SEBI Imposes Rs 10 lakh penalty in insider trading case involving HDFC Limited and HDFC Bank

The Securities and Exchange Board of India (Sebi) has passed an order on Tuesday, in an insider trading case related to the landmark merger of HDFC Limited and HDFC Bank Limited. In its adjudication order, Sebi imposed a penalty of Rs 10 lakh on the Rupesh Satish Dalal HUF. Sebi investigated trades conducted between November 2021 and April 2022, following a suspicious trading report submitted by the NSE regarding shares of HDFC Limited and HDFC Bank.

The merger between HDFC Bank and HDFC Limited was announced on April 4, 2022, on the exchanges, leading to a 9-10 percent rise in the share prices of both entities. Sebi’s investigation revealed that the trades were strategically timed and concentrated in stocks directly affected by the merger news. Sebi emphasized that the valuation and structural details of the merger were material, price-sensitive information and had been misused.

SEBI’s investigation found that a former Deloitte India employee was a friend of the son of Rupesh Satish Dalal and suspected that unpublished price-sensitive information (UPSI) was sourced through this connection.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 Limited and HDFC Limited. Sebi also observed that, aside from HDFC and HDFC Bank, the HUF had only traded in Infosys contracts during the investigation period.

The Sebi investigation report stated, “The Noticee had bought multiple call option contracts of HDFC Ltd. and HDFC Bank Ltd. prior to the announcement of the merger/amalgamation and sold the said call options post-announcement. From the aforementioned tables, it was observed that the Noticee earned a profit of Rs 5.67 lakh in HDFC and Rs 2.52 lakh in HDFC Bank.”