSE SSB 2.1 194.051 201.296 7.245
51 24-Jul-07 SPARC BSE SSB 2.1 193.02 201.77 8.75
52 31-Jul-07 TV Today NSE BBS 2.05 313.61 298.61 15

Total 206.236 44207.662 44078.129 258.622
Page 52 of 59

The interim order had directed Mr. Nilesh Kapadia and HDFC Asset Management
Company Limited to jointly deposit the estimated losses 238.40211 lakhs (as per Annexure-A
to the interim order) to the Trustees of HDFC Mutual Fund. However, the amount was
deposited solely by HDFC AMC and no part of the same came from noticee no.1. This amount
was directed to be held by the Trustees in an account segregated for this purpose, till further
orders by SEBI in the matter. As the instant proceedings are only with respect to the charges
levelled against noticees nos. 1, 2, 3 and 4 vide the interim order and the respective SCNs issued
to them, it would not be appropriate for SEBI to deal with the same in this Order. Accordingly,
SEBI may deal with such aspects separately.

PART III DETERMINATION OF THE NATURE OF DIRECTIONS TO BE
ISSUED TO THE NOTICEES.

36. After arriving at such findings on violations, the next step would be to decide the nature
of directions that needs to be issued in the matter. The SCNs issued to noticees 1 and 2 have
contemplated issuance of directions under sections 11, 11(4) and 11B of the SEBI Act, 1992
including passing of directions and/or restraining the noticee from accessing the securities
market and/or prohibiting him from buying, selling or dealing in the securities in any manner.
The SCNs issued to noticees nos. 3 and 4 contemplated the issuance of directions under sections
11, 11(4) and 11B of the SEBI Act. Therefore, as contemplated by the SCNs, for the violations
committed by noticees nos. 1, 2, 3 and 4, they need to be restrained from dealing in the securities
market for a specified period. However, I also consider the fact that the directions passed vide
the interim order dated June 17, 2010 in the matter are still in force and that the four noticees are
till date restrained from dealing in the securities market, as ordered therein.

37. I also note that noticees 2, 3 and 4 i.e., Mr. Rajiv Ramniklal Sanghvi, Mr. Chandrakant P.
Mehta and Mrs. Dipti Paras Mehta have made gains by their trading activities, which is found to
be in contravention of the provisions of section 12A of the SEBI Act read with regulations 3 and
4(1) of the PFUTP Regulations. Therefore, such profits, as mentioned below, are illegitimate
gains made by them :

Noticee Amount of unlawful profits made
Noticee 2 Mr. Rajiv Sanghvi 145.63 lakhs
Noticee 3 Mr. Chandrakant Mehta 49.80 lakhs
Noticee 4 Ms. Dipti Mehta 58.20 lakhs

Page 53 of 59

It would therefore not be equitable to allow the concerned noticees to enjoy the profits made on
account of contravening the law. In this regard, I note that the Hon'ble SAT in the matter of
Dushyant Dalal and another vs. SEBI observed that "Since disgorgement is not a punishment but only a
monetary equitable remedy meant to prevent a wrong doer from unjustly enriching himself as a result of his illegal
conduct, we are of the view that there need be no specific provision in the Act in this regard and this power to order
disgorgement inheres in the Board". Further, the profits made by the noticees 2, 3 and 4 have been
calculated by taking into consideration the average buy price and the sell price with respect to the
scrips in which the said noticees had traded by front running the orders of HDFC AMC.
Considering the number of trades that had been executed by the concerned noticees in a trading
day, this manner of calculation seems to be a reasonable approach with respect to the
quantification of the profits made by such noticees. In this regard, I note that the Hon'ble SAT
in the matter of Daval Mehta vs. SEBI had inter alia observed that "Disgorgement of illegal gains are
ordered against those who violate the securities laws and make unlawful gains. The amount should not exceed the
total profits realized as a result of the unlawful activity and the amount ordered to be disgorged should
approximately be equal to the amount of unjust enrichment. In the instant case, the whole time member has
worked out the amount from the prices that were available and we find no ground to interfere with the order in this
regard.".

38. I also note that as per the Explanation (inserted vide the Securities Laws (Amendment)
Ordinance, 2014) to section 11B of the SEBI Act, the power to issue directions under this section
included and always deemed to have included the power to direct any person, who made profit or
averted loss by indulging in any transaction or a activity in contravention of the provisions of the
SEBI Act or regulations made there under, to disgorge an amount equivalent to the wrongful
gain made or loss averted by such contravention.

39. As the noticees 2, 3 and 4 have made illegitimate gains, as discussed above, it therefore
becomes necessary for SEBI to disgorge the same from the concerned noticees. In view of the
above, the noticees 2, 3 and 4 shall be required to disgorge the amounts as mentioned in
paragraph 37 above. In this regard, I note that vide the interim order, noticees 2, 3 and 4 were
directed to deposit the gains (as calculated during the preliminary investigation) as mentioned in
paragraph 4 of the interim order, with the National Stock Exchange of India Limited (NSE).
The NSE was in turn directed to hold the amount in an escrow account till further orders by
SEBI in this matter. The aforesaid noticees have made the following deposits in compliance with
the directions of the interim order :
Page 54 of 59


Noticee Amount Deposited
Mr. Rajiv Ramniklal Sanghvi
106.51 lakhs
Mr. Chandrakant P. Mehta
46.76 lakhs
Mrs. Dipti Paras Mehta
45.38 lakhs
Total
198.65 lakhs

Considering the above, noticee no. 2 shall disgorge the remaining amount of 39.12 lakh.
Noticee no. 3 shall disgorge the remaining amount of 3.04 lakh and noticee no. 4 shall disgorge
the balance amount of 12.82 lakh.

Further, the above noticees shall also be liable to pay interest at the rate of 12% simple interest
per annum on the profits from the date of trade till July 2014. For the amounts already deposited,
the interest would be attracted from the date of trade till date of deposit in the escrow account.
Accordingly, the balance amount of profits to be disgorged by the concerned noticees and the
interest is mentioned below :

For Noticee no. 2 Mr. Rajiv Sanghvi:

Calculations as on 31-Jul-07
Sl
No
Entity
name
Trade
Date
Symbol
Buy
Qty
Approx.
in Lac
shares
Sell
Qty
Approx
in Lac
shares
Net
Qty in
Lac
shares
Buy
Amount
in Rs.
Lakh
Sell
Amount
in Rs.
Lakh
Profit in
Rs.
Lakh
12% Interest
in lakh
1 Rajiv
13-Apr-
07
ICRA 0.46 0.46 0 282.040 291.980 9.940
0.356
2 Rajiv
19-Apr-
07
Zee Enterprises
Ltd.
2.18 2.172 0.008 573.570 586.970 15.500
0.525
3 Rajiv
24-Apr-
07
Century Textiles 1.25 1.25 0 746.200 758.350 12.150
0.391
4 Rajiv 3-May-07 ICICI Bank 0.98 0.98 0 850.250 855.830 5.580 0.163
5 Rajiv 3-May-07 Dish TV 2.05 2.05 0 226.120 235.210 9.090 0.266
6 Rajiv 8-May-07 Bharti Airtel 0.92 0.92 0 755.560 759.630 4.070 0.112
7 Rajiv 9-May-07 HT Media 3.12 3.12 0 624.190 634.310 10.120 0.276
8 Rajiv
10-May-
07
TATA Elxsi 0.38 0.38 0 120.080 123.460 3.380
0.091
9 Rajiv
10-May-
07
United Phosphorus 0.96 0.96 0 283.650 285.840 2.190
0.059
10 Rajiv 15-Jun-07 United Phosphorus 0.65 0.65 0 192.410 195.250 2.840
0.043
11 Rajiv 26-Jun-07
Reliance Petroleum
Ltd.
3.28 3.28 0 343.460 351.100 7.640
0.088
12 Rajiv 16-Jul-07 State Bank of India 0.25 0.25 0 388.560 389.580 1.030
0.005
Page 55 of 59

13 Rajiv 17-Jul-07 Zee News 2.56 2.56 0 126.830 133.300 6.470 0.030
14 Rajiv 17-Jul-07 Dish TV 0.68 0.68 0 65.140 66.580 1.440 0.007
15 Rajiv 18-Jul-07 Zee News 7.16 7.16 0 402.450 421.020 18.570 0.079
16 Rajiv 24-Jul-07
SPARC (Sun
Pharma)
0.61 0.61 0 58.870 60.950 2.080
0.005
17 Rajiv 7-May-07 Dish TV 1.85 0.69 0 79.700 81.720 2.020 0.056
18 Rajiv 8-May-07 Century Textiles 0.7 0.7 0 414.510 418.550 4.040 0.112
19 Rajiv
11-May-
07
Reliance Industries
Ltd.
0.34 0.34 0 54.365 54.695 0.330
0.009
20 Rajiv 16-Jul-07 Dish TV 1.85 1.85 0 181.870 185.700 3.830 0.019
21 Rajiv 16-Jul-07 Bajaj Auto 0.28 0.28 0 631.420 635.570 4.150 0.020
22 Rajiv 17-Jul-07
Reliance Industries
Ltd.
0.15 0.15 0 275.876 277.214 1.340
0.006
23 Rajiv 17-Jul-07 Birla 3m 0.01 0.01 0 13.890 14.560 0.670 0.003
24 Rajiv 19-Jul-07 Zee News 1.21 1.21 0 80.090 85.871 5.780
0.023
25 Rajiv 31-Jul-07 TV Today 1.42 1.42 0 207.930 219.310 11.380 0.000
Profit and interest as on July 31, 2007 ( in lakh) 145.630 2.745


in lakh
Date Description
Deposited
amount
Profit to be
deposited
Interest
31-Jul-07 Profit and interest as on July 31, 2007 0.000 145.630 2.745
3-Jul-10
First deposit, the remaining profit to be deposited,
interest for the period between July 31, 2007 to July
03, 2010 45.000 100.630 51.134
12-Aug-10
Second deposit, the remaining profit to be
deposited, interest for the period between July 03,
2010 to Aug 12, 2010 59.000 41.630 1.323
21-Sep-10
Third deposit, the remaining profit to be deposited,
interest for the period between Aug 12, 2010 to Sep
21, 2010 2.510 39.120 0.547
25-Jul-14
The remaining profit to be deposited and Interest
for the period Sep 21, 2010 to as on today 0.000 39.120 18.045
25-Jul-14
Total interest as on today and remaining profit to
be deposited 39.120 73.795
25-Jul-14 Total (Remaining profit + Interest) 112.915

Accordingly, Mr. Rajiv Sanghvi is liable to disgorge the balance amount of profits of
39.12 lakh together with interest of 73.795 lakh, totalling 112.915 lakh.

For Noticee no. 3 Mr. Chandrakant Mehta :


Calculations as on 31-Jul-07
Sl No
Entity
name
Trade
Date
Symbol
Buy Qty
Approx.
in Lac
shares
Sell Qty
Approx
in Lac
shares
Net Qty
in Lac
shares
Buy
Amount
in Rs.
Lakh
Sell
Amount
in Rs.
Lakh
Profit in
Rs. Lakh
12%
Interest
in lakh
1 CPM 13-Apr-07 ICRA 0.36 0.36 0 229.320 235.600 6.280 0.225
Page 56 of 59

2 CPM 11-May-07
Reliance
Industries
Ltd.
0.19 0.19 0 301.220 303.140 1.920
0.051
3 CPM 12-Jun-07
Dishman
Pharma
0.372 0.372 0 112.150 114.190 2.040
0.033
4 CPM 12-Jun-07
United
Phosphorus
0.267 0.267 0 72.058 72.650 0.590
0.010
5 CPM 12-Jun-07
Amtek
Auto
0.29 0.29 0 122.660 124.450 1.790
0.029
6 CPM 16-Jul-07 Dish TV 1.03 1.03 0 101.090 103.320 2.230 0.011
7 CPM 16-Jul-07 Bajaj Auto 0.082 0.082 0 184.910 186.130 1.220 0.006
8 CPM 17-Jul-07
Reliance
Industries
Ltd.
0.17 0.17 0 309.280 311.350 2.070
0.010
9 CPM 17-Jul-07 Birla 3M 0.024 0.024 0 47.020 49.660 2.640 0.012
10 CPM 17-Jul-07 Zee News 1.45 1.45 0 71.890 75.400 3.510 0.016
11 CPM 18-Jul-07 Zee News 5.29 5.29 0 296.260 310.680 14.420 0.062
12 CPM 19-Jul-07 Zee News 0.524 0.524 0 34.495 37.124 2.630 0.010
13 CPM 23-Jul-07 Zee News 0.19 0.19 0 12.750 13.080 0.330 0.001
14 CPM 24-Jul-07 SPARC 0.4 0.4 0 38.440 40.260 1.820 0.004
15 CPM 31-Jul-07 TV Today 0.78 0.78 0 113.280 119.590 6.310 0.000
Profit and interest as on July 31, 2007, in lakh 49.800 0.479


in lakh
Date Description
Deposited
amount
Profit to
be
deposited
Interest
31-Jul-07 Profit and interest as on July 31, 2007 0.000 49.800 0.479
3-Jul-10
First deposit, the remaining profit to be deposited, interest for the period between July 31, 2007
to July 03, 2010 25.000 24.800 17.486
27-Jul-10
Second deposit, the remaining profit to be deposited, interest for the period between July 03,
2010 to July 27, 2010 21.761 3.039 0.196
25-Jul-14 The remaining profit to be deposited and Interest for the period Jul 27, 2010 to as on today 0.000 3.039 1.458
25-Jul-14 Total interest as on today and remaining profit to be deposited 3.039 19.619
25-Jul-14 Total (Remaining profit + Interest) 22.658


Accordingly, Mr. Chandrakant Mehta shall be liable to disgorge the balance profits of
3.04 lakh along with interest of 19.619 lakh, totalling 22.658 lakh.

For Noticee no. 4 Mrs. Dipti Mehta:

Calculations as on 26-Jun-07
Sl
No
Entity
name
Trade Date Symbol
Buy Qty
Approx.
in Lac
shares
Sell
Qty
Approx
in Lac
shares
Net Qty
in Lac
shares
Buy
Amount
in Rs.
Lakh
Sell
Amount
in Rs.
Lakh
Profit in
Rs. Lakh
12%
Interest
in lakh
1 DPM 13-Apr-07 ICRA 0.51 0.51 0 319.080 327.780 8.700 0.212
Page 57 of 59

2 DPM 19-Apr-07
Zee
Enterprises
Ltd.
0.85 0.85 0 223.600 229.640 6.040
0.135
3 DPM 24-Apr-07
Century
Textiles
0.9 0.9 0 536.350 546.040 9.690
0.201
4 DPM 3-May-07 Dish TV 1.15 1.15 0 126.390 131.790 5.400 0.096
5 DPM 3-May-07 ICICI Bank 0.7 0.7 0 608.980 613.430 4.450 0.079
6 DPM 7-May-07 Dish TV 1.47 1.47 0 169.810 174.190 4.380 0.072
7 DPM 8-May-07
Century
Textiles
0.5 0.5 0 296.020 299.530 3.510
0.057
8 DPM 8-May-07 Bharti Airtel 0.35 0.35 0 287.370 288.740 1.370
0.022
9 DPM 9-May-07 HT Media 1.28 1.28 0 258.200 261.540 3.340 0.053
10 DPM 10-May-07
United
Phosphorus
0.8 0.8 0 236.800 238.750 1.950
0.030
11 DPM 10-May-07 TATA Elxsi 0.23 0.23 0 72.680 74.506 1.830 0.028
12 DPM 15-Jun-07
United
Phosphorus
0.75 0.75 0 221.977 224.960 2.980
0.011
13 DPM 26-Jun-07
Reliance
Petroleum ltd.
2 1.71 0.29 209.430 183.620 4.560
0.000
Profit and interest as on June 26, 2007 ( in lakh) 58.200 0.995


in lakh
Date Description
Deposited
amount
Profit to
be
deposited
Interest
26-Jun-07 Profit and interest as on July 31, 2007 0.000 58.200 0.995
3-Jul-10
First deposit, the remaining profit to be deposited, interest for the period between July 31, 2007
to July 03, 2010 25.000 33.200 21.105
27-Jul-10
Second deposit, the remaining profit to be deposited, interest for the period between July 03,
2010 to July 27, 2010 20.380 12.820 0.262
25-Jul-14 The remaining profit to be deposited and Interest for the period Jul 27, 2010 to as on today 0.000 12.820 6.149
25-Jul-14 Total interest as on today and remaining profit to be deposited 12.820 28.511
25-Jul-14 Total (Remaining profit + Interest) 41.331

Mrs. Dipti Mehta shall be liable to disgorge the remaining profits of 12.82 lakh along
with interest of 28.511 lakh, totalling 41.331 lakh.

DIRECTIONS:

40. In view of the foregoing, I hereby in exercise of the powers conferred upon me under
section 19 of the Securities and Exchange Board of India Act, 1992 and sections 11(1), 11(4) and
11B thereof read with regulation 11 of the SEBI (Prohibition of Fraudulent and Unfair Trade
Practices Relating to Securities Market) Regulations, 2003, issue the following directions :

Page 58 of 59

(a) Mr. Nilesh Kapadia is hereby restrained from accessing the securities market and further
prohibited from buying, selling or otherwise dealing in securities, for a period of ten (10)
years. He shall also not associate himself with any intermediary or any entity registered
with SEBI for a period of ten (10) years. The period of such restraint already undergone
by him vide the interim order dated June 17, 2010 shall be taken into consideration while
computing the period of restraint as directed above.

(b) Mr. Rajiv Ramniklal Sanghvi, Mr. Chandrakant P. Mehta and Ms. Dipti Paras Mehta are
restrained from accessing the securities market and are further prohibited from buying,
selling or otherwise dealing in securities, for a period of ten (10) years. The period of such
restraint already undergone by them vide the interim order dated June 17, 2010 shall be
taken into consideration while computing the above directed period of restraint.

(c) Mr. Rajiv Ramniklal Sanghvi, Mr. Chandrakant P. Mehta and Ms. Dipti Paras Mehta shall
disgorge the balance amount of profits together with interest (as calculated above in this
Order) as directed below :
Name of noticee Amount to be
disgorged
Applicable interest Total sum to be
paid
Mr. Rajiv Ramniklal
Sanghvi
39.12 lakh 73.795 lakh 112.915 lakh
Mr. Chandrakant P.
Mehta
3.04 lakh 19.619 lakh 22.658 lakh
Ms. Dipti Paras
Mehta
12.82 lakh 28.511 lakh 41.331 lakh


Mr. Rajiv Ramniklal Sanghvi, Mr. Chandrakant P. Mehta and Ms. Dipti Paras Mehta shall
pay the total sum, as directed above, to SEBI by way of a Demand Draft favouring
"Securities and Exchange Board of India" payable at Mumbai, within a period of 45 days
from the date of this Order.

In case, the above directions for disgorgement and payment of interest is not complied
within the stipulated time, Mr. Rajiv Sanghvi, Mr. Chandrakant Mehta and Ms. Dipti
Mehta shall be restrained from accessing or buying, selling or otherwise dealing in the
securities market, for a further period of 5 years, over and above that mentioned at sub-
paragraph (b) above, without prejudice to any action for recovery of such amounts that
may be initiated by SEBI against them.

Page 59 of 59

41. The National Stock Exchange of India Limited shall transfer the monies deposited by Mr.
Rajiv Sanghvi, Mr. Chandrakant Mehta and Ms. Dipti Mehta made in compliance with the
interim order dated June 17, 2010, retained in the escrow account, along with all additions i.e.,
interest accrued on such amounts, within a period of 10 days along with a report to the Securities
and Exchange Board of India.

42. With the above directions, the separate show cause notices dated February 11, 2011
issued to Mr. Nilesh Kapadia and Mr. Rajiv R. Sanghvi and the common show cause notice dated
March 04, 2011 issued to Mr. Chandrakant P. Mehta and Mrs. Dipti Mehta, in the matter are
disposed off. However, the same shall not prejudice the right of SEBI from taking other
appropriate action as may be warranted including an action for recovery of the amounts ordered
to be disgorged from the concerned noticees.




PRASHANT SARAN
WHOLE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA


Date : July24
th
, 2014
Place : Mumbai