Market regulator Securities and Exchange Board of India (SEBI) has imposed a penalty of Rs45 lakh on Naresh Mehta and Pallavi Mehta for insider trading in the scrip of Deepak Fertilizers Petrochemical Corp Ltd (DFPCL). Naresh Mehta is a cousin of Sailesh Mehta, chairman and managing director (CMD) of Deepak Fertilizers. Pallavi is the wife of Naresh Mehta.
In his 25-page order, Amit Kapoor, adjudicating officer (AO) of SEBI, says, "I note that, had noticees (Naresh & Pallavi Mehta) invested in the scrip of DFPCL considering the growth in the agricultural sector during COVID-19, they would have remained invested in the scrip for a long duration. However, they exited the scrip just after the unpublished price-sensitive information (UPSI) became public and the price of the scrip increased. Further, noticees did not invest in the scrip of any other company belonging to the agricultural sector as per the record, which belies their explanation that they invested in DFPCL considering growth in the agricultural sector during COVID-19."
While Naresh Mehta is asked to pay a fine of Rs25 lakh, his wife will pay Rs20 lakh as a penalty for indulging in the insider trading of Deepak Fertilizers.
Based on UPSI information from certain entities, SEBI conducted an investigation of Deepak Fertilizer's shares between 1 June 2020 to 30 September 2020. On the basis of the investigation, it was alleged that Naresh Mehta and Pallavi Mehta allegedly violated provisions of Section 12A(d) and (e) of the SEBI Act and Regulation 3(2) and 4(1) of SEBI (Prohibition of Insider Trading) Regulations (PIT Regulations). SEBI then issued show-cause notices to the Mehtas.
On 31 July 2020, Deepak Fertilizers announced its financial results for the quarter that ended in June. On that day, shares of the company jumped nearly 10%. SEBI considered information related to the company results as price-sensitive information as defined in the PIT regulations.
In his submissions, Naresh Mehta contended that he is not a 'connected person' as his business relationship with DFPCL did not allow him access to UPSI. He told SEBI that he is a director of Nishant Infin Pvt Ltd, NPL Mercantile Pvt Ltd and a partner of Indinox Stainless & Alloys LLP and, through these entities, has a business relationship with DFPCL and its subsidiaries. He also says he is a cousin of Sailesh Mehta, promoter of DFPCL.
Pallavi Mehta took the same stand and denied access to UPSI about Deepak Fertilizers.
However, the AO says, "Upon perusal of call detail records (CDR), I note that Mr Mehta was also in touch with key management personnel (KMPs) of DFPCL through his mobile number. I note that due to the relationship of Mr Mehta with the CMD of DFPCL, the professional relationship of Nishant Infin Pvt Ltd with DFPCL and communication with KMPs of DFPCL, he is reasonably expected to have access to information pertaining to DFPCL. Hence, in terms of Regulation 2(1)(d)(ii) of PIT Regulations, Naresh Mehta is a connected person. I also note that Pallavi Mehta is wife of Naresh Mehta. She was also a director of Nishant Infin Pvt Ltd, Smartchem Technologies Ltd and Performance Chemserv Ltd. Hence, in terms of Regulation 2(1)(d)(ii) of PIT Regulations, Pallavi Mehta is a connected person. Therefore, it is established that Naresh and Pallavi Mehta were insiders of DFPCL in terms of provisions of the PIT Regulations."
SEBI then asked Naresh Mehta and Pallavi Mehta to remit, within 45 days, the fine of Rs25 lakh and Rs20 lakh, respectively.