Kwality's Promoter and Ex-MD Sanjay Dhingra Asked To Disgorge Rs2.12 Crore Profit, Pay Rs5 Lakh Penalty for Contra Trades
Moneylife Digital Team 15 May 2024
Coming down heavily on Sanjay Dhingra, promoter, and former managing director (MD) of dairy company Kwality Ltd, for executing contra trade (opposite transactions) and trading during the trading window closure period, the Securities and Exchange Board of India (SEBI) asked him to disgorge Rs2.12 crore profit earned by him and pay a penalty of Rs5 lakh. SEBI also barred him from markets for six months.
In an order, G Ramar, chief general manager (CGM) of SEBI says, "There is no doubt in my mind to hold that Mr Dhingra, being a designated person of the Company, had executed contra trades in the scrip of Kwality and in the process made a profit of Rs2,12,16,943.52 which was not disgorged and remitted to SEBI. It is also clearly established that Mr Dhingra traded from 13 June to 3 July 2018, when the trading window was closed."
After receiving complaints alleging price manipulation in Kwality's scrip, SEBI investigated the matter. It found that Mr Dhingra, who was a single promoter, MD and designated person of the company, executed contra trades and also traded during the window closure period.
On examination, the market regulator observed that during the investigation period (IP), Mr Dhingra bought 44,60,225 shares and sold 2,03,30,184 shares of Kwality, which have been alleged to be contra trades (opposite transactions), which are in contravention of clause 10 of schedule B read with regulation 9(1) of SEBI (PIT) regulations.
SEBI also noted that he earned a profit of Rs2,12,16,943.52 out of the alleged contra trades which was not disgorged and remitted to the market regulator.
Further, SEBI observed and alleged that Mr Dhingra executed trades on some of the dates when the trading window was closed and sold 90,68,710 shares amounting to a gross trade value of Rs22.14 crore during this period which contravened clause 4 of schedule B read with regulation 9(1) of the PIT regulations. 
During the hearing, Mr Dhingra contended that Union Bank of India had filed an application for personal insolvency proceedings against him under Section 95 of the Insolvency and Bankruptcy Code (IBC). "Accordingly, the interim moratorium under Section 96 of the IBC is automatically imposed and any legal action or proceedings initiated or pending in respect of any debt is deemed to be stayed. No legal action or proceedings can be initiated or continued against me by any creditor, including any statutory body," he stated. 
However, referring to a judgement by the Supreme Court in Dilip B Jiwrajka vs Union of India case, Mr Ramar, the SEBI CGM says it can be clearly noted that in case of interim moratorium provided under section 96 of IBC, initiation of legal action or proceedings cannon be done against a debt but can be initiated against the debtor. "Therefore, I find no merit in the contention of Mr Dhingra that during the interim moratorium under Section 96 of IBC, no legal action or proceedings can be initiated or continued against the Noticee by any creditor, including any statutory body."
Mr Dhingra also contended that the interim resolution professional (IRP), appointed by the national company law tribunal (NCLT), has seized all documents and hence he is unable to rebut the allegations levelled against him. 
The SEBI CGM noted that the allegations made against Mr Dhingra in the current proceeding are related to his own personal trades done in the scrip of Kwality. "I further note that the documents which have been relied upon to frame charges have been provided as annexures to the show cause notice (SCN). Further, neither in his reply nor during the hearing, he pointed out the list of relevant documents seized by NCLT or pointed out any particular document or information which he could not obtain due to the NCLT proceeding and hence could not defend himself. In view of the above, I find no merit in the aforesaid contention of Mr Dhingra."
SEBI then directed Mr Dhingra to refrain from markets for six months, disgorge Rs2.12 crore with 10%pa (per annum) from 24 July 2018 till realisation, and pay a penalty of Rs5 lakh within 45 days.
In 2020, central bureau of investigation (CBI) registered a case against the Delhi-based private sector dairy company, its ex-promoters Sanjay Dhingra and other executives on a complaint from Bank of India for causing an alleged loss of Rs1,400.62 crore to a consortium of banks led by the lender.
Kwality is undergoing insolvency proceedings since December 2018. The company owes over Rs2,000 crore to financial and operational creditors.
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