Description
SEBI issues order under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) against 24 entities for alleged front running of orders of certain family trusts, involving violations of PFUTP Regulations.
Summary
SEBI has issued an order under Sections 11(1), 11(4), 11(4A), 11B(1) and 11B(2) read with Sections 15HA and 15I of the SEBI Act, 1992 against 24 entities for alleged front running of orders of certain family trusts (referred to as “Big Client”). The proceedings were initiated through a Show Cause Notice dated January 24, 2024 against 30 noticees. Six noticees (Noticees 1 to 5 and 25) settled their cases through settlement order dated December 19, 2024 under the SEBI (Settlement Proceedings) Regulations, 2018. The remaining 24 noticees are subject to this order for alleged violations of Sections 12A(a), (b), (c) and (e) of SEBI Act and Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(q) of the PFUTP Regulations, 2003.
Key Points
- Total 30 noticees were initially issued Show Cause Notice on January 24, 2024 for alleged front running activities
- 6 noticees (Noticees 1-5 and 25) settled their cases vide settlement order dated December 19, 2024
- 24 noticees remain subject to enforcement proceedings under this order
- Alleged violations include Sections 12A(a), (b), (c) and (e) of SEBI Act, 1992
- Alleged violations of PFUTP Regulations include Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(q)
- The case involves front running of orders placed by certain family trusts (Big Client)
- Order spans 82 pages covering prologue, background, allegations, settlement proceedings, inquiry, technical issues, merits, and conclusions
- Angel One broker was also issued SCN and subsequently settled the matter
Regulatory Framework
Applicable Provisions:
- SEBI Act, 1992: Sections 11(1), 11(4), 11(4A), 11B(1), 11B(2), 12A(a), (b), (c), (e), 15HA and 15I
- PFUTP Regulations, 2003: Regulations 3(a), (b), (c), (d), 4(1) and 4(2)(q)
- SEBI (Settlement Proceedings) Regulations, 2018
- SEBI (Procedure for Holding Inquiry and Imposing Penalties) Rules, 1995 (Adjudication Rules)
Front Running Definition: Front running involves trading in securities based on advance knowledge of pending orders from clients, which constitutes fraudulent and unfair trade practice.
Noticees Subject to Order
The 24 noticees (Noticees 6-30, excluding 25) include individuals and HUFs:
- Shankar Tukaram Vadatkar (PAN: ADKPV7740H)
- Sakshi Shankar Vadatkar (PAN: AMOPM1205F)
- Chaitali Shah (PAN: AMPPS4417G)
- Shah Swapnil Uday (PAN: ADWPS1187P)
- Shah Swapnil Uday HUF (PAN: AASHS9305J)
- Dipesh Mehta (PAN: AALPM9343H)
- Dipesh Mehta HUF (PAN: AAHHD8379J)
- Piyush Mehta (PAN: AALPM9341F)
- Piyush Mehta HUF (PAN: AAPHP0325N)
- Hansraj Randhir Shah HUF (PAN: AAAHH0445Q)
- Hansraj Randhir Shah (PAN: AABPS6700N)
- Randhir Virji Shah HUF (PAN: AAEHR6492K)
- Pinakin Hansraj Shah (PAN: ADKPS5036P)
- Pinakin Hansraj Shah HUF (PAN: AAJHP5561J)
- Punaiben Hansraj Shah (PAN: AAPPS2760Q)
- Raahul Hansraj Shah HUF (PAN: AARHR6643F)
- Raahul Hansraj Shah (PAN: APHPS3286E)
- Soniya Mahesh Bohra (PAN: AZBPB2241C)
- Mahesh Bohra (PAN: AGQPB6811J)
- Shailesh Nayak (PAN: ACNPN2562K)
- Ankesh Mahendra Jain HUF (PAN: AATHA3966J)
- Ankesh Mahendra Jain (PAN: ANKPJ9970B)
- Dr Kumaraswami R Dussa HUF (PAN: AAIHD5369P)
- Dr Kumaraswami R Dussa (PAN: AFUPD6543E)
Technical Issues Addressed
- Delay in issuance of SCN: Arguments regarding timeliness of Show Cause Notice
- SCN compliance with Adjudication Rules: Whether SCN was issued in accordance with procedural requirements
- Impact of settlement order: Effect of December 19, 2024 settlement order on charges against remaining noticees
- Non-provision of Big Client data: Arguments regarding non-provision of order and trade log of the Big Client
- Cross examination: Issues related to cross-examination of witnesses or evidence
Important Dates
- January 24, 2024: Show Cause Notice issued to 30 noticees
- December 19, 2024: Settlement order for Noticees 1-5 and 25 under Settlement Regulations
- October 24, 2025: Order issued for remaining 24 noticees
Compliance Requirements
- Market participants must not engage in front running activities
- Traders must not use advance knowledge of pending orders to execute their own trades
- Compliance with SEBI Act Section 12A prohibiting fraudulent and unfair trade practices
- Adherence to PFUTP Regulations regarding market manipulation and fraudulent trading
- Brokers and intermediaries must ensure proper surveillance and prevent misuse of client order information
Impact Assessment
Market Integrity Impact: This enforcement action demonstrates SEBI’s commitment to maintaining market integrity by prosecuting front running activities. Front running undermines investor confidence and creates unfair advantages for those with access to privileged trading information.
Deterrent Effect: The comprehensive proceedings against 30 entities (including settlement with 6 and continued action against 24) sends a strong message about consequences of fraudulent trading practices.
Investor Protection: The order protects interests of large institutional clients (family trusts in this case) whose trading strategies can be compromised by front running activities.
Regulatory Precedent: This case establishes important precedents regarding:
- Application of settlement proceedings in multi-party front running cases
- Evidentiary requirements for establishing front running
- Technical procedural requirements for enforcement actions
Industry Impact: Market intermediaries, brokers, and traders must strengthen internal controls and surveillance mechanisms to prevent unauthorized use of client order information.
Impact Justification
High-impact enforcement action involving 24 noticees for serious market misconduct (front running), with allegations of violations under SEBI Act Sections 12A and PFUTP Regulations. Previous settlement for 6 noticees indicates ongoing proceedings and systemic concerns.