HUF Penalised Rs10 Lakh for Insider Trading during Merger of HDFC with HDFC Bank

Moneylife Digital Team 30 July 2025

Investor Interest

Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs10 lakh on Rupesh Satish Dalal Hindu undivided family (HUF) for violating insider trading regulations in relation to the merger announcement between Housing Development Finance Corporation Ltd (HDFC Ltd) and HDFC Bank Ltd. This significant penalty stems from trades executed based on unpublished price-sensitive information (UPSI) prior to the public disclosure of the merger on 4 April 2022.

On 4 April 2022, before market hours, HDFC and HDFC Bank jointly announced their merger, where HDFC would merge into HDFC Bank. This announcement caused a sharp rise in the share prices of both companies. HDFC Bank shares rose by 10.01%, and HDFC shares increased by 9.29% on a close-to-close basis.

Following this announcement, the National Stock Exchange (NSE) analysed the trading activities of various entities in the stocks of both companies before the public disclosure. The NSE report pointed towards suspicious trades by several clients, including Rupesh Satish Dalal HUF, potentially based on UPSI. The matter was referred to SEBI for investigation.

In an order, Jai Sebastian, adjudicating officer (AO) of SEBI, stated that the HUF had bought multiple call option contracts of HDFC and HDFC Bank prior to the announcement of the merger or amalgamation and sold the said call options post-announcement. It was observed that Rupesh Satish Dalal HUF earned a profit of Rs5.67 lakh in HDFC and Rs2.52 lakh in HDFC Bank.

SEBI, during its investigation, found that a former employee of Deloitte India was a friend of the son of Rupesh Satish Dalal and suspected that the UPSI was sourced through this connection. The Deloitte employee was part of the valuation team for the merger deal.

Based on the UPSI, SEBI suspected that the Rupesh Satish Dalal HUF took derivative positions in the scrips of HDFC Bank and HDFC. The market regulator also observed that, aside from HDFC and HDFC Bank, the HUF had only traded in Infosys contracts during the investigation period.

Further, data showed close communication between the employee of Deloitte India and the karta's son, including phone calls and meetings in late March 2022, just days before the HUF executed substantial call option purchases in the shares of HDFC and HDFC Bank on 1 April 2022, three days before the merger announcement. Notably, this trading behaviour was highly unusual compared to the HUF’s prior patterns, as it included heavy involvement in derivatives which was rare for them.

SEBI’s adjudication found that the trades clearly capitalised on the UPSI, as the timing and the nature of the trades corresponded closely with the possession of the merger information. The HUF purchased call options with strike prices ranging across several levels, reflecting an extreme bullish position that would only pay off if the share prices rose sharply after the merger announcement, as, indeed, happened.

Despite the HUF’s claims that these trades were based on technical and fundamental analysis, the investigation exposed contradictions, especially since the son feigned ignorance of the trades during the inquiry. The timing, communication patterns, and trading strategy collectively demonstrated that the HUF acted on non-public, price-sensitive information.

Accordingly, SEBI held Rupesh Satish Dalal HUF liable for violating regulations 3(2) and 4(1) of the SEBI (Prohibition of Insider Trading) Regulations, 2015, and sections 12A(d) and 12A(e) of the SEBI Act, 1992, which prohibit trading on UPSI. The regulator imposed a monetary penalty of Rs10 lakh on the HUF as a deterrent against insider trading.

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