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WTM/SR/IVD/ID 2/72/ 09/2014

BEFORE THE SECURITIES AND EXCHANGE BOARD OF INDIA, MUMBAI
CORAM: S. RAMAN, WHOE TIME MEMBER

ORDER

U!"#$ S#%&'(!) 11 *!" 11B (+ &,# S#%-$'&'#) *!" E.%,*!/# B(*$" (+ I!"'* A%&, 1992 $#*"
0'&, R#/-1*&'(!) 2 *!" 4 (+ &,# SEBI 34$(,'5'&'(! (+ F$*-"-1#!& *!" U!+*'$ T$*"#
4$*%&'%#) $#1*&'!/ &( S#%-$'&'#) M*$6#&7 R#/-1*&'(!), 2002, '! $#)8#%& (+ M$. B*9$*!/ B*+!*
34AN: A:44B1724N7.



1. Securities and Exchange Board of India (SEBI) had conducted an investigation into the
unusual price movement of several scrips during the period from April 1! "# to $a% &1!
"# to ascertain an% instances of contravention of provisions of SEBI Act! 1''" (SEBI
A%&) read (ith SEBI ()rohi*ition of +raudulent and ,nfair -rade )ractices .elating to
Securities $ar/et) .egulations "& (4FUT4 R#/-1*&'(!)). -he investigation revealed
that $r. Ba0rang Bafna (1N(&'%##1) the fund manager of 2BS 3hola $utual +und (4o(
/no(n as 56- $utual +und 7DBS C,(1*8)! along (ith other persons had colluded (ith
one $r. 9i/as :umar ,padh%a% (1V.;. U8*",<*<1)and his *rother $r. ..:.,padh%a%
:umar ,padh%a% (1R.;. U8*",<*<1)(collectivel% referred to as 1U8*",<*< 5$(&,#$)1)
(ho allegedl% traded ahead of the orders placed *% 2BS 3hola on the *asis of prior
information given *% the 4oticee! there*% indulging in manipulative! fraudulent and unfair
trade practice of front running and earned profit of `&.;< la/h.

". Based on the findings of investigation! a Sho( 3ause 4otice (1SCN1) dated August ;! "1
(as issued to the 4oticee under sections 11 and 11B of the SEBI Act to sho( cause as to
(h% appropriate action including restraining him from *u%ing! selling or dealing in securities
for a specified period! should not *e issued against him for the violations alleged in the S34
vi=.! Section 1" A (e) of the SEBI Act read (ith .egulations & and > (1) of the )+,-)
.egulations.



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&. As per the S34! it (as inter alia alleged against the 4oticee that ?
i. -he 4oticee along (ith another fund manager ($r. Anant 2eep :atatre) and dealer ($r.
$a%ur @oshi) colluded (ith ..:. ,padh%a% and his *rother 9.:. ,padh%a% in front running
2BS 3hola there*% indulging in manipulative! fraudulent and unfair practices.

ii. -he call details provided *% 2BS 3hola and service provider! it (as seen that during the
investigation period i.e. from April 1! "# to $a% &1! "#! the 4oticee and
..:.,padh%a% had exchanged more than 1" calls from landline num*er ;;A<>&< and
<; calls from mo*ile num*er '';<A>1>'A. -(o calls (ere also found to *e made
*et(een 4oticee and 9.:.,padh%a%. -hese telephone calls (ere made on num*er of
da%s. Based on the numerous calls the S34 alleges that the 4oticee (as communicating
(ith the ,padh%a% *rothers and passed on the information as to the trading strateg% of
2BS 3hola. -he S34 gave details of those telephone calls along (ith the da%s on (hich
9.:.,padh%a% (as allegedl% front running 2BS 3hola.

iii. 2uring the course of investigation! the 4oticee vide statement dated $arch 11! "1
denied /no(ing either 9.:.,padh%a% or his *rother ..:.,padh%a%. Bo(ever! on *eing
confronted (ith the call records sho(ing the several calls exchanged (ith 9.:.,padh%a%
and ..:.,padh%a%! the 4oticee admitted that the calls to ..:.,padh%a% (as on account
of investments that had *een made in hedge eCuit% fund (hich (as managed *%
..:.,padh%a% for several clients (hen he (as in 2BS Ban/. -he 4oticee again
reiterated that he did not /no( 9.:.,padh%a%. -he 4oticee also did not clarif% (hen
confronted (ith the fact that ..:.,padh%a% (as (or/ing (ith Societe Denerale and not
(ith 2BS Ban/ during AprilE$a% "# period! (hen the alleged calls (ere made during
the time 9.:.,padh%a% executed trades ahead of 2BS 3hola.

iv. $r. San0a% Sinha! 3hief Executive Ffficer (CEO) of 2BS 3hola! vide statement dated
$arch 11! "1 su*mitted that at the time of his 0oining (in Septem*er "#)! the fund
managers (4oticee and $r. Anant 2eep :atare) and the dealer ($r. $a%ur @oshi) (ere
operating from the same room. +urther! the fund managers ta/e the decision to invest in
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particular scrip and the same is conve%ed to the dealer for execution. Bence! the persons
priv% to the trading strateg% of 2BS 3hola (ere the 4oticee! the other fund manager($r.
Anant 2eep :atare) and the dealer ($r. $a%ur @oshi).

v. -he anal%sis of trading pattern of 9.:.,padh%a% for the period from April 1! "# to
$a% &1! "# clearl% indicates that his average gross traded value on the da%s (hen he
(as o*served to have placed on the *asis of the alleged information regarding the order
of 2BS 3hola (as `&>.&1 lacs (hereas for the rest of the da%s his average gross traded
value (as onl% `>.A> lacs. It is noted that 9.:.,padh%a% had ta/en large positions on
seven da%s ahead of 2BS 3hola and sCuared off almost his entire position on the same
da%. It is alleged that such large num*er of trades on certain da%s (ere executed on the
*asis of prior /no(ledge a*out 2BS 3hola trading strateg%. In this process!
9.:.,padh%a% earned an undue profit of `&.;< la/h.

vi. It (as o*served from the *an/ account statement and ledger account of 9.:.,padh%a%
and ..:.,padh%a% that funds moved from the account of ..:.,padh%a% to the
account of 9.:.,padh%a% 0ust prior to the period (hen 9.:.,padh%a% alleged to have
indulged in front running activit%.

vii. -hereafter! ..:.,padh%a% (ho had (or/ed in 2BS *an/ in the (ealth management
department used his contacts (ith the fund managers including the 4oticee and dealers
of 2BS 3hola to get information regarding the trading strateg% of 2BS 3hola. It (as
admitted *% ..:.,padh%a% that (hen he (as (or/ing (ith 2BS Ban/ 5td! some of his
clients invested in Bedge ECuit% +unds and opportunit% fund in 2BS 3hola. So he used
to call the 4oticee! other fund manager and dealers for portfolio updates of the clients.
Fn the *asis of such interaction (ith the 4oticee! it is alleged that he has used the
contacts (ith 4oticee and other entities to get the trading strateg% of 2BS 3hola.

viii. It is also alleged that ..:.,padh%a% passed on the information a*out the trading
strateg% of 2BS 3hola to 9.:.,padh%a% for front running 2BS 3hola and earned an
undue profit of `&.;< la/h.

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>. -he 4oticee filed repl% to the S34 vide letter dated Fcto*er #! "1 (received at SEBI on
Fcto*er 11! "1). -hereafter! an opportunit% of personal hearing (as granted to the
4oticee on @une 1'! "1&. Su*seCuentl%! the 4oticee filed (ritten su*missions vide letter
dated @une ">! "1&. -he 4oticee vide a*ovementioned repl% and during the aforesaid
hearing inter alia made the follo(ing su*missionsG?
i. At the outset the 4oticee denied all the allegations *rought out in the S34. -he S34
refers to the dealings in scrip *% 9.:.,padh%a% and 4oticee (as not a(are of an% action
in regard to the same. -here had *een several other scrips in the month of April and $a%
"# in (hich transactions (ere *eing carried out in the schemes handled *% the 4oticee
independentl% and 0ointl% (ith the other fund manager ($r. Anant 2eep :atare).

ii. It is admitted that the calls mentioned in the S34 (ere made and received *% the
4oticee. Bo(ever! (ith regard to the calls exchanged (ith ..:.,padh%a%! said calls (ere
made in relation to certain clients (ho had invested in 2BSHs funds! and the calls
pertained to the mar/et updates! fund details etc. Iith regard to the t(o calls exchanged
(ith 9.:.,padh%a% ! the 4oticee did not /no( 9.:.,padh%a% . -he 4oticee assumes
that the he (ould have called ..:.,padh%a% (ho had given 9.:.,padh%a%Hs num*er as
an alternate num*er.

iii. 4one of the calls (ere made during trading hours and the calls (ere made even on da%s
(hen no transactions (ere carried out *% 9.:.,padh%a% . -he calls (ere made on >;
da%s (hile trading (as done on " da%s *% 9.:.,padh%a%! out of (hich onl% on < da%s!
the transactions (ere considered to *e executed ahead of the orders placed *% 2BS
3hola. 3alls (ere also exchanged *et(een ..:.,padh%a% and another fund manager ($r.
Anant 2eep :atare) and the dealer ($r. $a%ur @oshi). It (as not possi*le to reveal
trading strateg% one da% in advance. 2ecision involves lots of impondera*les vi=. opening
price of various scrips! depth of the scrip in terms of total *u%ers and sellers in the scrip!
developments in the mar/et during trading hours etc.

iv. It is denied that the 4oticee communicated an% information regarding trading strateg% of
2BS 3hola to ..:.,padh%a% . It is argued that the onl% persons priv% to the information
regarding trading strateg% (ere the dealer ($r. $a%ur ). @oshi)! the other fund manager
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($r. Anant 2eep :atare)! and Investment Anal%sts ($r. Animesh Shah and $r. A*dul
+ateh).

v. -he S34 did not provide the *ifurcation as to order! place and *% (hich fund manager
(*et(een the 4oticee and one $r. Anant 2eep :atare) impugned trades (ere executed.
Specific source of alleged lea/age of information is relevant since serious allegations are
*eing levelled against the 4oticee.
vi. 4o transcriptJvoice recording of the calls made and received from ..:.,padh%a% are
presented.
vii. In vie( of the decisions of the BonH*le Securities Appellate -ri*unal (1SAT1) in the
matters of $r. 2ipa/ )atel v. -he Ad0udication Ffficer! SEBI (SA- Appeal 4o. "1; of
"1" dated 4ovem*er '! "1") and $r. Su0it :ar/era v. -he Ad0udicating Ffficer!
SEBI (SA- Appeal 4o. 1;< of "1" dated 2ecem*er 1<! "1")! the 4oticee cannot *e
charged for front running as he is not an intermediar%.

A. Before moving for(ard I consider it appropriate to refer to the relevant provisions of SEBI
Act and )+,-) .egulations (hich read as underGE

12A. No person shall directly or indirectly
(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 contraention of the proisions of this
Act or the rules or the regulations made thereunder!
4$(,'5'&'(! (+ %#$&*'! "#*1'!/) '! )#%-$'&'#)
". No person shall directly or indirectly
(a) buy, sell or otherwise deal in securities in a fraudulent manner!
(b) use or employ, in connection with issue, purchase or sale of any securities listed or proposed to be listed in
a recogni#ed stoc$ e%change, any manipulatie or deceptie deice or contriance in contraention of the
proisions of the Act or the rules or the regulations made thereunder!
(c) employ any deice, scheme or artifice to defraud in connection with dealing in or issue of securities which
are listed or proposed to be listed on a recogni#ed stoc$ e%change!
(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
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a recogni#ed stoc$ e%change in contraention of the proisions of the Act or the rules and the regulations
made thereunder.
&. 'rohibition of manipulatie, fraudulent and unfair trade practices(-
(1) )ithout pre*udice to the proisions of regulation ", no person shall indulge in a fraudulent or an unfair
trade practice in securities.

;. -he S34 alleges that the 4oticee! along (ith other persons K$r. Anant 2eep :atare (fund
manager) and $r. $a%ur @oshi (2ealer)L had colluded (ith ..:.,padh%a% and
9.:.,padh%a% (ho allegedl% traded ahead of the orders placed *% 2BS 3hola there*%
indulging in manipulative! fraudulent and unfair trade practice of front running and earned a
profit of `&.;< la/h.

C(!)'"#$*&'(! (+ I))-#) *!" F'!"'!/)

<. I have considered the S34 issued to the 4oticee! his repl% and the su*missions made *% his
authori=ed representative during the personal hearing *efore me! the (ritten su*missions
filed vide letter dated @une ">! "1& and all other relevant materials availa*le on record. In
light of the same! I shall no( proceed to deal (ith the charges levelled against the 4oticee in
the S34.

#. As per S34! it is alleged that the 4oticee along (ith other entities had colluded (ith
9.:.,padh%a% and ..:.,padh%a% in front running 2BS 3hola! there*% indulging in
manipulative! fraudulent and unfair trade practice.

In this regard! I note thatE

#.1 -he S34 alleges that the 4oticee (as in direct contact (ith 9.:.,padh%a% on April "!
"# and that 9.:.,padh%a% had also called 4oticee on that da%. -his fact negates the
4oticeeMs statement that he did not /no( 9.:.,padh%a%. Similarl%! the 4oticee initiall%
denied /no(ing ..:.,padh%a% and later admitted the association (hen confronted (ith
records of the calls made *% him to ..:.,padh%a%. It is noted from the call records that
during the investigation period i.e. from April 1! "# to $a% &1! "#! there (ere
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numerous calls exchanged from landline num*er ;;A<>&< to ..:.,padh%a% and mo*ile
num*er '';<A>1>'A. It is noted that the official land phone (as /ept in the common room
and used *% other emplo%ees as (ell. It is not disputed that the 4oticee used his mo*ile
phone during the relevant period for communication (ith ..:.,padh%a%. It is also noted
that there (as no telephone calls from the mo*ile num*er of the 4oticee to ..:.,padh%a%
during the trading hours of < da%s (hen 9.:.,padh%a% (as allegedl% indulged in front
running 2BS 3hola.

#." It (as o*served from the call records that on April 1;! "# there (as a call from the
landline num*er to ..:.,padh%a% at 1#G1< hrs and on the ver% next da% (i.e. on April 1<!
"#) 9.:.,padh%a% purchased &1<; shares of ,nit% Infrapro0ects 5td *et(een 11G1; to
1&GA# hrs and sold &1<; shares at 1>G" hrs. Fn April ""! "# at 1'G1 hrs there (as a
mo*ile phone call of 4oticee to ..:.,padh%a% and the ver% next da% (i.e. on April "&!
"#) 9.:.,padh%a% purchased >A;; shares of Elgi -%re *et(een 11GA' to 1&G1' hrs and
sold >A;; shares at 1&G>1 hrs. -here (ere no calls either from the landline or from the
mo*ile during the trading of 9.:.,padh%a%.

#.& -he 4oticee contended that there (as no nexus *et(een the calls made and the trades
executed *% 9.:.,padh%a%. It is noted that 9.:.,padh%a% had ta/en positions on < da%s
(out of the > da%s of the investigation period) ahead of 2BS 3hola and sCuared off almost
his entire position on the same da%. It is also o*served that on most of the < da%s
9.:.,padh%a% (as the counterpart% to the trades executed *% 2BS 3hola. It is also noted
that on April &! "#! 9.:.,padh%a% has not completel% sCuared off his position and shares
sold *% 9.:.,padh%a% during the investigation period have matched (ith other mar/et
participants.

#.> 4o( the Cuestion arises as to (ho gave the information to ,padha% *rothers. It is also
imperative to note that (hen confronted (ith the call records of 4oticee (ith
..:.,padh%a%! 4oticee stated that calls (ere made on account of investments that had *een
made in hedge eCuit% fund (hich (as managed *% ..:.,padh%a% for several clients (hen he
(as in 2BS Ban/. As regards this contention! it is pertinent to note that ..:.,padh%a% vide
his statement dated $arch "A! "1! su*mitted that the calls (ere made in relation to
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investments made *% his clients in Bedge ECuit% fund and Fpportunit% fund in 2BS 3hola
(hen he (as (or/ing in 2BS Ban/. ..:.,padh%a% stated that he had called the 4oticee! $r.
Anant 2eep :atare and $a%ur @oshi for portfolio updates and also too/ them for client
meeting. -hough ..:.,padh%a% agreed to furnish the names of his clients for (hom he (as
interacting (ith the 4oticee! he failed to furnish the same except one client.

#.A -he important aspect to *e noted is that as the fund manager! the 4oticee (as priv% to the
information regarding the trading strateg% of 2BS 3hola and this fact has also *een admitted
*% the 4oticee in his repl% dated @une ">! "1>. It is also noted that $r. San0a% Sinha! 3EF
of 2BS 3hola! in his statement dated $arch 11! "1! mentioned that he had 0oined 2BS
3hola in Septem*er 1&! "#. $r. San0a% Sinha also stated that at the time of his 0oining! the
2ealer and +und $anagers (ere operating from the same room and there (as no permanent
3EF during the period AprilE$a% "#. Su*seCuent to his 0oining the dealer and fund
managers (ere separated. In this regard! proceedings (ere initiated against 2BS 3hola for
the alleged failure to exercise due diligence and care *% not ta/ing adeCuate measures to
ensure nonElea/age of information pertaining to its trading strateg% to ,padh%a% *rothers.
-he said proceedings (ere consented *% SEBI vide order dated 2ecem*er 1;! "1 upon
pa%ment of settlement charges of `1 la/h.

#.; -hough there have *een no calls exchanged (ith ..:.,padh%a% from the mo*ile of the
4oticee during trading hours on the da%s (hen the alleged front running too/ place! the
pattern of trades clearl% indicate that the trades executed (ere on the *asis of information
given to 9.:.,padh%a% (ho in turn indulged in front running.

#.< -he 4oticee contended that he is not lia*le for front running as alleged in the S34. In respect
of his contention that no lia*ilit% can *e fastened on him for front running as he is not an
intermediar%! the 4oticee has relied on the SA- decisions vi=.! +r. ,eepa$ 'atel and -u*it
.ar$ere matters. It is pertinent to mention that SEBI had preferred appeals *efore the
BonH*le Supreme 3ourt challenging the said 0udgments and the matter is still -ub-*udice.

#.# In this regard! it is noted that the BonH*le SA- has su*seCuentl% ruled in the matter of
V'5,* S,*$=* *!" *!(&,#$ >). SEBI ? (SA- Appeal 4o. "< of "1& dated Septem*er >!
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"1&) as follo(sG / A minute perusal of the *udgment of ,ipa$ 'atel ma$es it eident that act of front
running is always considered in*urious be it an intermediary or any other person for that reasons. )e would
li$e to gie a liberal interpretation to the concept of front running and would hold that any person, who is
connected with the capital mar$et, and indulges in front running is guilty of a fraudulent mar$et practice as
such liable to be punished as per law by the respondent. 0he definition of front running, therefore, cannot be
put in a straight-*ac$et formula./ -herefore! it *ecomes clear that the general provisions of the
)+,-) .egulations (ould *e applica*le in respect of the violations committed *% the
4oticee.

#.' -he S34 alleges collusion of three persons vi=.! the 4oticee! $r. Anant 2eep :atare (fund
manager) and $r. $a%ur @oshi (2ealer) (ith ,padh%a% *rothers in the alleged front running.
It is noted that apart from the telephonic records! details (hich have *een discussed in the
preceding paragraphs! no evidence has *een *rought on record to prove (ho had passed on
the information of trading strateg% of 2BS 3hola to ,padh%a% *rothers.

#.1 It is noted from the statement dated $arch 11! "1 of $r. San0a% Sinha! 3EF of 2BS
3hola! that during the impugned period the 2ealer and +und $anagers (ere operating from
the same room and there (as no permanent 3EF during the period AprilE$a% "# to
oversee the execution of trades. Su*seCuent to his 0oining the dealer and fund managers (ere
separated. -his clearl% indicates that the 4oticee! $r. Anant 2eep :atare(fund manager) and
$r. $a%ur @oshi(2ealer) (ere priv% to the information of trading strateg% of 2BS 3hola.
Bence! it is imperative to prove (ho amongst the three persons had actuall% passed on the
information to ,padh%a% *rothers.

#.11 It is pertinent to mention that the crux of the matter pertains to receipt of information
(trading strateg% of 2BS 3hola) *% ..:. ,padh%a% and its on(ard transmission to 9.:.
,padh%a% (ho in turn executed the trades on the *asis of the said information. In this
context! it is noted that though proceedings under Sections 11 and 11B of the SEBI Act
(ere initiated against ..:. ,padh%a% and 9.:. ,padh%a%! the said proceedings (ere
consented *% SEBI vide order dated April 1&! "1" upon pa%ment of settlement charges of
`1 la/h each. Similarl%! the ad0udication proceedings initiated against 2BS 3hola for the
alleged violation of SEBI Act read (ith .egulations "A(")! (&) and ;# (h) of the SEBI
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($utual +und).egulations!1''; (ere also consented *% SEBI vide order dated 2ecem*er
1;! "1 upon pa%ment of settlement charges of ` 1 la/h.

#.1" -he S34 provides the details of calls made *% the 4oticee. Bo(ever! calls (ere seen on
da%s *efore the impugned transactions too/ place as (ell as on su*seCuent da%s. Fn the
*asis of the evidence availa*le on record! it is difficult to arrive at a finding that it (as the
4oticee (ho made the calls from the common telephone. -hough there have *een
instances of phone calls from the mo*ile phone of the 4oticee! in the facts and
circumstances of the case! in respect of serious charge of front running! the evidence availa*le
is not sufficient enough to indicate that it (as the 4oticee (ho passed on the information
to ,padh%a% *rothers. -his is more so given the fact that proceedings initiated against 2BS
3hola and ,padh%a% *rothers (ere settled upon pa%ment of charges of `1 la/h each.
-a/ing into consideration of the facts and circumstances narrated a*ove! I am inclined to
give the *enefit of the dou*t to the 4oticee in respect of the alleged violations.

O$"#$

'. In vie( of the foregoing! I! therefore! in exercise of the po(ers conferred upon me *% virtue
of section 1' read (ith section 11 and 11B of the SEBI Act and regulation 11(1) of the
)+,-) .egulations! "&! issue a strong (arning to the 4oticee! to *e careful and cautious
as regards his conduct. An% future lapse shall invite stringent action.

1. -he Sho( 3ause 4otice dated August ;! "1 is disposed of accordingl%.





41*%#: M-=5*' S. RAMAN
D*&#: S#8&#=5#$ 24, 2014 WHOE TIME MEMBER
SECURITIES AND EXCHANGE BOARD OF INDIA

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