SEBI sanctions former Kwality Ltd promoter for insider trading violations

SEBI (Securities and Exchange Board of India) has levied substantial penalties against Sanjay Dhingra, the former promoter of Kwality Limited, a major player in the dairy industry (not to be confused with Kwality Wall's).

Dhingra has been directed to forfeit profits exceeding Rs 2.12 crore, allegedly accrued through insider trading activities. This regulatory crackdown and a Rs 5 lakh fine signifies a stringent stance against malpractices in the securities market.

Kwality Ltd is a dairy company that processes and manufactures dairy products such as milk, ghee, butter, milk powder, curd, yoghurt, and cheese, sold under the brand name 'Dairy Best'.

The SEBI order, issued on 14 May, enforces a six-month ban on Dhingra's participation in the securities market, reflecting the gravity of the violations attributed to him. The regulatory action stems from complaints received by SEBI, prompting an in-depth probe into potential price manipulation within Kwality Limited's stock.

During the investigative process, it emerged that Dhingra, who formerly held pivotal roles as both promoter and managing director in the company, had allegedly flouted the Prohibition of Insider Trading (PIT) Regulations. Specifically, SEBI scrutinised trading activities spanning from 1 May 2018 to 31 July 2018, extending its examination period to delve deeper into the matter.

A critical aspect of the findings points to what SEBI terms 'contra trades' executed by Dhingra. These transactions involved the purchase and subsequent sale of significant volumes of Kwality shares within a six-month timeframe, directly contravening SEBI regulations governing insider trading.

Dhingra is accused of trading shares valued at more than Rs 22.14 crore when Kwality had explicitly closed its trading window, citing regulatory restrictions. This alleged breach occurred despite clear directives from the company regarding trading restrictions during the above period.

In response to a show cause notice served by SEBI, Dhingra raised a legal defence, citing ongoing insolvency proceedings initiated against him by the Union Bank of India. He argued that a legal moratorium stemming from these proceedings precluded any action against him, including regulatory sanctions. However, SEBI swiftly dismissed Dhingra's assertions, asserting that the moratorium pertained solely to debt-related matters and did not shield him from regulatory scrutiny for alleged market infractions.

Additionally, Dhingra’s claim of hindered access to company documents due to seizure by the insolvency resolution professional was refuted by SEBI, which pointed to the personal nature of the proceedings and the lack of specific evidence supporting Dhingra’s contentions. Consequently, SEBI found no merit in Dhingra’s contentions, reinforcing its decision to penalise him for insider trading violations.