The Securities and Exchange Board of India (SEBI) has closed insider trading proceedings against Raj Kumar Agarwal, concluding that a series of suspicious circumstances identified during its investigation were insufficient to establish that he possessed unpublished price sensitive information (UPSI) relating to RHI Magnesita India's acquisition of Dalmia OCL.
The regulator disposed of the adjudication proceedings without imposing any monetary penalty. The case centred on RHI Magnesita's proposed acquisition of Dalmia OCL through a share-swap transaction valued at approximately Rs. 1,708 crore, announced on Nov. 19, 2022.
SEBI alleged that Agarwal traded in RHI shares while in possession of UPSI relating to the transaction. According to the show-cause notice, he purchased 1.45 lakh shares worth Rs. 8.62 crore between Nov. 11 and Nov. 15, 2022 and sold them shortly after the announcement, allegedly making unlawful gains of around Rs. 1.59 crore.
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The regulator's case rested largely on circumstantial evidence rather than direct proof of communication of unpublished information.
One of the central allegations was that Agarwal, promoter of Hi-Tech Chemicals Ltd., remained in regular contact with RHI Managing Director Parmod Sagar during the UPSI period. Investigators pointed to phone calls, SMS exchanges and Voice over Internet Protocol (VOIP) communications between the two.
SEBI also noted that RHI had acquired Hi-Tech Chemicals' refractory business for Rs. 621 crore and that the two sides continued to interact after the transaction was signed.
However, the adjudicating officer found that those communications had a credible commercial explanation. Documents submitted during the proceedings showed that the Hi-Tech acquisition continued to require implementation work, including regulatory approvals, transition arrangements and operational handover.
The order noted there was no evidence of any family relationship, personal association, financial dealing or other independent nexus between Agarwal and Sagar outside that business transaction. Consequently, communication by itself was deemed insufficient to establish that Agarwal was a "connected person" under insider trading regulations.
SEBI also relied heavily on a Nov. 8, 2022 VOIP call between Agarwal and Sagar. Investigators argued the call coincided with arrangements for a visit by senior RHI executives and their subsequent travel to Delhi, where discussions relating to the Dalmia OCL transaction were underway. The regulator inferred that information about the deal may have been conveyed during that conversation.
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The order rejected that conclusion, emphasizing that there was no recording, transcript, email, message or witness testimony showing what was actually discussed during the call. Instead, the surrounding evidence supported Agarwal's explanation that the conversation related to logistical arrangements for RHI executives visiting Jamshedpur in connection with the Hi-Tech transaction. The adjudicating officer said accepting SEBI's theory would require "multiple assumptions" unsupported by evidence.
Another circumstance relied upon by investigators was Agarwal's trading pattern. He sold Tata Steel shares on Nov. 9 and Nov. 11, raising funds that were subsequently deployed into RHI stock. SEBI argued the timing of those transactions, particularly after the Nov. 8 VOIP call, strengthened the insider trading case.
The adjudicating officer disagreed. The order noted that RHI's share price had corrected significantly after the public announcement of the Hi-Tech acquisition and reached levels where Agarwal claimed he had intended to invest.
Given his decades of experience in the refractory industry and his familiarity with the business RHI had acquired, the officer found it plausible that he developed a favourable view of RHI's prospects based on publicly available information. The order also observed that somebody acting solely on UPSI would ordinarily be expected to purchase shares immediately rather than wait several trading sessions.
SEBI had additionally argued that Agarwal purchased shares despite RHI reporting lower quarterly profits on Nov. 9, 2022, which investigators viewed as inconsistent with normal investment behaviour. The adjudicating officer, however, held that investment decisions can be influenced by long-term prospects, industry outlook and valuation factors, and that the quarterly earnings alone were not determinative of insider trading.
Another factor that weighed heavily in the final order was Agarwal's conduct after the Dalmia OCL acquisition was publicly announced. Although the market reacted positively and RHI shares continued rising after the announcement, Agarwal sold his entire holding on Nov. 22, 2022. The officer said this behaviour appeared inconsistent with what would normally be expected from someone seeking to maximise gains from advance knowledge of a value-enhancing corporate transaction.
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Ultimately, SEBI's adjudicating officer held that while insider trading can be proved through circumstantial evidence, the circumstances must form a complete and credible chain leading to a reasonable and irresistible inference that UPSI was possessed or accessed.
In this case, the order found that the chain was incomplete. There was no direct evidence showing communication of unpublished information, and the trading pattern by itself could not fill that evidentiary gap. The allegation that Agarwal traded while in possession of UPSI therefore remained unsubstantiated, leading SEBI to close the case without penalty.
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