This article has been written by Jayant Saxena, pursuing an Executive Certificate Course in Capital Markets, Securities laws, Insider trading, and SEBI litigation from LawSikho.


The Securities and Exchange Board of India (“SEBI”) Act, 1992 and the SEBI (Prohibition of Insider Trading) (“PIT”) Regulations, 1992, were the first laws addressing insider trading. The idea of prohibiting insider trading of securities was included into Section 195 of the Companies Act, 2013 (“The Act”) by virtue of its enactment. In order to reform the current capital market regulatory framework, SEBI replaced the 1992 regulations with the SEBI PIT Regulations, 2015. Regulation 3 and 4 under PIT Regulations, 2015, deals with the communication of Unpublished Price Sensitive Information (“UPSI”) and trading when in possession of UPSI, respectively. Any information, relating to a company or its securities, such as financial results, dividends, change in capital structure, merger, de-merger, acquisitions, delisting etc., that is not generally available, which upon becoming generally available, is likely to materially affect the price of the securities is considered as UPSI. 

Penalty specified under SEBI Act, 1992 (Section 15G) and Companies Act, 2013, (Section 195) shall not be less than Rs 10 lakhs, may extend to Rs 25 crores or three times the amount of profits made out of insider trading, whichever is higher.

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This article will discuss few of the important cases in respect to Insider Trading:

Rakesh Agrawal vs. SEBI

In 1996, Rakesh Agrawal, managing director of ABS Industries Ltd., signed a deal with Bayer AG, a German business, which agreed to purchase 51% of ABS Industries Ltd.’s shares. Following UPSI’s announcement of the acquisition, the accused sold a significant portion of his ABS Industries ownership, which he owned through his brother-in-law, Mr. I. P. Kedia. Considering Mr. Kedia to be a well-connected individual, SEBI held that Mr. Rakesh Agrawal was guilty of insider trading and directed him to deposit Rs. 34 lakhs with Investor Protection Funds of Stock Exchange, Mumbai and NSE (in equal proportion i.e. Rs.17 lakhs in each exchange) to pay any investor who may make a claim afterwards.

On appeal to the Securities Appellate Tribunal (SAT), it was concluded that even if Mr. Agrawal had traded securities while in possession of UPSI, he was not guilty of insider trading because his actions were in the best interests of the company (as Bayer AG was not willing to acquire the company unless it could obtain a minimum of 51% of the shares) and there was no intention to make a profit.

Further, SAT decided that in order to penalise an insider for violating the Regulations, it must be proven that the insider benefited unfairly from the trade. The tribunal also rejected SEBI’s argument that insider trading jurisprudence is founded on the concept of ‘disclose or abstain’, and that an insider in possession of UPSI cannot trade in a company’s stocks until he reveals the UPSI. After revisiting the entire jurisprudence of insider trading on requirement of Mens Rea under Indian legal system, the tribunal held that: “Taking into consideration the very objective of the SEBI Regulations prohibiting the insider trading, the intention/motive of the insider has to be taken cognizance of. It is true that the regulation does not specifically bring in mens rea as an ingredient of insider trading. But that does not mean that the motive need be ignored.”

Hindustan Lever Limited vs. SEBI

Hindustan Lever Ltd. (“HLL”) bought 8 lakh shares of Brook Bond Lipton India Ltd. (“BBLIL”) from Public Investment Institution, Unit Trust of India (“UTI”) two weeks prior to the public announcement of the merger of two companies, i.e., HLL and BBLIL. SEBI, suspecting insider trading, issued a Show Cause Notice (“SCN”) to the Chairman, all Executive Directors, the Company Secretary and the then Chairman of HLL.

London-based Unilever was the parent company of HLL and BBLIL, and were operating under the same management. SEBI determined that HLL and its directors were insiders because they had prior knowledge of the merger. SEBI further determined that HLL was in the possession of UPSI as mentioned under Section 2(k) of the 1992 Regulations, which included any information regarding amalgamation/mergers/takeovers that “is not widely known or published by such company for general information, but which if published or known, is likely to substantially impact the price of securities of that company in the market”. 

Observations made by SAT

The issue before SAT was whether HLL was an insider and the information held by the HLL constituted UPSI. The SAT concurred with the SEBI order that the information accessible to HLL in regard to the merger went beyond self-generated information, i.e., information derived from the company’s own decision-making. In addition, SAT stated that the presence of directors who were common to both HLL and BBLIL, as well as a common parent company in Unilever, indicated that they (i.e., HLL and BBLIL) were effectively managed together. As a result, HLL could be classified as an insider under the 1992 Regulations, and it was reasonable to assume that HLL was privy to the BBLIL board’s decision-making on the merger issue.

SAT observed that even in the merger of two healthy companies, there are synergistic possibilities that might lead to price sensitivity for either company, on the subject of whether the information shared with HLL constituted UPSI. As a result, SAT concurred with SEBI’s judgment that merger information was price sensitive (albeit not “unpublished”).

The outcome of the decision

This decision of the SAT led to an amendment in the definition of “unpublished” under Section 2(k) which stated, “unpublished” means information which is not published by the company or its agents and is not specific in nature.” Explanation — Speculative reports in print or electronic media shall not be considered as published information”. 

By the same Amendment, SEBI also introduced a new provision, Section 2(ha) which defined “price sensitive information” to include any information relating to an amalgamation, merger or takeover as deemed price sensitive information, regardless of whether such information actually has any affect the price of the securities in the market. However, the amendments did not definitively and expressly define “generally available information” and then 2015 regulations finally came out defining what constitutes UPSI by stating “generally available information” under Section 2(1)(e) which stated, “generally available information” means information that is accessible to the public on a non-discriminatory basis;”.

WhatsApp Leak Case

This case involved Shruti Vora in the Institutional Sales Department of Antique Stock Broking Ltd., circulating the price sensitive information of companies like Wipro, Ambuja Cement, Mindtree, Bajaj Auto etc., through several WhatsApp groups. SEBI conducted a preliminary investigation and directed search and seizure operations for 26 entities of the Market Chatter WhatsApp Group, confiscating around 190 devices, documents, and other items. Furthermore, SEBI fined Shruti Vora for sending WhatsApp messages containing UPSI relating to the financial results of the aforementioned companies. Besides, analysts from other brokerages, Parthiv Dalal and Neeraj Kumar Agarwal, were also fined.

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The contentions set forth by the accused was the concept of “Heard on Street” (“HOS”) which is a common practice among traders, market analysts, institutional investors etc. The accused further argued that unsubstantiated information is widely shared and even big journals in the US and news agencies like CNBC, Reuters, Bloomberg and Twitter handles share HOS.

SEBI’s insider trading charges against employees of a few stockbroking firms who had ‘forward(ed) as received’ WhatsApp messages regarding unpublished quarterly reports of leading companies were set aside by SAT, who reasoned that SEBI couldn’t find the origin of the messages and was only pursuing those who forwarded them. SAT relied on the fact that generally available information would not be seen as UPSI, and therefore the person just forwarding it would not be considered an “insider”. However, the information may only be labelled as a UPSI if the person receiving it was aware that it was a UPSI, and SEBI has to establish “preponderance of probability” under the circumstances.

The case of Kishore Biyani

Kishore Biyani is the Founder & CEO of Future Group, (brick-and-mortar retailers) and is also the founder of retail businesses such as Pantaloon Retail and Big Bazaar.

SEBI initiated an investigation in the scrip of Future Retail Limited (“FRL”) to ascertain whether certain persons/entities had traded in the scrips of FRL during the period March 10, 2017 to April 20, 2017 on the basis of UPSI, in contravention of the provisions of the SEBI Act, 1992 and SEBI PIT Regulations, 2015.

What was considered UPSI by SEBI in this case?

Composite Scheme of Arrangement between Future Retail Limited and Bluerock eServices Private Limited and Praxis Home Retail Private Limited and their shareholders in 2017 was the concerned UPSI in this matter. It resulted in the demerger of certain business from Future Retail and was expected to have a positive impact on Future Retail’s share price. Future Corporate Resources and FCRL Employee Welfare Trust purchased FRL shares before the scheme of arrangement was publicly announced, and these trades were carried out by involved entities who were aware of the scheme and thus found to have traded while in possession of UPSI, according to SEBI. As per SEBI’s order these trades were authorized by Kishore Biyani and Anil Biyani.

SEBI barred the noticees from accessing FRL stocks for 2 years and ordered Future Corporate Resources, Kishore Biyani, and Anil Biyani to jointly disgorge a sum of over Rs 17.78 crore, with interest at a rate of 12% per year from April 20, 2020 to the date of actual payment. However, the SAT has stayed the SEBI’s order that had barred Future Group CEO Kishore Biyani from accessing the securities market and directed to deposit Rs 11 crore as an “interim measure”. The case is pending before the SAT.

Infosys and Insider Trading

During an investigation around July 2020 by SEBI, there were few entities (Capital One, Tesora Capital etc.) that were found to be involved in trading in the scrips of Infosys (“INFY”), while in the possession of the UPSI, prior to the public corporate announcement. The scrip was in the Future and Option segment (“F&O Segment”) and is a part of SENSEX and NIFTY. 

What was UPSI in this case? 

INFY’s audited financial statements for the quarter ended June 30, 2020 were released on July 15, 2020 to the BSE and NSE. Basic financial elements of the P&L and Balance Sheet (“BS”), as well as significant financial and operational factors that contributed to different aspects of the P&L and BS, were included in the results which altogether constituted UPSI.

The Partners of Capital One and Tesora Capital traded in the F&O segment of INFY scrips prior to the corporate announcement and soon after the announcement, squared off their positions such that net positions were zero and which allowed them to make an illegal gain of Rs 3.06 crores. Along with these entities, Senior Corporate Counsel and Senior Principal, Corporate Accounting Group of INFY were found to be involved in the said transaction. SEBI order stated that these two employees of INFY were in constant touch with each other during June 29, 2021 till July 15, 2021 which led to passing of UPSI with one another and later with the other partners of Capital One and Tesora Capital, implicated here. 

SEBI in its order has impounded the illegal gains as mentioned above and further restricted the entities from accessing the securities market till further orders. The matter is pending before SEBI.

Closing thoughts

On May 21, SEBI fined Rs 1 crore on Indiabulls Venture former non-executive director, Pia Johnson, and her husband Mehul Johnson for violating PIT Regulations by trading the firm’s scrip using USPI. A month back, ed-tech firm Aptech was fined Rs 1 crore for violating insider trading norms. Insider trading cases seem to be surging up as many large corporations such as SpiceJet, Sun Pharma, Future Group etc., seem to be violating the insider trading laws. SEBI still has to go a long way in strengthening the governance of Insider Trading laws as it lacks behind in many ways such as lack of technological expertise wherein it is very difficult for SEBI to catch the offender. Even if SEBI is successful in identifying the offender, establishing insider trading cases is challenging due to the fact that these accusations are usually dependent on circumstantial evidence, making them tough to prove. SEBI does not have the authority or power to tap phones. 

The challenge with existing Indian laws is that they do not have extraterritorial application. Under the current regulations, no inquiry or punishment may be imposed on any foreign national who has committed the offence of insider trading. There are also instances when, despite the fact that an inquiry has been initiated in India, certain evidence is situated outside the country. Additionally, there is no mechanism for obtaining transnational support or assistance in this regard. 

Another challenge is the possibility of getting a consent order. Insider trading cases that are resolved with modest fines convey the impression that insider trading is not a serious crime. However, this is not the case, hence, it must be avoided to ensure that insider trading is not normalised..



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