When 'Frequent Communication' Isn't Enough: SEBI Exonerates a Noticee in the RHI Magnesita Insider Trading Case

Primary source: Adjudication Order No. Order/JS/YK/2026-27/32473 in the matter of insider trading activities in the scrip of RHI Magnesita India Ltd., dated July 7, 2026, published by SEBI's Adjudicating Officer, Mr. Jai Sebastian. Read the full order on sebi.gov.in.

Why this matters

Every enforcement order we have covered on this blog so far has ended in a penalty. This one didn't — and that is exactly why it deserves attention. SEBI's Adjudicating Officer (AO) closed the case against Mr. Raj Kumar Agarwal, promoter of Hi-Tech Chemicals Limited, without imposing any monetary penalty, despite call records, VOIP logs, and a documented trading pattern that on their face looked suspicious. The order is a rare, detailed look at exactly where SEBI itself draws the line on the "frequent communication" test for connected-person status — the same test we discussed in the context of the December 2024 amendment and the Kunal Kashyap SAT ruling. Read together, these cases show that frequent communication cuts both ways: it can establish connected-person status (Kashyap), or it can be explained away by a documented, legitimate business relationship (this case). For compliance officers assessing insider-trading risk in group companies, M&A counterparties, or shared professional advisors, this order is close to a template for how SEBI actually weighs circumstantial evidence.

The fact pattern: two deals, one acquirer, overlapping timelines

RHI Magnesita India Ltd. ("RHI") was simultaneously involved in two separate acquisitions between 2021 and 2023:

• It acquired the refractory business of Hi-Tech Chemicals Limited (an unlisted company where the Noticee was promoter and director) through a Business Transfer Agreement (BTA) dated October 18, 2022, for a cash consideration of Rs. 621 crore — disclosed to the exchanges on October 19, 2022.
• It separately negotiated to acquire 100% of Dalmia OCL Limited (DOCL), a subsidiary of Dalmia Bharat Refractories, through a share-swap arrangement valued at roughly Rs. 1,708 crore. SEBI treated this information as UPSI from August 8, 2022 (when a letter of intent was signed) until it was disclosed to the exchanges on November 19, 2022.

The two deals shared a common thread: the same acquirer, overlapping negotiation windows, and even some of the same legal and financial due-diligence advisors (Khaitan & Co. and Deloitte were engaged on both). SEBI's investigation flagged that the Noticee purchased RHI shares on November 11, 14 and 15, 2022 — inside the DOCL UPSI window — after having sold Tata Steel shares, and despite RHI's quarterly results around that time showing declining profit. The share price rose roughly 8.9% in the trading session after the DOCL deal was announced.

How SEBI built the "connected person" case — and why it didn't hold up

SEBI's case rested on regulation 2(1)(d)(i) of the PIT Regulations, which (post the December 2024 amendment) expressly includes "frequent communication with officers" of a company as a basis for connected-person status, without requiring proof of an employment, fiduciary, or contractual relationship. The evidentiary trail was substantial: call detail records (CDRs) and internet protocol detail records (IPDRs) showed the Noticee was in repeated contact with RHI's managing director, Mr. Parmod Sagar — who was independently established as an "insider" on the DOCL deal by virtue of his position and his access to the deal's non-disclosure agreement and due-diligence timeline. A VOIP call on November 8, 2022 was followed, three days later, by the Noticee's first purchase of RHI shares. Hi-Tech Chemicals had even paid for a chartered flight for senior RHI officials, including Mr. Sagar's Global CEO, to travel from Kolkata to Jamshedpur and then on to Delhi — the same Delhi leg that, SEBI implied, coincided with DOCL-related activity.

The AO examined each strand and found it explainable on its own terms. The BTA for the Hi-Tech acquisition was signed on October 18, 2022, but was not fully implemented until January 31, 2023 — the intervening period required continuous senior-level coordination between the Noticee and Mr. Sagar for conditions precedent, regulatory approvals (including transfer of leasehold rights from the Jharkhand Industrial Area Development Authority), and handover formalities. The Noticee produced documentary evidence — signed approvals, transition agreements, correspondence — showing that this coordination, not the DOCL deal, was the subject of the disputed calls and the chartered flight. Critically, SEBI had no recording, transcript, email, or message establishing what was actually discussed on any of the calls; the AO refused to infer UPSI transmission from the mere fact and timing of contact. On the common-advisor point, the AO noted that the investigation report did not even establish that the same individual professionals (as opposed to the same firms) worked both mandates, and that professional confidentiality obligations meant shared firms could not, without more, imply shared information.

What SEBI intends by this standard

The order is unusually explicit about the test it is applying: even on adjudication's civil standard of "preponderance of probabilities" (lower than the criminal standard), circumstantial evidence must form a coherent chain, not a series of independently plausible but disconnected coincidences. The AO cited the original Sodhi Committee Report's language that connected-person status is "always and necessarily a mixed question of fact and law," to be assessed by whether a reasonable person would infer UPSI access from the facts. The 2024 amendment's "frequent communication" language was meant to widen SEBI's net beyond formal designations (director, employee, fiduciary) to capture informal information leakage — but this order shows SEBI's own adjudicating officers will not stretch that language to convict on frequency alone, when there is a fully documented, legitimate, and independently disclosed alternative transaction driving the same communications.

Practical takeaway for compliance officers

This case is a useful diagnostic checklist in reverse. If your company (or a group entity) is running two concurrent M&A processes with any overlap in personnel, advisors, or counterparties, you should:

• Maintain a contemporaneous record of what each interaction between the deal teams was actually about — minutes, agendas, or even brief internal notes after calls with counterparties who are also active on a separate, unrelated transaction.
• Treat shared advisory firms across simultaneous deals as a red flag worth documenting information-barrier compliance for, even though the AO here declined to presume knowledge-sharing from firm overlap alone.
• Recognise that SEBI's surveillance increasingly pulls CDRs, IPDRs (including VOIP calls over apps), and even ancillary expense records (the chartered flight payment) into insider-trading investigations. A person's ordinary business communications with a counterparty can easily be misread as connected-person conduct unless the underlying commercial rationale is documented as it happens, not reconstructed after a show-cause notice arrives.
• If you sit on the other side — assessing whether someone should be treated as a connected person for pre-clearance or trading-window purposes — don't treat "they talk to our officers a lot" as dispositive either way. The amended definition asks whether that communication realistically permits UPSI access, not merely whether it exists.

Bottom line for your compliance checklist

• Frequent communication with a company's officers is a basis for connected-person status under regulation 2(1)(d)(i), but SEBI's own adjudicating officers require it to be shown that the communication could plausibly carry UPSI — not just that it happened.
• A parallel, independently disclosed transaction (like the Hi-Tech BTA here) can supply a complete, documented explanation that defeats an inference of UPSI access from CDR/IPDR evidence alone.
• Shared legal and financial advisors across concurrent deals are not, by themselves, proof of information leakage — but they invite scrutiny, so your information-barrier documentation should anticipate it.
• Build a habit of contemporaneous documentation (call purposes, meeting agendas, expense justifications) for any dealings your designated persons have with counterparties who are simultaneously active on other price-sensitive transactions.
• Trading patterns that look opportunistic (selling one stock to fund purchases in another, buying despite weak results) will draw scrutiny even where the underlying connected-person allegation ultimately fails — be prepared to explain the commercial logic of DP trades independently of any UPSI question.

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