RHI Magnesita Order: When 'Frequent Communication' Doesn't Make You a Connected Person

Primary source: Adjudication Order in the matter of insider trading activities in the scrip of RHI Magnesita India Ltd., Order No. Order/JS/YK/2026-27/32473, dated July 7, 2026 (Adjudicating Officer: Jai Sebastian).

Why this matters

Most of the enforcement orders we've covered on this blog end in a penalty. This one doesn't — and that is exactly why it belongs in your reading pile. SEBI's Adjudicating Officer (AO) fully exonerated the noticee, Mr. Raj Kumar Agarwal, on a set of facts that, on paper, looked bad: frequent calls and VOIP contact with a company's managing director during a live UPSI window, a suspiciously well-timed sale of unrelated shares to fund a purchase in the "hot" scrip, and a sale of the entire position the day the deal was announced. If you only read enforcement orders that end in penalties, you get a skewed picture of where SEBI actually draws the line. This order tells you what does not cross it — and it does so using the exact same "frequent communication" connected-person test that the December 2024 amendment introduced and that the Kunal Kashyap SAT ruling upheld. Read together, the two cases mark out both edges of the same legal test.

The facts: two deals, one set of phone records

RHI Magnesita India Ltd. (RHI), listed on BSE and NSE, was simultaneously running two unrelated acquisitions in 2022. First, it was buying the refractory business of an unlisted company, Hi-Tech Chemicals Limited, of which Mr. Agarwal was promoter and director — a slump sale for Rs. 621 crore, signed via a Business Transfer Agreement (BTA) on October 18, 2022 and disclosed to the exchanges the next day. Second, and separately, RHI was negotiating to acquire Dalmia OCL Limited (DOCL), a subsidiary of Dalmia Bharat Refractories, through a share-swap deal worth roughly Rs. 1,708 crore — this one was disclosed on November 19, 2022, with SEBI treating the UPSI period as running from August 8, 2022 (date of the letter of intent) to that disclosure date.

SEBI's investigation found that Mr. Agarwal was in regular telephone, SMS and VOIP contact with RHI's managing director, Mr. Parmod Sagar, throughout the DOCL UPSI window — including a VOIP call on November 8, 2022. The very next day, Mr. Agarwal sold his entire Tata Steel holding; between November 11 and 15 he ploughed the proceeds into RHI shares, buying even as RHI's own results (announced November 9) showed a decline in profit. On November 22 — the first trading day after the DOCL announcement, with the stock up 8.91% — he sold his entire RHI position and, the next day, bought back into Tata Steel. SEBI also pointed to overlapping due-diligence advisors (Khaitan & Co. and Deloitte) common to both the Hi-Tech and DOCL deals, and to the fact that Hi-Tech Chemicals had paid for a chartered flight bringing senior RHI executives to Jamshedpur around the same time.

What SEBI alleged — and why it looked like a strong case

The show-cause notice ran two theories in parallel, as SCNs typically do under the "insider" definition in regulation 2(1)(g): that Mr. Agarwal was a connected person under regulation 2(1)(d)(i) by virtue of his "frequent communication" with Mr. Sagar, and, independently, that he was in actual possession of or had access to the DOCL UPSI under regulation 2(1)(g)(ii), inferred from the cluster of circumstances above.

What SEBI intends: the frequent-communication limb exists precisely to catch relationships that don't fit the older, narrower categories (director, employee, fiduciary) but that functionally put someone in the information loop — the same rationale behind the December 2024 "relative"/connected-person broadening we covered previously. Deploying call detail records (CDR) and internet protocol detail records (IPDR) analysis, as SEBI did here, is now a standard part of that toolkit — the same forensic approach used in the Nucleus Software Exports cousin-tipper case.

Where the case fell apart: nexus to the specific UPSI, not just contact with an insider

The AO accepted, as a starting proposition, that Mr. Sagar himself was indisputably an insider on the DOCL deal — he was on RHI's insider list, was privy to the NDA with DOCL's advisor, and appeared in contemporaneous chat logs about the DOCL site visit. The question was whether contact with Mr. Sagar made Mr. Agarwal a connected person or gave him access to that specific UPSI.

On the connected-person limb, the AO held that regulation 2(1)(d)(i) requires the association to be of a nature that "allows or is reasonably expected to allow" access to UPSI — and that this has to be assessed against the UPSI actually in question, not against the person's connections in the abstract. Mr. Agarwal's contact with Mr. Sagar arose entirely out of the already-disclosed Hi-Tech BTA, which remained under active implementation (asset handover, regulatory approvals, a January 2023 commercial arrangement) well past the October 2022 signing. Mr. Agarwal produced the BTA, email trails, the JIADA leasehold-transfer approval and the January 2023 transition agreement to show exactly what the ongoing conversations were about. With no evidence — no recording, transcript, message or document — that any conversation touched the DOCL transaction, the AO found the "reasonable expectation of access" test unmet: a person who is a connected insider on Deal A does not automatically become a connected person on Deal B just because the same counterparty and some of the same advisors are involved.

On actual possession of UPSI, the AO went through each circumstantial thread individually — overlapping timelines, shared advisory firms, the November 8 VOIP call, the chartered flight, the trading pattern — and found each one consistent with an innocent explanation rooted in the Hi-Tech deal's implementation, with no evidence any of them carried DOCL-specific content. Citing the Balram Garg line of SAT precedent, the order restates a settled proposition worth keeping close at hand: trading pattern alone, however suspicious, cannot substitute for evidence of actual informational access. The SCN needed the surrounding circumstances to add up to a coherent chain pointing to DOCL UPSI specifically; instead, the AO found they pointed just as naturally to the Hi-Tech deal that was already public.

Practical takeaway for compliance officers

This order is a useful counterweight to Kunal Kashyap when you're advising a designated person or connected person who has genuine, frequent, well-documented contact with company officers for a legitimate and already-disclosed reason. The lesson isn't "frequent communication is a weak test" — SAT and SEBI have made clear it isn't. The lesson is that the test bites on the specific UPSI in dispute, and that contemporaneous documentation tying communications to a disclosed, unrelated transaction is a real and often decisive defence. Two practical implications follow. First, if your company runs multiple parallel transactions with overlapping counterparties or advisors, keep transaction-specific insider lists and be deliberate about not conflating them — SEBI clearly is willing to draw inferences from overlap, even if this AO didn't accept them here. Second, if a designated person's trading in a counterparty's stock is ever queried, the burden is practically on them to produce the paper trail (agreements, approvals, correspondence) showing what their contact with the company was actually about — Mr. Agarwal's ability to do so is what carried the day.

Bottom line for your compliance checklist

• "Frequent communication" connected-person status (regulation 2(1)(d)(i)) requires a nexus to the specific UPSI alleged — not merely to any dealings with an insider of the company.
• Being a connected insider on one transaction with a company does not automatically extend that status to a separate, unrelated transaction the same company is running, even with overlapping timelines or advisors.
• CDR/VOIP/IPDR analysis and suspicious trading patterns remain standard SEBI investigative tools, but per settled SAT precedent (Balram Garg), trading pattern alone cannot establish a PIT violation without evidence of the actual content of communications.
• Maintain deal-specific documentation (agreements, regulatory approvals, correspondence) for any ongoing, disclosed transaction — it is the single most effective defence against an inference drawn from contact with counterparty officers during an unrelated UPSI window.
• Advise designated persons who are also principals in separate, disclosed corporate transactions with a listed counterparty to keep their communications and records clearly segregated by transaction.

This post is an interpretation of a publicly available SEBI order for general informational purposes and does not constitute legal advice. Please verify all details against SEBI's official website and consult a qualified professional before relying on this analysis for compliance decisions.