ADF Foods : General updates

BEFORE THE ADJUDICATING OFFICER

SECURITIES AND EXCHANGE BOARD OF INDIA

[ADJUDICATION ORDER No.: Order/SBM/AK/2022-23/17255-17260]

UNDER SECTION 15-I OF SECURITIES AND EXCHANGE BOARD OF INDIA ACT, 1992 READ WITH RULE 5 OF SEBI (PROCEDURE FOR HOLDING INQUIRY AND IMPOSING PENALTIES) RULES, 1995.

IN RESPECT OF:

FACTS OF THE CASE

1. Securities and Exchange Board of India (hereinafter referred to as 'SEBI'), based on an alert generated by NSE, had conducted investigation into the trading/dealings in the scrip of ADF Foods Limited (hereinafter referred to as ('ADF'/ 'Company'), during the period May 21, 2016 to July 27, 2016 (hereinafter referred to as 'Investigation period'). Pursuant to the investigation, the following major developments /observations pertaining to the Company are relevant to note:

1. A meeting dated May 21, 2016 was held amongst Mr. Girish Nadkarni (representative of Motilal Oswal Investment Advisors Pvt. Ltd. (hereinafter referred to as ('Motilal Oswal')), Mr. Bhavesh R. Thakkar (Executive Director of the company) and Mishal A. Thakkar (Senior Manager of the company) to discuss the idea to undertake buyback of shares by the company

or payment of dividend or a combination thereof. The proposal with respect to buyback was first mooted in the aforesaid meeting.

1. On May 22, 2016, Motilal Oswal gave a presentation on the buyback of shares, highlighting the pros and cons of buyback of shares, as a merchant banker.
2. On May 23, 2016, the Company Secretary of the Company was communicated to initiate preparations for the proposal to undertake buyback of shares. The stock exchanges were intimated that the board of directors of the Company will consider the proposals for announcement of dividend or buyback of shares, or a combination thereof, in its meeting to be held on May 27, 2016. The agenda papers pertaining to the proposals for announcement of dividend or buyback of shares, or a combination thereof, to be discussed at the board meeting to be held on May 27, 2016 were sent to the directors.
3. On May 27, 2016, The board of directors of the Company deferred the decision on proposals for announcement of dividend or buyback of shares till next board meeting citing requirement of more time.
4. On July 14, 2016, in preparation for the meeting of the board of directors of ADF on July 27, 2016, Motilal Oswal was approached in order to reconsider the proposed buyback of shares.
5. On July 15, 2016, Motilal Oswal gave financial details of buyback including the pricing of the issue to the Company Secretary
6. On July 19, 2016, the agenda papers pertaining to the proposals for announcement of dividend or buyback of shares, or a combination thereof, to be discussed at the board meeting to be held on July 27, 2016 were sent to the directors.
7. On July 21, 2016, the stock exchanges were intimated that the board of directors of the Company will consider proposals for announcement of dividend or buyback of shares, or a combination thereof, in its meeting to be held on July 27, 2016.
8. On July 27, 2016, ADF informed the stock exchanges that the Board of Directors of the Company at its meeting held on July 27, 2016 had approved a buyback of 14,40,000 equity shares at a price not exceeding INR 125 per equity share for an aggregate amount not exceeding INR 18 crore and in view of the same, the Board did not declare interim dividend on the equity shares of the Company.

The buyback of shares is a price sensitive information (UPSI) within the meaning of Regulation 2 (1) (n) (iii) of the SEBI ( Prohibition of Insider Trading) Regulations, 1992 ( hereinafter referred

to as 'PIT Regulations') as the buyback would result in change in capital structure of the company. In this regard, it is observed that the information relating to buyback of shares of ADF was first discussed on May 21, 2016, and the same finally culminated into a decision of buyback of shares in the scrip of ADF on July 27, 2016 post the Board of Directors meeting of the company on July 27, 2016. It is noted that the said UPSI on the buyback of shares was disseminated to the stock exchanges pursuant to the board meeting of ADF held on July 27, 2016. Therefore, the aforesaid buyback of shares remained unpublished and price sensitive ("UPSI") as per Regulation 2 (1) (n) (iii) of the PIT Regulations, for the period of May 21, 2016 to July 27, 2016, which is also reckoned as the "UPSI period" in the context of the present proceeding.

2. It was observed that certain persons/entities had dealt/traded in the scrip of ADF during the aforementioned UPSI period. Based on the above, and on the basis of trading/dealings in the scrip of ADF and their inter se relations, it was alleged that Ms. Pallavi Navinchandra Mehta (hereinafter referred to as 'Noticee No. 1'/'Ms. Pallavi'), Ms. Shefali Bhupendra Mehta (hereinafter referred to as 'Noticee No. 2'/'Ms. Shefali'), Mr. Navin Mansukhlal Mehta (hereinafter referred to as 'Noticee No. 3'/'Mr. Navin'), Mr. Abhishek Mehta (hereinafter referred to as 'Noticee No. 4'/'Mr. Abhishek'), Ms. Priyanka Thakkar (hereinafter referred to as 'Noticee No. 5'/'Ms. Priyanka') and Mr. Bhavesh R Thakkar (hereinafter referred to as 'Noticee No. 6'/'Mr. Bhavesh') have traded/dealt in the scrip of ADF on the basis of UPSI during the period May 21, 2016 (starting date of UPSI period) to July 27, 2016 (end date of UPSI period). Therefore, was is alleged that Noticee No. 1 to 6, (hereinafter collectively referred to as "Noticees") have acted in violation of provisions of the Securities and Exchange Board of India Act, 1992 (hereinafter referred to as the "SEBI Act") and also the provisions of the PIT Regulations during the abovementioned Investigation period/UPSI period. The alleged specific violations of the Noticees are detailed in the table below:

Table 1: Alleged specific violations and respective penalty provisions.

3. Details of the allegations against the Noticees as observed during the Investigation Period are as follows:

1. Noticee No. 6 who was the Executive Director of ADF was alleged to be an insider, who possessed UPSI relating to buyback of equity shares of ADF. Noticee No.1 and Noticee No. 2 are connected to Noticee No. 6 as mother-in-law and sister-in-law respectively. Noticee No. 5 is the wife of Noticee No. 6 and Noticee No. 3 is the father-in-law of Noticee No.6. Noticee No. 4 is the son of Noticee No. 2.
2. Based on the above Noticee No. 1 to Noticee No. 5 are alleged to be connected persons and hence, insiders in terms of Regulation 2 (1) (d) (i), 2 (1) (d) (ii) and 2 (1) (f) and 2 (1) (g) of SEBI (PIT) Regulations, 2015.
3. Noticee No.1 and Noticee No. 2, alleged to being insiders, have traded in the shares of ADF during the UPSI period, and hence, have been alleged to have engaged in insider trading.
4. It was alleged that, Noticee No. 6 was providing funds to Noticee No.1 and Noticee No. 2 for trading in the scrip of ADF during the UPSI period and has communicated the UPSI to the connected entities.
5. It was alleged that, the bank account of Noticee No. 5, who is the wife of Noticee No. 6 was used as a conduit for transferring funds used for trading in ADF shares during the UPSI period.
6. It was alleged that, Noticee No. 3, Noticee No. 4 and Noticee No. 6 had placed orders through the account of the suspected entities maintained with the broker Lalkar Securities Pvt. Ltd., in the scrip of ADF Foods Limited during the UPSI period.
7. It was alleged that, Noticee No 1 and Noticee No. 2, while trading in the scrip of ADF during the UPSI

period made unlawful gains of approx. INR `37.86 lakhs and INR `39.37 lakhs, respectively.

The above allegations/connections / details of their trading/dealings etc are discussed elaborately in the following paragraphs.

4. Based on the above, it was alleged that the Noticees have violated the abovementioned provisions of the SEBI Act and PIT Regulations, during the Investigation period. In view of the same, adjudication proceedings have been initiated against the Noticees under the provisions of section 15G of the SEBI Act.