Ims campus

Institute of management sciences,

University of Lucknow

Department- Human Resources

Name of assignment- Insider Trading

Name- Vaishnavi Singh

Subject- Business Ethics & corporate governance
Semester-2 Human resource
 1) Why insider trading is not allowed under corporate governance codes
& business ethics codes?
Insider trading refers to the malpractice of using the securities or information, on
account of a person’s status or position for dealing with transactions in share
markets or like, whether it involves monetary gains or not.

The insider is defined in Securities and exchange board of India act 1992, amended
in 2002. An insider trading in securities is not by itself a violation of law, however if
it is done against the fiduciary of the company, it is considered an offence.
Insider trading is an unethical practice, as it breaks the trust of the company, its
stakeholders. The use of information which is not in public domain and not disclosed
to the public is unethical, as gains are made illegally. It shows lack of integrity of an
individual
1. Betrays investor confidence and can potentially bankrupt the company leading to
job cuts & fall in market value

2. Shatters public faith in the company. Insider trading repels potential and eager
investors from investing in the company

3. It can lead to the creation of a massive Non-performing Asset (NPA). Since insider
trading usually involves disclosure and trading of sensitive employee, logistics and
financial information that is not public knowledge, the company may face financial
losses to such an extent that it may not be able to pay back loans it took from a bank.

4. Insider trading is symbolic of corrupt & greedy tendencies, which if allowed to

foster, can hinder a region, state or even the nation, the company’s situated in, from
progressing onto better avenues.

In India, insider trading is dealt with;

1. Securities and Exchange Board of India (SEBI) is responsible for looking into cases
of insider trading. Under relevant sections of the SEBI Act. 1992 & Companies Act,
2013, insider trading is punishable with imprisonment up to 5 years and fine ranging
from 5 lakh to 25 Crore rupees
2. SEBI and Investment Regulatory Development Authority (IRDA) along with RBI
advertise about the dangers of insider trading from time to time via news, print and
social media portals.

The theory of “insider trading “used in business ethics has a wider meaning, which
includes anyone’s capability to make agreements based on not yet publicized
information of the company’s opportunities. Insider trading per se, apart from its
association with fraud or violation of fiduciary duty, involves engaging in financial
investments based on information others do not know about. It is apparent that
such actions should be considered to be ethically immoral since they affect others
unfairly. The fact that some people, or to say, insiders, have information that others
don’t have, therefore, can be at a great disadvantage to the rest of the stakeholders
since they cannot make use of this possibly valuable information. If the other
stakeholders had knowledge of this information, they may have possibly acted in a
different way and enjoyed the same advantage as the insiders.

2) From Indian corporate domain list 5 top Indian trading cases in last 10
years along with unpublished sensitive information (UPSI) details.

Some of the important case laws UPSI are-

S.NO CASE NAME PARTICULARS PENALTY ON

AND AMOUNT
1 Bala Reddy Case In this case a Promoter,
Company had Chairman,
secured work Director, their
orders but the spouse and
same were not relatives (Jointly
disclosed to stock and severally)-
exchange as the Penalty Rs. 40 Cr.
contract was not
yet issued to the
Company and the
Company was only
found to be the
lowest price
 bidder. Company
contended that it
cannot be a UPSI.
2 V.K. Kaul case Mr. Kaul was a ID- Rs 50 lakhs
non-executive Wife of ID- Rs10
independent lakhs.
director of
Ranbaxy. Ranbaxy
was holding
company of Rexcel
and Solus. Rexcel
and Solus has a
partnership firm
named Solrex.
Hence, indirectly
Ranbaxy was also
the parent
company of Solrex.
Here, group
company acquiring
some stake in
another Listed
company.
3 NDTV Case Tax demand of Rs. NDTV- Rs. 1.75
450 crores which crores Compliance
was material as officer- Rs. 3 lakhs
compared to net for not promptly
worth of NDTV. informing UPSI.
4 Indiabulls In this case, the Pia Johson (NED of
Ventures Ltd. executive director IVL) and mehul
of Indiabulls was Johnson (Spouse)-
accused of making Rs 87,21,918.55
Rs. 87 lakhs (69,09,237.50+
unlawfully by interest of
trading in 18,12,681.05)
Indiabulls when
they had access to
 unpublished
secret information
of sale of land and
property privately
which is the
subsidiary of
Indiabulls venture
limited. According
to the regulator,
the executive
director of the
Indiabulls venture
limited was in the
management
committee of the
Indiabulls,
therefore she was
an insider and her
husband too was
an insider. These
unlawful gains
were made in the
year from 2017-
19.
5 P.C. Jewelers Case Corporate Shivani Gupta,
announcement (of Sachin Gupta, Amit
buyback) and Garg (relative of
subsequent Chairman and MD
developments. of PC Jewelers)
SEBI noted that and group co-
late Padam Chand impounding order
and Balram Garg of Rs 8.3 crore
communicated approx..
UPSI (Unpublished
Price Sensitive
Information)
about the proposal
for buyback of
equity shares and
its subsequent
withdrawal to
Shivani Gupta,
Sachin Gupta, Amit
Garg and QDPL.